<PAGE> 1
SCHEDULE 14C
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[ ] Preliminary Information Statement [ ] Confidential, for Use of
the Commission Only (as
permitted by Rule
14c-5(d)(2))
[X] Definitive Information Statement
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
- --------------------------------------------------------------------------------
(Name of Registrants as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14c-6(5)(g) and
0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, par value $0.01 per share, of Seven-Up/RC Bottling Company of Southern
California, Inc. ("Shares")
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(2) Aggregate number of securities to which transaction applies: 1,219,513,
being the maximum number of Shares to be acquired by DPB Acquisition Corp. in
the transaction
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: $12.00
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(4) Proposed maximum aggregate value of transactions:
$14,634,156
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(5) Total fee paid:
$2,926.83
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[ ] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$14,400
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(2) Form, Schedule or Registration Statement No.:
Schedule 14D-1
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(3) Filing Party:
Dr Pepper Bottling Company of Texas and DPB Acquisition Corp.
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(4) Date Filed:
March 7, 1997
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SEVEN-UP/RC BOTTLING COMPANY OF
SOUTHERN CALIFORNIA, INC.
3220 EAST 26TH STREET
VERNON, CALIFORNIA
---------------------
INFORMATION STATEMENT
---------------------
MAY 1, 1997
---------------------
This Information Statement is furnished by the Board of Directors
(hereinafter the "Board" or the "Board of Directors") of Seven-Up/RC Bottling
Company of Southern California, Inc., a Delaware corporation (the "Company"), to
holders of the outstanding shares of common stock, $.01 par value (the
"Shares"), of the Company, in connection with an Agreement and Plan of Merger,
dated as of February 28, 1997, by and among the Company, Dr Pepper Bottling
Company of Texas, a Texas corporation ("Parent"), and DPB Acquisition Corp., a
Delaware corporation ("Purchaser") providing for the merger (the "Merger") of
Purchaser with and into the Company (as amended, the "Merger Agreement"). As a
result of the Merger, the Company will become a wholly-owned subsidiary of
Parent and each issued and outstanding Share (other than Shares that are owned
by the Company, Parent, Purchaser, any other subsidiary of Parent, or by
stockholders who have validly perfected their appraisal rights under Delaware
law) will be converted into the right to receive $12.00 in cash (the "Merger
Consideration"). A copy of the Merger Agreement is attached hereto as Annex I.
The Merger is the second step of a two-step transaction pursuant to which
Parent, as the owner of all of the capital stock of Purchaser, will acquire the
entire equity interest in the Company. The first step was a tender offer for the
outstanding Shares at $12.00 per Share net to the seller in cash (the "Offer").
Purchaser acquired 4,071,957 Shares upon the consummation of the Offer on April
4, 1997, representing approximately 77% of the issued and outstanding Shares.
As a result of the consummation of the Offer, the Purchaser owns and has
the right to vote a sufficient number of outstanding Shares to approve and adopt
the Merger Agreement without the affirmative vote of any other holder of Shares,
thereby assuring such approval and adoption. The Purchaser has executed and
delivered to the Company a written consent in lieu of a meeting of stockholders
approving and adopting the Merger Agreement and authorizing the consummation of
the Merger. SUCH WRITTEN CONSENT PROVIDES THAT THE MERGER WILL BECOME EFFECTIVE
NO EARLIER THAN 20 CALENDAR DAYS AFTER THIS INFORMATION STATEMENT IS FIRST
MAILED TO STOCKHOLDERS OF THE COMPANY. THE COMPANY CURRENTLY ANTICIPATES THAT
THE EFFECTIVE DATE OF THE MERGER WILL BE ON OR ABOUT MAY 21, 1997.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. PLEASE DO NOT SEND IN ANY OF YOUR STOCK CERTIFICATES AT THIS TIME.
This Information Statement is first being mailed to stockholders on or
about May 1, 1997.
This information statement is dated May 1, 1997.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary..................................................... 3
General..................................................... 9
Vote Required; Written Consent in Lieu of Meeting........... 9
Procedure for Receipt of Merger Consideration............... 9
Appraisal Rights............................................ 10
The Merger.................................................. 12
The Merger Agreement........................................ 22
Financial Arrangements...................................... 28
Business.................................................... 29
Selected Financial Data..................................... 36
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 38
Certain Projections......................................... 43
Principal Stockholders and Stock Ownership of Management.... 44
Available Information....................................... 45
Index to Financial Statements............................... F-1
Annex I -- Agreement and Plan of Merger and First Amendment
to Agreement and Plan of Merger........................... I-1
Annex II -- Section 262 of the General Corporation Law of
the State of Delaware..................................... II-1
Annex III -- Opinion of Houlihan, Lokey, Howard & Zukin,
Inc....................................................... III-1
</TABLE>
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SUMMARY
The following is a summary of the more detailed information contained in
this Information Statement with respect to the Merger which is discussed herein.
This Summary is not intended to be complete and is qualified in its entirety by
the more detailed information contained elsewhere in this Information Statement,
in the annexes hereto and other documents referred to herein. Terms used but not
defined in this Summary have the meanings ascribed to them elsewhere in this
Information Statement. Cross references in this Summary are to the captions of
sections in the Information Statement.
Stockholders are urged to read this Information Statement and the Annexes
hereto in their entirety.
THE COMPANIES
The Company. The Company is a Delaware corporation with its principal
executive offices located at 3220 East 26th Street, Vernon, California 90023.
The Company is among the largest beverage distributors in the United States and
is one of the largest bottlers of Seven-Up in the United States. The Company
manufactures and distributes a broad range of beverage products in Southern
California, Central California, and in portions of Nevada and New Mexico. The
Company has the exclusive right within its territories to manufacture and/or
distribute Seven-Up (lemon-lime), Royal Crown (cola), A&W (root beer and cream
soda), Sunkist (orange and lemonade), Hawaiian Punch (fruit punch), Schweppes
(ginger-ale and mixers), Evian (imported still water), Perrier (imported mineral
water), Welch's (grape, strawberry and pineapple), and Yoo-Hoo (chocolate
drink). The Company distributes almost all of its products directly to 35,000
retail outlets, including supermarkets, warehouse clubs, convenience stores, and
other retail establishments, that serve a combined population of over 30 million
consumers through the Company's core direct-store-door distribution system.
Purchaser. Purchaser was organized to acquire all the outstanding Shares
pursuant to the Merger Agreement and has not conducted any unrelated activities
since its organization. All of the outstanding capital stock of Purchaser is
owned by Parent. The principal executive offices of Purchaser are located at
2304 Century Center Blvd., Irving, Texas 75062.
Parent. Parent is the largest independent franchise bottler of DR PEPPER
brand products, accounting for approximately 12% of the total volume of such
products, and is one of the largest independent soft drink bottlers (i.e.,
bottlers that have no affiliations with either The Coca-Cola Company or PepsiCo,
Inc.), in the United States. Parent produces, markets and distributes carbonated
soft drinks pursuant to franchise agreements with companies owning the rights to
various soft drink formulae. Principal products are bottled and canned under
franchises from Cadbury Beverages North America, Inc. and its affiliates (DR
PEPPER, SEVEN-UP, CANADA DRY, SUNKIST, A & W, SQUIRT and WELCH'S brand products,
and COUNTRYTIME Lemonade), Triarc Companies and its affiliates (RC brand
products), Big Red, Inc. (BIG RED) and Tetley Tea, Inc. (TETLEY Tea). Parent
also distributes certain other non-carbonated soft drinks, including SNAPPLE and
ARIZONA brand products and the leading bottled water, EVIAN, within defined
territories pursuant to distribution agreements with various companies. Parent's
three major franchise territories are Dallas/Fort Worth, Houston, and Waco,
Texas. Parent's products compete principally in the non-cola segments of the
soft drink market, which represented in the aggregate approximately 43% of the
total soft drink sales volume through supermarkets and grocery stores in
Parent's franchise territories in 1996. Parent is a wholly-owned subsidiary of
Dr Pepper Bottling Holdings, Inc. ("Holdings"). The principal executive offices
of Parent are located at 2304 Century Center Blvd., Irving, Texas 75062.
GENERAL
This Information Statement is being delivered in connection with the merger
of Purchaser into the Company pursuant to the Merger Agreement. As a result of
the Merger, the Company will become a wholly-owned subsidiary of Parent, each
issued and outstanding Share (other than Shares that are owned by the Company,
Parent, Purchaser, any other subsidiary of Parent, or by stockholders who have
validly perfected their appraisal rights under Delaware law) will be converted
into the right to receive the Merger Consideration
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(i.e., $12.00 in cash), and the equity interest of all pre-Merger stockholders
in the Company will be terminated.
The Merger is the second step of a two-step transaction pursuant to which
Parent, as the owner of all the capital stock of Purchaser, will acquire the
entire equity interest in the Company. The first step was the Offer. Purchaser
acquired 4,071,957 Shares at a price of $12.00 per Share upon the consummation
of the Offer on April 4, 1997, representing approximately 77% of the outstanding
Shares.
The consummation of the Offer was subject to several conditions, including
the receipt of the "Requisite Consents". The "Requisite Consents" were defined
in the Merger Agreement to include the consent of the franchisors and
distributors under the Company's franchise and distribution agreements with (i)
Cadbury Beverages North America, Inc. and its affiliates (e.g., SEVEN-UP, A&W,
WELCH'S, SUNKIST, CANADA DRY, SCHWEPPES, SUNNY DELIGHT, and related brand
products), (ii) Triarc Companies and its affiliates (e.g., RC, MISTIC and
related brand products), (iii) Sundor Brands, Inc. (e.g., HAWAIIAN PUNCH and
related brand products), and (iv) Great Brands of Europe, Inc. (EVIAN water).
The terms of such franchise/distribution agreements provide that the consent of
the franchisors/distributors thereunder are required under certain
circumstances, which included the consummation of the Offer. See
"BUSINESS -- Bottling Rights". Such consents were obtained.
Pursuant to the Merger Agreement, and effective upon the consummation of
the Offer, three of the five members of the Board of Directors of the Company
resigned as directors, the size of such Board of Directors was increased to six
members and four persons designated by Parent were appointed as members of such
Board of Directors.
REQUIRED VOTE; WRITTEN CONSENT IN LIEU OF MEETING
Under Delaware law, the affirmative vote of holders of a majority of the
Shares is required to approve and adopt the Merger Agreement and the
transactions contemplated thereby. As a result of the consummation of the Offer,
the Purchaser owns and has a right to vote a sufficient number of Shares of
common stock to cause the Merger to be approved without the concurrence of any
other holder of Shares. The Purchaser has executed and delivered to the Company
a written consent in lieu of a meeting of stockholders approving and adopting
the Merger Agreement and authorizing the consummation of the Merger. Such
written consent provides that the Merger will become effective no earlier than
20 calendar days after this Information Statement is first mailed to
stockholders of the Company.
PROCEDURE FOR RECEIPT OF MERGER CONSIDERATION
A Letter of Transmittal will be sent to all stockholders of the Company
under separate cover. The Letter of Transmittal must be completed and returned
as directed therein along with certificates representing the Shares covered
thereby or the Shares covered thereby must be delivered by book entry transfer.
Checks will be sent to stockholders as soon as practicable after the receipt of
Letters of Transmittal and certificates or Shares, as applicable. Detailed
instructions concerning the procedure for receipt of Merger Consideration are
set forth in the Letter of Transmittal and elsewhere herein. See "PROCEDURE FOR
RECEIPT OF MERGER CONSIDERATION."
APPRAISAL RIGHTS
Under Delaware law, holders of Shares who do not vote to approve the Merger
and who otherwise strictly comply with the applicable requirements of the
General Corporation Law of the State of Delaware may dissent from the Merger and
demand payment in cash from the Company of the fair value of their Shares. See
"THE MERGER -- Appraisal Rights" and Annex II hereto.
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THE MERGER
Background to the Merger. For a description of the events leading to the
approval of the Merger Agreement by the Board of Directors of the Company and of
the other events since such approval, see "THE MERGER -- Background to the
Merger."
Approval of the Board of Directors. On February 28, 1997, the Board of
Directors of the Company unanimously determined that each of the Merger
Agreement, the Offer and the Merger is fair to and in the best interests of the
stockholders of the Company and approved and adopted the Merger Agreement. See
"THE MERGER -- Background to the Merger."
Potential Conflicts; Interests of Certain Persons in the Merger. On January
22, 1997, the Company and Bart S. Brodkin, the President and Chief Executive
Officer of the Company, entered into a Second Amended and Restated Management
Agreement which set forth the principal terms of Mr. Brodkin's employment by the
Company. On February 10, 1997, the Company entered into Management Agreements
with each of Rick Ferguson, Vice President and Chief Financial Officer of the
Company, and Roy Breneman, then an Executive Vice President and the Chief Sales
and Marketing Officer, providing for certain severance benefits in the event of
a termination of such person's employment following a "change of control". As a
condition to the execution and delivery of the Merger Agreement, Parent required
that the respective agreements with Messrs. Brodkin and Ferguson be amended. See
"THE MERGER -- Interests of Certain Persons in the Merger -- Management
Agreements" and "THE MERGER AGREEMENT -- Other Matters -- Management
Agreements".
Each of the directors and executive officers of the Company prior to the
consummation of the Offer held options to purchase Shares. Some of those options
were granted as provided in the Company's Plan of Reorganization (see
"BUSINESS -- General" below) and the remainder were granted pursuant to the
Company's stock option plan. All of such options were exercised in connection
with, and the net shares issued thereunder were tendered and purchased, in the
Offer. See "THE MERGER -- Interests of Certain Persons in the Merger -- Stock
Option Plans".
Non-employee directors of the Company are paid an annual retainer, receive
a fee for each meeting of the board attended, and are reimbursed for expenses
incurred in attending meetings. See "THE MERGER -- Interests of Certain Persons
in the Merger -- Director Compensation".
Monroe L. Lowenkron, a director of the Company, serves on the Board of
Directors of Triarc Companies, the parent company of Royal Crown Cola Co. and
Mistic Brands, Inc. The Company purchases extracts, concentrates and finished
products from both such companies. See "THE MERGER -- Interests of Certain
Persons in the Merger -- Other Directorships". In addition, Mr. Lowenkron has
known Jim L. Turner, the President and Chief Executive Officer of Parent and
Holdings, personally and professionally for many years. See "THE
MERGER -- Background of the Offer and the Merger".
The Delaware General Corporation Law permits a company to indemnify its
officers and directors under certain specified circumstances and also requires
such indemnification under specified circumstances. In addition, as permitted by
the Delaware General Corporation Law, the Company's certificate of incorporation
contains a provision eliminating the personal liability of a director to the
Company and its stockholders for monetary damages for breach of fiduciary duty
as a director, subject to certain statutory exceptions. Also, the Company's
by-laws contained a provision providing for mandatory indemnification of
officers and directors under certain circumstances. The Merger Agreement also
contains covenants that will require the Company, as the surviving corporation
in the Merger (the "Surviving Corporation"), to maintain the Company's director
and officer liability coverage (or replacement or similar coverage) for a period
of two years after the Effective Time and to indemnify the officers and
directors of the Company. See "THE MERGER -- Interests of Certain Persons in the
Merger -- Director Liability and Indemnification", "THE MERGER
AGREEMENT -- Indemnification" and "THE MERGER AGREEMENT -- Directors' and
Officers' Insurance".
Opinion of Financial Advisor. Houlihan, Lokey, Howard & Zukin, Inc.
("Houlihan Lokey"), the Company's financial advisor, delivered its written
opinion dated February 28, 1997, to the Board of Directors of the Company that
the consideration to be received by the holders of Shares in the Offer and the
Merger is fair, from a financial point of view, to such stockholders. Such
opinion will not be updated to a more current
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date. The full text of the Houlihan Lokey fairness opinion is set forth in Annex
III hereto and should be read in its entirety. See "THE MERGER -- Opinion of
Houlihan Lokey."
Purpose of the Merger. The purpose of the Merger is to enable Parent,
through Purchaser, to acquire the remaining equity interest in the Company not
currently owned by Purchaser.
Conditions to the Merger. Pursuant to the Merger Agreement, and as a result
of the consummation of the Offer, the respective obligation of each party to
effect the Merger is subject to the satisfaction prior to the Closing Date of
the following conditions: (i) no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Merger shall be in effect; provided, however, that prior to invoking the
condition, each party shall use all commercially reasonable efforts to have any
such decree, ruling, injunction or order vacated, and (ii) no statute, rule,
order, decree or regulation shall have been enacted or promulgated by any
government or governmental agency or authority which prohibits the consummation
of the Merger.
Regulatory Matters. Early termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
was granted on March 17, 1997. No other regulatory approval is required for the
Merger. See "THE MERGER -- Regulatory Approval."
Certain Income Tax Consequences. The receipt of cash pursuant to the Merger
Agreement or the exercise of appraisal rights will be a taxable transaction for
federal income tax purposes and may also be a taxable transaction for state,
local, foreign and other tax purposes. See "THE MERGER -- Certain Income Tax
Consequences." Stockholders are urged to consult their own tax advisors as to
the particular tax consequences of the Merger to them, including the
applicability and the effect of federal, state, local, foreign and other tax
laws.
FINANCING ARRANGEMENTS
Parent funded the purchase price of the Shares purchased in the Offer, and
the repayment of certain debt of the Company, and intends to fund the aggregate
Merger Consideration, through additional borrowings under Parent's credit
agreement and cash on hand. Parent and Purchaser estimate that the total amount
of funds required by the Purchaser to fund the aggregate Merger Consideration
payable in respect of the remaining 1,219,509 Shares outstanding is $14,634,156.
See "FINANCIAL ARRANGEMENTS."
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF THE COMPANY
Set forth below is certain selected consolidated financial and other
information with respect to the Company as of and for the fiscal years ended
December 31, 1994 and 1995, for the periods from January 1, 1996 through August
15, 1996 and from August 16, 1996 through December 31, 1996, and as of December
31, 1995 and 1996. Such information was derived from the audited financial
statements of the Company included elsewhere herein.
(IN THOUSANDS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
REORGANIZED
COMPANY(1) PREDECESSOR COMPANY(1)
------------ --------------------------------------
AUGUST 16 JANUARY 1
THROUGH THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, AUGUST 15, ------------------------
1996 1996 1995 1994
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales..................................... $91,647 $202,844 $396,725 $413,840
Operating income (loss)....................... 326 (263) (9,347) 5,816
Income (loss) before income taxes,
reorganization expense and extraordinary
items....................................... (462) 21,175 (32,194) (15,715)
Provision for income taxes.................... -- 345 -- 185
Income (loss) before extraordinary items...... (462) 7,819 (32,194) (15,900)
Extraordinary items(2)........................ -- 54,577 -- --
Net (loss) income............................. (462) 62,396 (32,194) (15,900)
Net (loss) income per Share................... (.09) -- -- --
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR
COMPANY(1) COMPANY(1)
----------- -----------
AS OF DECEMBER 31,
--------------------------
1996 1995
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<S> <C> <C>
Cash........................................................ $ 3,813 $ 5,949
Property, plant and equipment, net.......................... 56,790 79,945
Total assets................................................ 121,370 192,133
Total debt (3).............................................. 22,545 189,954
Stockholders' equity........................................ 52,663 (61,333)
OTHER DATA:
Book value per Share........................................ 10.37(4) --
</TABLE>
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(1) On May 13, 1996 the Company and its then immediate holding company parent,
Beverage Group Acquisition Corporation, filed voluntary petitions for
reorganization relief under Chapter 11 of the United States Bankruptcy Code
in the U.S. Bankruptcy Court for the District of Delaware. On August 15,
1996, the Plan of Reorganization was consummated and the Company emerged as
a reorganized company from Chapter 11. Due to the reorganization and
implementation of fresh start reporting, the Condensed Consolidated
Financial Statements for the new reorganized company (period starting August
15, 1996) are not comparable to those of the predecessor company. The
predecessor company included the Company and Seven-Up/RC Bottling Company of
Puerto Rico, Inc. through the date of its disposition on June 30, 1996. See
"BUSINESS -- General".
(2) Represents the write-off of debt issuance costs related to the predecessor
company revolving credit facility and the gain resulting from the discharge
of indebtedness of the senior secured notes of the Company.
(3) Total debt includes the current portion of long-term debt and capital lease
obligations.
(4) As of December 31, 1997, there were 5,000,000 Shares issued and outstanding.
Pursuant to the Company's Plan of Reorganization, the Company issued a
warrant to purchase up to 280,893 Shares at an exercise price of $7.30 per
Share. The book value per Share was determined assuming that the net shares
issuable upon the exercise of such warrant had been issued as of December
31, 1996. The Company's Plan of Reorganization also provided for the grant
of options to purchase up to 337,099 Shares at an exercise price of $7.30
per Share. None of those options had been granted as of December 31, 1996;
all of such options were granted in 1997. See "THE MERGER -- Interests of
Certain Persons in the Merger". Accordingly, the book value per Share does
not reflect the impact of the issuance of any Shares upon the exercise of
such options. Assuming such options had been issued as of December 31, 1996,
and that the net shares issuable upon the exercise of such options had been
issued as of such date, the net book value per Share would have been $10.17.
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MARKET PRICE AND DIVIDENDS
Prior to September 6, 1996 (on or about such date), there was no
established public trading market for the Shares. On or about September 6, 1996,
the Shares began trading on the over-the-counter market under the symbol "SURC,"
and prices were quoted in the Pink Sheets (the "Pink Sheets") operated by the
National Quotation Bureau Inc. Shortly thereafter, the Shares were listed on the
OTC Bulletin Board. The following table sets forth on a per share basis, for the
periods indicated, the high and low sales prices of the Shares as reported in
the Pink Sheets and on the OTC Bulletin Board. Such over-the-counter market
quotations in the Pink Sheets and the OTC Bulletin Board reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
PRICE RANGE
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HIGH LOW
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<S> <C> <C>
Fiscal 1996:
Third Quarter............................................. $10.13 $9.00
Fourth Quarter............................................ 11.88 9.13
Fiscal 1997:
First Quarter............................................. 12.06 9.88
Second Quarter (through April 30, 1997)................... 12.19 11.25
</TABLE>
Since August 15, 1996 (the date on which the Company emerged from
bankruptcy), the Company has not declared or paid cash dividends on the Shares.
The Merger Agreement prohibits the Company from declaring or paying dividends
until the consummation of the Merger.
On February 28, 1997, the last trading day prior to the announcement of the
execution of the Merger Agreement, the closing price per Share as reported on
the OTC Bulletin Board was $11.38. On April 30, 1997, the last full trading day
prior to the date of this Information Statement, the closing price per Share as
reported on the OTC Bulletin Board was $11.50.
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GENERAL
This Information Statement is being delivered in connection with the merger
of Purchaser into the Company pursuant to the Merger Agreement. As a result of
the Merger, the Company will become a wholly-owned subsidiary of Parent, each
issued and outstanding Share (other than Shares that are owned by the Company,
Parent, Purchaser, any other subsidiary of Parent, or by stockholders who have
validly perfected their appraisal rights under Delaware law) will be converted
into the right to receive the Merger Consideration and the equity interest of
all pre-Merger stockholders in the Company will be terminated.
The Merger is the second step of a two-step transaction pursuant to which
Parent, as the owner of all the capital stock of Purchaser, will acquire the
entire equity interest in the Company. The first step was the Offer. Purchaser
acquired 4,071,957 Shares at a price of $12.00 per Share upon the consummation
of the Offer on April 4, 1997, representing approximately 77% of the outstanding
Shares.
The consummation of the Offer was subject to several conditions, including
the receipt of the "Requisite Consents". The "Requisite Consents" were defined
in the Merger Agreement to include the consent of the franchisors and
distributors under the Company's franchise and distribution agreements with (i)
Cadbury Beverages North America, Inc. and its affiliates (e.g., SEVEN-UP, A&W,
WELCH'S, SUNKIST, CANADA DRY, SCHWEPPES, SUNNY DELIGHT, and related brand
products), (ii) Triarc Companies and its affiliates (e.g., RC, MISTIC and
related brand products), (iii) Sundor Brands, Inc. (e.g., HAWAIIAN PUNCH and
related brand products), and (iv) Great Brands of Europe, Inc. (EVIAN water).
The terms of such franchise/distribution agreements provide that the consent of
the franchisors/distributors thereunder are required under certain
circumstances, which included the consummation of the Offer. See
"BUSINESS -- Bottling Rights". Such consents were obtained.
VOTE REQUIRED; WRITTEN CONSENT IN LIEU OF MEETING
Pursuant to the General Corporation Law of the State of Delaware, the
Merger Agreement must be approved and adopted by the affirmative vote of the
holders of a majority of the outstanding Shares at a duly convened meeting of
the stockholders of the Company called for such purpose.
As a result of the Purchase, the Purchaser owns a sufficient number of
Shares to cause the Merger to be approved and adopted without the concurrence of
any other holder of Shares. Pursuant to Section 228(a) of the Delaware General
Corporation Law, any action required by the Delaware General Corporation Law to
be taken at any meeting of stockholders of the Company may be taken without a
meeting, without prior notice and without a vote of the stockholders of the
Company if a written consent, setting forth the action for taken, shall be
signed by the holders of a majority of the outstanding Shares. The Purchaser has
executed and delivered to the Company a written consent (the "Consent") in lieu
of a meeting of stockholders approving and adopting the Merger Agreement and, in
accordance with Rule 14c-2(b) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), authorizing the consummation of the Merger no
earlier than 20 calendar days after this Information Statement is first mailed
to stockholders of the Company. In accordance with Section 228(d) of the
Delaware General Corporation Law, this Information Statement constitutes notice
of the approval of the Merger Agreement and the consummation of the Merger
without a meeting of stockholders by less than unanimous consent to all
stockholders of the Company.
The Merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware in accordance with the
Delaware General Corporation Law. As used in this Information Statement,
"Effective Time" means the effective time of the Merger under the Delaware
General Corporation Law.
PROCEDURE FOR RECEIPT OF MERGER CONSIDERATION
Valid Surrenders of Shares. A Letter of Transmittal will be sent to you
under separate cover following the consummation of the Merger. For Shares to be
validly surrendered pursuant to the Merger, a Letter of Transmittal (or a
manually signed facsimile thereof), properly completed and duly executed, with
any
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required signature guarantees, must be received by ChaseMellon Shareholder
Services, L.L.C., as the paying agent (the "Paying Agent") at one of its
addresses set forth in the Letter of Transmittal and either (i) certificates
representing Shares must be received by the Paying Agent or (ii) such Shares
must be delivered by book-entry transfer.
Book-Entry Transfer. The Paying Agent will establish an account with
respect to the Shares at The Depository Trust Company and the Philadelphia
Depository Trust Company (each, a "Book-Entry Transfer Facility" and,
collectively, the "Book-Entry Transfer Facilities") for purposes of the Merger.
Any financial institution that is a participant in any of the Book-Entry
Transfer Facilities' systems may make book-entry delivery of Shares by causing a
Book-Entry Transfer Facility to transfer such Shares into the Paying Agent's
account at such Book-Entry Transfer Facility in accordance with that Book-Entry
Transfer Facility's procedure for such transfer.
Signature Guarantee. Signatures on Letters of Transmittal must be
guaranteed by a member firm of a registered national securities exchange
(registered under Section 6 of the Exchange Act) or of the National Association
of Securities Dealers, Inc. (the "NASD"), or by a commercial bank or trust
company having an office or correspondent in the United States or by any other
"Eligible Guarantor Institution" (as defined in Rule 17Ad-15 under the Exchange
Act) (each of the foregoing constituting an "Eligible Institution"), unless the
Shares delivered therewith are delivered (i) by a registered holder of Shares
who has not completed either the box entitled "Special Delivery Instructions" or
the box entitled "Special Payment Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. If the certificates
representing Shares are registered in the name of a person other than the signer
of the Letter of Transmittal or if payment is to be made to a person other than
the registered holder, then the certificates representing Shares must be
endorsed or accompanied by appropriate stock powers, in each case signed exactly
as the name or names of the registered holder or holders appear on the
certificates, with the signatures on the certificates or stock powers guaranteed
as described above and as provided in the Letter of Transmittal.
THE METHOD OF DELIVERY OF CERTIFICATES FOR SHARES, THE LETTER OF
TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE
STOCKHOLDER. IF DELIVERY IS MADE BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
BACKUP FEDERAL INCOME TAX WITHHOLDING. TO PREVENT BACKUP FEDERAL INCOME TAX
WITHHOLDING OF 31% OF THE AGGREGATE MERGER CONSIDERATION PAYABLE TO A
STOCKHOLDER, SUCH STOCKHOLDER MUST PROVIDE THE PAYING AGENT WITH HIS CORRECT
TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT HE IS NOT SUBJECT TO BACKUP
FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN
THE LETTER OF TRANSMITTAL.
APPRAISAL RIGHTS
Stockholders of the Company are entitled to appraisal rights under Section
262 of the Delaware General Corporation Law ("Section 262") as to Shares owned
by them. Set forth below is a summary description of Section 262. Section 262 is
reprinted in its entirety as Annex II to this Information Statement. All
references in Section 262 and in this summary to a "stockholder" are to the
record holder of the Shares as to which appraisal rights are asserted. A person
having a beneficial interest in Shares that are held of record in the name of
another person, such as a broker or nominee, must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner to perfect whatever appraisal rights the beneficial owner may have.
THE FOLLOWING SUMMARY IS NOT A COMPLETE STATEMENT OF THE LAW RELATING TO
APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ANNEX II. THIS
SUMMARY AND ANNEX II SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER WHO WISHES TO
EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO
BECAUSE FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES SET FORTH HEREIN AND
THEREIN WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS.
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In accordance with Section 262, any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of this Information
Statement, demand in writing from the Company, the appraisal of the fair value
of such stockholder's Shares. Such demand must reasonably inform the Company of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of the fair value of such stockholder's Shares. Any
stockholder (other than a record owner who is acting as a nominee holder for
different beneficial owners) seeking to exercise appraisal rights for a portion,
but not all, of such stockholder's Shares should consult with legal counsel
before taking any such action. The Company believes that Delaware law has not
clearly addressed the ability of such a stockholder to exercise appraisal rights
with respect to a portion, but not all, of such stockholder's Shares.
Stockholders should be aware of the risk that should a stockholder seek to
exercise appraisal rights with respect to a portion, but not all, of such
stockholder's Shares, the Company may assert that by doing so such stockholder
has waived such stockholder's appraisal rights and a Delaware court may find
that such stockholder has so waived such stockholder's appraisal rights. A
stockholder who elects to exercise appraisal rights must mail or deliver such
stockholder's written demand to the President of the Company at 3220 East 26th
Street, Vernon, California 90023.
A demand for appraisal must be executed by or for the stockholder of
record, fully and correctly, as such stockholder's name appears on the
certificate or certificates representing his Shares. If the Shares are owned of
record in a fiduciary capacity, such as by a trustee, guardian, or custodian,
such demand must be executed by the fiduciary. If the Shares are owned of record
by more than one person, as in a joint tenancy or tenancy in common, such demand
must be executed by all joint owners. An authorized agent, including an agent
for two or more joint owners, may execute the demand for appraisal for a
stockholder of record; however, the agent must identify the record owner and
expressly disclose the fact that, in exercising the demand, such person is
acting as agent for the record owner.
A record owner, such as a broker, who holds Shares as a nominee for others,
may exercise appraisal rights with respect to the Shares held for all or less
than all beneficial owners of Shares as to which such person is the record
owner. In such case, the written demand must set forth the number of Shares
covered by such demand. Where the number of Shares is not expressly stated, the
demand will be presumed to cover all Shares outstanding in the name of such
record owner. Beneficial owners who are not record owners and who intend to
exercise appraisal rights should instruct the record owner to comply strictly
with the statutory requirements with respect to the exercise of appraisal
rights.
Within 120 days after the Effective Time, either the Company, as the
surviving corporation in the Merger (the "Surviving Corporation"), or any
stockholder who has complied with the required conditions of Section 262 may
file a petition in the Delaware Court of Chancery (the "Delaware Chancery
Court") demanding a determination of the fair value of the Shares of the
dissenting stockholders. If a petition for an appraisal is timely filed, after a
hearing on such petition, the Delaware Chancery Court will determine which
stockholders are entitled to appraisal rights and will appraise the Shares
formerly owned by such stockholders, determining the fair value of such Shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Delaware Chancery Court is to take into account all relevant factors.
Stockholders considering seeking appraisal should note that the "fair
value" of their Shares determined under Section 262 could be more than, the same
as or less than $12.00 per Share, and that opinions of investment banking firms
as to fairness, from a financial point of view, are not opinions as to fair
value under Section 262. The cost of the appraisal proceeding many be determined
by the Delaware Chancery Court and taxed against the parties as the Delaware
Chancery Court deems equitable in the circumstances. Upon application of a
dissenting stockholder, the Delaware Chancery Court may order that all or a
portion of the expenses incurred by any dissenting stockholder in connection
with the appraisal proceeding, including without limitation, reasonable
attorneys' fees and the fees and expenses of experts, be charged pro rata
against the value of all Shares entitled to appraisal.
From and after the Effective Time, no stockholder who has duly demanded
appraisal in compliance with Section 262 will be entitled to vote for any
purpose the Shares subject to such demand or to receive payment
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of dividends or other distributions on such Shares, except for dividends or
distributions payable to stockholders of record at a date prior to the Effective
Time.
At any time within 60 days after the Effective Time, any stockholder shall
have the right to withdraw such stockholder's demand for appraisal and to accept
the terms offered in the Merger Agreement; after this period, a stockholder may
withdraw such stockholder's demand for appraisal only with the consent of the
Surviving Corporation. If no petition for appraisal is filed with the Delaware
Chancery Court within 120 days after the Effective Time, stockholders' rights to
appraisal shall cease, and all stockholders who had previously demanded
appraisal shall thereafter be entitled to receive the Merger Consideration in
cash, without interest thereon, upon surrender of the certificates that formerly
represented their Shares. Inasmuch as the Company has no obligation to file such
a petition, and has no present intention to do so, any stockholder who desires
such a petition to be filed is advised to file it on a timely basis. However, no
petition timely filed in the Delaware Chancery Court demanding appraisal shall
be dismissed as to any stockholder without the approval of the Delaware Chancery
Court, and such approval may be conditioned upon such terms as the Delaware
Chancery Court deems just.
THE MERGER
BACKGROUND OF THE OFFER AND THE MERGER
Set forth below is a description of the background of the Offer and the
Merger, including (i) a brief description of the material contacts between Jim
L. Turner, the President and Chief Executive Officer of Parent and Holdings, and
the officers and directors of the Company regarding the transactions described
herein and (ii) a summary of certain material meetings of the Board of Directors
of the Company regarding the transactions described herein. During the time
period from the emergence of the Company from bankruptcy in August 1996 (see
"BUSINESS -- General") until the consummation of the Offer, the Board of
Directors of the Company consisted of the following five individuals: Bart S.
Brodkin, Jack R. Attwood, William Langley, Monroe L. Lowenkron, and Daniel D.
Villanueva.
Since the consummation of the Plan of Reorganization (as defined under
"BUSINESS -- General") and the emergence of the Company from bankruptcy, the
Company's senior management had actively studied the changing and competitive
bottling environment, and analyzed how the Company's current and future products
and services might best compete in the changing marketplace. That analysis
caused the Company to consider exploring strategic opportunities to combine with
other bottling operations and to consider conducting talks with other companies
regarding such potential transactions.
Mr. Lowenkron and Mr. Turner have known each other personally and
professionally for many years. Mr. Lowenkron was employed by a number of
well-known soft drink franchise companies, including A&W Brands, Inc. ("A&W
Brands"). Mr. Lowenkron was the Chief Executive Officer and a director of A&W
Brands and its predecessors from 1980 through 1993. A&W Brands produces and
sells a number of soft drink concentrates (including concentrates for A&W and
SQUIRT brand products) to soft drink bottlers, including Parent. Mr. Lowenkron
and Mr. Turner also served together on the board of directors of G. Heileman
Brewing Company, Inc. On innumerable occasions during the course of their
relationship, Mr. Turner and Mr. Lowenkron have discussed the soft drink
industry generally and Parent's business specifically. With respect to Parent's
business, these discussions included Mr. Turner's goals and strategies for
Parent, as well as the potential for expanding Parent's business base through
appropriate acquisitions.
In connection with the Company's strategic objectives (as described above),
on December 18, 1996, Mr. Lowenkron telephoned Mr. Turner. Mr. Lowenkron and Mr.
Turner discussed, in general terms, the objectives of the Company and Parent,
the potential opportunities and benefits that might arise as a result of a
combination of the two companies, and whether Mr. Turner would be interested in
further exploring a possible business combination involving Parent and the
Company. Mr. Lowenkron stated that he would have Ed Whiting of Whitman,
Heffernan, Rhein & Co., then the Company's financial advisors, call Mr. Turner
to follow-up on their discussion.
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On December 20, 1996, Mr. Brodkin, who is also the President and Chief
Executive Officer of the Company, telephoned Mr. Turner to follow-up on Mr.
Turner's conversation with Mr. Lowenkron. Mr. Turner advised Mr. Brodkin that he
would be interested in exploring a business combination, but that he would need
to visit the Company to obtain additional information before he could proceed
any further.
On December 23, 1996, Mr. Whiting telephoned Mr. Turner to discuss Parent's
interest in a potential business combination with the Company. Mr. Turner
indicated to Mr. Whiting that he would be interested in visiting the Company and
obtaining additional information in order to evaluate such a transaction.
On January 3, 1997, Mr. Brodkin telephoned Mr. Turner. According to Mr.
Brodkin, Mr. Whiting had suggested that Mr. Brodkin call Mr. Turner to set up a
meeting to provide Mr. Turner with additional information in order for Parent to
evaluate a potential business combination with the Company. The meeting took
place on January 16, 1997. Attendees were Mr. Turner, Mr. Whiting, Mr. Brodkin
and Rick Ferguson, the Chief Financial Officer of the Company. Mr. Brodkin and
Mr. Ferguson presented certain historical financial data concerning the Company
and responded to questions raised by Mr. Turner. Mr. Turner indicated that he
would have an interest in pursuing an acquisition of the Company. Mr. Whiting
stated that he believed that the then three major stockholders of the Company
would likely require a price in the range of $11 to $12 per share in such a
transaction. On January 17 and 18, 1997, Messrs. Turner, Brodkin and Ferguson
discussed by telephone certain information regarding the Company and Messrs.
Brodkin and Ferguson responded to certain follow-up questions raised by Mr.
Turner.
On January 18, 1997, Mr. Turner telephoned Mr. Lowenkron, who, Mr. Turner
had been advised, had been appointed by the Company's Board of Directors to head
a committee (the "Strategic Committee") to review any offers to acquire the
Company. Mr. Turner and Mr. Lowenkron agreed that Mr. Turner would meet with the
committee on February 6, 1997 to present a proposal for acquiring the Company.
The Strategic Committee was comprised of Mr. Lowenkron and William Langley.
Messrs. Lowenkron and Langley each held options to purchase Shares and Mr.
Lowenkron also serves on the Board of Directors of Triarc Companies, the parent
company of Royal Crown Cola Co. and Mistic Brands, Inc. See "Interests of
Certain Persons in the Merger" below.
On January 27, 1997, the Company and Parent executed a confidentiality
agreement.
On February 6, 1997, Mr. Turner and certain of Parent's legal and financial
advisors met with Mr. Lowenkron, William Langley (who, Mr. Turner was then
advised, was the other member of the committee appointed by the Board of
Directors of the Company), and the Company's outside counsel. Mr. Turner and
Parent's financial advisors presented the material terms of Parent's proposal
for acquiring the Company. The proposal contemplated a tender offer followed by
a back-end merger, with the stockholders of the Company receiving $12.00 per
share in the transaction. The committee then informed Mr. Turner and his
advisors that they would discuss Parent's proposal with the entire Board of
Directors of the Company. That discussion was held on February 6, 1997.
On February 7, 1997, Mr. Brodkin telephoned Mr. Turner and informed him
that the Company's Board of Directors was willing to continue to explore the
possibility of entering into a mutually acceptable transaction with Parent. Mr.
Brodkin informed Mr. Turner that the Board of Directors had instructed the
Company's representatives to proceed with the negotiation of definitive
documents. Over the next three weeks, representatives of Parent conducted a "due
diligence" investigation of the Company and representatives of the Company and
Parent negotiated the Merger Agreement and the details of the transactions
contemplated thereby.
On February 13, 1997 and February 19, 1997, the Board of Directors of the
Company was briefed by Messrs. Brodkin and Ferguson as to the status of the "due
diligence" investigation of the Company being conducted by representatives of
Parent as well as the status of the negotiations of the Merger Agreement.
On February 26, 1997, Texas Commerce Bank National Association ("TCB") and
Chase Securities Inc. ("CSI") delivered to Parent a commitment letter to provide
debt financing for the Offer and the Merger and a copy was provided to the
Company's Board of Directors and representatives. Effective February 26, 1997,
the
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Company and Parent entered into a new confidentiality agreement that superseded
their prior confidentiality agreement.
Negotiations among the Company, Parent, and their respective
representatives continued through February 28, 1997 with respect to various
matters, including the economic terms of the Merger, and the legal and financial
advisors of the Company and Parent completed their due diligence review of the
Company. On February 28, 1997, the parties reached agreement on the final terms
of the Merger Agreement and the related transactions contemplated thereby.
On Friday, February 28, 1997, the Company's Board of Directors held a
meeting to discuss the proposed Offer and Merger, the Merger Agreement, and the
related transactions contemplated thereby. After reviewing the transaction with
the Company's legal and financial advisors and hearing the presentation of
Houlihan Lokey, the Board of Directors discussed the proposed Offer and Merger
and all transactions contemplated thereby. The Board of Directors of the Company
unanimously approved the Offer, the Merger and the Merger Agreement and resolved
to recommend that the stockholders of the Company tender their Shares pursuant
to the Offer. The Strategic Committee took no formal action in connection with
the Offer and the Merger. The Merger Agreement was executed and delivered in the
late afternoon on February 28, 1997.
In reaching its conclusion and recommendation described above, the Board of
Directors of the Company considered the following factors:
1. the terms of the Merger Agreement;
2. the opinion of Houlihan Lokey to the effect that, as of the date of
its opinion and based upon and subject to certain matters stated therein,
the consideration to be received by the holders of Shares (other than the
Purchaser and its affiliates) pursuant to the Offer and the Merger, taken
together, was fair to such holders from a financial point of view. The full
text of Houlihan Lokey's written opinion, which sets forth the assumptions
made, matters considered, and limitations on the review undertaken by
Houlihan Lokey, is attached hereto as Annex III. HOLDERS OF SHARES ARE
URGED TO READ THE OPINION OF HOULIHAN LOKEY CAREFULLY IN ITS ENTIRETY;
3. the fact that the $12.00 per Share to be paid pursuant to the Offer
represented a premium over the valuation of the Shares upon the
consummation of the Plan of Reorganization and the emergence of the Company
from bankruptcy in August 1996 and subsequent trading prices of the Shares;
4. the familiarity of the Board of Directors with the financial
condition, results of operations, business, prospects, and strategic
objectives of the Company and the conditions of the bottling industry;
5. the Parent's and the Purchaser's financial condition, results of
operations, cash flows, competitive position, and prospects;
6. the high regard of management of the Company for the integrity and
operating ability of the Parent and the recommendation of management
(considered in light of the matters described or referred to under
"Interests of Certain Persons in the Merger" below);
7. the fact that the Merger Agreement, which prohibits the Company,
its subsidiaries, or its affiliates from initiating, soliciting, or
encouraging any potential Acquisition Proposal, does permit the Company
(conditioned upon the execution of confidentiality agreements) to furnish
non-public information to, allow access by and participate in discussions
and negotiations with any third party that has submitted a bona fide and
unsolicited Acquisition Proposal to the Company, provided that (i) such
third party has the necessary funds or commitments to provide the funds to
effect such Acquisition Proposal and (ii) the Board of Directors, upon
advice of counsel, determines that failure to so act would constitute a
breach of its fiduciary duties;
8. the provisions of the Merger Agreement that require the Company to
pay the Purchaser a termination fee of $2,500,000 and reimburse the
Purchaser for its out-of-pocket expenses (subject to a maximum amount of
$750,000) under certain circumstances as described above under "Merger
Agreement -- Fees and Expenses";
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9. the structure of the transaction, including the fact that the Offer
will permit stockholders to receive cash for their Shares and the terms and
conditions of the commitment letter provided by TCB and CSI; and
10. the regulatory approvals required to consummate the Merger, and
the prospects for receiving all such approvals.
The Board of Directors did not assign relative weights to the factors or
determine that any factor was of particular importance. Rather, the Board of
Directors viewed their position and recommendation as being based on the
totality of the information presented to and considered by them.
On Monday, March 3, 1997, the first business day following the execution
and delivery of the Merger Agreement, Parent and the Company issued a joint
press release announcing the execution and delivery of the Merger Agreement.
On March 7, 1997, Parent commenced the Offer. Approximately 77% of the
outstanding Shares were tendered prior to the expiration of the Offer at
midnight on April 3, 1997. Parent consummated the Offer on April 4, 1997.
On April 17, 1997, the Company filed a preliminary draft of this
Information Statement with the Securities and Exchange Commission (the
"Commission"). On such date, the staff of the Commission (the "Staff") informed
the Company's representatives that they would review such preliminary draft and
would provide comments thereon. Because the Staff's review would result in a
delay in the mailing of the Information Statement and, therefore, the
consummation of the Merger, the Company, Parent and Purchaser entered into a
First Amendment to Agreement and Plan of Merger, dated as of April 28, 1997 (the
"First Amendment"), amending one of the termination provisions of the Merger
Agreement. Specifically, the Merger Agreement had provided that, under certain
specified circumstances, either Parent or the Company could terminate the Merger
Agreement if the Merger were not consummated on or before the 45th calendar day
following the consummation of the Offer (i.e., May 19, 1997). Pursuant to the
First Amendment, the referenced provision was amended to permit termination
under the specified circumstances in the event the Merger was not consummated
promptly following the resolution of all questions or comments raised by the
Commission in connection with its review of the Information Statement. The First
Amendment was approved by the Board of Directors of the Company by means of a
unanimous written consent as permitted under the Delaware General Corporation
Law.
OPINION OF HOULIHAN LOKEY
The Company engaged Houlihan Lokey to render an opinion to the Company's
Board of Directors as to the fairness from a financial point of view to the
Company's shareholders of the cash consideration of $12.00 per Share to be
received by the shareholders in the Offer and the Merger (the "Opinion").
Houlihan Lokey was not engaged to represent the shareholders or to render any
opinion to them, and the Opinion did not, and does not, constitute a
recommendation to the shareholders as to how to vote or otherwise act in
connection with the Offer or the Merger.
Houlihan Lokey delivered to the Board of Directors of the Company the
Opinion, which was to the effect that, as of the date of the Opinion and based
on and subject to certain matters as stated therein, the consideration to be
received in the Offer and the Merger by the holders of the Shares was fair, from
a financial point of view, to such holders. The Opinion was dated February 28,
1997, and did not take into account any matters that have occurred after that
date. The full text of the Opinion is attached as Annex III hereto and should be
read in its entirety. The Opinion is necessarily based on business, economic,
market and other conditions as they existed and could be evaluated by Houlihan
Lokey as of the date of the Opinion.
Pursuant to an engagement letter with Houlihan Lokey, the Company agreed to
pay Houlihan Lokey a fee of $200,000 for its services, $100,000 of which was
payable upon the execution of the engagement letter and the remainder of which
was payable upon delivery by Houlihan Lokey to the Company of its written
opinion as to the consideration to be received by holders of Shares pursuant to
the Offer and the Merger. No
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portion of that fee was contingent upon the consummation of the Offer or the
Merger or the conclusions reached in the Opinion. The Company also agreed to
reimburse Houlihan Lokey for its reasonable out-of-pocket expenses (up to
$10,000 limit), and to indemnify Houlihan Lokey and certain related parties
against certain liabilities, including liabilities under the federal securities
laws.
Houlihan Lokey, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, leveraged buyouts, business valuations for a variety
of regulatory and planning purposes, recapitalizations, financial
restructurings, and private placements of debt and equity securities. Houlihan
Lokey also acted as both the financial advisor to the unofficial committee of
noteholders in connection with the recent reorganization of the Company and as
the principal selling agent in connection with the sale of the Company's Puerto
Rican subsidiary. The Company selected Houlihan Lokey as its financial advisor
because Houlihan Lokey is a nationally recognized investment banking firm that
has substantial experience in valuation and financial analysis and based on
Houlihan Lokey's familiarity with the Company as a result of the
above-referenced activities.
The Opinion did not address the Company's underlying business decision to
effect the Offer and the Merger. The consideration to be received by the holders
of the Shares in the Offer and the Merger pursuant to the Merger Agreement was
determined through negotiations between the Company and Parent. Houlihan Lokey
did not, and was not requested by the Company to, make any recommendations as to
the form or amount of consideration to be paid to the shareholders in connection
with the Offer and the Merger. In addition, Houlihan Lokey was not requested to,
and did not, solicit third party indications of interest in acquiring all or
part of the Company. Furthermore, at the Company's request, Houlihan Lokey did
not negotiate or advise the Company with respect to alternatives to the Offer
and the Merger. Houlihan Lokey expressed no opinion with regard to the terms
and/or fairness of the Merger Agreement (as that term is defined in the
Opinion), other than the consideration to be received by the holders of Shares
in the Offer and the Merger pursuant thereto. There were no limitations imposed
by the Board of Directors or management on the scope of the investigation
performed by Houlihan Lokey for the purpose of rendering the Opinion.
In arriving at its opinion, Houlihan Lokey: (i) reviewed the Company's
annual report to shareholders on Form 10-K for the fiscal years ended December
31, 1995 and December 31, 1994 and quarterly reports to shareholders on Form
10-Q for the quarter ended September 30, 1996; (ii) reviewed Company prepared,
unaudited financial and operating statements for the five fiscal years ended
December 31, 1996; (iii) reviewed the following documents: the Merger Agreement;
the Company's 1996-1997 Stock Option Plan; the Company's Management Incentive
Plan; the Company's 1997 Cost Reduction Plan; and the Company's Disclosure
Statement dated June 19, 1996; (iv) reviewed the various Company prepared
operating and other statements presented to Parent by the Company on February 7,
1997; (v) met with or held discussions with certain members of the senior
management of the Company to discuss the Company's operations, financial
condition, future prospects and projected operations and performance of the
Company; (vi) visited certain facilities and business offices of the Company;
(vii) reviewed forecasts and projections of the Company's financial performance
prepared by management for the years ending December 31, 1997-2000; (viii)
reviewed the historical market prices and trading volume for the Company's
publicly traded securities and selected individual block trades; (ix) reviewed
certain confidential detailed information regarding the Company's 1997 financial
performance, the Company's compensation arrangements and employee benefit plans,
and the Company's franchise assets and fixed assets; (x) reviewed certain other
publicly available financial data for certain companies that Houlihan Lokey
deemed comparable to the Company, and publicly available prices and premiums
paid in other transactions that Houlihan Lokey considered similar to the Offer
and the Merger; and, (xi) conducted such other studies, analyses and inquiries
as Houlihan Lokey deemed appropriate.
In connection with its review, Houlihan Lokey did not assume any
responsibility for independent verification of any of the foregoing information
and relied on such information as being complete and accurate in all material
respects. In addition, Houlihan Lokey did not make any independent valuation or
appraisal of any of the assets or liabilities (contingent or otherwise) of the
Company, nor was Houlihan Lokey furnished with any such valuation or appraisal.
With respect to the financial projections referred to above, Houlihan Lokey
assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and judgment of the Company's management as to the
future financial performance of the Company.
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Houlihan Lokey's opinion is necessarily based on the financial, economic, market
and other conditions existing on and the information made available to Houlihan
Lokey as of the date thereof.
The summary of Houlihan Lokey's analyses set forth below does not purport
to be a complete description of the analyses underlying the Opinion. The
preparation of a financial opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, as such, is not readily susceptible to summary description.
In arriving at the Opinion, Houlihan Lokey did not assign any particular weight
to any analysis or factor considered by it, but rather made qualitative
judgments based on its experience in rendering such opinions. Accordingly,
Houlihan Lokey believes that its analyses must be considered as a whole and that
selecting portions of its analyses and the factors considered, without
considering all analyses and factors, could create a misleading or incomplete
view of the processes underlying such analyses and the Opinion.
The following paragraphs summarize the material analyses performed by
Houlihan Lokey in arriving at the Opinion:
Analysis of Recent Acquisition Transactions. Using publicly available
information, Houlihan Lokey reviewed selected multiples paid in mergers and
acquisitions involving soft drink bottling companies which Houlihan Lokey deemed
relevant. In particular, Houlihan Lokey focused on multiples of Total Invested
Capital ("TIC") (which was defined as the purchase price paid for the common and
preferred equity of the target company, plus all interest bearing liabilities at
book value, less excess cash) to trailing twelve months revenues and earnings
before interest, taxes, depreciation and amortization ("EBITDA"), and multiple
of TIC to the Direct Store Door ("DSD") case volume manufactured and sold by the
target company in the previous twelve months. This analysis was refined to
differentiate targets on the basis of their brand affiliations. In particular,
Houlihan Lokey differentiated targets affiliated with The Coca-Cola Company and
PepsiCo (i.e., branded bottlers) from independent bottlers. Based on this
differentiation, the Company is an independent bottler.
Houlihan Lokey reviewed the following acquisitions of independent bottlers
for which public information was available; the acquisition of Seven-Up/RC
Bottling Company of Puerto Rico by an investor group; the acquisition of KGB
Holdings, Inc. by an investor group; the acquisition of Vess Beverage Company by
Cott Corporation; the acquisition of Mid-Continent Bottlers by an investor
group. In addition, Houlihan Lokey reviewed the following acquisitions of
branded bottlers for which public information was available: the acquisition of
Coca-Cola of Puerto Rico by De La Cruz Companies; the acquisition of Wichita
Coca-Cola Bottling Co. by Coca-Cola Enterprises, Inc.; the acquisition of three
bottlers previously owned by Coca-Cola Company by Coca-Cola Enterprises, Inc.;
the acquisition of Johnson Coca-Cola Bottling Group by Coca-Cola Enterprises,
Inc.; the acquisition of the bottling business of General Cinema by PepsiCo,
Inc.; and the acquisition of the bottling business of GenCorp, Inc. (Pepsi
brand) by IC Industries.
For transactions involving independent bottlers for which public
information was available, the multiples of TIC to revenues for the acquired
companies for the latest twelve month period prior to closing averaged 0.6x, and
ranged from 0.4x to 0.9x. The multiples of TIC to EBITDA for the latest twelve
month period prior to closing averaged 6.9x, and ranged from 6.5x to 7.4x. The
multiples of TIC to DSD case sales for the twelve month period prior to closing
averaged $3.77 per DSD case, and ranged from $2.42 per DSD case paid by an
investor group for Mid-Continent Bottlers to $7.25 per DSD case paid by an
investor group for Seven-Up/RC Bottling Company of Puerto Rico. Excluding the
transaction for Seven-Up/RC Bottling Company of Puerto Rico, multiples of TIC to
DSD case sales for the twelve month period prior to closing averaged $2.61 per
DSD case, and ranged from $2.42 per DSD case to $2.74 per DSD case. Houlihan
Lokey noted that the implied TIC value for the Company based upon the offer
represented 0.3x revenues, 8.1x EBITDA and $2.83 per DSD case.
For transactions involving branded bottlers for which public information
was available, the multiples of TIC to revenues for the acquired companies for
the latest twelve month period prior to closing averaged 1.5x, and ranged from
0.6x to 2.4x. The multiples of EBITDA for the latest twelve month period prior
to closing averaged 11.8x, and ranged from 7.5x to 14.7x. The multiples for DSD
case sales for the twelve month period prior to closing averaged $6.98 per DSD
case, and ranged from $3.66 per DSD case to $13.08 per DSD case.
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Based on the foregoing, Houlihan Lokey observed that independent bottlers trade
at discounted multiples relative to branded bottlers. Based on a comparison of
the aforementioned average transactions multiples, such discount ranged from
41.3% based on multiples of TIC to EBITDA to 61.9% based on multiples of TIC to
revenue.
Analysis of Selected Publicly Traded Comparable Companies in the Carbonated
Soft Drink Industry. Using publicly available information, Houlihan Lokey
reviewed the stock and other public securities prices and market multiples of
the common stock of the following companies: Coca-Cola Enterprises, Inc.;
Coca-Cola Bottling Co. Consolidated; The Coca-Cola Bottling Group (Southwest),
Inc.; Texas Bottling Group, Inc.; All American Bottling Company; and Pepsi-Cola
Puerto Rico Bottling Company. Houlihan Lokey believes these companies are
engaged in lines of business that are generally similar to those of the Company.
Houlihan Lokey determined the equity value (defined as the shares outstanding
times the current share price) and derived the Total Invested Capital (defined
as the equity value determined above, plus all interest bearing liabilities at
book value, less excess cash) for each of the comparable companies for which
there was sufficient public information (i.e., Coca-Cola Enterprises, Inc. and
Coca-Cola Bottling Co. Consolidated). Houlihan Lokey calculated a range of such
TIC values as a multiple of revenues, EBITDA and earnings before interest and
taxes ("EBIT"); however, an emphasis was placed on multiples of TIC to EBITDA.
TIC as a multiple of the latest twelve months revenues averaged 1.4x and ranged
from 1.1x to 1.7x, TIC as a multiple of the latest twelve months EBITDA averaged
10.2x and ranged from 8.0x to 11.5x, and TIC as a multiple of the latest twelve
months EBIT averaged 19.1x and ranged from 13.1x to 25.0x. However, Houlihan
Lokey noted that such multiples were skewed upward owing to recent acquisitions
effectuated by Coca-Cola Enterprises, Inc., the operating results of which were
not fully reflected in the operating performance for the latest twelve months.
Also, both of the companies which filed sufficient public information to be
included in this component of Houlihan Lokey's analysis were branded bottlers.
Owing to the fact that the Company is an independent bottler, Houlihan Lokey
adjusted the observed market multiples to reflect the discount applied to
independent bottlers by the public markets. Lastly, market multiples for
publicly traded companies represent the value of a transferable minority
ownership position and hence, do not incorporate the premium that acquirors are
generally willing to pay to garner a controlling majority ownership position. In
order to compare market multiples for a transferable minority interest with a
transfer of a control position, Houlihan Lokey applied a control premium to the
valuation of a transferable minority equity interest in the Company suggested by
this market multiple analysis. Based on this analysis, the theoretical value per
common share for a controlling interest in the Company ranged from $7.73 to
$9.15.
Discounted Cash Flow Analysis. Houlihan Lokey performed a discounted cash
flow analysis of the Company on a stand alone basis utilizing a set of
underlying operating projections that were developed by the Company and
disclosed pursuant to the Company's Plan of Reorganization. Such projections
were modified somewhat to reflect recent changes in the Company's business plan
not incorporated in the original projections. Utilizing such projections,
Houlihan Lokey calculated the theoretical unlevered discounted present value for
the Company by adding together the present value of (i) the projected stream of
unlevered free cash flow through the year 2000 for the Company and (ii) the
projected value of the Company at the end of year 2000 (the "Terminal Value").
The Terminal Value was determined using a range of multiples of EBITDA from 6.0x
to 7.0x. The unlevered after-tax discount rates utilized in the discounted cash
flow analysis ranged from 14.5% to 16.5%. The theoretical value of the Company
based on such projections produced a range of value per share of Company common
stock of $6.83 and $8.98.
PURPOSE OF THE OFFER AND THE MERGER
The purpose of the Offer and the Merger is to enable Parent, through
Purchaser, to acquire, in one or more transactions, control of the Board, and
the entire equity interest in, the Company. The Offer was intended to increase
the likelihood that the Merger will be completed promptly.
Pursuant to the Merger Agreement and prior to the consummation of the
Offer, (i) Messrs. Attwood, Langley and Villanueva tendered their resignations
as directors to the Company, such resignations to become effective upon the
consummation of the Offer, and (ii) Parent designated the following persons to
be appointed as directors of the Company, such appointments to become effective
upon the consummation of the
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Offer: Jim L. Turner, who is also the Chairman of the Board, President and Chief
Executive Officer of Parent, William O. Hunt, Holly S. Lovvorn, and Thomas J.
Taszarek. The Board of Directors of the Company accepted the foregoing
resignations, approved an increase in the size of the Board of Directors to six
members and appointed the four persons designated by Parent to the Board of
Directors. Accordingly, upon the consummation of the Offer, the four designees
of Parent became directors of the Company.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Information with respect to certain contracts, agreements, arrangements, or
understandings between the Company and certain of its executive officers,
directors, or affiliates is set forth below.
Management Agreements. At a meeting held on October 31, 1996 of the
Personnel & Compensation Committee of the Board of Directors of the Company (the
"Compensation Committee"), which committee was comprised of Jack Attwood and
Monroe L. Lowenkron, the Compensation Committee recommended that the Board of
Directors review and evaluate the employment agreement between the Company and
Bart S. Brodkin, the Chief Executive Officer of the Company. After a series of
negotiations between the Compensation Committee and Mr. Brodkin, on January 22,
1997, the Company entered into a Second Amended and Restated Management
Agreement with Mr. Brodkin (the "Brodkin Management Agreement"). The annual
compensation payable by the Company to Mr. Brodkin under the Brodkin Management
Agreement is $400,000. The Brodkin Management Agreement expires on December 31,
1999, and, as executed, provided for automatic one-year renewals unless
terminated upon written notice by either party at least 90 days prior to the end
of the year. In addition, the Brodkin Management Agreement provides for
severance benefits to be paid in a lump sum by the Company to Mr. Brodkin upon a
Change of Control (as defined in the Brodkin Management Agreement).
The Brodkin Management Agreement was amended in connection with the
negotiation of the Merger Agreement. See "THE MERGER AGREEMENT -- Other
Matters -- Management Agreements".
On February 10, 1997, the Company entered into Management Agreements with
each of Rick Ferguson and Roy Breneman (the "Ferguson Management Agreement" and
the "Breneman Management Agreement," respectively). Each of the Ferguson
Management Agreement and the Breneman Management Agreement provides for
severance benefits to be paid by the Company in a lump sum to Messrs. Ferguson
and Breneman, respectively, upon a Change of Control (as defined in each of the
Ferguson Management Agreement and the Breneman Management Agreement). The
Ferguson Management Agreement was amended in connection with the negotiation of
the Merger Agreement to provide for the termination thereof immediately prior to
the consummation of the Offer. See "THE MERGER AGREEMENT -- Other
Matters -- Management Agreements". In connection with Mr. Breneman's disability,
in late April 1997, Mr. Breneman and the Company agreed to a termination of his
employment with the Company.
Stock Option Plans. Pursuant to the terms and conditions of the
Reorganization Plan, the Company granted, on February 3, 1997, options to
purchase Shares to its executive officers (collectively, the "Management
Options") as follows: Rick Ferguson, options to purchase 32,000 Shares; Joe
Chalmers, options to purchase 22,000 Shares; Lou Janicich, options to purchase
22,000 Shares; Roy Breneman, options to purchase 22,000 Shares; Tom Theriault,
options to purchase 22,000 Shares; Derrick Snider, options to purchase 13,800
Shares; Tom Holborow, options to purchase 13,800 Shares; Jose Mejia, options to
purchase 5,500 Shares; Steve Walb, options to purchase 5,500 Shares; and Bart
Brodkin, options to purchase 160,549 Shares. The exercise price under the
Management Options was determined in accordance with the formula set forth in
the form of such options approved under the Plan of Reorganization and was equal
to $7.30 per Share.
Upon the exercise of the stock purchase warrant held by WB Bottling
Corporation and pursuant to anti-dilution provisions contained in such stock
purchase warrant, the holders of Management Options were entitled to receive
additional options pursuant to anti-dilution provisions contained in the
Management Options. Such additional options were granted as follows: Rick
Ferguson, options to purchase 1,800 Shares; Joe Chalmers, options to purchase
1,250 Shares; Lou Janicich, options to purchase 1,250 Shares; Roy Breneman,
options to purchase 1,250 Shares; Tom Theriault, options to purchase 1,250
Shares; Derrick Snider, options to purchase 775 Shares; Tom Holborow, options to
purchase 775 Shares; Jose Mejia, options
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<PAGE> 21
to purchase 300 Shares; Steve Walb, options to purchase 300 Shares; and Bart
Brodkin, options to purchase 8,980 Shares.
At a meeting of the Compensation Committee held on October 31, 1996, the
Compensation Committee resolved to recommend to the Board of Directors of the
Company that a stock option plan be approved for certain managers and directors
of the Company. On January 30, 1997, the Compensation Committee made their
recommendation to the Board of Directors and the Board of Directors authorized,
approved, and adopted the terms and conditions of the 1996-1997 Stock Option
Plan (the "Stock Option Plan"). Pursuant to the terms and conditions of the
Stock Option Plan, on February 4, 1997, the Company granted options to purchase
Shares, at an exercise price of $8.00 per Share, to its executive officers and
directors (collectively, the "Employee/Director Options" and, together with the
Management Options, the "Options") as follows: Rick Ferguson, options to
purchase 13,900 Shares; Joe Chalmers, options to purchase 10,250 Shares; Lou
Janicich, options to purchase 10,250 Shares; Roy Breneman, options to purchase
6,850 Shares; Tom Theriault, options to purchase 10,250 Shares; Derrick Snider,
options to purchase 8,300 Shares; Tom Holborow, options to purchase 8,300
Shares; Jose Mejia, options to purchase 2,150 Shares; Steve Walb, options to
purchase 2,150 Shares; Bart Brodkin, options to purchase 225,622 Shares; Jack
Attwood, options to purchase 21,000 Shares; Monroe Lowenkron, options to
purchase 21,000 Shares; William Langley, options to purchase 21,000 Shares; and
Daniel Villanueva, options to purchase 21,000 Shares.
The Options were exercised in connection with, and the net shares issued
thereunder were tendered and purchased in, the Offer.
Director Compensation. Non-employee directors of the Company are paid an
annual retainer of $20,000 plus an additional fee of $1,000 for each meeting of
the Board of Directors of the Company attended and are reimbursed for expenses
incurred in attending meetings of the Board of Directors. The annual retainer
for 1997 was paid in January 1997.
Other Directorships. Monroe L. Lowenkron, a director of the Company, serves
on the Board of Directors of Triarc Companies, the parent company of Royal Crown
Cola Co. and Mistic Brands, Inc. The Company purchases extracts, concentrates
and finished products from both such companies pursuant to franchise agreements.
In 1996, purchases from both such companies totalled approximately $8,844,000.
The Company from time to time incurs trade debt in the ordinary course of
business for purchases of extracts, concentrates and finished products from such
companies. Management believes that the terms of such trade debt are no less
favorable to the Company than the terms of trade debt granted by such companies
to other of their respective franchisee companies.
Director Liability and Indemnification. Under the Delaware General
Corporation Law, a corporation has the power to indemnify any director or
officer against expenses, judgments, fines, and settlements incurred in a
proceeding, other than an action by or in the right of the corporation, if the
person acted in good faith and in a manner that the person reasonably believed
to be in the best interests of the corporation or not opposed to the best
interests of the corporation, and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of the person was unlawful. In the case
of an action by or in the right of the corporation, the corporation has the
power to indemnify any officer or director against expenses incurred in
defending or settling the action if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation; provided, however, that no indemnification may be
made when a person is adjudged liable to the corporation, unless a court
determines such person is entitled to indemnity for expenses, and then such
indemnification may be made only to the extent such court shall determine. The
Delaware General Corporation Law requires that to the extent an officer or
director of a corporation is successful on the merits or otherwise in defense of
any third-party or derivative proceeding, or in defense of any claim, issue, or
matter therein, the corporation must indemnify the officer or director against
expenses incurred in connection therewith.
Under the Delaware General Corporation Law, a corporation may adopt a
provision in its certificate of incorporation that eliminates or limits the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director; provided, however,
that such provision may not eliminate or limit director monetary liability for:
(i) breaches of the director's duty of loyalty to the
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corporation or its stockholders; (ii) acts or omissions not in good faith or
involving intentional misconduct or knowing violations of laws; (iii) the
payment of unlawful dividends or unlawful stock repurchases or redemptions; or
(iv) transactions in which the director received an improper personal benefit.
The Company's Certificate of Incorporation includes such a provision.
The Company's By-Laws provided that the Company will, to the fullest extent
permitted by the Delaware General Corporation Law, indemnify all persons whom it
has the power to indemnify against all of the costs, expenses, and liabilities
incurred by them by reason of having been officers or directors of the Company,
or any subsidiary of the Company or any other corporation for which such persons
acted as officer or director at the request of the Company.
The Merger Agreement also contains covenants that will require the
Surviving Corporation to maintain the Company's current director and officer
liability coverage (or replacement insurance with similar coverage) for a period
of two years after the Effective Time and to indemnify the officers and
directors of the Company. See "THE MERGER AGREEMENT -- Indemnification" and "THE
MERGER AGREEMENT -- Directors' and Officers' Insurance."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of the material federal income tax consequences
of the Merger to stockholders whose Shares are converted into the right to
receive the Merger Consideration in the Merger (including any cash amounts
received by dissenting stockholders pursuant to the exercise of appraisal
rights). The discussion applies only to stockholders in whose hands Shares are
capital assets, and may not apply to holders who received their Shares pursuant
to the exercise of employee stock options or otherwise as compensation, or who
are not citizens or residents of the United States.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR
GENERAL INFORMATIONAL PURPOSES ONLY AND ARE BASED UPON PRESENT LAW. BECAUSE
INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER SHOULD CONSULT SUCH
HOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE RULES DISCUSSED
BELOW TO SUCH STOCKHOLDER AND THE PARTICULAR TAX EFFECTS OF THE MERGER,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
Receipt of the Merger Consideration. The receipt by a stockholder of the
Merger Consideration (including any cash amounts received by dissenting
stockholders pursuant to the exercise of appraisal rights) in exchange for such
Shares will be a taxable transaction for federal income tax purposes. In
general, for federal income tax purposes, a stockholder will recognize gain (or
loss) equal to the difference between his adjusted tax basis in the Shares
converted to cash in the Merger and the amount of cash received therefor. Gain
(or loss) must be determined separately for each block of Shares (i.e., Shares
acquired at the same cost in a single transaction) converted to cash in the
Merger. Such gain (or loss) will be capital gain (or loss) and will be long-term
gain (or loss) if, at the Effective Time, the Shares were held for more than one
year. President Clinton has proposed legislation which would require a holder to
determine adjusted basis for Shares based on the average of such holder's total
adjusted basis for Shares. Among other things, such proposal may affect the
federal income tax consequences of the receipt of the Merger Consideration by
stockholders holding blocks of Shares with different holding periods. However,
it is not possible to predict whether such proposal will be enacted into law or,
if so, whether such legislation will apply to the Merger.
Backup Withholding. Payments in connection with the Merger may be subject
to "backup withholding" at a 31% rate. Backup withholding generally applies if
the stockholder (a) fails to furnish his social security number or other
taxpayer identification number ("TIN"), (b) furnishes an incorrect TIN, (c)
fails properly to report interest or dividends or (d) under certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that the TIN provided is his correct number and that he is not subject
to backup withholding. Backup withholding is not an additional tax but merely an
advance payment, which may be refunded to the extent it results in an
overpayment of tax. Any amounts withheld from a payment to a stockholder under
the backup withholding rules will be allowed as a credit against such
stockholder's federal income tax liability; provided that the required
information is provided to the Internal Revenue Service. Certain persons
generally are exempt from backup withholding, including corporations and
financial institu-
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tions. Certain penalties apply for failure to furnish correct information and
for failure to include the reportable payments in income. Each stockholder
should consult with his own tax advisor as to his qualification for exemption
from withholding and the procedure for obtaining such exemption.
REGULATIONS. Early termination of the waiting period under the HSR Act was
granted on March 17, 1997. No other regulatory approval is required for the
Merger.
The Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice frequently scrutinize the legality under the antitrust
laws of transactions such as Purchaser's acquisition of the Company. At any
time, the Antitrust Division or the FTC could take such action under the
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the consummation of the Merger or seeking the
divestiture of Shares acquired by Purchaser or the divestiture of substantial
assets of Parent or its subsidiaries, or the Company or its subsidiaries.
Private parties may also bring legal action under certain circumstances. There
can be no assurance that a challenge to the Merger on antitrust grounds will not
be made or, if such a challenge is made, of the result thereof.
THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions thereof
and is qualified in its entirety by reference to the full text thereof, a copy
of which is attached hereto as Annex I.
Board Representation. The Merger Agreement provides that promptly upon the
purchase by Parent or any of its subsidiaries of such number of Shares which
represents at least 65% of the outstanding Shares on a fully-diluted basis, and
from time to time thereafter, Parent shall be entitled to designate such number
of directors, rounded up to the next whole number (but in no event more than one
less than the total number of directors on the Board of the Company) as will
give Parent, subject to compliance with Section 14(f) of the Exchange Act,
representation on the Board equal to the product of (x) the number of directors
on the Board (giving effect to any increase in the number of directors pursuant
to the Merger Agreement) and (y) the percentage that such number of Shares so
purchased bears to the aggregate number of Shares outstanding (such number being
the "Board Percentage"). The Company has agreed, upon request of Parent, to
promptly satisfy the Board Percentage by increasing the size of the Board or
using its best efforts to secure the resignations of such number of directors as
is necessary to enable Parent's designees to be elected to the Board and to
cause Parent's designees promptly to be so elected, provided that no such action
shall be taken which would result in there being, prior to the consummation of
the Merger, less than two directors of the Company that are not affiliated with
Parent. Following the election or appointment of Parent's designees pursuant to
the Merger Agreement and prior to the Effective Time of the Merger, any
amendment or termination of the Merger Agreement, extension for the performance
or waiver of the obligations or other acts of Parent or Purchaser or waiver of
the Company's rights thereunder shall require the concurrence of a majority of
the directors of the Company then in office who are Continuing Directors. The
term "Continuing Directors" means (i) each member of the Board on the date of
the Merger Agreement who voted to approve the Merger Agreement and (ii) any
successor to any Continuing Director that was recommended to succeed such
Continuing Director by a majority of the Continuing Directors then on the Board.
Consideration to be Paid in the Merger. The Merger Agreement provides that
upon the terms (but subject to the conditions) set forth in the Merger
Agreement, Purchaser will be merged with and into the Company. In the Merger, at
the Effective Time, by virtue of the Merger and without any action on the part
of Purchaser, the Company or the holders of any of the Shares, each Share issued
and outstanding immediately prior to the Effective Time (excluding Shares owned
directly or indirectly by the Company or by Parent, Purchaser or any other
subsidiary of Parent and Dissenting Shares) shall be converted into the right to
receive $12.00 net per Share in cash, without any interest thereon, less any
required withholding taxes. Each share of the capital stock of Purchaser issued
and outstanding immediately prior to the Effective Time shall be converted into
and become one fully paid and nonassessable share of common stock, par value
$.01 per share, of the Surviving Corporation.
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Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties by the Company with respect to corporate
existence and power, capital structure, corporate authorization,
noncontravention, consents and approvals, filings with the Commission,
information supplied, compliance with applicable laws, litigation, taxes,
pension and benefit plans and ERISA, absence of certain changes or events,
absence of undisclosed material liabilities, opinion of financial advisor, vote
required, labor matters, intangible property, environmental matters, real
property, board recommendation, material contracts, related party transactions,
indebtedness, liens and other matters.
Parent and Purchaser have also made certain representations and warranties
with respect to corporate existence and power, corporate authorization, consents
and approvals, noncontravention, information supplied, board recommendation,
financing, absence of certain agreements and other matters.
Conduct of Business Pending the Merger. The Company has agreed that during
the period from the date of the Merger Agreement to the Effective Time, except
as otherwise provided in the Merger Agreement or consented to by Parent, the
Company will conduct its business in the usual, regular and ordinary course of
business in substantially the same manner as conducted prior to the date of the
Merger Agreement and shall use all reasonable efforts to preserve intact its
business organization, keep available the services of its current officers and
employees and preserve relationships with third parties with whom it has
business dealings to the end that its goodwill and ongoing business shall not be
impaired in any material respect at the Effective Time. The Company has further
agreed that it shall not: (i) declare or pay any dividends on or make any other
distributions in respect of any of its capital stock; (ii) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock; (iii) repurchase or otherwise acquire any
shares of its capital stock, except as required by the terms of any employee
benefit plan as in effect on the date of the Merger Agreement; (iv) grant any
options, warrants or rights to purchase Shares; (v) amend the terms of or
reprice any option or amend the terms of the Stock Option Plan; or (vi) issue,
deliver or sell, or authorize or propose to issue, deliver or sell, any shares
of its capital stock, any Company voting debt or any securities convertible
into, or any rights, warrants or options to acquire, any such shares, Company
voting debt or convertible securities, other than (a) issuances of Shares upon
the exercise of options that are outstanding on the date of the Merger Agreement
or (b) the issuance of Shares upon the exercise of warrants that are outstanding
on the date of the Merger Agreement; (vii) make or propose to make any changes
in its Certificate of Incorporation or Bylaws; (viii) merge or consolidate with,
or acquire any equity interest in, any corporation, partnership, association or
other business organization, or enter into an agreement with respect thereto;
(ix) acquire or agree to acquire any assets of any corporation, partnership,
association or other business organization or division thereof, except for the
purchase of inventory and supplies in the ordinary course of business; (x)
create or otherwise permit to exist any subsidiary of the Company; (xi) sell,
lease, encumber or otherwise dispose of, or agree to sell, lease (whether such
lease is an operating or capital lease), encumber or otherwise dispose of, any
of its assets except dispositions in the ordinary course of business consistent
with past practice which are not material, individually or in the aggregate, to
the Company; (xii) authorize, recommend, propose or announce an intention to
adopt a plan of complete or partial liquidation or dissolution of the Company;
(xiii) take or agree to take any action that is reasonably likely to result in
any of the Company's representations or warranties contained in the Merger
Agreement being untrue in any material respects or any of the Company's
covenants contained in the Merger Agreement not being satisfied in all material
respects; (xiv) increase in any manner the compensation of directors, officers
or key employees, pay or agree to pay any pension, retirement allowance or other
employee benefit not required or contemplated to be paid prior to the effective
time of the Merger by any of the existing benefit plans or employee arrangements
as in effect on the date of the Merger Agreement to any such director, officer
or key employee, enter into any new, or materially amend any existing,
employment, severance or termination agreement with any such director, officer
or key employee or, except as may be required by law, become obligated under any
new employee benefit plan or employee arrangement, which was not in existence on
the date of the Merger Agreement, or amend any such plan or arrangement in
existence on the date of the Merger Agreement if such amendment would have the
effect of materially enhancing any benefits thereunder; (xv) assume or incur
(which shall not be deemed to include entering into credit agreements, lines of
credit or similar arrangements until borrowings are made under such
arrangements) any
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indebtedness for borrowed money or act as guarantor for any such indebtedness,
issue or sell any debt securities or warrants or rights to acquire debt
securities or guarantee any debt securities of others, or enter into any lease
(whether such lease is an operating or a capital lease) or create any mortgages,
liens or security interests or other encumbrances on Company property or enter
into any "keep well" or other agreement or arrangement to maintain the financial
condition of another person except for indebtedness incurred by the Company from
time to time for working capital purposes in the ordinary course of business
under the Company Credit Agreement (as defined under "Financial Arrangements");
(xvi) enter into, modify, rescind, terminate, waive, release or otherwise amend
in any material respect any of the terms or provisions of any material contract;
(xvii) take any action, other than in the ordinary course of business consistent
with past practice or as required by the Commission or by law, with respect to
accounting policies, procedures and practices; or (xvii) incur any capital
expenditures other than those set forth on a schedule to the Merger Agreement.
Other Agreements. The Company, Parent and Purchaser have agreed to use
their respective commercially reasonable efforts to take, or cause to be taken,
all action and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by the Merger Agreement subject to Stockholder
approval, including cooperating fully with the other party, including by
provision of information and making of all necessary filings in connection with,
among other things, approvals under the HSR Act. Parent and the Company have
also made certain agreements regarding publicity, access to information and
confidentiality.
No Solicitation. From and after the date of the Merger Agreement until the
termination thereof, neither the Company, nor any of its officers, directors,
employees, representatives, agents or affiliates (including, without limitation,
any investment banker, attorney or accountant retained by the Company) (such
officers, directors, employees, representatives, agents, affiliates, investment
bankers, attorneys and accountants being collectively referred to as
"Representatives"), will, directly or indirectly, initiate, solicit or encourage
(including by way of furnishing information or assistance), or take any other
action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal
(as defined below), or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain an Acquisition Proposal or agree to or endorse any Acquisition Proposal,
and neither the Company nor any of its subsidiaries will authorize or permit any
of its Representatives to take any such action, and the Company shall notify
Parent orally (within one business day) and in writing (as promptly as
practicable) of all of the relevant details relating to, and all material
aspects of, all inquiries and proposals which it or any of its subsidiaries or
any of their respective Representatives may receive relating to any of such
matters and, if such inquiry or proposal is in writing, the Company shall
deliver to Parent a copy of such inquiry or proposal as promptly as practicable;
provided, however, that the Board is not prohibited from (i) furnishing
information to, or entering into discussions with, any person or entity that
makes an unsolicited written bona fide Acquisition Proposal (provided that such
person or entity has the necessary funds or commitments to provide the funds to
effect such Acquisition Proposal) if, and only to the extent that, (A) the
Board, after consultation with and based upon the advice of independent legal
counsel (who may be the Company's regularly engaged independent legal counsel),
determines in good faith that such action is necessary for the Board to comply
with its fiduciary duties to Stockholders under applicable law, (B) prior to
taking such action, the Company (x) provides reasonable prior notice to Parent
to the effect that it is taking such action and (y) receives from such person or
entity an executed confidentiality agreement in reasonably customary form, and
(C) the Company shall promptly and continuously advise Parent as to all of the
relevant details relating to, and all material aspects of, any such discussions
or negotiations; or (ii) failing to make or withdrawing or modifying its
recommendation to the Stockholders to approve the Merger Agreement and the
transactions contemplated thereby, including the Merger, and to accept the Offer
and tender their Shares pursuant thereto, if there exists an Acquisition
Proposal and the Board, after consultation with and based upon the advice of
independent legal counsel (who may be the Company's regularly engaged
independent counsel), determines in good faith that such action is necessary for
the Board to comply with its fiduciary duties to Stockholders under applicable
law; or (iii) making a "stop-look-and-listen" communication with respect to the
Offer or the Merger Agreement of the nature contemplated in, and otherwise in
compliance with, Rule 14d-9 under the Exchange Act as a result of an Acquisition
Proposal meeting the
24
<PAGE> 26
requirements of clause (i) above. The term "Acquisition Proposal" means any of
the following transactions (other than the transactions among the Company,
Parent and Purchaser contemplated in the Merger Agreement) involving the
Company: (i) any merger, consolidation, share exchange, recapitalization,
business combination or other similar transaction; (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of 25% or more of the
assets of the Company, computed on the basis of book value, in a single
transaction or series of transactions; (iii) any tender offer or exchange offer
for 10% or more of the outstanding shares of capital stock of the Company or the
filing of a registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), in connection therewith; or (iv) any public announcement
of a proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
Fees and Expenses. The Merger Agreement provides that all costs and
expenses incurred in connection with the Merger Agreement and the transactions
contemplated thereby shall be paid by the party incurring such expense, except
as otherwise provided in the Merger Agreement and except with respect to claims
for damages incurred as a result of the breach of the Merger Agreement. In
addition, the Company has agreed to pay Parent a fee in immediately available
funds equal to $2,500,000 (less the amount of certain reimbursable expenses)
upon the termination of the Merger Agreement in accordance with the terms
thereof if any of the following events occurs (each, a "Trigger Event"): (i) the
Board shall have (A) withdrawn or adversely modified in any material respect or
taken a public position materially inconsistent with, its approval or
recommendation of the Offer, the Merger or the Merger Agreement or (B) made a
"stop-look-and-listen" communication as provided in the Merger Agreement less
than five business days prior to the 45th calendar day after the date of the
commencement of the Offer, or (C) failed to reaffirm its approval or
recommendation of the Offer, the Merger or the Merger Agreement in the event an
Acquisition Proposal has been made to the Company prior to the consummation of
the Offer; or (ii) an Acquisition Proposal has been recommended or accepted by
the Company or the Company shall have entered into an agreement (other than a
confidentiality agreement as contemplated by the Merger Agreement) with respect
to an Acquisition Proposal. In the event (i) the Merger Agreement shall be
terminated in accordance with its terms, (ii) on or after August 15, 1996 and at
or prior to such termination, any person or group of persons shall have made an
Acquisition Proposal (each such person or member of a group of such persons
being referred to as a "Designated Person"), and (iii) either (A) a transaction
contemplated by the term "Acquisition Proposal" shall be consummated, on or
before the one year anniversary of the termination of the Merger Agreement, with
any Designated Person or any affiliate of any Designated Person or (B) the
Company shall enter into an agreement, on or before the one year anniversary of
the termination of the Merger Agreement, with respect to an Acquisition Proposal
with any Designated Person or any affiliate of any Designated Person and a
transaction contemplated by the term "Acquisition Proposal" shall thereafter be
consummated with such Designated Person or affiliate thereof, then the Company
shall pay to Parent a fee in immediately available funds equal to $2,500,000
(less the amount of certain reimbursable expenses and any amount paid in
connection with the termination of the Merger Agreement upon the occurrence of a
Trigger Event), such fee to be paid contemporaneously with the consummation of
such contemplated transaction. The Company also agreed to pay to Parent upon
demand an amount, not to exceed $750,000, to reimburse Parent and Purchaser for
their Expenses (as defined in the Merger Agreement), if certain conditions to
the Offer were not met as of the final expiration of the Offer and Parent was
not then in material breach of the Merger Agreement. Any amounts payable to
Parent pursuant to the foregoing that are not paid when due shall bear interest
at the rate of 9% per annum from the date due through and including the date
paid.
Conditions to the Merger. Pursuant to the Merger Agreement, the respective
obligation of each party to effect the Merger is subject to the satisfaction
prior to the Closing Date (as defined below under "Timing") of the following
conditions: (i) the Merger Agreement and the Merger shall have been approved and
adopted by the affirmative vote or written consent of the holders of a majority
of the outstanding Shares entitled to vote thereon if such vote is required by
applicable law; provided that Parent and Purchaser shall vote all Shares
purchased pursuant to the Offer in favor of the Merger, (ii) the waiting period
(and any extension thereof) applicable to the Merger under the HSR Act shall
have been terminated or shall have expired, and no restrictive order or other
requirements shall have been placed on the Company, Parent, Purchaser or the
Surviving Corporation in connection therewith, (iii) no temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition
25
<PAGE> 27
preventing the consummation of the Merger shall be in effect; provided, however,
that prior to invoking the condition, each party shall use all commercially
reasonable efforts to have any such decree, ruling, injunction or order vacated,
(iv) no statute, rule, order, decree or regulation shall have been enacted or
promulgated by any government or governmental agency or authority which
prohibits the consummation of the Merger; and (v) Purchaser shall have accepted
for payment and paid for the Shares tendered in the Offer such that, after such
acceptance and payment, Parent and its affiliates shall own, at consummation of
the Offer, 65% of the outstanding Shares of the Company on a fully diluted
basis; provided that this condition shall be deemed to have been satisfied if
Purchaser fails to accept for payment and pay for Shares pursuant to the Offer
in violation of the terms and conditions of the Offer.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of the Company or Parent by (a) mutual written consent of the
Company and Parent or by mutual action of their respective Boards of Directors;
(b) either the Company or Parent, (i) prior to consummation of the Offer if
there has been a breach of any representation, warranty, covenant or agreement
on the part of the other set forth in the Merger Agreement, which breach has not
been cured within three business days following receipt by the breaching party
of notice of such breach, or (ii) if any permanent injunction or other order of
a court or other competent authority preventing the consummation of the Offer or
the Merger shall have become final and non-appealable; (c) either the Company or
Parent, so long as such party has not breached its obligations under the Merger
Agreement, if the Merger shall not have been consummated promptly following the
resolution of all questions or comments raised by the Commission in connection
with its review of the Information Statement; provided, that such right to
terminate the Merger Agreement under this clause shall not be available to any
party whose failure to fulfill any obligation under the Merger Agreement has
been the cause of or resulted in the failure of the Merger to occur on or before
such date; (d) Parent in the event that a Trigger Event has occurred prior to
the consummation of the Offer (see "Fees and Expenses" above); (e) Parent in the
event an Acquisition Proposal has been made to the Company prior to the
consummation of the Offer and the Company shall fail to publicly reaffirm its
approval or recommendation of the Offer, the Merger and the Merger Agreement on
or before the fifth business day following the date on which Parent shall
request such reaffirmation; (f) Parent, if the Offer terminates, is withdrawn,
abandoned or expires by reason of the failure to satisfy any of the conditions
to the Offer; (g) the Company, if the Offer shall have expired or have been
withdrawn, abandoned or terminated without any Shares being purchased by
Purchaser thereunder on or prior to the 45th calendar day after the date of
commencement of the Offer; (h) by the Company, if the Board of Directors of the
Company shall fail to make or withdraw or modify its recommendation that the
stockholders approve the Merger Agreement and the Merger and accept the Offer
and tender their Shares pursuant thereto if there exists an Acquisition Proposal
and the Board of Directors of the Company, after consultation with and based
upon the advice of independent legal counsel (who may be the Company's regularly
engaged independent counsel), determines in good faith that such action is
necessary for the Board of Directors of the Company to comply with its fiduciary
duties to holders of Shares under applicable law. In the event of termination of
the Merger Agreement by either the Company or Parent as provided therein, the
Merger Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Purchaser or the Company, or their respective
affiliates, officers, directors or shareholders, except to the extent that such
termination results from the material breach by a party to the Merger Agreement
of any of its representations or warranties, or any of its covenants or
agreements (subject to certain limitations) or as otherwise provided in the
Merger Agreement.
Indemnification. The Merger Agreement provides that the Company shall, and
from and after the Effective Time, the Surviving Corporation shall, indemnify,
defend and hold harmless each person who was at the date of the Merger
Agreement, or had been at any time prior to the date of the Merger Agreement or
who becomes prior to the Effective Time, an officer or director of the Company
(the "Indemnified Parties") against all losses, claims, damages, costs, expenses
(including attorneys' fees and expenses), liabilities or judgments or amounts
paid in settlement with the approval of the indemnifying party (which approval
shall not be unreasonably withheld) of or in connection with any threatened or
actual claim, action, suit, proceeding or investigation based in whole or in
part on or arising in whole or in part out of the fact that such person is or
26
<PAGE> 28
was a director or officer of the Company whether pertaining to any matter
existing or occurring at or prior to the Effective Time and whether asserted or
claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), including all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to the Merger Agreement
or the transactions contemplated thereby, in each case to the full extent a
corporation is permitted under the Delaware General Corporation Law to indemnify
its own directors or officers, as the case may be, and the Company and the
Surviving Corporation, as the case may be, shall pay expenses in advance of the
final disposition of any such action or proceeding to each Indemnified Party to
the full extent permitted by law. All rights to indemnification, including
provisions relating to advances of expenses incurred in defense of any action or
suit, existing in favor of the Indemnified Parties with respect to matters
occurring through the Effective Time, shall survive the Merger and shall
continue in full force and effect for a period of not less than five years from
the Effective Time; provided, however, that all rights to indemnification in
respect of any Indemnified Liabilities asserted or made within such period shall
continue until the disposition of such Indemnified Liabilities.
Directors' and Officers' Insurance. For a period of two years after the
Effective Time, the Surviving Corporation shall cause to be maintained in effect
the current policies of directors' and officers' liability insurance maintained
by the Company (provided that Parent may substitute therefor policies of at
least the same coverage and amounts containing terms and conditions which are no
less advantageous in any material respect to the Indemnified Parties) with
respect to matters arising before the Effective Time, provided that the
Surviving Corporation shall not be required to pay an annual premium for such
insurance in excess of 150% of the last annual premium paid by the Company prior
to the date of the Merger Agreement, but in such case shall purchase as much
coverage as possible for such amount.
Amendment. Subject to applicable law, the Merger Agreement may be amended,
modified or supplemented only by written agreement of Parent, Purchaser and the
Company at any time prior to the Effective Time with respect to any of the terms
contained therein; provided, however, that after the Merger Agreement is
approved by the stockholders of the Company, no such amendment or modification
shall(i) reduce the amount or change the form of consideration to be delivered
to the holders of Shares, (ii) change the date by which the Merger is required
to be effected, or (iii) change the amounts payable in respect of the options or
warrants as set forth in the Merger Agreement.
Timing. The Merger Agreement provides that the closing of the Merger shall
occur on the second business day after satisfaction of the conditions set forth
in the Merger Agreement (the "Closing Date"). The Merger shall become effective
upon such filing or at such time thereafter as may be provided in the
certificate of merger to be filed with the Secretary of State of the State of
Delaware, as provided in the Delaware General Corporation Law, on the date of
the closing of the Merger or as soon as practicable thereafter.
The exact timing and details of the Merger will depend upon legal
requirements and a variety of other factors. Although Parent has agreed to cause
the Merger to be consummated on the terms set forth above, there can be no
assurance as to the timing of the Merger.
Delaware Law. The Company has elected in its charter to not be subject to
Section 203 of the DGCL. Accordingly, the restrictions of Section 203 of the
DGCL do not apply to the transactions contemplated by the Merger Agreement.
Section 203 of the DGCL prevents an "interested stockholder" (generally, a
stockholder owning 15% or more of a corporation's outstanding voting stock or an
affiliate or associate thereof) from engaging in a "business combination"
(defined to include a merger and certain other transactions) with a Delaware
corporation for a period of three years following the date on which such
stockholder became an interested stockholder unless (i) prior to such date, the
corporation's board of directors approved either the business combination or the
transaction which resulted in such stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in such
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the corporation's voting stock outstanding at the time the
transaction commenced (excluding shares owned by certain employee stock plans
and persons who are directors and also officers of the corporation) or (iii) on
or subsequent to such date, the business combination is approved by the
corporation's board of directors and authorized at an annual or special meeting
of stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding
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<PAGE> 29
voting stock not owned by the interested stockholder. As described above, the
foregoing description of Section 203 of the DGCL does not apply to the Merger.
Other Matters
Management Agreements. The Company and Bart S. Brodkin, the President and
Chief Executive Officer of the Company, are parties to the Brodkin Management
Agreement, which sets forth the principal terms of Mr. Brodkin's employment by
the Company. The Company and Rick Ferguson, the Chief Financial Officer of the
Company, are parties to the Ferguson Management Agreement, which provides for
the payment of certain amounts to Mr. Ferguson upon the termination of his
employment under certain circumstances following a "change of control" of the
Company. See "THE MERGER -- Interests of Certain Persons in the Merger." As a
condition to the execution and delivery of the Merger Agreement, Parent required
(i) the Company and Mr. Brodkin to enter into an agreement amending certain of
the terms of the Brodkin Management Agreement (the "Brodkin Amendment") and (ii)
the Company and Mr. Ferguson to enter into an agreement terminating the Ferguson
Management Agreement (the "Ferguson Agreement"). Parent is a third party
beneficiary of the Brodkin Amendment and Ferguson Agreement, neither of which
may be amended without Parent's prior written consent. Both the Brodkin
Amendment and the Ferguson Agreement became effective immediately prior to the
Purchaser's purchase of Shares in the Offer; absent such purchase, the Brodkin
Management Agreement and the Ferguson Management Agreement would have remained
in full force and effect.
The Brodkin Amendment, among other things, significantly amended certain of
the provisions regarding severance payments to, and continued fringe benefits
for, Mr. Brodkin following the termination of his employment. In this regard,
the special provisions requiring the Company to pay to Mr. Brodkin an amount
equal to three times his base salary and bonus and to maintain certain benefits
for him for 36 months if his employment is terminated under certain
circumstances following a "change of control" of the Company have been
eliminated. In addition, under the Brodkin Amendment, the circumstances
constituting "good reason" under which Mr. Brodkin may resign and obtain
severance benefits have been significantly narrowed and certain procedural
requirements for the benefit of Mr. Brodkin that would have been applicable if
he had been terminated under certain circumstances constituting "cause" have
been terminated. Also, the Brodkin Amendment eliminated Mr. Brodkin's right to
receive certain severance payments in the event he resigns other than for "good
reason". The Brodkin Management Agreement provided for automatic successive one
year renewals, absent contrary notice by the Company or Mr. Brodkin; pursuant to
the Brodkin Amendment, the automatic extension is limited to one additional
year, and such extension is still subject to neither party giving contrary
notice. The Brodkin Amendment did not alter the base salary provided under the
Brodkin Management Agreement or Mr. Brodkin's rights to participate in the
Company's annual bonus program. The Ferguson Agreement terminated the Ferguson
Management Agreement.
The foregoing summaries of certain of the terms of the Brodkin Amendment
and the Ferguson Agreement are not complete descriptions of the respective
agreements and are qualified in their entireties by reference to the full texts
thereof, which are incorporated by reference herein and copies of which have
been filed with the Commission as exhibits to the Company's Schedule 14D-9
relating to the Offer. The Brodkin Management Agreement, the Ferguson Management
Agreement, the Brodkin Amendment and the Ferguson Agreement may be examined, and
copies thereof may be obtained, as set forth under "Available Information"
below.
FINANCIAL ARRANGEMENTS
In connection with the consummation of the Offer, Parent entered into an
amendment to its existing Credit Agreement, dated as of February 18, 1993, among
Parent, TCB, as agent, and the various lenders that are parties thereto (such
amendment is referred to herein as the "Credit Agreement Amendment" and such
Credit Agreement, as in effect prior to the Credit Agreement Amendment, is
referred to herein as the Parent Credit Agreement"). Pursuant to the Amendment,
the term loan facility under the Credit Agreement was increased from $37.3
million to $115 million, the additional proceeds of which were to be used (i) to
fund the
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<PAGE> 30
purchase of Shares in the Offer, (ii) to fund the payment of the Merger
Consideration, (iii) to refinance certain existing debt of the Company, and (iv)
to pay fees and expenses incurred in connection with the Offer and the Merger.
In addition, pursuant to the Credit Agreement Amendment, the revolving credit
facility under the Credit Agreement, which provides for revolving borrowings of
up to $35 million at any time outstanding, was amended to permit the use of
proceeds thereunder for the foregoing purposes. In connection with the
consummation of the Offer, Parent borrowed approximately $72.7 million under the
amended term loan facility.
In connection with the consummation of the Offer, the Company executed and
delivered to Parent a promissory note providing for revolving borrowings by the
Company from Parent of up to $35 million at any time outstanding (the "Company
Note"). Parent advanced $23.4 million pursuant to the Company Note, the proceeds
of which were used to repay all indebtedness outstanding under the Credit
Agreement, dated as of August 2, 1996, among the Company, the lenders party
thereto and General Electric Capital Corporation (the "Company Credit
Agreement") and related fees and expenses. The Company Note is payable upon
demand by Parent. Amounts outstanding under the Company Note bear interest at
the "Alternate Base Rate" (as defined in the Parent Credit Agreement) as in
effect from time to time plus 1%.
Parent and Purchaser estimate that the total amount of funds required by
the Purchaser to fund the aggregate Merger Consideration payable in respect of
the remaining 1,219,513 Shares outstanding will be $14.6 million excluding any
fees and expenses related thereto.
BUSINESS
GENERAL
The Company, is among the largest beverage distributors in the United
States, and is one of the largest bottlers of Seven-Up in the United States. The
Company manufactures and distributes a broad range of beverage products in
Southern California, Central California, and in portions of Nevada and New
Mexico. The Company has the exclusive right within its territories to
manufacture and/or distribute Seven-Up (lemon-lime), Royal Crown (cola), A&W
(root beer and cream soda), Sunkist (orange and lemonade), Hawaiian Punch (fruit
punch), Schweppes (ginger-ale and mixers), Evian (imported still water), Perrier
(imported mineral water), Welch's (grape, strawberry and pineapple), Mistic
(teas and juices), Yoo-Hoo (chocolate drink) and in its New Mexico franchise
territory, Snapple (teas and juices). The Company's consolidated net sales in
1996 were $294,491,000, which includes $37,935,000 of net sales from the
Company's wholly-owned subsidiary, the Seven-Up/RC Bottling Company of Puerto
Rico, Inc. ("Puerto Rico"), which was divested in June 1996 in connection with
the Plan of Reorganization described below.
The Company competes as an independent bottler on the basis of its large
portfolio of franchised brands, its significant combined market share, its
ability to market, distribute and merchandise its products effectively and
favorable demographics within its territories. The Company's portfolio of
franchised brands consists of highly recognizable trademarks that are in almost
all cases the first ranking brand in their respective beverage flavor
categories. The Company's combined market share of its franchised brands and
products that are produced under contract manufacturing agreements, enables it
to realize purchasing, manufacturing, marketing and delivery efficiencies.
Additionally, the Company's territories have many attributes that contribute to
revenue growth in the beverage industry, including a favorable climate and a
high density of retail outlets in populous areas.
The Company's products are made available to its customers through a
network of distribution facilities that are strategically positioned within
major population areas, and it distributes essentially all of its products
directly to retail outlets through its direct-store-door ("DSD") distribution
system. Through its DSD distribution system, the Company provides efficient,
high-quality service to the more than 35,000 retail outlets that it serves.
These retail outlets include supermarkets, warehouse clubs, convenience stores
and other retail establishments that serve a combined population of over 30
million consumers.
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<PAGE> 31
The Company's business strategy is to manufacture and distribute a
franchised portfolio of leading trademarked beverages in each beverage flavor
category and to create an additional source of revenue through contract
manufacturing. In accordance with this strategy, its Liquitrend division
("Liquitrend") engages in contract manufacturing, which utilizes excess
production capacity by manufacturing beverage products for a variety of small,
independent franchisors, retailers selling private label products and
wholesalers that distribute private label products for consumption both inside
and outside of the United States.
On May 13, 1996, the Company and its then parent, Beverage Group
Acquisition Corporation, a Delaware corporation ("BGAC"), filed petitions for
relief under Chapter 11 of the United States Bankruptcy Code. BGAC had no
independent operations and was a wholly-owned subsidiary of WB Bottling
Corporation ("WB Bottling"), a privately held Delaware corporation. On May 16,
1996, the Company and BGAC filed their Joint Plan of Reorganization;
subsequently, the Company and BGAC filed their First Amended Joint Plan of
Reorganization dated June 19, 1996 (the "Plan of Reorganization"). The Plan of
Reorganization was consummated on August 15, 1996. Pursuant to the Plan of
Reorganization, $140,000,000 aggregate principal amount of 11.5% Senior Secured
Notes Due 1999 of the Company (the "Senior Secured Notes"), together with the
accrued interest thereon, was discharged. In connection with such discharge, the
holders of the Senior Secured Notes received 98% of the equity of the Company
(subject to dilution to the extent certain warrants and options to be granted by
the Company are exercised, and $55 million of proceeds from the sale of the
stock of Puerto Rico. In addition, BGAC was merged into the Company.
The Company's executive offices are located at 3220 East 26th Street,
Vernon, California 90023. The telephone number at the Vernon location is (213)
268-7779.
BEVERAGE INDUSTRY
Soft drinks are the most widely consumed beverage in the United States.
Retail sales for the American soft drink industry in 1995 were estimated to be
approximately $52 billion, of which approximately 58% were cola sales.
Historically, the soft drink industry has been an industry of continual change
and evolution. It is characterized by a relative absence of technological risk,
lack of foreign competition and significant barriers to entry, primarily due to
geographic exclusivity agreements with franchisors. Its competitive climate
requires bottlers and franchisors to adapt quickly to market challenges,
including changes in consumer tastes and package preferences and continuing
developments in manufacturing and distribution methods.
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<PAGE> 32
TERRITORIES AND PRODUCTS
The warm climate in the Company's territories considerably influences the
trend towards higher per capita consumption of beverages. In addition, the high
density of retail outlets in populous areas of its territories results in lower
distribution costs.
Unlike its principal competitors, the Company does not rely on any one
trademark for a substantial majority of its sales. This diversification results
in each brand receiving significant attention from the Company while providing
the franchisor with the marketing and merchandising benefits of a larger
bottler. The Company is committed to the profitability of its DSD business and
does not seek to gain market share at the expense of profitability. The
following table shows the percentage of DSD case sales for 1996 for each of the
brands distributed in its territories:
<TABLE>
<CAPTION>
BRAND %
----- -----
<S> <C>
Seven-Up.................................................... 45.1
A&W Brands.................................................. 10.6
Royal Crown................................................. 9.6
Sunkist..................................................... 8.1
Evian....................................................... 5.7
Hawaiian Punch.............................................. 5.6
Welch's..................................................... 3.9
Schweppes................................................... 2.9
Perrier..................................................... 1.4
Other (including fountain).................................. 7.1
-----
100.0
=====
</TABLE>
Liquitrend manufactures a variety of beverage products pursuant to
short-term and long-term contracts. Liquitrend also exports beverage products to
Mexico and the Far East.
The Company's portfolio of franchised brands consists of highly
recognizable trademarks that are market leaders in their respective beverage
flavor categories. The Company believes that it is able to achieve a competitive
number of promotional displays and a competitive amount of shelf space in retail
outlets because of the strength and diversification of the trademarks in its
brand portfolio.
The Company's brand portfolio has a significantly higher combined market
share of the beverages sold in its territories as compared to most other
independent bottlers. However, Coca-Cola and Pepsi-Cola together account for
over 60% of the soft drinks sold in these territories. The Company believes that
it is able to effectively compete in its territories because its combined market
share gives it marketing and merchandising advantages that it would not
otherwise have with a smaller or less diversified portfolio.
BOTTLING RIGHTS
The Company has agreements with franchisors pursuant to which it has the
exclusive right to manufacture and/or distribute certain beverage products in
specified territories, and generally has non-exclusive rights to produce,
distribute and market certain soft drink syrups in premix (ready-to-use) and
postmix (concentrated) form for fountain sales.
Syrup concentrates are one of the primary ingredients of beverage products.
Concentrate formulas are highly proprietary and are owned solely by the
respective franchisors. The franchisors manufacture and sell to the Company
concentrates from which the beverage products are produced. The franchisors are
entitled to set the price for their concentrate unilaterally. Under the
franchise agreements, in connection with the marketing and distribution of the
beverage products, the Company has the right to use the trade names and
trademarks and associated patents, copyrights, designs and labels, all of which
are owned by the respective franchisors.
31
<PAGE> 33
The Company considers its franchise agreements with Cadbury Beverages North
America (trade names of Seven-Up, A&W, Sunkist, Welch's, Schweppes, Canada Dry
and Crystal Light), Royal Crown Cola Co., and Great Brands of Europe, Inc. to be
material to its operations. These and other franchise agreements generally
contain certain affirmative obligations that include, but are not limited to,
maintenance of sufficient production and distribution facilities to satisfy
fully the demand for the various beverage products in its territories,
maintenance of quality control standards as prescribed by the franchisor,
maintenance of sound financial capacity, use of best efforts to promote sales,
submission of annual marketing, management, and advertising plans for approval
(which approval may not be unreasonably withheld) and the submission of reports
as to the implementation of these plans. The agreements generally prohibit the
Company from engaging in specific activities, including, but not limited to,
distributing or selling the beverage products outside the specified franchise
territories, producing or handling competing products or other products or
packages that would imitate, infringe upon or cause confusion with the beverage
products, trade dress, containers or trademarks of the franchisor and assigning,
transferring or pledging an agreement, or any interest therein, whether
voluntarily, involuntarily or by operation of law, without prior consent. No
franchisor has ever terminated any of the Company's franchise agreements as a
result of the breaching of any provisions thereof and the Company considers its
relationship with each of the franchisors to be satisfactory.
However, on July 28, 1995, the Company received a notice of termination of
the distribution agreement dated September 12, 1990 (the "Distribution
Agreement") with Great Brands of Europe, Inc. ("GBE"). The Distribution
Agreement grants the Company the exclusive right to distribute Evian Water in
Southern California. In its notice of termination, GBE stated its belief that
termination was justified, based on the Company's decision to suspend interest
payments on its Senior Secured Notes. Additionally, the termination notice
stated that the Company would be allowed to distribute Evian Water on an at will
basis. GBE's notice of termination was not effective until the expiration of the
contractually specified cure period. Before the cure period (as extended by
agreement between the parties) expired, the Company and GBE reached a settlement
pursuant to which the termination notice was withdrawn and the Distribution
Agreement was amended. The Distribution Agreement, as amended on January 12,
1996, grants certain termination rights to GBE in the event that certain
execution performance standards are not met.
The Company's franchise agreements are either perpetual or for several
years with automatic renewals. A franchisor may terminate the rights to produce,
market and distribute products upon an event of default by the Company and in
certain other limited circumstances. Events of default include, but are not
limited to, failure to fulfill the affirmative obligations or violations of the
prohibited activities as described above. The Company generally may terminate an
agreement at any time without cause by giving proper notice to the franchisor.
MANUFACTURING
The Company produced 34.8 million cases in 1996 in its Vernon and Buena
Park, California, and its Albuquerque, New Mexico manufacturing plants.
The Company's largest manufacturing plant is located in Vernon, California,
which is a combination manufacturing and distribution facility built in 1977.
The Vernon plant operates two bottle lines and two can lines that can produce 42
million cases annually. The Company's Buena Park plant is diversified with four
separate lines that produce cans, bottle, fountain products and pasteurized
products. The Buena Park facility has a 27 million annual case capacity. The
Albuquerque plant is a combined manufacturing and distribution facility that is
capable of producing 3 million cases annually with one can line and one bottle
line.
The manufacturing process consists of receiving, batching, filling and
packaging product. Empty containers are received in bulk and are moved from the
supplier's trailers to de-palletizing equipment, which automatically places the
empty containers on conveyors that carry them to the filling equipment. Treated
water, concentrate, sweetener and additives are combined in large stainless
steel tanks and are mixed, or "batched," with a motorized impeller. Each
respective batch is then carbonated and sent to the filling equipment. At the
same time, containers arrive by conveyor and are rinsed to remove any
particulate matter. At the Vernon and Buena Park facilities, the containers are
"air-rinsed" using ionized air and vacuum to remove dust particles. The filling
equipment fills the air-rinsed containers with batched product at extremely
32
<PAGE> 34
high speeds. At the Vernon and Buena Park facilities, the containers are filled
with batched product at ambient water temperature. This warm-fill process
eliminates costs associated with refrigeration of the product (to reduce foaming
in the filling process) and its subsequent warming (to reduce packaging damage
caused by condensation). The filled cans and bottles are then automatically
scanned or manually inspected to test filling level and cap or end placement.
Cans are either packaged in multi-pack cartons or in corrugated trays and
fastened with plastic rings. Bottles are usually packaged in returnable plastic
shells. Each packaged case is then automatically transported to a "palletizer"
where it is stacked on a wooden pallet to be stored before distribution.
The Company purchases concentrate for its franchised brands directly from
franchisors in accordance with franchise agreements. Price increases for
concentrate are not limited by such agreements, but are imposed unilaterally by
franchisors and have been historically 3 to 5% annually. The majority of the
Company's other raw materials are purchased through a national cooperative of
"non-Coke/Pepsi" bottlers that meet minimum volume requirements. The cooperative
leverages the combined purchasing volume of its members in the negotiation of
raw material costs. Most raw material contracts are for a period of one year or
less. As a member of the cooperative, the Company believes that its costs for
raw materials are comparable to those of its competitors. Key raw materials and
their approximate percentage of material costs for 1996 include: concentrate
(32.3%); aluminum cans (21.9%); purchased finished goods (including Evian,
Snapple, Perrier and Yoo-Hoo) (18.6%); plastic bottles (9.0%); sweetener (8.4%);
glass bottles (2.6%); packaging (1.9%); and other (5.3% including bottle
closures and additives). The Company believes that adequate alternative sources
exist for the majority of its raw materials with the exception of concentrate
and purchased finished goods.
The Company maintains a stringent quality control program. Automatic
quality testing is performed on all of its products prior to and during the
bottling process. A microbiologist and skilled technicians are kept on staff to
test product, containers and packaging.
The Company maintains an inventory management program that minimizes raw
material inventory carrying costs and potential spoilage. In addition, only one
day's supply of certain raw materials are kept on hand, including sweetener,
cans and bottles.
SALES AND DISTRIBUTION
The Company's sales methods differ according to its geographic markets and
specific customer segments with sales oriented towards high-volume customers
such as large retail chains, which results in economies of scale in selling and
distribution expenses. Product orders are taken in advance by a salesperson and
are generally delivered and merchandised within 24 hours by other employees.
The Company utilizes its distribution channels to maximize market
penetration with its principal method of distribution being DSD. DSD is the
Company's preferred method of distribution because the Company has greater
control over the sales, marketing and merchandising of its products. Deliveries
are made by the Company's fleet of delivery vehicles located at each of its
distribution facilities.
The scope of Liquitrend's activities may be limited by the terms of the
Company's franchise agreements and excess manufacturing capacity as Liquitrend
utilizes this excess capacity to indirectly participate in other geographic
markets. Liquitrend manufactures products for beverage or retail grocery
companies that lack sufficient volume to justify the capital investment of a
manufacturing plant.
The Company makes cold drinks available to consumers through vending
machines, fountain equipment and visi-coolers (bottler identified refrigerated
cabinets). Vending machines are either sold, leased or loaned to retail outlets
or distributors who are responsible for machine maintenance and product
restocking. Visi-coolers are generally loaned to large retail outlets and
convenience stores. In addition, the Company is involved in full-service
vending. This process requires that the Company fill and service these vending
machines and that a commission on sales is paid to the owner of the
establishment at which the vending machine is placed. Fountain equipment
dispenses products in restaurants, bars, amusement parks, theaters and other
similar locations. The Company sells either premix, a ready-to-use product, or
postmix, a concentrated
33
<PAGE> 35
product, to retailers in stainless steel or disposable containers for use in
fountain equipment. However, the Company's fountain market share is not
significant.
During 1996, no single customer accounted for 10% or more of the Company's
sales, and the Company is not dependent on any single customer. A significant
portion of the Company's sales are made to large retail chains. However, because
consumer demand requires these chains to stock the Company's products and
because they are the only distributor of its products within its territories,
the Company does not expect any of these large retail chains to discontinue its
products.
MARKETING
The marketing of beverage products is the primary basis of competition
among soft drink bottlers. Successful bottlers must competitively price its
products, creatively advertise in their territories and effectively execute
promotional programs. The Company's marketing efforts are directed towards brand
management, key account management, promotional activities and merchandising.
The Company believes that its marketing programs allow it to compete effectively
in its markets.
Marketing programs for each of the Company's franchised brands are
coordinated with the franchisors by its brand management group. National
advertising campaigns are developed by the franchisors, while the Company's
brand managers develop local advertising campaigns, implement brand development
strategies, direct promotional activities on a company-wide basis and monitor
marketing support in accordance with annual marketing agreements with the
franchisors.
The Company's success is closely tied to its on-going relationships with
its key accounts. Key account managers are responsible for coordinating
promotional activities for a select group of accounts. These activities include
placing "feature" newspaper advertisements that coincide with competitive
pricing programs, obtaining authorization from the customer for new products and
packages, and designing customer promotional programs to meet specific customer
needs.
A significant portion of the Company's promotional efforts focus on
off-invoice allowances, newspaper advertising and coupons. The goal of these
activities is to competitively position the Company's brands in the marketplace
and to obtain "feature" retail advertisements and end-aisle displays in high
volume retail outlets. End-aisle and secondary displays are important marketing
tools because they are tied to special promotions and feature advertisements
that stimulate sales and encourage impulse purchases.
The Company's merchandising activities seek to maintain high visibility and
availability of its products in large grocery chains. Merchandisers are
responsible for building displays in conjunction with promotional programs and
restocking products on the beverage aisle of grocery stores. The Company assists
its customers in obtaining maximum space utilization of the beverage aisle by
employing a state-of-the-art computer program, which determines the most
efficient use of shelf space based on sales volume and consumer preferences for
product and packaging. This service is provided to its key accounts as a means
of enhancing its relationship with these customers.
Marketing expenditures are incurred by the Company and it's franchisors and
through cooperative arrangements between the two. Retail promotional programs
are the Company's most significant marketing expenditures and are paid for by
the Company and supported through cooperative arrangements with its franchisors.
National media advertising is funded by the Company's franchisors, while local
media advertising is funded by the Company or through cooperative arrangements.
COMPETITION
The soft drink industry is highly competitive. Over the past decade, the
bottling industry has undergone significant horizontal consolidation (bottlers
acquiring bottlers) and vertical consolidation (franchisors acquiring
franchisors). Competition among bottlers is dependent on price, volume,
advertising, promotional incentives and franchisor subsidies.
The Company's principal competitors are Coca-Cola Enterprises, Inc. ("CCE")
and the Pepsi-Cola Company ("COBO"), each of which is closely affiliated with
its respective syrup company. Price competition between CCE and COBO has
resulted in a consistent market-wide erosion of earnings over the past ten
years.
34
<PAGE> 36
The Company competes in its markets by balancing the various elements that
impact market share and profitability, and believes that long-term profitability
is closely tied to market share stability. Additionally, the Company attempts to
remain a "low-cost producer" through selected investments in manufacturing and
distribution technology.
EMPLOYEES
The Company employed 1,314 employees as of December 31, 1996. A majority of
these employees (58%) are hourly workers covered by collective bargaining
agreements. Various local chapters of the International Brotherhood of
Teamsters, Chauffeurs, Warehousemen and Helpers of America represent employees
at Las Vegas, Santa Maria and San Diego under contracts expiring in 1998, 1999
and 2001, respectively. The Company has not had any strikes or work stoppages in
the past 20 years and considers its relationship with its employees to be
satisfactory.
On February 13, 1997, employees covered by the United Industrial Workers
elected to be represented by the Amalgamated Industrial Workers Union. The
Company does not expect that this event will have a significant impact on its
future financial performance or the relationship with its employees.
GOVERNMENT REGULATION
The production, distribution and sale of many of the Company's products are
subject to the Federal Food, Drug and Cosmetic Act, the Occupational Safety and
Health Act, various Federal environmental statutes and various other Federal,
state and local statutes regulating the production, sale, safety, advertising,
labeling and franchising of beverages.
California imposes a recycling fee on all containers of carbonated
beverages. The fee is $.025 per container holding 24 ounces or less and $.05 per
container holding 25 ounces or more, which may automatically be increased if
target recycling rates are not reached. Containers of carbonated beverages must
clearly display specific information, which informs consumers that the fee will
be used exclusively for recycling efforts. The Company is required to pay the
fee, but it is included on the invoice for products and assessed to the consumer
at the retail level. The Company believes that future fee increases will be
minimal because of the success of California's recycling program. However, a
significant increase in the fee could materially decrease consumption of
carbonated beverages in California.
Substantially all of the Company's facilities are subject to federal, state
and local laws regulating the environment. Compliance with these laws has not
had any material effect upon the capital expenditures, net income or competitive
position of the Company. Costs of compliance with existing and future
environmental laws cannot be predicted with any degree of certainty and may
significantly affect the Company's operations.
The Company does not presently sell products in any state that requires
deposits on bottle or can containers, but operating costs could be significantly
affected if a national container deposit law were to be implemented.
PROPERTIES
The Company's headquarters are located in Vernon, California, and it owns
two combination manufacturing and distribution facilities, located in Vernon,
California and Albuquerque, New Mexico and one manufacturing facility located in
Buena Park, California. The Company has eleven additional distribution
facilities, of which six are owned (located in Bakersfield, Orange, San Diego,
San Fernando and Santa Maria, California and Las Vegas, Nevada) and five are
leased (located in Fresno, El Centro, Oxnard, Redlands and Vernon, California).
The leased facilities are subject to customary commercial leases with terms
expiring between 1997 and 2003. The Company believes that its owned and leased
facilities are sufficient to meet its operating requirements in the foreseeable
future.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other than those that
occur in the normal course of business.
35
<PAGE> 37
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company. The
data for the periods from January 1, 1996 through August 15, 1996 and from
August 16, 1996 through December 31, 1996 and for the years ended December 31,
1994 and 1995, and the data as of December 31, 1995 and 1996, were derived from
the Company's Consolidated Financial Statements included elsewhere in this
Information Statement and should be read in conjunction with those financial
statements and notes thereto. The financial statements were audited by Arthur
Andersen LLP, independent public accountants, whose report with respect thereto
appears elsewhere in this Information Statement.
<TABLE>
<CAPTION>
REORGANIZED
COMPANY(a) PREDECESSOR COMPANY(a)
----------- ----------------------------------------------------
8/16-12/31 1/1-8/15 YEARS ENDED DECEMBER 31,
----------- -------- -----------------------------------------
1996 1996 1995 1994 1993 1992
----------- -------- -------- -------- -------- --------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales....................... $ 91,647 $202,844 $396,725 $413,840 $371,062 $374,460
Cost of goods sold.............. 74,058 164,320 334,942 342,336 299,735 295,481
Administrative, marketing and
general expenses............. 13,575 27,841 47,935 48,437 47,342 49,876
Depreciation and amortization... 3,688 10,399 18,180 17,251 17,983 18,428
Restructure charges............. -- 547 5,015 -- -- --
-------- -------- -------- -------- -------- --------
Operating income (loss)......... 326 (263) (9,347) 5,816 6,002 10,675
Interest expense................ 838 12,871 23,057 21,626 19,938 21,222
Other income, net(b)............ 50 34,309 210 95 418 1,236
-------- -------- -------- -------- -------- --------
(Loss) income before income
taxes, reorganization expense
and extraordinary items...... (462) 21,175 (32,194) (15,715) (13,518) (9,311)
Reorganization expense(c)....... -- 13,011 -- -- -- --
Provision for income taxes...... -- 345 -- 185 -- --
-------- -------- -------- -------- -------- --------
(Loss) income before
extraordinary items.......... (462) 7,819 (32,194) (15,900) (13,518) (9,311)
Extraordinary (gain) loss(d).... -- (54,577) -- -- 826 11,223
-------- -------- -------- -------- -------- --------
Net (loss) income............... $ (462) $ 62,396 $(32,194) $(15,900) $(14,344) $(20,534)
======== ======== ======== ======== ======== ========
Loss per common share:
Net loss per common share....... $ .09 $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ======== ========
Weighted average common shares
outstanding.................. 5,077 -- -- -- -- --
======== ======== ======== ======== ======== ========
Balance Sheet Data:
Cash............................ $ 3,813 -- $ 5,949 $ 6,982 $ 3,746 $ 4,148
Property, plant and equipment,
net.......................... 56,790 -- 79,945 87,388 83,447 87,496
Total assets.................... 121,370 -- 192,133 243,834 210,198 212,407
Total debt(e)................... 22,545 -- 189,954 191,661 173,883 168,873
Stockholders' equity
(deficit).................... 52,663 -- (61,333) (29,139) (13,239) 1,105
Other Data:
Capital expenditures............ $ 3,356 $ 5,228 $ 5,208 $ 5,138 $ 5,446 $ 4,742
Book value per share............ 10.37(f) -- -- -- -- --
-------- -------- -------- -------- -------- --------
</TABLE>
36
<PAGE> 38
- ---------------
(a) On May 13, 1996, the Company and its then immediate holding company parent,
Beverage Group Acquisition Corporation, filed voluntary petitions for
reorganization relief under Chapter 11 of the United States Bankruptcy Code
in U.S. Bankruptcy Court for the District of Delaware. On August 15, 1996,
the Plan of Reorganization was consummated and the Company emerged as a
reorganized company from Chapter 11. Due to the reorganization and
implementation of fresh start reporting, the Consolidated Financial
Statements for the new reorganized company (period starting August 16, 1996)
are not comparable to those of the predecessor company. The predecessor
company included the Company and Puerto Rico through the date of disposition
of Puerto Rico, which was June 30, 1996.
(b) For the period January 1, 1996 through August 15, 1996, the amount consists
of five elements: 1) $31,715,000 related to the gain on the sale of Puerto
Rico; 2) $1,200,000 from Quaker Oats relating to the termination of the
Snapple contract manufacturing agreement; 3) $686,000 from the Plastic
Recycling Corporation of California for prior year overcharges relating to
plastic containers produced in California but shipped out-of-state; 4)
$597,000 gain on the property exchange of the Las Vegas distribution
facility with the Rio Hotel; and 5) $161,000 of income associated with a
Puerto Rican joint venture and gain on sale of fixed assets.
(c) The 1996 reorganization expense consists of three elements: 1) $7,207,000
write-down of goodwill associated with fixed life franchise agreements,
other intangibles, pallets and shells; 2) $4,904,000 of legal and other
professional fees incurred in implementing the Plan of Reorganization; and
3) $900,000 of other reorganization expense including employee severance and
relocation expense of the Carson distribution facility due to the
reorganization related termination of the facility lease.
(d) The 1996 extraordinary gain of $54,577,000 consists of two items: 1)
$55,087,000 of extraordinary gain resulting from the discharge of
indebtedness relating to the Senior Secured Notes ($140,000,000) and accrued
interest ($24,756,000) offset by the securities principal payment from the
sale of Puerto Rico ($55,000,000), the market value of the Common Stock
exchanged for the old debt ($52,062,000) and the write-off of old debt
issuance costs ($2,607,000); and 2) $510,000 relating to the write-off of
old revolver debt issuance and collateral fees.
The 1993 extraordinary items consist of accrued expenses for a prepayment
premium and the write-off of deferred financing charges related to the
revolving credit facilities replaced in February 1994. The 1992
extraordinary items consist of two transactions in connection with the
recapitalization on August 11, 1992: 1) the write-off of $7,762,000 of debt
issuance costs which was associated with debt which was retired early; and
2) a prepayment premium to the holder of the Company's senior subordinated
notes of $3,461,000.
(e) Total debt includes the current portion of long-term debt and capital lease
obligation.
(f) As of December 31, 1997, there were 5,000,000 Shares issued and outstanding.
Pursuant to the Company's Plan of Reorganization, the Company issued a
warrant to purchase up to 280,893 Shares at an exercise price of $7.30 per
Share. The book value per Share was determined assuming that the net shares
issuable upon the exercise of such warrant had been issued as of December
31, 1996. The Company's Plan of Reorganization also provided for the grant
of options to purchase up to 337,099 Shares at an exercise price of $7.30
per Share. None of those options had been granted as of December 31, 1996;
all of such options were granted in 1997. See "THE MERGER -- Interests of
Certain Persons in the Merger". Accordingly, the book value per Share does
not reflect the impact of the issuance of any Shares upon the exercise of
such options. Assuming such options had been issued as of December 31, 1996,
and that the net shares issuable upon the exercise of such options had been
issued as of such date, the net book value per Share would have been $10.17.
37
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's primary measurement of unit volume is DSD cases. DSD case
volume is defined as physical cases of beverage sold, including both
ready-to-serve premix and postmix fountain products that are sold in bulk
containers. Liquitrend's case volume is not combined in the Company's DSD case
volume, but is included in net sales, cost of goods sold, and operating income.
Liquitrend's net sales fluctuate from year to year based on the nature of the
typical contract manufacturing contract which is negotiated on a month-to-month
or quarter-to-quarter basis. Liquitrend's gross margins are significantly less
than the gross margins for DSD because Liquitrend revenue is based solely on a
contract manufacturing fee that is slightly more than the actual cost incurred
for direct labor and indirect plant costs associated with the incremental
Liquitrend case volume. The Liquitrend business is important to the Company's
operating income because the incremental revenue offsets a significant portion
of the fixed costs associated with the excess production capacity that exists
during the non-summer months with cyclically lower DSD case volume.
COMPARISON OF THE COMPANY'S 1996 RESULTS OF OPERATIONS WITH THE COMPANY'S 1995
RESULTS OF OPERATIONS
The following table set forth consolidated sales, cost of goods sold,
administrative, marketing and general expenses, interest expense and net income
for the twelve months ended December 31, 1996 and 1995. To facilitate a
meaningful comparison of the Company's operating performance for these periods,
the operations of the predecessor company and the reorganized company for 1996
have been combined. Additionally, the Company's Plan of Reorganization and
recent restructuring resulted in the elimination and/or downsizing of several
product lines, including the operations of Puerto Rico, Avalon, Snapple DSD,
Snapple Liquitrend and Cott Liquitrend. For purposes of analysis, these product
lines have been eliminated in the following tables to arrive at comparable
sales, cost of goods sold and administrative, marketing and general expenses.
<TABLE>
<CAPTION>
REORGANIZED
PREDECESSOR COMPANY
---------------------- -------------
1/1 -- 8/15 8/16 -- 12/31 COMBINED
1995 1996 1996 1996
-------- ----------- ------------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Consolidated net sales.................. $396,725 $202,844 $91,647 $294,491
Less:
Puerto Rico........................... 82,256 37,935
Avalon................................ 24,485 1,542
Hot-Fill Liquitrend................... 25,700 9,665
Cott Liquitrend....................... 4,784 1,067
Snapple DSD........................... 15,620 --
-------- --------
Comparable sales................... $243,880 $244,282
======== ========
</TABLE>
Consolidated net sales decreased to $294,491,000 in 1996 from $396,725,000
in 1995, or (26%). This decrease of $102,234,000 was due primarily to the
implementation of the Company's Plan of Reorganization which included the
disposition of its Puerto Rico subsidiary ($44,321,000) and the elimination of
the unprofitable businesses of Avalon warehouse distribution ($22,943,000),
Hot-Fill Liquitrend ($16,035,000) and Cott Liquitrend ($3,717,000).
Additionally, Southern California's core DSD net sales were impacted $15,620,000
due to the termination of the Snapple distribution agreement with the Quaker
Oats Company for the Southern California counties of Orange and San Bernardino
during the fourth quarter of 1995.
38
<PAGE> 40
Comparable net sales increased to $244,282,000 in 1996 from $243,880,000 in
1995. DSD case volume increased 3% (when adjusted to exclude the loss of Snapple
DSD volume) due to the Company's philosophy to become more price competitive in
the major grocery chain segment and the addition of the Mistic trademark
(natural teas and juices) which is owned by Triarc (owner of the Royal Crown
trademark). The higher selling price associated with the Mistic trademark offset
the costs associated with increased promotional activity in the major grocery
chain segment, resulting in net sales increasing slightly in 1996 as compared to
1995.
<TABLE>
<CAPTION>
REORGANIZED
PREDECESSOR COMPANY
---------------------- -------------
1/1 -- 8/15 8/16 -- 12/31 COMBINED
1995 1996 1996 1996
-------- ----------- ------------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Consolidated cost of goods sold......... $334,942 $74,058 $164,320 $238,378
Less:
Puerto Rico........................... 65,925 30,857
Avalon................................ 22,511 1,511
Hot-Fill Liquitrend................... 27,654 10,400
Cott Liquitrend....................... 4,051 984
Snapple DSD........................... 14,480 --
-------- --------
Comparable cost of goods
sold........................ $200,321 $194,626
======== ========
</TABLE>
Consolidated cost of goods sold decreased to $238,378,000 in 1996 from
$334,942,000 in 1995, or (29%). This decrease of $96,564,000 was due primarily
to the implementation of the Company's Plan of Reorganization which included the
disposition of its Puerto Rico subsidiary ($35,068,000) and the elimination of
the unprofitable businesses of Avalon warehouse distribution ($21,000,000),
Hot-Fill Liquitrend ($17,254,000) and Cott Liquitrend ($3,067,000).
Additionally, Southern California's DSD cost of goods sold were impacted
$14,480,000 due to the termination of the Snapple distribution agreement with
the Quaker Oats Company for the Southern California counties of Orange and San
Bernardino during the fourth quarter of 1995.
Comparable cost of goods sold decreased to $194,626,000 in 1996 from
$200,321,000 in 1995. This decrease of $5,695,000 reflects the efficiencies that
were realized in the core DSD business from the successful implementation of the
Plan of Reorganization and its direct impact on reducing both direct and
indirect operating expenses.
<TABLE>
<CAPTION>
REORGANIZED
PREDECESSOR COMPANY
--------------------- -------------
1/1 -- 8/15 8/16 -- 12/31 COMBINED
1995 1996 1996 1996
------- ----------- ------------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Consolidated administrative, marketing
and general expenses................... $47,935 $13,575 $27,841 $41,416
Less:
Puerto Rico............................ 6,312 2,687
Avalon................................. 1,851 134
Hot-Fill Liquitrend.................... -- --
Cott Liquitrend........................ 273 --
Snapple DSD............................ 120 --
------- -------
Comparable administrative,
marketing and general
expenses..................... $39,379 $38,595
======= =======
</TABLE>
Consolidated administrative, marketing and general expenses decreased to
$41,416,000 in 1996 from $47,935,000 in 1995, or (14%). This decrease of
$6,519,000 was due primarily to the implementation of the Company's Plan of
Reorganization which included the disposition of its Puerto Rico facility
($3,625,000) and
39
<PAGE> 41
the elimination of the unprofitable businesses of Avalon warehouse distribution
($1,717,000) and Cott Liquitrend ($273,000). Additionally, Southern California's
DSD administrative, marketing and general expenses were impacted $120,000 due to
the termination of the Snapple distribution agreement with the Quaker Oats
Company for the Southern California counties of Orange and San Bernardino during
the fourth quarter of 1995.
Comparable administrative, marketing and general expense decreased to
$38,595,000 in 1996 from $39,379,000 in 1995. This decrease of $784,000
represents primarily the reduction of administrative support employees that were
eliminated as part of the downsizing segment of the Plan of Reorganization.
<TABLE>
<CAPTION>
REORGANIZED
PREDECESSOR COMPANY
--------------------- -------------
1/1 -- 8/15 8/16 -- 12/31 COMBINED
1995 1996 1996 1996
------- ----------- ------------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Consolidated interest expense............ $23,057 $12,871 $838 $13,709
</TABLE>
Consolidated interest expense decreased to $13,709,000 in 1996 from
$23,057,000 in 1995. This reduction of $9,348,000 was due primarily to the
cancellation of the Senior Secured Notes pursuant to the Plan of Reorganization.
<TABLE>
<CAPTION>
REORGANIZED
PREDECESSOR COMPANY
--------------------- -------------
1/1 -- 8/15 8/16 -- 12/31 COMBINED
1995 1996 1996 1996
------- ----------- ------------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Consolidated other income (expense)...... $ 210 $34,309 $50 $34,359
</TABLE>
Consolidated other income increased to $34,359,000 in 1996 from $210,000 in
1995. This increase of $34,149,000 consists of the following five elements: 1)
$31,715,000 related to the gain on the sale of Puerto Rico; 2) $1,200,000
received from Quaker Oats relating to the termination of the Snapple contract
manufacturing agreement; 3) $686,000 from the Plastic Recycling Corporation of
California for prior year overcharges relating to plastic containers produced in
California but shipped out-of-state; 4) $597,000 gain realized on the property
exchange of the Las Vegas distribution facility with the Rio Hotel; and 5)
$49,000 of decreased other income relating to a Puerto Rican joint venture.
Reorganization expense of $13,011,000 represents those costs incurred with
the implementation of the Plan of Reorganization and consists of the following
three elements: 1) $7,207,000 write-down of goodwill associated with fixed life
franchise agreements, other intangibles, pallets and shells; 2) $4,904,000 of
legal and professional fees incurred in implementing the Plan of Reorganization;
3) $900,000 of other reorganization expense including employee severance and
relocation expense of the Carson distribution branch due to the
reorganization-related termination of the facility lease.
Extraordinary gain of $54,577,000 represents the net recognition of income
associated with the cancellation of indebtedness relating to the implementation
of the Plan of Reorganization and consists of the following: $140,000,000 gain
resulting from discharge of indebtedness relating to the Senior Secured Notes
and a $24,756,000 gain resulting from the forgiveness of the accrued interest on
the Senior Secured Notes, offset by the $55,000,000 securities principal payment
from the sale of Puerto Rico, the $52,062,000 market value of Common Stock
exchanged for the Senior Secured Notes, the $2,607,000 write-off of old deferred
financing costs and a $510,000 write-off of the old revolver debt issuance and
collateral fees.
<TABLE>
<CAPTION>
REORGANIZED
PREDECESSOR COMPANY
---------------------- -------------
1/1 -- 8/15 8/16 -- 12/31 COMBINED
1995 1996 1996 1996
-------- ----------- ------------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Consolidated net income (loss).......... $(32,194) $62,396 $(462) $61,934
</TABLE>
40
<PAGE> 42
Consolidated net income increased to $61,934,000 in 1996 from a loss of
$32,194,000 in 1995. This variance of $94,128,000 consists primarily of the
following six elements, as set forth above: 1) $9,410,000 increase in operating
income which includes a $4,468,000 reduction in restructuring expense; 2)
$9,348,000 reduction in interest expense; 3) other income of $34,149,000 which
includes a $31,715,000 gain on the sale of Puerto Rico; 4) reorganization
expense of $13,011,000 relating to the implementation of the Plan of
Reorganization; 5) provision for income taxes of $345,000; and 6) extraordinary
gain of $54,577,000 which represents the net recognition of income associated
with the cancellation of indebtedness relating to the implementation of the Plan
of Reorganization.
COMPARISON OF THE COMPANY'S 1995 RESULTS OF OPERATIONS WITH THE COMPANY'S 1994
RESULTS OF OPERATIONS
Total net sales decreased to $396,725,000 in 1995 from $413,840,000 in
1994, or 4.1%. This decrease was due to a net sales decrease of $29,163,000 at
Southern California that was partially offset by a $12,048,000 net sales
increase at Puerto Rico. Southern California's performance in 1995 was
negatively impacted by a reduction in DSD case volume, reduced hot-fill contract
packing sales and reduced sales of private label products. Puerto Rico's net
sales increase was primarily the result of increased Snapple beverage sales.
Net sales of Southern California's DSD product line decreased to
$235,466,000 in 1995 from $252,961,000 in 1994, or 6.9%, due to a case sales
decrease of 13.0%, which was greater than the market-wide reduction of measured
carbonated soft drink (CSD) sales. This decrease was primarily the result of (i)
Southern California's decision to increase its pricing during 1995 to offset raw
material price increases, (ii) reduced levels of franchisor-supported price
promotions, and (iii) aggressive competitive CSD pricing and promotional
activity in this market. DSD net sales at Puerto Rico increased to $80,625,000
in 1995 from $69,768,000 in 1994, or 15.6%. This net sales increase was
primarily the result of an approximate $12,500,000 increase in New Age and malta
beverage sales, offset by a carbonated DSD soft drink sales decrease of
approximately $1,643,000.
Liquitrend's net sales increased to $56,149,000 in 1995 from $54,075,000 in
1994, or 3.8%. Restated to reflect approximately $13,683,000 of contractual raw
material purchase increases, which had no impact on operating results as cost of
goods sold was increased by a like amount, net sales decreased to $42,466,000 or
21.5%. As part of the Company's restructuring effort, hot-filled products will
be downsized which will reflect lower sales in the future.
Avalon's net sales decreased to $24,485,000 in 1995 from $37,036,000 in
1994, or 33.9%. This decrease was due to Southern California's decision to
discontinue Avalon's DSD operation during the second quarter of 1995 and
significantly lower sales of Southern California's value-priced Royal Island and
Nehi products.
Management believes that the factors that caused Southern California's net
sales to decrease in 1995 are likely to continue in the foreseeable future.
Cost of goods sold decreased to $334,942,000 in 1995 from $342,336,000 in
1994, or 2.2%. This decrease was primarily the result of lower direct material
costs, variable transportation and production expenses associated with the net
sales reduction in Southern California's operations, and the fourth quarter
impact of Southern California's permanent work force reduction announced
September 11, 1995. Offsetting this decrease were significant direct material
increases related to Puerto Rico's net sales increase and Liquitrend's
$13,683,000 contractual raw material cost increase offset by its corresponding
sales increase.
Administrative, marketing and general expenses decreased to $47,935,000 in
1995 from $48,437,000 in 1994, or 1.0%. This decrease was primarily the result
of the fourth quarter impact of Southern California's permanent 205 employee
work force reduction announced September 11, 1995. Partially offsetting this
decrease were increased legal and litigation expenses, higher worker's
compensation expense and increased expenses related to customer required
implementation of delivery and invoicing information systems in Southern
California. Puerto Rico's administrative, marketing and general expenses
increased, primarily the result of variable marketing expenses related to its
New Age and malta product sales increase.
41
<PAGE> 43
Interest expense increased to $23,057,000 in 1995 from $21,626,000 in 1994,
or 6.6%, the result of higher interest rates on the Company's revolving credit
facilities and an increase in the average borrowings outstanding.
For the reasons set forth above, the Company's net loss before
restructuring charges of $5,015,000, increased to $27,179,000 in 1995 from
$15,900,000 in 1994, or 70.9%.
The $5,015,000 restructuring charge includes approximately $2,459,000 of
professional fees and expenses, $906,000 of charges in connection with severance
costs associated with a work force reduction and $1,660,000 of costs related to
certain equipment and real estate lease terminations.
On September 11, 1995, Southern California announced a permanent reduction
in its work force of 205 employees, divided almost equally between salary and
hourly.
LIQUIDITY AND CAPITAL RESOURCES
The table below sets forth a consolidated statement of cash flows for the
twelve months ended December 31, 1996 and 1995. To facilitate a meaningful
comparison of the Company's liquidity and capital resources for these periods,
the cash flow for operating activities, investing activities and financing
activities for the predecessor company and reorganized company for 1996 have
been combined.
<TABLE>
<CAPTION>
REORGANIZED
PREDECESSOR COMPANY
--------------------- -------------
1/1 -- 8/15 8/16 -- 12/31 COMBINED
1995 1996 1996 1996
------- ----------- ------------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash (used in) provided by
operating activities................. $ 5,767 $ 36,398 $(14,553) $ 21,845
Net cash (used in) provided by
investing activities................. (5,091) 64,354 (3,316) 61,038
Net cash (used in) provided financing
activities........................... (1,709) (103,825) 18,806 (85,019)
------- --------- -------- --------
NET INCREASE (DECREASE)
IN CASH.............................. $(1,033) $ (3,073) $ 937 $ (2,136)
======= ========= ======== ========
</TABLE>
The Company's operating activities provided $21,845,000 of net cash in 1996
as compared to $5,767,000 in 1995. This change of $16,078,000 was due primarily
to $9,348,000 of lower interest expense, resulting from the suspension of
interest accruals following the Company's filing for reorganization relief under
Chapter 11 of the United States Bankruptcy Code on May 13, 1996, and
non-recurring other income of $2,483,000 which was due to $1,200,000 from the
termination of the Snapple contract manufacturing agreement, $686,000 from the
prior year refund of plastic recycling fees and $597,000 from the property
exchange of the Las Vegas distribution branch with the Rio Hotel. Additionally,
the Company generated a significant contribution from working capital with the
implementation of its Plan of Reorganization to reduce inventory SKU's and to
improve its accounts receivable days outstanding by changing the timing of its
major chain promotional programs.
The Company's investing activities provided $61,038,000 of net cash in 1996
as compared to a $5,091,000 use of net cash in 1995. This change of $66,129,000
was due primarily to net proceeds of $69,456,000 resulting from the sale of the
Puerto Rico franchise territory as part of the Plan of Reorganization to provide
a payment of principal to the holders of the Senior Secured Notes. The Company's
investing activities in 1996 included $8,584,000 in purchases of property, plant
and equipment as compared to $5,208,000 in 1995.
The Company's financing activities used $85,019,000 of net cash in 1996 as
compared to $1,709,000 of net cash used in 1995. This change of $83,310,000 was
primarily due to the use of proceeds from the sale of the Puerto Rico franchise
territory to pay $55,000,000 to the holders of the Senior Secured Notes,
$8,686,000 to pay down the Southern California revolving loan as an offset to
restructuring and reorganization expenses incurred in 1996 and 1995, and the
$8,563,000 pay off of the Puerto Rico revolving line of credit. Additionally,
42
<PAGE> 44
net cash provided by operating activities enabled the repayment of $3,793,000 of
the term loan, capital leases and debt issuance costs, and a decrease in its net
borrowings under the revolving credit facilities by $8,977,000. The Company's
unused revolving credit facility was $8,797,000 at December 31, 1996. Upon the
consummation of the Offer, the Company's revolving credit facility was
terminated and all amounts outstanding thereunder were paid in full. See
"Financial Arrangements"
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121. The Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company adopted SFAS No. 121 in the first quarter of
1996. The adoption did not have an impact on the Company's financial position or
its results of operations.
In November 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock-Based Compensation." This new standard encourages, but
does not require, companies to recognize compensation expense for grants of
stock, stock options, and other equity instruments based on a fair-value method
of accounting. Companies that do not choose to adopt the new expense recognition
rules of SFAS No. 123 will continue to apply the existing accounting rules
contained in Accounting Principles Board Opinion (APBO) No. 25, but will be
required to provide pro forma disclosures of the compensation expense determined
under the fair-value provisions of SFAS No. 123, if material. The Company
adopted SFAS No. 123 in the first quarter of 1996 electing to follow the
accounting provisions of APBO No. 25 for stock-based compensation and to furnish
the pro forma disclosures required under SFAS No. 123, if material.
In March, 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings per Share" and SFAS No. 129 "Disclosure of Information about
Capital Structure." SFAS No. 128 eliminates several requirements of APBO No. 15,
simplifying earnings per share calculations. The Company is required to adopt
SFAS No. 128 in the first quarter of 1997. As of December 31, 1996, the adoption
of SFAS No. 128 would not have a material impact on the Company's financial
position or its results of operations.
CERTAIN PROJECTIONS
The Company does not as a matter of course make public forecasts as to its
future economic performance. However, in connection with Parent's due diligence
investigation of the Company, Bart Brodkin, President and Chief Executive
Officer of the Company, provided the following estimates (the "EBITDA
Projections") of the "minimum" and "maximum" amount of earnings before interest,
taxes, depreciation and amortization ("EBITDA") for the years ending December
31, 1997 through 2001: 1997 -- $12 million and $14 million; 1998 -- $14 million
and $15.5 million; 1999 -- $15.5 million and $17 million; 2000 -- $17 million
and $18.5 million; and 2001 -- $18.5 million and $20 million.
The EBITDA Projections were not prepared with a view to public disclosure
or compliance with the published guidelines of the Commission regarding
projections, nor were they prepared in accordance with the guidelines
established by the American Institute of Certified Public Accountants for
preparation and presentation of financial projections. The EBITDA Projections
are included herein only because such information was provided to Parent and
Purchaser in connection with their due diligence investigation of the Company.
These forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from the EBITDA
Projections. The EBITDA Projections reflect numerous assumptions, all made by
management of the Company, with respect to industry performance, general
business, economic, market and financial conditions and other matters, all of
which are difficult to predict, many of which are beyond the Company's control
and none of which were subject to approval by Parent or the Purchaser.
Accordingly, there can be no assurance that the assumptions made in preparing
the EBITDA Projections will prove accurate, and actual results may be materially
greater or less than those contained in the EBITDA Projections. The inclusion of
the EBITDA Projections herein should not be regarded as an indication that any
of Parent, the Purchaser, the Company or their respective financial advisors
considered or consider the EBITDA Projections to be a reliable prediction of
future events, and the EBITDA Projections
43
<PAGE> 45
should not be relied upon as such. None of Parent, the Purchaser, the Company
and their respective financial advisors assumes any responsibility for the
validity, reasonableness, accuracy or completeness of the EBITDA Projections.
None of Parent, the Purchaser, the Company or any of their financial advisors
has made, or makes, any representation to any person regarding the information
contained in the EBITDA Projections and none of them intends to update or
otherwise revise the EBITDA Projections to reflect circumstances existing after
the date when made or to reflect the occurrence of future events even in the
event that any or all of the assumptions underlying the EBITDA projections are
shown to be in error.
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP
OF MANAGEMENT
As of April 15, 1997, there were 5,291,470 Shares issued and outstanding.
Each Share is entitled to one vote in respect of matters submitted to the
stockholders of the Company. The following table sets forth certain information,
as of April 15, 1997, with respect to the beneficial ownership of Shares by (i)
all persons known by the Company to be the beneficial owners of more than 5% of
the outstanding Shares (as derived solely from the Company's review of Schedules
13D and 13G on file with the Commission and from correspondence received from or
telephone conversations with certain stockholders of the Company), (ii) each
director of the Company, (iii) the Chief Executive Officer and the four other
most highly compensated executive officers of the Company as of April 15, 1997
whose total annual compensation for the year ended December 31, 1996 exceeded
$100,000, and (iv) all executive officers and directors of the Company as a
group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER OF COMMON STOCK PERCENT OF CLASS
------------------------------------ -------------------- ----------------
<S> <C> <C>
DPB Acquisition Corp.(1)................................... 4,071,957 77%
2304 Century Center Blvd.
Irving, Texas 75062
Dean Witter Intercapital Inc.(2)........................... 1,904,805(2) 38.5%(2)
2 World Trade Center
New York, New York 10048
Merrill Lynch & Co., Inc.(3)............................... 763,000(3) 15.2%(3)
World Financial Center, North Tower
250 Vesey Street
New York, New York 10281
Metropolitan Life Insurance Company........................ 605,500 12.1%
One Madison Avenue
New York, New York 10010
Bart S. Brodkin(4)......................................... 0 --
Richard Ferguson........................................... 0 --
Louis Janicich............................................. 0 --
F.L. Joseph Chalmers....................................... 0 --
Roy S. Breneman............................................ 0 --
Monroe L. Lowenkron(4)..................................... 0 --
Jim L. Turner(4)........................................... 0 --
William O. Hunt(4)......................................... 0 --
Holly S. Lovvorn(4)........................................ 0 --
Thomas J. Taszarek(4)...................................... 0 --
All executive officers and directors as a group (14
Persons)................................................. 0 --
</TABLE>
- ---------------
(1) DPB Acquisition Corp., which is referred to throughout this Information
Statement as "Purchaser", is a wholly-owned subsidiary of Parent, which is a
wholly-owned subsidiary of Holdings. See "Summary -- The Companies".
Accordingly, both Parent and Holdings may be deemed to beneficially own the
Shares owned by Purchaser.
44
<PAGE> 46
(2) Dean Witter Intercapital Inc. has advised the Company that it sold or
tendered all such shares on behalf of the following funds for which it acts
as investment advisor although such tender has not yet been reflected in an
amended 13D or 13G: Dean Witter Yield Securities (489,055 shares); Dean
Witter High Income Securities (495,000); High Income Advantage Trust
(140,000 shares); High Income Advantage Trust II (175,000 shares); High
Income Advantage Trust III (70,000 shares); Dean Witter Diversified Income
Trust (332,675 shares); Dean Witter Diversified Income Trust -- Select
Shares (7,000 shares) and Variable Investment Series -- High Yield (201,075
shares).
(3) Based on the fact that the Company owns 77% of the outstanding Shares, the
Company assumes that some or all of the shares owned by Merrill Lynch & Co.,
Inc., which may also be deemed to be beneficially owned by Merrill Lynch
Group, Inc., a wholly-owned subsidiary of Merrill Lynch & Co., Inc.,
Princeton Services, Inc., a wholly-owned subsidiary of Merrill Lynch Group,
Inc., Fund Asset Management, L.P., a limited partnership of which Princeton
Securities, Inc. is a general partner, and Merrill Lynch Corporate Bond
Fund, Inc. (High Income Portfolio), a registered investment company advised
by Fund Asset Management, L.P., were tendered in the Offer, although such
tender has not yet been reflected in an amended 13D or 13G.
(4) During the time period from the emergence of the Company from bankruptcy in
August 1996 (see "Business") until the consummation of the Offer, the Board
of Directors of the Company consisted of the following five individuals:
Bart S. Brodkin, Jack R. Attwood, William Langley, Monroe L. Lowenkron, and
Daniel D. Villanueva. Pursuant to the Merger Agreement and prior to the
consummation of the Offer, (i) Messrs. Attwood, Langley and Villanueva
tendered their resignations as directors to the Company, such resignations
to become effective upon the consummation of the Offer, and (ii) Parent
designated the following persons to be appointed as directors of the
Company, such appointments to become effective upon the consummation of the
Offer: Jim L. Turner, who is also the Chairman of the Board, President and
Chief Executive Officer of Parent, William O. Hunt, Holly S. Lovvorn, and
Thomas J. Taszarek. Accordingly, upon the consummation of the Offer, the
four designees of Parent became directors of the Company.
AVAILABLE INFORMATION
Prior to April 21, 1997, the Company was subject to the informational
filing requirements of the Exchange Act. In accordance therewith, the Company
filed periodic reports, proxy statements and other information with the
Commission under the Exchange Act relating to its business, financial condition
and other matters. The Company was required to disclose in such proxy statements
certain information, as of particular dates, concerning the Company's directors
and officers, their remuneration, stock options granted to them, the principal
holders of the Company's securities and any material interest of such persons in
transactions with the Company. Such reports, proxy statements and other
information may be inspected and copied at the Commission's office at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511; and 7 World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material may also be obtained upon payment
of the Commission's prescribed fees by writing to the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission also maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements regarding registrants, such as the Company,
that file electronically with the Commission. On April 21, 1997, the Company
filed a Form 15 with the Commission terminating its obligation to file periodic
reports under the Exchange Act.
45
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1996 and
1995...................................................... F-3
Consolidated Statements of Operations for the period from
January 1, to August 15, 1996, the period from August 16,
to December 31, 1996, and for the years ended December 31,
1995 and 1994............................................. F-4
Consolidated Statements of Cash Flows for the period from
January 1, to August 15, 1996, the period from August 16,
to December 31, 1996, and for the years ended December 31,
1995 and 1994............................................. F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for the period from January 1, to August 15, 1996, the
period from August 16, to December 31, 1996, and for the
years ended December 31, 1995 and 1994.................... F-6
Notes to Consolidated Financial Statements.................. F-7
Schedule supporting the financial statements for the period
from January 1, to August 15, 1996, the period from August
16, to December 31, 1996 and for the years ended December
31, 1995 and 1994
Schedule II -- Valuation and Qualifying Accounts............ F-22
</TABLE>
F-1
<PAGE> 48
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Seven-Up/RC Bottling Company of Southern California, Inc.:
We have audited the accompanying consolidated balance sheets of Seven-Up/RC
Bottling Company of Southern California, Inc. (a Delaware corporation) and its
subsidiary (collectively, the Company) as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the period from January 1, to August 15, 1996, the period
from August 16, to December 31, 1996, and for the years ended December 31, 1995
and 1994. These consolidated financial statements are the responsibility of the
management of the Company. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully described in Notes 1 and 3 to the financial statements, on
August 15, 1996, the Company emerged from protection under Chapter 11 of the
U.S. Bankruptcy Code pursuant to a Reorganization Plan which was confirmed by
the Bankruptcy Court on August 12, 1996. In accordance with AICPA Statement of
Position 90-7, the Company adopted "Fresh Start Reporting" whereby its assets,
liabilities and new capital structure were adjusted to reflect estimated fair
values as of August 15, 1996. As a result, the financial statements for the
period subsequent to August 15, 1996, reflect the Reorganized Company's new
basis of accounting and are not comparable to the Predecessor Company's
pre-reorganization consolidated financial statements.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Seven-Up/RC
Bottling Company of Southern California, Inc. and its subsidiary as of December
31, 1996 and 1995, and the results of their operations and their cash flows for
the period from January 1, to August 15, 1996, the period from August 16, to
December 31, 1996, and for the years ended December 31, 1995 and 1994, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Security
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 31, 1997
F-2
<PAGE> 49
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR
COMPANY COMPANY
----------- -----------
AS OF DECEMBER 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 3,813 $ 5,949
Accounts receivable:
Trade, net............................................. 25,604 42,261
Other.................................................. 7,692 9,450
Inventories............................................... 19,144 24,947
Prepaid expenses.......................................... 1,875 2,908
-------- ---------
Total current assets.............................. 58,128 85,515
-------- ---------
Property, plant and equipment, net.......................... 56,790 79,945
Other assets:
Intangible and other assets............................... 6,323 22,844
Debt issuance costs....................................... 129 3,829
-------- ---------
Total assets...................................... $121,370 $ 192,133
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 18,358 $ 26,568
Accrued expenses.......................................... 27,804 36,944
Current portion of long-term debt and capital lease
obligations............................................ 562 189,954
-------- ---------
Total current liabilities......................... 46,724 253,466
-------- ---------
Long-term debt:
Revolving credit facilities............................... 19,021 --
Term loan................................................. 506 --
Capital lease obligations................................. 2,456 --
-------- ---------
Total long-term debt.............................. 21,983 --
Stockholders' equity (deficit):
Capital stock par value $0.01 a share; authorized 6,000,000
and 1,000 shares, and issued and outstanding 5,000,000 and
1,000 shares, in 1996 and 1995, respectively.............. 50 --
Additional capital........................................ 53,075 42,557
Retained deficit.......................................... (462) (103,890)
-------- ---------
Total stockholders' equity (deficit).............. 52,663 (61,333)
-------- ---------
Total liabilities and stockholders' equity
(deficit)....................................... $121,370 $ 192,133
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 50
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
REORGANIZED --------------------------------
COMPANY YEARS ENDED
----------- DECEMBER 31,
8/16-12/31 1/1-8/15 -------------------
1996 1996 1995 1994
----------- ---------- -------- --------
<S> <C> <C> <C> <C>
Net sales......................................... $91,647 $202,844 $396,725 $413,840
Cost of goods sold................................ 74,058 164,320 334,942 342,336
------- -------- -------- --------
Gross profit.................................... 17,589 38,524 61,783 71,504
Administrative, marketing and general expenses.... 13,575 27,841 47,935 48,437
Depreciation and amortization..................... 3,688 10,399 18,180 17,251
Restructure charges............................. -- 547 5,015 --
------- -------- -------- --------
Operating income (loss)......................... 326 (263) (9,347) 5,816
Interest expense.................................. 838 12,871 23,057 21,626
Other income, net................................. 50 34,309 210 95
------- -------- -------- --------
Loss before provision for income taxes,
reorganization expense and extraordinary
items........................................ (462) 21,175 (32,194) (15,715)
Reorganization expense.......................... -- 13,011 -- --
Provision for income taxes........................ -- 345 -- 185
------- -------- -------- --------
(Loss) income before extraordinary items........ (462) 7,819 (32,194) (15,900)
Extraordinary items -- gain..................... -- (54,577) -- --
------- -------- -------- --------
Net (loss) income....................... $ (462) $ 62,396 $(32,194) $(15,900)
======= ======== ======== ========
Loss per common share:
Net loss per common share............... $ .09 $ -- $ -- $ --
======= ======== ======== ========
Weighted average common shares
outstanding........................... 5,077 -- -- --
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 51
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
REORGANIZED -------------------------------
COMPANY YEARS ENDED
----------- DECEMBER 31,
8/16-12/31 1/1-8/15 -------------------
1996 1996 1995 1994
----------- --------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) before extraordinary items............ $ (462) $ 7,819 $(32,194) $(15,900)
Adjustments to reconcile income (loss) before
extraordinary items to net cash provided by (used
in) operating activities:
Depreciation and amortization..................... 3,688 10,997 20,048 19,209
Equity in earnings of joint venture............... -- (5) (103) (42)
(Gain) loss on sales of fixed assets.............. (50) (764) (8) 117
Non cash reorganization expense................... -- 7,207 -- --
Disposition of capital lease...................... -- 548 -- --
Provision for doubtful accounts................... 206 836 715 1,025
Cash dividend from investment in joint venture.... -- -- -- 225
Gain on sale of Puerto Rico....................... -- (31,715) -- --
Changes in assets and liabilities:
Accounts receivable............................ 2,197 (1,928) 18,542 (16,616)
Inventories.................................... (2,763) 419 19,471 (17,737)
Prepaids and other............................. 286 4,356 (2,904) (370)
Accounts payable............................... (20,114) 20,769 (24,247) 24,345
Accrued expenses............................... 2,459 17,859 6,447 7,414
-------- --------- -------- --------
Net cash (used in) provided by operating
activities.............................. (14,553) 36,398 5,767 1,670
-------- --------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of Puerto Rico................... -- 69,456 -- --
Proceeds from sales of property, plant and
equipment......................................... 40 126 117 48
Additions to property, plant and equipment.......... (3,356) (5,228) (5,208) (5,138)
-------- --------- -------- --------
Net cash provided by (used in) investing
activities.............................. (3,316) 64,354 (5,091) (5,090)
-------- --------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings of revolving loans, net..... 19,021 (45,247) (616) 3,687
Payment to Senior Secured Noteholders............... -- (55,000) -- --
(Repayments of) proceeds from term loan............. (25) (2,852) (90) 4,286
Payments of debt issuance costs..................... (41) (88) -- --
Repayments of capital leases........................ (149) (638) (1,003) (1,317)
-------- --------- -------- --------
Net cash provided by (used in) financing
activities.............................. 18,806 (103,825) (1,709) 6,656
-------- --------- -------- --------
NET INCREASE (DECREASE) IN CASH..................... 937 (3,073) (1,033) 3,236
CASH, beginning of year............................. 2,876 5,949 6,982 3,746
-------- --------- -------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash interest paid................................ $ 616 $ 2,080 $ 13,342 $ 19,811
======== ========= ======== ========
Purchases of property, plant and equipment through
issuance of capital lease obligation........... $ -- $ -- $ 555 $ 10,229
======== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 52
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
CAPITAL STOCK STOCKHOLDERS'
--------------- ADDITIONAL RETAINED EQUITY
SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT)
------ ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
REORGANIZED (Notes 1 & 3)
August 16 to December 31, 1996
Balance, August 16, 1996................ 5,000 $50 $ 53,125 $ -- $ 53,125
Net loss for the period................. -- -- -- (462) (462)
----- --- -------- --------- --------
Balance, December 31, 1996.............. 5,000 $50 $ 53,125 $ (462) $ 52,663
===== === ======== ========= ========
PREDECESSOR
January 1 to August 15, 1996
Balance December 31, 1995............... 1 $-- $ 42,557 $(103,890) $(61,333)
Reorganization (Notes 1 & 3)............ 99 1 (41,494) 41,494 --
New Issue............................... 4,900 49 52,062 -- 52,062
Net income for the period............... -- -- -- 62,396 62,396
----- --- -------- --------- --------
Balance, August 15, 1996................ 5,000 $50 $ 53,125 $ -- $ 53,125
===== === ======== ========= ========
PREDECESSOR
January 1 to December 31, 1995
Balance, December 31, 1994.............. 1 $-- $ 42,557 $ (71,696) $(29,139)
Net loss for the period................. -- -- -- (32,194) (32,194)
----- --- -------- --------- --------
Balance, December 31, 1995.............. 1 $-- $ 42,557 $(103,890) $(61,333)
===== === ======== ========= ========
PREDECESSOR
January 1 to December 31, 1994
Balance, December 31, 1993.............. 1 $-- $ 42,557 $ (55,796) $(13,239)
Net loss for the period................. -- -- -- (15,900) (15,900)
----- --- -------- --------- --------
Balance, December 31, 1994.............. 1 $-- $ 42,557 $ (71,696) $(29,139)
===== === ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 53
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS AND PRESENTATION OF FINANCIAL INFORMATION
General
Seven-Up/RC Bottling Company of Southern California, Inc., a Delaware
corporation ("Seven-Up/RC"), is among the largest beverage distributors in the
United States, and is the largest bottler of Seven-Up in the United States.
Southern California manufactures and distributes a broad range of beverage
products in Southern California, Central California, portions of Nevada and New
Mexico, and, through its wholly-owned subsidiary Seven-Up/RC Bottling Company of
Puerto Rico, Inc. ("Puerto Rico"), Puerto Rico and the Virgin Islands. Except as
otherwise indicated, Seven-Up/RC and Puerto Rico are collectively referred to as
the "Company". The Company has the exclusive right within its territories to
manufacture and/or distribute Seven-Up (lemon-lime), Royal Crown (cola), A&W
(root beer and cream soda), Sunkist (orange and citrus), Hawaiian Punch (fruit
punch), Schweppes (ginger-ale and mixers), Evian (imported still water), Perrier
(imported mineral water), Welch's (grape, strawberry and pineapple), Mistic
(teas and juices), Yoo-Hoo (chocolate drink) and Snapple (teas and juices).
The Company's business strategy is to manufacture and distribute a
franchised portfolio of leading trademarked beverages in each beverage flavor
category and to create additional sources of revenue through contract
manufacturing. The Company's Liquitrend division ("Liquitrend") engages in
contract manufacturing, which utilizes the Company's excess production capacity
by manufacturing carbonated soft drink products for a variety of small,
independent franchisors and retailers selling private label products.
Presentation of Financial Information
On May 13, 1996, Seven-Up/RC and its immediate holding company parent, Beverage
Group Acquisition Corporation, filed voluntary petitions for reorganization
relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for
the District of Delaware. On August 15, 1996, a reorganization was consummated
and Seven-Up/RC emerged as a reorganized company from Chapter 11. Due to the
reorganization plan and implementation of fresh start reporting (See Note 3),
the financial statements for the new company ("Reorganized Company") for the
period starting August 16, 1996 are not comparable to that of the Company prior
to August 16 1996, ("Predecessor Company"). Predecessor Company included
Seven-Up/RC and Puerto Rico through June 30, 1996, the date of disposition of
Puerto Rico. Reorganized Company includes the operations of Seven-Up/RC
subsequent to the consummation date.
Certain reclassifications have been made to the 1995 financial statements
to conform to the 1996 presentation.
Bankruptcy Filings
As a result of severe liquidity problems, on July 31, 1995, Seven-Up/RC
suspended payments of interest on its $140,000,000, 11.5% Senior Secured Notes
due 1999 (the "Senior Secured Notes"). At the end of the second quarter of 1995
through the first quarter of 1996, Seven-Up/RC was in violation of certain of
its revolving credit facility covenants, including tangible net-worth, interest
coverage and fixed charge coverage. At the request of Seven-Up/RC, the revolving
credit lender executed forbearance agreements extending through May 15, 1996.
On November 9, 1995, Seven-Up/RC announced that it had reached an agreement
in principle on the terms of a restructuring of the Senior Secured Notes with an
unofficial committee of holders of such notes. The agreement contemplated, among
other things, (i) the exchange of the Senior Secured Notes for approximately 98
percent of the equity of Seven-Up/RC, and (ii) the sale of Puerto Rico and the
payment to the holders of the Senior Secured Notes of the net proceeds, as
defined, from such sale.
F-7
<PAGE> 54
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On May 13, 1996, Seven-Up/RC and its immediate holding company parent,
Beverage Group Acquisition Corporation ("BGAC"), filed voluntary petitions for
reorganization relief under Chapter 11 of the Bankruptcy Code to implement the
terms of the restructuring agreement with the committee.
On July 1, 1996, Seven-Up/RC sold its wholly owned subsidiary, Puerto Rico,
for approximately $74 million which resulted in a net gain of approximately $32
million included in Other Income in the accompanying Statement of Operations.
The proceeds from this sale were subsequently used to repay holders of the
Senior Secured Notes and reduce Seven-Up/RC's revolving credit facility.
On August 2, 1996, the U.S. Bankruptcy Court of the District of Delaware,
confirmed the Company's First Amended Joint Plan of Reorganization (the
"Reorganization"), and on August 15, 1996, the Company emerged from bankruptcy.
Pursuant to the Reorganization, on such date the Senior Secured Notes were
canceled in exchange for approximately $55 million in cash and equity securities
consisting of 4,900,000 million shares of common stock in Seven-Up/RC. In
addition, 100,000 shares of common stock and warrants to purchase an additional
263,158 shares of common stock were issued to the prior owner of BGAC.
In the period ended August 15, 1996, Seven-Up/RC wrote off $510,000 of debt
issuance costs related to its previous working capital facility and realized a
gain of $55 million relating to the discharge of the Senior Secured Notes and
related accrued interest in accordance with the Reorganization, the net of
which, are reflected as extraordinary items in the accompanying financial
statements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements of the Predecessor Company reflect the
consolidated financial statements of Seven-Up/RC Bottling Company of Southern
California, Inc. and, through the date of its disposition (June 30, 1996), its
wholly-owned subsidiary, Seven-Up/RC Bottling Company of Puerto Rico, Inc. The
financial statements of the Reorganized Company include only the financial
statements of Seven-Up/RC.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash
Included in accounts payable are $3,958,000 and $9,459,000 of checks
outstanding in excess of cash balances at December 31, 1996 and 1995,
respectively.
For purposes of the statement of cash flows, cash and cash equivalents are
defined as cash deposits with original maturities of less than 90 days.
Trade Receivables, Net
Trade receivables, net, include allowances for doubtful accounts of
$1,937,000 and $1,814,000 at December 31, 1996 and 1995, respectively.
F-8
<PAGE> 55
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other Receivables
Other receivables consist principally of amounts due from franchisors under
the terms of marketing and/or purchasing contracts.
Inventories
Inventories are recorded at cost, determined on the first-in, first-out
method. Elements of cost include direct materials, direct labor and bottling
overhead.
Property, Plant and Equipment, Net
Property, plant and equipment is stated at cost. Depreciation is provided
for under the straight-line method using the following lives:
<TABLE>
<S> <C>
Building and improvements................................... 31.5 years
Machinery and equipment..................................... 7 to 8 years
Equipment held under capital leases......................... 6 to 7 years
</TABLE>
Expenditures for additions and improvements are capitalized, and costs for
repairs and maintenance are charged to operations as incurred. The cost and
accumulated depreciation of property, plant and equipment retired or otherwise
disposed of are eliminated and any resulting gain or loss recognized at the time
of disposal.
Other Assets
Intangible assets include the appraised value of specific intangible assets
acquired, primarily, beverage franchises and trademarks. The intangible assets
are amortized over their useful lives, not to exceed 40 years. The net balance
recorded at December 31, 1996 and 1995, includes accumulated amortization of
$233,000 and $14,820,000, respectively.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets to be Disposed of." (See Note 2 "Recent Accounting
Pronouncements".) The Company continually evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life of
its intangible assets may warrant revision or that the remaining balance of
intangible assets may not be recoverable. When factors indicate that intangible
assets should be evaluated for possible impairment, the Company uses an estimate
of the its undiscounted cash flows over the remaining life of the intangible
asset in measuring whether the intangible asset is recoverable.
Additionally, other assets are comprised of debt issuance costs incurred in
connection with the arrangement of various long-term debt facilities. These
costs are amortized over the individual lives of the various debt facilities
using the effective interest method. The net balance includes accumulated
amortization of $3,493,000 at December 31, 1995.
Income Taxes
The Company accounted for income taxes using the method prescribed by
Statement of Financial Accounting Standard No. 109 (SFAS 109). Under the asset
and liability method of SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes
F-9
<PAGE> 56
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the enactment date. The measurement of deferred income tax assets is adjusted by
a valuation reserve, if necessary, so that the net tax assets are recognized
only to the extent they are expected to be realized. The adoption of SFAS 109
had no effect on the Company's financial position.
Restructuring Charges
During 1995, Seven-Up/RC discontinued the operations of its Avalon
division, which distributed lower-volume beverage products and downsized the
hot-fill operations of its Liquitrend division, which primarily bottled products
for companies who did not distribute their products throughout Seven-Up/RC's
distribution system. As a result, Seven-Up/RC terminated 205 employees in
September, 1995; a reserve of $906,000 was set up for severance pay, of which
$56,000 and $850,000 was paid during the years ended December 31, 1996 and 1995,
respectively. Also Seven-Up/RC determined that certain leased facilities and
equipment were no longer needed and a reserve of $1,660,000 was established to
reflect the projected cost of terminating these leases, of which $324,000 was
paid by December 31, 1995. The termination of leases in 1996 resulted in an
additional restructuring charge of $547,000 in the period ended August 15, 1996.
All amounts accrued in connection with lease terminations had been paid by
August 15, 1996.
Additionally in 1995, Seven-Up/RC incurred costs of $2,449,000 in relation
to the negotiation of the restructuring of Seven-Up/RC's obligation under the
Senior Secured Notes and the revolving credit facilities; these costs are
included in the restructuring charge in the accompanying 1995 consolidated
statement of operations.
Net Loss Per Common Share
Net loss per common share is computed on the basis of the weighted average
number of common shares outstanding, plus common stock equivalents related to
dilutive stock warrants. The number of shares used in the computation of per
share data was 5,076,811 in 1996.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121. The Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company adopted SFAS No. 121 in the first quarter of
1996. The adoption did not have an impact on the Company's financial position or
its results of operations.
In November 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock-Based Compensation." This new standard encourages, but
does not require, companies to recognize compensation expense for grants of
stock, stock options, and other equity instruments based on a fair-value method
of accounting.
Companies that do not choose to adopt the new expense recognition
provisions of SFAS No. 123 will continue to apply the existing accounting
provisions contained in Accounting Principles Board Opinion (APBO) No. 25, but
will be required to provide pro forma disclosures of the compensation expense
determined under the fair-value provisions of SFAS No. 123, if material.
The Company adopted SFAS No. 123 in the first quarter of 1996 electing to
follow the accounting provisions of APBO No. 25 for stock-based compensation and
to furnish the pro forma disclosures required under SFAS No. 123, if material.
In March, 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings per Share" and SFAS No. 129 "Disclosure of Information about
Capital Structure." SFAS No. 128 eliminates several requirements of APBO No. 15,
simplifying earnings per share calculations. The Company is required to adopt
F-10
<PAGE> 57
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 128 in the first quarter of 1997. As of December 31, 1996, the adoption
of SFAS No. 128 would not have a material impact on the Company's financial
position or its results of operations.
(3) FRESH START ACCOUNTING
As of August 15, 1996, the Company adopted Fresh Start Reporting in
accordance with the American Institute of Certified Public Accountants'
Statement of Position 90-7 "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code," ("SOP 90-7"). Fresh Start Reporting resulted in
material changes to the Consolidated Balance Sheet, including valuation of real,
intangible and other assets and the valuation of equity based on the appraised
reorganization value of the ongoing business.
The final reorganization equity value was determined to be approximately
$53 million (the approximate fair value) which was established based upon
analysis by an independent valuation firm and considered many factors and
various valuation methods, including discounted cash flows, selected comparable
company multiples, selected acquisition transaction multiples and other
applicable ratios and valuation techniques believed by management and its
financial advisors to be representative of the Company's business and industry.
The Company obtained an independent appraisal of certain property to support the
fair values of such assets.
F-11
<PAGE> 58
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Reorganization and adoption of Fresh Start Reporting resulted in the
following adjustments to the Company's Consolidated Balance Sheet for the period
ending August 15, 1996.
<TABLE>
<CAPTION>
PREDECESSOR REORGANIZED
COMPANY COMPANY
----------- -----------
AT REORGANIZATION AND AT
AUGUST 15, FRESH START ADJUSTMENTS AUGUST 15,
----------- ----------------------- -----------
1996 DEBIT CREDIT 1996
----------- -------- -------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Total current assets................ $120,644 $ -- $ 63,836(f) $ 56,808
Property, plant and equipment,
net............................... 56,914 -- 196(a) 56,718
Other assets:
Intangible and other assets....... 14,038 -- 7,011(b) 7,027
Debt issuance costs............... 2,695 -- 2,607(c) 88
-------- -------- -------- --------
Total assets.............. $194,291 $ -- $ 73,650 $120,641
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable.................. $ 39,486 $ -- $ -- $ 39,486
Accrued expenses.................. 49,087 24,756(d) -- 24,331
Current portion of long-term
debt........................... 544 -- -- 544
-------- -------- -------- --------
Total current
liabilities............. 89,117 24,756 -- 64,361
-------- -------- -------- --------
Long-term debt...................... 151,991 148,836(e)(f) -- 3,155
-------- -------- -------- --------
Stockholders' (deficit) equity:
Additional paid-in capital........ 42,557 41,494(g) 52,062(g) 53,125
Retained deficit.................. (89,374) -- 55,087(h) --
34,287(i)
-------- -------- -------- --------
Total stockholders'
(deficit) equity........ (46,817) 41,494 141,436 53,125
-------- -------- -------- --------
Total liabilities and
stockholders' equity.... $194,291 $215,086 $141,436 $120,641
======== ======== ======== ========
</TABLE>
Explanations of adjustment columns of the balance sheet are as follows:
(a) To adjust property, plant and equipment to estimated current market value.
The market value of property, plant and equipment has been primarily
determined by independent third party appraisal.
(b) To primarily reflect the write-off of intangibles and adjust other assets to
current market value.
(c) To write-off remaining debt issuance costs for the Senior Secured Notes.
(d) To reflect the cancellation of accrued interest related to the Senior
Secured Notes.
(e) To reflect the cancellation of the Senior Secured Notes ($140,000,000).
(f) To reflect the paydown of the debtor-in-possession revolving credit facility
($8,836).
(g) To reflect the issuance of 5,000,000 shares of new common stock (par value
$0.01).
F-12
<PAGE> 59
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(h) To reflect the extraordinary gain resulting from the discharge of
indebtedness. This extraordinary gain is calculated below:
<TABLE>
<S> <C>
Historical carrying value of old debt securities............ $140,000
Historical carrying value of related accrued interest....... 24,756
Unamortized old debt issuance costs......................... (2,607)
Market Value of consideration exchanged for old debt:
Plan securities (face value $52,062)...................... (52,062)
Senior securities principal payment....................... (55,000)
--------
Extraordinary gain................................ $ 55,087
========
</TABLE>
(i) To reflect the elimination of stockholders' equity of the Predecessor
Company.
In accordance with SOP 90-7, expenses resulting from the Reorganization
should be reported separately as reorganization items in the Condensed
Consolidated Statements of Operations, and are summarized below:
<TABLE>
<CAPTION>
JANUARY 1,
TO
AUGUST 15, 1996
---------------
<S> <C>
Adjustment of assets to fair market value................... $ 7,207
Financial restructuring costs............................... 5,804
-------
Total............................................. $13,011
=======
</TABLE>
The following Unaudited Pro Forma Condensed Financial Information for the
years ended December 31, 1996 and 1995, have been prepared giving effect to the
sale of Puerto Rico and the consummation of the Reorganization including
adjustments to interest, depreciation expense and asset amortization. The Pro
Forma financial information was prepared as if the transactions had occurred on
January 1, 1996 and 1995, respectively. This information does not purport to be
indicative of the results which would have been obtained had such transaction in
fact been completed as of the date hereof and for the periods presented or that
may be obtained in the future.
Unaudited Pro Forma Financial Information (dollar amounts in thousands):
<TABLE>
<CAPTION>
PRO FORMA FOR
THE YEARS ENDED
----------------------------
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Total revenue.............................................. $256,556 $314,469
Operating costs and expenses............................... 257,266 323,019
-------- --------
Loss before interest, other income, reorganization expenses
and income taxes......................................... 710 8,550
Interest, other income, income taxes and reorganization
expenses................................................. 756 5,463
-------- --------
Net loss......................................... $ 1,466 $ 14,013
======== ========
</TABLE>
(4) INVENTORIES
Inventories at December 31, 1996 and 1995, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR
COMPANY COMPANY
----------- -----------
1996 1995
----------- -----------
<S> <C> <C>
Raw materials............................................... $ 5,034 $ 6,198
Finished goods.............................................. 14,110 18,749
------- -------
$19,144 $24,947
======= =======
</TABLE>
F-13
<PAGE> 60
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, at December 31, 1996 and 1995,
consisted of the following (in thousands):
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR
COMPANY COMPANY
----------- -----------
1996 1995
----------- -----------
<S> <C> <C>
Land........................................................ $21,762 $ 22,477
Buildings and improvements.................................. 12,194 23,994
Machinery and equipment..................................... 22,586 71,911
Equipment held under capital leases......................... 2,709 12,816
Construction in progress.................................... 860 480
------- --------
60,111 131,678
Accumulated depreciation.................................... (3,101) (49,246)
Capital lease depreciation.................................. (220) (2,487)
------- --------
$56,790 $ 79,945
======= ========
</TABLE>
(6) ACCRUED EXPENSES
Accrued expenses at December 31, 1996 and 1995, consisted of the following
(in thousands):
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR
COMPANY COMPANY
----------- -----------
1996 1995
----------- -----------
<S> <C> <C>
Accrued marketing programs.................................. $ 9,001 $ 4,496
Accrued interest............................................ 146 14,994
Other accruals.............................................. 18,657 17,454
------- -------
$27,804 $36,944
======= =======
</TABLE>
(7) LONG-TERM DEBT
At December 31, 1996 and 1995, the components of long-term debt were (in
thousands):
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR
COMPANY COMPANY
----------- -----------
1996 1995
----------- -----------
<S> <C> <C>
Revolving credit facilities................................. $19,021 $ 37,847
Senior Secured Notes........................................ -- 140,000
Term loan................................................... 589 3,571
Capital lease obligations................................... 2,935 8,536
------- ---------
22,545 189,954
Less: current portion....................................... (562) (189,954)
------- ---------
Long term debt, net......................................... $21,983 $ --
======= =========
</TABLE>
Revolving Credit Facilities
Upon consummation of the Reorganization on August 15, 1996, the
debtor-in-position facility was canceled and the Company entered into a new
credit facility (the "Facility") with GE Capital providing for up to $35 million
in working capital and letter of credit commitments. Available borrowings on
this facility are based on a percentage of certain eligible trade and franchisor
receivables and inventory. Interest on the
F-14
<PAGE> 61
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Facility is charged monthly at the GE Capital commercial paper rate (5.28
percent at December 31, 1996) plus 3 percent. Seven-Up/RC is charged a
commitment fee for the unused portion of the revolving loan commitments, as well
as a letter of credit fee of 2 percent on the face amount of all outstanding
letters of credit. There were $3,057,000 in outstanding letters of credit at
December 31, 1996. Seven-Up/RC also pays a $50,000 annual collateral monitoring
fee on the Facility. In addition, the Facility is also subject to a termination
fee of $750,000 if the Facility is terminated prior to the first anniversary of
the Closing Date, as defined in the agreement, or a $350,000 fee if terminated
prior to the second anniversary of that date. Seven-Up/RC has a lockbox
agreement with GE Capital whereby all cash receipts are used to pay down the
revolving loans. Borrowings under this are secured by substantially all the
Company's assets. At December 31, 1996, the Company was in violation of certain
of its revolving credit facility covenants, including interest coverage, fixed
charge coverage and capital expenditures. The Company subsequently received a
waiver from GE Capital related to the covenant violations.
The revolving loans at December 31, 1995, consisted of a $45.0 million
revolving loan commitment for Seven-Up/RC; ($29.2 million outstanding) and a
$10.0 million revolving loan commitment for Puerto Rico ($8.6 million
outstanding). Interest on these revolving loans is charged monthly at the GE
Capital Commercial Paper rate (5.68 percent at December 31, 1995) plus 3.5
percent. The average interest rate on the revolving loans in 1995 was 9.34
percent. The Company was charged a commitment fee for the unused portion of the
revolving loan commitments plus an annual administration fee and other facility
fees. Borrowings under the revolving loan commitments were based on a percentage
of certain eligible trade and franchisor receivables and inventory. At December
31, 1995, the Company was in violation of certain of its revolving credit
facility covenants, including tangible net worth, interest coverage and
fixed-charge coverage. This facility was replaced by the Company with a $54
million debtor-in-possession revolving credit facility upon entering bankruptcy.
Senior Secured Notes
On August 11, 1992, Seven-Up/RC issued its $140,000,000 aggregate principal
amount of 11.5% Senior Secured Notes Due 1999 (the "Senior Secured Notes").
Pursuant to the Reorganization, these notes were canceled in exchange for
approximately $55 million in cash and 4,900,000 shares of common stock of the
Reorganized Company (see Note 1).
Term Loan
Seven-Up/RC's secured amortizing term loan is collateralized by certain
specified equipment. The term loan calls for monthly payments of $11,536,
including interest, through July, 2002. Interest on this loan is computed at
10.14%.
Fair Value of Long-Term Debt
The fair value of amounts outstanding under the revolving credit facility
at December 31, 1996 approximates the carry amount due to the variable nature of
the interest rates. In addition, there was no material difference between the
fair market value and the carry amount of the remaining long-term debt at
December 31, 1996.
(8) EMPLOYEE BENEFIT PLANS
The Company sponsors two defined contribution plans for all employees other
than union members, unless specifically negotiated. The Target Benefit Plan was
created effective September 1, 1990, and allows participants to make
contributions of 2 percent of their eligible compensation, as defined. The
Company's annual contribution is determined by an actuary based upon assumptions
of the participant's highest five year average pay, their years of eligible
service with the Company, and their vesting status as of their termination
F-15
<PAGE> 62
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
date. The 401(k) Plan entitles all employees other than union members, unless
specifically negotiated, to participate. The Company matches one-quarter of each
participant's contribution up to 6% of the participant's eligible compensation.
In September of 1995, the Company suspended its contributions related to the
Target Benefit Plan and the 401(k) Plan. In April of 1996, Seven-Up/RC resumed
its contributions related to the 401(k) Plan. The following table summarizes the
1996 estimated contributions, and 1995 and 1994 actual contributions for each
plan for the applicable periods (in thousands):
<TABLE>
<CAPTION>
TARGET 401(K)
BENEFIT PLAN
------- ------
<S> <C> <C>
Period from January 1, 1996 to August 15, 1996.............. $204 $ 72
Period from August 16, 1996 to December 31, 1996............ $ -- $ 59
Year ended December 31, 1995................................ $306 $160
Year ended December 31, 1994................................ $380 $210
</TABLE>
Under labor contracts between the Company and certain of its employee
unions, the Company contributes to multi-employer union benefit plans which are
administered by the applicable unions. The Company has no liability to these
plans in excess of the contractually agreed to contribution, which is usually
equal to a set charge per hour of eligible service by the union members to the
Company. The Company contributed the following amounts to unions on behalf of
its employees during the applicable periods (in thousands):
<TABLE>
<S> <C>
Period from January 1, 1996 to August 15, 1996.............. $ 635
Period from August 16, 1996 to December 31, 1996............ $ 282
Year ended December 31, 1995................................ $ 972
Year ended December 31, 1994................................ $1,017
</TABLE>
PUERTO RICO PENSION PLAN
Prior to the sale of Puerto Rico, effective June 30, 1996, the Company
sponsored the Seven-Up/RC Bottling Company of Puerto Rico, Inc. Pension Plan
(the "Puerto Rico Plan"), a contributory defined benefit pension plan for union
employees of Puerto Rico. Employees were eligible to participate in the Puerto
Rico Plan the first year of the Plan year following the date of employment.
Participating employees were required to contribute 3 percent of their
compensation in excess of $9,000 in a given calendar year. The following table
indicates the actual net pension expense components for the years ended December
31, 1995 and 1994, respectively (in thousands):
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Service cost component...................................... $ 48 $ 85
Interest cost component..................................... 248 268
Expected return on plan assets.............................. (184) 82
Net amortization and deferral............................... 34 (226)
----- -----
Net pension expense............................... $ 146 $ 209
===== =====
</TABLE>
The assumptions used to develop the components of the above amounts were as
follows:
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Discount rate............................................... 7.50% 8.50%
Rate of increase in compensation levels..................... 4.00% 4.00%
Expected long-term rate of return on plan assets............ 9.00% 9.00%
</TABLE>
F-16
<PAGE> 63
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the Puerto Rico Plan as of January 1, 1995 and 1994
was as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Accumulated benefit obligation:
Vested.................................................... $ 2,952 $ 2,504
Non-vested................................................ 133 5
------- -------
$ 3,085 $ 2,509
======= =======
Present value of projected benefit obligation............... $(3,739) $(2,830)
Fair value of plan assets................................... 2,472 2,012
------- -------
Present value of projected benefit obligation in excess of
plan assets............................................... (1,267) (818)
Remaining unrecognized net obligation....................... 271 305
Unrecognized net gain....................................... 439 74
------- -------
Accrued pension costs....................................... $ (557) $ (439)
======= =======
</TABLE>
The Company contributed approximately $25,000 to the Puerto Rico Plan
during 1995 and $23,000 during 1994.
(9) COMMITMENTS
The Company leases certain office and warehouse facilities, machinery,
vehicles and computer equipment under renewable operating leases, expiring from
1997 to 2003. Rental expense under operating lease agreements was approximately
$4,434,000, $6,312,000 and $5,027,000 for the years ended December 31, 1996,
1995 and 1994, respectively. The Company also leases certain machinery and
equipment under capital leases. Following are the future minimum lease payments
under operating and capital leases that have initial or remaining noncancelable
lease terms in excess of one year from December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1997........................................................ $ 734 $2,638
1998........................................................ 734 2,432
1999........................................................ 734 1,752
2000........................................................ 734 820
2001........................................................ 735 681
Thereafter.................................................. -- 643
------ ------
$8,966
======
Less -- Amount representing interest........................ (736)
------
Present value of minimum lease payments..................... $2,935
======
</TABLE>
(10) LITIGATION
The Company is involved in various lawsuits and claims incidental to its
business. Management believes that any potential liabilities arising from these
matters will not have a material effect on its financial position or future
results of operations.
(11) INCOME TAXES
The Company was included in the consolidated federal and state income tax
returns of WB Bottling through August 15, 1996, the date of bankruptcy
reorganization, when Seven-Up/RC deconsolidated from the
F-17
<PAGE> 64
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WB Bottling group. Effective September 1, 1990, the Company and WB Bottling
entered into a tax sharing agreement, whereby the Company calculated its tax
provision on a separate member basis through the date of deconsolidation.
Effective August 16, 1996, Seven-Up/RC began filing separate federal and state
income tax returns.
The components of income (loss) from operations before the provision for income
taxes and extraordinary items were as follows (in thousands):
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
----------- ----------------------------------------
8/16-12/31 1/1-8/15 DECEMBER 31, DECEMBER 31,
1996 1996 1995 1994
----------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Domestic............................ $(462) $8,780 $(32,566) $(15,975)
Foreign............................. -- (616) 372 260
----- ------ -------- --------
Total..................... $(462) $8,164 $(32,194) $(15,715)
===== ====== ======== ========
</TABLE>
The components of income tax expense after utilization of net operating loss
carryforwards are summarized below (in thousands):
<TABLE>
<CAPTION>
8/16-12/31 1/1-8/15
1996 1996
---------- --------
<S> <C> <C>
Provision for income taxes:
Taxes currently payable
Federal................................................... $-- $ 95
State..................................................... -- 25
Foreign................................................... -- 45
--- ----
Total............................................. $-- $165
--- ----
Deferred taxes
Federal................................................... $-- $180
State..................................................... -- --
Total..................................................... $-- $180
--- ----
Total provision................................... $-- $345
=== ====
</TABLE>
The following is a reconciliation of income taxes calculated at the United
States statutory federal income tax rate to the Company's provision for income
taxes before extraordinary items (in thousands):
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
----------- ----------------------------------------
8/16-12/31 1/1-8/15 DECEMBER 31, DECEMBER 31,
1996 1996 1995 1994
----------- -------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. federal income tax provision
(benefit) at statutory rate on
income (loss) from operations..... $(157) $ 2,776 $(11,072) $(3,765)
Foreign income tax provision........ -- 45 -- 185
Nondeductible reorganization
expenses.......................... -- 1,414 -- --
Sale of Puerto Rico subsidiary...... -- (5,742) -- --
Increase (decrease) in deferred tax
asset valuation allowance......... 144 1,663 11,072 3,765
Other, net.......................... 13 189 -- --
----- ------- -------- -------
Provision (benefit) for income
taxes............................. $ -- $ 345 $ -- $ 185
===== ======= ======== =======
</TABLE>
F-18
<PAGE> 65
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996 and December 31, 1995, the approximate amounts of
deferred tax assets and deferred tax liabilities resulting from temporary
differences and carryforwards were as follows (in thousands):
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR
COMPANY COMPANY
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Current deferred tax assets and (liabilities):
Difference in inventory basis............................ $ 1,001 $ 880
Deferred compensation, pension and other arrangements.... 61 169
Accrued vacation and sick pay............................ 759 814
Accrued expenses......................................... 788 811
Reserve for Workers' Compensation........................ 1,362 1,729
Coupon reserve........................................... 1,149 221
Capital lease expense.................................... (202) (829)
Restructuring charges.................................... 363 548
Other.................................................... 181 579
------- --------
$ 5,462 $ 4,922
Less: Valuation allowance.................................. (5,462) (4,922)
------- --------
Net current deferred tax assets and (liabilities).......... $ -- $ --
======= ========
Non-current deferred tax assets and (liabilities):
Net operating loss carryforward.......................... $ 4,756 $ 28,415
Accelerated depreciation and amortization................ 4,378 (410)
Other (including AMT credit carryforwards)............... 133 (212)
------- --------
$ 9,267 $ 27,793
Less: Valuation allowance.................................. (9,267) (27,793)
------- --------
Net non-current deferred tax assets and (liabilities)...... $ -- $ --
======= ========
</TABLE>
During 1996, the deferred tax asset decreased by $17,986 resulting
primarily from the tax effect of a reduction in the domestic tax operating loss
carryforwards due to cancellation of indebtedness in connection with the
bankruptcy reorganization and the taxable income for the period ended August 15,
1996. This decrease was partially offset by the tax effect of the write-down of
property, equipment, intangibles and other assets to current market value
pursuant to SOP 90-7. Due to the uncertainty as to the realizability of the
deferred tax assets, the Company has established valuation allowances in
accordance with SFAS 109 to reduce the asset.
Internal Revenue Code Sections 382 and 383 impose a limitation on the usage
of pre-reorganization domestic tax return net operating loss (NOL) carryforwards
and other tax attributes when there is a change of ownership. A change of
ownership resulted from the bankruptcy reorganization on August 15, 1996. At
December 31, 1996, the Company had a pre-reorganization federal tax return NOL
carryforward of approximately $13.5 million available to offset future taxable
income. The usage of this prereorganization NOL carryforward is limited to $3.1
million a year because of the change of ownership. In addition, the Company had
a NOL carryforward of approximately $0.6 million attributable to the
post-reorganization period that is not subject to limitation. The NOL
carryforwards will expire from 2010 to 2011. The alternative minimum tax credit,
although subject to the change of ownership limitation, has no expiration date.
To the extent the Company realizes a tax benefit as a result of future
reductions in the valuation allowance related to the utilization of
pre-reorganization deferred tax assets, the fresh start accounting rules of SOP
90-7 provide for the reporting of such benefits first by reducing identifiable
intangible assets existing at
F-19
<PAGE> 66
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the date of the fresh start and then, once those assets are reduced to zero, by
increasing equity. These tax benefits will not reduce income tax expense.
However, the Company will realize a cash benefit from utilization of the
"pre-reorganization benefits" against any future tax liabilities.
(12) CAPITAL STOCK
The certificate of incorporation in Delaware authorizes 6,000,000 shares of
$.01 per value common stock.
Upon Consummation of the Plan, WB Bottling Corporation, a privately held
Delaware corporation and previously the sole shareholder of BGAC, was granted
the right to purchase from the Company (the "Warrant"), 263,158 shares of common
stock subject to adjustment as defined, exercisable at an amount per share based
upon a formula, as defined. The Warrants are exercisable until December 31,
2001.
(13) STOCK COMPENSATION PLANS
As part of the Reorganization, options to purchase 319,149 shares of common
stock, subject to adjustment as defined, were authorized to be granted to
certain members of management of the Company. The purchase price per share is
determined based upon a formula defined in the Management Option Agreement. The
non-qualified options expire December 31, 2001. On January 30, 1997, the
authorized options were granted to certain members of management.
On January 30, 1997, the Board of Directors of the Company adopted the
Stock Option Plan (the "Plan"). In January 1997, options to purchase 417,693
shares of common stock were granted under the Option Plan. The option exercise
price per share of common stock is $8.00.
(14) SEGMENT DATA
The Company's subsidiaries operate in the beverage production and
distribution business in two separate geographic segments. Information about the
Company's operations in these two geographic segments is summarized below (in
thousands):
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
----------- --------------------------------------
8/16-12/31 1/1-8/15 DECEMBER 31, DECEMBER 31,
1996 1996 1995 1994
----------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Net Sales
United States............................... $ 91,647 $164,909 $314,469 $343,632
Puerto Rico................................. -- 37,935 82,256 70,208
-------- -------- -------- --------
$ 91,647 $202,844 $396,725 $413,840
======== ======== ======== ========
Operating Profit
United States............................... $ 326 $ (2,051) $(14,339) $ 1,290
Puerto Rico................................. -- 1,788 4,992 4,526
-------- -------- -------- --------
$ 326 $ (263) $ (9,347) $ 5,816
======== ======== ======== ========
Identifiable Assets
United States............................... $121,370 $120,641 $140,931 $194,545
Puerto Rico................................. -- -- 51,202 49,289
-------- -------- -------- --------
$121,370 $120,641 $192,133 $243,834
======== ======== ======== ========
</TABLE>
F-20
<PAGE> 67
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) SUBSEQUENT EVENT
On February 28, 1997, Seven-Up/RC entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Dr Pepper Bottling Company of Texas ("Dr
Pepper Bottling") whereby DPB Acquisition Corp., a wholly-owned subsidiary of Dr
Pepper Bottling (the "Purchaser") has made an offer to purchase all the issued
and outstanding shares of the Company for $12.00 per share (the "Offer"). The
Offer is conditioned upon, among other things, (i) there being validly tendered
and not withdrawn prior to the expiration date for the Offer that number of
shares of Common Stock which would represent, on a fully-diluted basis, at least
65% of the outstanding Common Stock, (ii) receipt by the Purchaser of sufficient
funds from its financing sources, and (iii) the receipt of certain identified
consents.
F-21
<PAGE> 68
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE
AT BALANCE AT
BEGINNING END OF
OF PERIOD ADDITIONS DEDUCTIONS PERIOD
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
For the period August 16, through December 31,
1996........................................... $2,070 $ 245 $ (378) $1,937
====== ====== ======= ======
Allowance for doubtful accounts
For the period January 1, through August 15,
1996........................................... $1,814 $1,299 $(1,043) $2,070
====== ====== ======= ======
Allowance for doubtful accounts
For the year ended December 31, 1995.............. $1,428 $ 715 $ (329) $1,814
====== ====== ======= ======
Allowance for doubtful accounts
For the year ended December 31, 1994.............. $1,192 $1,025 $ (789) $1,428
====== ====== ======= ======
</TABLE>
F-22
<PAGE> 69
ANNEX I
AGREEMENT AND PLAN OF MERGER
AND
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
<PAGE> 70
AGREEMENT AND
PLAN OF MERGER
AMONG
DR PEPPER BOTTLING COMPANY OF TEXAS,
DPB ACQUISITION CORP.,
AND
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
DATED AS OF FEBRUARY 28, 1997
I-1
<PAGE> 71
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C> <C>
ARTICLE I................................................................ I-6
THE OFFER.............................................................. I-6
1.1 The Offer..................................................... I-6
1.2 Offer Documents............................................... I-7
1.3 Company Actions............................................... I-7
1.4 Directors..................................................... I-8
ARTICLE II............................................................... I-8
THE MERGER............................................................. I-8
2.1 The Merger.................................................... I-8
2.2 Closing....................................................... I-9
2.3 Effective Time of the Merger.................................. I-9
2.4 Effects of the Merger......................................... I-9
ARTICLE III.............................................................. I-9
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES.............................. I-9
3.1 Effect on Capital Stock....................................... I-9
3.2 Conversion of Securities...................................... I-9
3.3 Payment for Shares............................................ I-10
3.4 Stock Transfer Books.......................................... I-11
3.5 Stock Options................................................. I-11
3.6 Dissenting Shares............................................. I-12
3.7 Warrants...................................................... I-12
ARTICLE IV............................................................... I-12
REPRESENTATIONS AND WARRANTIES......................................... I-12
4.1 Representations and Warranties of the Company................. I-12
4.2 Representations and Warranties of Parent and Sub.............. I-21
ARTICLE V................................................................ I-23
COVENANTS RELATING TO CONDUCT OF BUSINESS.............................. I-23
5.1 Covenants of the Company...................................... I-23
ARTICLE VI............................................................... I-26
ADDITIONAL AGREEMENTS.................................................. I-26
6.1 Preparation of the Information Statement; Merger Without a
Company Stockholders Meeting.................................. I-26
6.2 Access to Information......................................... I-26
6.3 Settlements................................................... I-26
6.4 Fees and Expenses............................................. I-26
6.5 Brokers or Finders............................................ I-27
6.6 Indemnification; Directors' and Officers' Insurance........... I-27
6.7 Commercially Reasonable Efforts............................... I-28
6.8 Conduct of Business of Sub.................................... I-29
6.9 Publicity..................................................... I-29
6.10 Withholding Rights............................................ I-29
ARTICLE VII.............................................................. I-29
CONDITIONS PRECEDENT................................................... I-29
7.1 Conditions to Each Party's Obligation to Effect the Merger..... I-29
</TABLE>
I-2
<PAGE> 72
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C> <C>
ARTICLE VIII............................................................. I-30
TERMINATION AND AMENDMENT.............................................. I-30
8.1 Termination................................................... I-30
8.2 Effect of Termination......................................... I-30
8.3 Amendment..................................................... I-30
8.4 Extension; Waiver............................................. I-31
ARTICLE IX............................................................... I-31
GENERAL PROVISIONS..................................................... I-31
9.1 Nonsurvival of Representations, Warranties and Agreements..... I-31
9.2 Notices....................................................... I-31
9.3 Interpretation................................................ I-32
9.4 Counterparts.................................................. I-32
9.5 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership.......................................................... I-32
9.6 Governing Law................................................. I-32
9.7 Assignment.................................................... I-32
</TABLE>
I-3
<PAGE> 73
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM: SECTION:
----- ------------
<S> <C>
Acquisition Proposal........................................ 5.1(e)
Agreement................................................... Preamble
Bankruptcy Plan............................................. 3.5
Benefit Plans............................................... 4.1(i)(i)(A)
Board Percentage............................................ 1.4(a)
Brodkin Amendment........................................... 4.2(f)
CERCLA...................................................... 4.1(p)(i)(B)
Certificate of Merger....................................... 2.3
Certificates................................................ 3.3(b)
Closing..................................................... 2.2
Closing Date................................................ 2.2
Code........................................................ 4.1(h)(vi)
Company..................................................... Preamble
Company Common Stock........................................ Preamble
Company Intangible Property................................. 4.1(o)
Company Litigation.......................................... 4.1(g)
Company Order............................................... 4.1(g)
Company Permits............................................. 4.1(f)
Company SEC Documents....................................... 4.1(d)
Company Stockholder Approval................................ 4.1(c)(iii)
Company Voting Debt......................................... 4.1(b)
Confidentiality Agreement................................... 6.2
Constituent Corporations.................................... 2.1
Continuing Director......................................... 1.4(b)
Designated Person........................................... 6.4(c)
DGCL........................................................ 1.3
Dissenting Shares........................................... 3.6
Effective Time.............................................. 2.3
Employee Arrangements....................................... 4.1(i)(i)(B)
Employee/Director Stock Option.............................. 3.5
Employee/Director Stock Options............................. 3.5
Environmental Costs and Liabilities......................... 4.1(p)(i)(A)
Environmental Law........................................... 4.1(p)(i)(B)
Exchange Act................................................ 1.1(a)
Expenses.................................................... 6.4(e)
Ferguson Agreement.......................................... 4.2(f)
Financial Advisor........................................... 1.3
Financing Commitment........................................ 4.2(e)
GAAP........................................................ 4.1(d)
Gains and Transfer Taxes.................................... 4.1(c)(iii)
Governmental Entity......................................... 4.1(c)(iii)
Hazardous Material.......................................... 4.1(p)(i)(c)
HSR Act..................................................... 4.1(c)(iii)
Indebtedness................................................ 4.1(u)
Indemnified Liabilities..................................... 6.6
Indemnified Parties......................................... 6.6
Information Statement....................................... 4.1(c)(iii)
Injunction.................................................. 7.1(c)
IRSA........................................................ 4.1(p)(i)(B)
Laws........................................................ 4.1(c)(ii)
</TABLE>
I-4
<PAGE> 74
<TABLE>
<CAPTION>
TERM: SECTION:
----- ------------
<S> <C>
Management Option/Management Options........................ 3.5
Material Adverse Effect..................................... 4.1(a)
Material Contracts.......................................... 4.1(s)
Merger...................................................... Preamble
Merger Consideration........................................ 3.2(a)(i)
Offer....................................................... 1.1(a)
Offer Consideration......................................... 1.1(a)
Offer Documents............................................. 1.2
On a fully diluted basis.................................... 1.1(b)
Option Consideration........................................ 3.5
Option/Options.............................................. 3.5
OSHA........................................................ 4.1(p)(i)(B)
Parent...................................................... Preamble
Paying Agent................................................ 3.3(a)
Payment Fund................................................ 3.3(a)
Permitted Investments....................................... 3.3(a)
Real Property Leases........................................ 4.1(q)(ii)
Release..................................................... 4.1(p)(i)(D)
Remedial Action............................................. 4.1(p)(i)(E)
Representatives............................................. 5.1(e)
Requisite Consents.......................................... 5.1(o)
Schedule 14D-1.............................................. 1.2
Schedule 14D-9.............................................. 1.3
SEC......................................................... 1.1(b)
Securities Act.............................................. 4.1(d)
Shares...................................................... Preamble
Stock Option Plan........................................... 3.5
Sub......................................................... Preamble
Subsidiary.................................................. 3.2(a)(i)
Surviving Corporation....................................... 2.1
Taxes....................................................... 4.1(h)(vi)
Tax Returns................................................. 4.1(h)(vi)
Trigger Event............................................... 6.4(b)
Violation................................................... 4.1(c)(ii)
WARN Act.................................................... 4.1(n)(iv)
Warrants.................................................... 3.7
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of February 28, 1997 (the
"Agreement"), is made and entered into by and among Dr Pepper Bottling Company
of Texas, a Texas corporation ("Parent"), DPB Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Parent ("Sub"), and Seven-Up/RC
Bottling Company of Southern California, Inc., a Delaware corporation (the
"Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have unanimously approved the acquisition of the Company by Parent, by means of
the merger (the "Merger") of Sub with and into the Company, upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, to effectuate the acquisition, Parent and the Company each desire
that Sub commence a cash tender offer to purchase all of the outstanding shares
of common stock, par value $0.01 per share, of the Company ("Shares" or "Company
Common Stock") upon the terms and subject to the conditions set forth in this
Agreement and the Offer Documents (as defined in Section 1.2), and the Board of
Directors of the Company has unanimously approved such tender offer and agreed
to recommend to its stockholders that they accept the tender offer and tender
their Company Common Stock pursuant thereto; and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
tender offer and the Merger and also to prescribe various conditions to the
consummation thereof;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I
THE OFFER
1.1 The Offer. (a) Provided that none of the events set forth in Exhibit A
hereto shall have occurred and be continuing, as promptly as practicable (but in
any event not later than five business days after the public announcement of the
execution and delivery of this Agreement), Sub shall commence (within the
meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), an offer to purchase (the "Offer") all outstanding shares of
the Company Common Stock at a price of $12.00 per share, net to the seller in
cash (the "Offer Consideration"). The obligation of Parent and Sub to commence
the Offer, consummate the Offer, accept for payment and to pay for shares of
Company Common Stock validly tendered in the Offer and not withdrawn shall be
subject only to those conditions set forth in Exhibit A hereto.
(b) Parent and Sub expressly reserve the right to amend or modify the terms
of the Offer, except that, without the prior written consent of the Company, Sub
shall not (and Parent shall not cause Sub to) (i) decrease the Offer
Consideration or the form of consideration therefor or decrease the number of
Shares sought pursuant to the Offer, (ii) change, in any material respect, the
conditions to the Offer, (iii) impose additional material conditions to the
Offer, (iv) waive the condition that there shall be validly tendered and not
withdrawn prior to the time the Offer expires a number of shares of Company
Common Stock which constitutes at least 65% of the Shares outstanding on a
fully-diluted basis on the date of purchase ("on a fully-diluted basis" having
the following meaning, as of any date: the number of shares of Company Common
Stock outstanding, together with Shares which the Company may be required to
issue pursuant to options, warrants or other obligations outstanding at that
date), (v) extend the expiration date of the Offer (except that Sub may extend
the expiration date of the Offer (a) as required by law or (b) for such periods
as Sub may reasonably deem necessary (but not to a date later than the 45th
calendar day after the date of commencement) in the event that any condition to
the Offer is not satisfied), or (vi) amend any term of the Offer in any manner
materially adverse to holders of shares of Company Common Stock; provided,
however, that, except as set forth above, Sub may waive any other condition to
the Offer in its sole discretion; and provided further, that the Offer may be
extended in connection with an increase in the consideration to be paid
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pursuant to the Offer so as to comply with applicable rules and regulations of
the United States Securities and Exchange Commission (the "SEC"). Assuming the
prior satisfaction or waiver of the conditions to the Offer, Sub shall accept
for payment, and pay for, in accordance with the terms of the Offer, all shares
of Company Common Stock validly tendered and not withdrawn pursuant to the Offer
as soon as practicable after the expiration date thereof.
1.2 Offer Documents. As soon as practicable on the date of commencement of
the Offer, Parent and Sub shall file or cause to be filed with the SEC a Tender
Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") with respect to the
Offer which shall contain the offer to purchase, related letter of transmittal
and other ancillary Offer documents and instruments pursuant to which the Offer
will be made (collectively with any supplements or amendments thereto, the
"Offer Documents"). The Offer Documents (i) shall contain (or shall be amended
in a timely manner to contain) all information which is required to be included
therein in accordance with the Exchange Act and the rules and regulations
thereunder and any other applicable law, and (ii) shall conform in all material
respects with the requirements of the Exchange Act and any other applicable law.
Notwithstanding the foregoing, no agreement or representation hereby is made or
shall be made by Parent or Sub with respect to information supplied by the
Company expressly for inclusion in, or with respect to Company information
derived from the Company's public SEC filings that is included or incorporated
by reference in, the Offer Documents. Parent, Sub and the Company each agree
promptly to correct any information provided by them for use in the Offer
Documents if and to the extent that it shall have become false or misleading in
any material respect and Sub further agrees to take all lawful action necessary
to cause the Offer Documents as so corrected to be filed promptly with the SEC
and to be disseminated to holders of Company Common Stock, in each case as and
to the extent required by applicable law. In conducting the Offer, Parent and
Sub shall comply in all material respects with the provisions of the Exchange
Act and any other applicable law. The Company and its counsel shall be given
reasonable opportunity to review and comment on the Offer Documents and any
amendments or supplements thereto prior to the filing thereof with the SEC. To
the extent practicable, the Company and its counsel shall also be given
reasonable opportunity to review and comment on correspondence with the SEC
concerning the Offer Documents prior to the delivery thereof to the SEC.
1.3 Company Actions. The Company hereby consents to the Offer and the
Merger and represents that (a) its Board of Directors (at a meeting duly called
and held) has unanimously (i) determined that each of this Agreement, the Offer
and the Merger are fair to and in the best interests of the stockholders of the
Company and (ii) resolved to recommend acceptance of the Offer, approval and
adoption of this Agreement and approval of the Merger by the holders of Company
Common Stock, (b) the Company is not subject to Section 203 of the Delaware
General Corporation Law, as amended (the "DGCL"), and (c) Houlihan, Lokey,
Howard & Zukin, Inc. (the "Financial Advisor") has delivered to the Board of
Directors of the Company its written opinion that the Offer Consideration to be
received by the holders of Company Common Stock in the Offer is fair, from a
financial point of view, to such holders. The Board of Directors of the Company
may not withdraw, modify or amend its approval or recommendation of the Offer,
this Agreement or the Merger except in accordance with Section 5.1(e)(ii) or
Section 5.1(e)(iii). The Company hereby consents to the inclusion in the Offer
Documents of the recommendation referred to in this Section 1.3. The Company
hereby agrees to file with the SEC, simultaneously with the filing by Parent and
Sub of the Schedule 14D-1, a Solicitation/Recommendation Statement on Schedule
14D-9 (together with all amendments and supplements thereto, the "Schedule
14D-9") containing such recommendations of the Board of Directors of the Company
in favor of the Offer and the Merger and otherwise complying with Rule 14D-9
under the Exchange Act. The Schedule 14D-9 shall comply in all material respects
with the Exchange Act and any other applicable law and shall contain (or shall
be amended in a timely manner to contain) all information that is required to be
included therein in accordance with the Exchange Act and the rules and
regulations promulgated thereunder and any other applicable law. The Company,
Parent and Sub each agree promptly to correct any information provided by them
for use in the Schedule 14D-9 if and to the extent that it shall have become
false or misleading in any material respect and the Company further agrees to
take all lawful action necessary to cause the Schedule 14D-9 as so corrected to
be promptly filed with the SEC and disseminated to the holders of Company Common
Stock, in each case as and to the extent required by applicable law. Parent, Sub
and their counsel shall be given an opportunity to review and comment on the
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Schedule 14D-9 and any amendments thereto prior to the filing thereof with the
SEC. To the extent practicable, Parent, Sub and their counsel shall also be
given reasonable opportunity to review and comment on correspondence with the
SEC concerning the Schedule 14D-9 prior to the delivery thereof to the SEC. In
connection with the Offer, the Company shall promptly furnish, or cause its
transfer agent to furnish, Parent with mailing labels, security position
listings and all available listings or computer files containing the names and
addresses of the record holders of the Company Common Stock as of the latest
practicable date and shall furnish, or cause its transfer agent to furnish,
Parent with such information and assistance (including updated lists of
stockholders, mailing labels and lists of security positions) as Parent or its
agents may reasonably request in communicating the Offer to the record and
beneficial holders of Company Common Stock. Subject to the requirements of
applicable law, and except for such actions as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Offer and
the Merger, Parent and Sub and each of their affiliates, associates, partners,
employees, agents and advisors shall hold in confidence the information
contained in such labels and lists, shall use such information only in
connection with the Offer and the Merger, and, if this Agreement is terminated
for any reason, shall deliver promptly to the Company all copies of such
information then in their possession.
1.4 Directors. (a) Upon the purchase pursuant to the Offer by Parent or
any of its subsidiaries of such number of shares of Company Common Stock which
represents at least 65% of the outstanding shares of Company Common Stock (on a
fully diluted basis), and from time to time thereafter, Parent shall be entitled
to designate such number of directors, rounded up to the next whole number (but
in no event more than one less than the total number of directors on the Board
of Directors of the Company) as will give Parent, subject to compliance with
Section 14(f) of the Exchange Act, representation on the Board of Directors of
the Company equal to the product of (x) the number of directors on the Board of
Directors of the Company (giving effect to any increase in the number of
directors pursuant to this Section 1.4) and (y) the percentage that such number
of Shares so purchased bears to the aggregate number of Shares outstanding (such
number being, the "Board Percentage"), and the Company shall, upon request by
Parent, promptly satisfy the Board Percentage by (i) increasing the size of the
Board of Directors of the Company or (ii) using its best efforts to secure the
resignations of such number of directors as is necessary to enable Parent's
designees to be elected to the Board of Directors of the Company and shall cause
Parent's designees promptly to be so elected, provided that no such action shall
be taken which would result in there being, prior to the consummation of the
Merger, less than two directors of the Company that are not affiliated with
Parent. At the request of Parent, the Company shall take, at the Company's
expense, all lawful action necessary to effect any such election, including,
without limitation, mailing to its stockholders the information required by
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, unless
such information has previously been provided to the Company's stockholders in
the Schedule 14D-9. Parent will supply to the Company in writing and be solely
responsible for any information with respect to itself and its nominees,
directors and affiliates required by Section 14(f) of the Exchange Act and Rule
14f-1 thereunder.
(b) Following the election or appointment of Parent's designees pursuant to
this Section 1.4 and prior to the Effective Time of the Merger, any amendment or
termination of this Agreement, extension for the performance or waiver of the
obligations or other acts of Parent or Sub or waiver of the Company's rights
thereunder shall require the concurrence of a majority of directors of the
Company then in office who are Continuing Directors. The term "Continuing
Director" shall mean (i) each member of the board of directors on the date
hereof who voted to approve this Agreement and (ii) any successor to any
Continuing Director that was recommended to succeed such Continuing Director by
a majority of the Continuing Directors then on the board of directors.
ARTICLE II
THE MERGER
2.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the DGCL, Sub shall be merged with and
into the Company at the Effective Time. At the Effective Time, the separate
corporate existence of Sub shall cease, and the Company shall continue as the
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surviving corporation and a direct wholly owned subsidiary of Parent (Sub and
the Company are sometimes hereinafter referred to as "Constituent Corporations"
and, as the context requires, the Company is sometimes hereinafter referred to
as the "Surviving Corporation"), and shall continue under the name "Seven-Up/RC
Bottling Company of Southern California, Inc."
2.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
8.1, and subject to the satisfaction or waiver of the conditions set forth in
Article VII, the closing of the Merger (the "Closing") shall take place at 10:00
a.m., Dallas, Texas time, on the second business day after satisfaction and/or
waiver of all of the conditions set forth in Article VII (the "Closing Date"),
at the offices of Weil, Gotshal & Manges LLP, 100 Crescent Court, Suite 1300,
Dallas, Texas 75201, unless another date, time or place is agreed to in writing
by the parties hereto.
2.3 Effective Time of the Merger. Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be consummated by filing
a certificate of merger (the "Certificate of Merger") with the Secretary of
State of the State of Delaware, as provided in the DGCL, as soon as practicable
on or after the Closing Date. The Merger shall become effective upon such filing
or at such time thereafter as is provided in the Certificate of Merger (the
"Effective Time").
2.4 Effects of the Merger. (a) The Merger shall have the effects as set
forth in the applicable provisions of the DGCL.
(b) The directors of Sub and the officers of the Company immediately prior
to the Effective Time shall, from and after the Effective Time, be the initial
directors and officers of the Surviving Corporation until their successors have
been duly elected or appointed and qualified, or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws.
(c) The Certificate of Incorporation of the Company as in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation, until duly amended in accordance
with the terms thereof and the DGCL.
(d) The Bylaws of the Company as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation until thereafter
amended as provided by applicable law, the Certificate of Incorporation or the
Bylaws.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
3.1 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of Company
Common Stock or the holder of any capital stock of Sub:
(a) Capital Stock of Sub. Each share of the capital stock of Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one fully paid and nonassessable share of Common
Stock, par value $0.01 per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. Each share
of Company Common Stock and all other shares of capital stock of the
Company that are owned by the Company and all shares of Company Common
Stock and other shares of capital stock of the Company owned by Parent or
Sub shall be canceled and retired and shall cease to exist and no
consideration shall be delivered or deliverable in exchange therefor.
3.2 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of Sub, the Company or the holders of
any of the shares thereof:
(a)(i) Subject to the other provisions of this Section 3.2, each share
of Company Common Stock issued and outstanding immediately prior to the
Effective Time (excluding shares owned, directly or
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indirectly, by the Company or by Parent, Sub or any other Subsidiary (as
defined below) of Parent and Dissenting Shares (as defined in Section 3.6))
shall be converted into the right to receive the Offer Consideration,
payable to the holder thereof, without any interest thereon (the "Merger
Consideration"), upon surrender and exchange of the Certificates (as
defined in Section 3.3). As used in this Agreement, the word "Subsidiary",
with respect to any party, means any corporation, partnership, joint
venture or other organization, whether incorporated or unincorporated, of
which: (i) such party or any other Subsidiary of such party is a general
partner; (ii) voting power to elect a majority of the Board of Directors or
others performing similar functions with respect to such corporation,
partnership, joint venture or other organization is held by such party or
by any one or more of its Subsidiaries, or by such party and any one or
more of its Subsidiaries; or (iii) at least 25% of the equity, other
securities or other interests is, directly or indirectly, owned or
controlled by such party or by any one or more of its Subsidiaries, or by
such party and any one or more of its Subsidiaries.
(ii) All such shares of Company Common Stock, when converted as
provided in Section 3.2(a)(i), no longer shall be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
Certificate previously evidencing such Shares shall thereafter represent
only the right to receive the Merger Consideration. The holders of
Certificates previously evidencing Shares outstanding immediately prior to
the Effective Time shall cease to have any rights with respect to the
Company Common Stock except as otherwise provided herein or by law and,
upon the surrender of Certificates in accordance with the provisions of
Section 3.3, shall only represent the right to receive for their Shares,
the Merger Consideration, without any interest thereon.
3.3 Payment for Shares. (a) Paying Agent. Prior to the Effective Time, Sub
shall appoint Texas Commerce Bank National Association (or another United States
bank or trust company reasonably acceptable to the Company) to act as paying
agent (the "Paying Agent") for the payment of the Merger Consideration, and Sub
shall deposit or shall cause to be deposited with the Paying Agent in a separate
fund established for the benefit of the holders of shares of Company Common
Stock, for payment in accordance with this Article III, through the Paying Agent
(the "Payment Fund"), immediately available funds in amounts necessary to make
the payments pursuant to Section 3.2(a)(i) and this Section 3.3 to holders
(other than the Company or Parent, Sub or any other Subsidiary of Parent, or
holders of Dissenting Shares). The Paying Agent shall, pursuant to irrevocable
instructions, pay the Merger Consideration out of the Payment Fund.
The Paying Agent shall invest portions of the Payment Fund as Parent
directs in obligations of or guaranteed by the United States of America, in
commercial paper obligations receiving the highest investment grade rating from
both Moody's Investors Services, Inc. and Standard & Poor's Corporation, or in
certificates of deposit, bank repurchase agreements or banker's acceptances of
commercial banks with capital exceeding $1,000,000,000 (collectively, "Permitted
Investments"); provided, however, that the maturities of Permitted Investments
shall be such as to permit the Paying Agent to make prompt payment to former
holders of Company Common Stock entitled thereto as contemplated by this
Section. The Surviving Corporation shall cause the Payment Fund to be promptly
replenished to the extent of any losses incurred as a result of Permitted
Investments. All earnings on Permitted Investments shall be paid to the
Surviving Corporation. If for any reason (including losses) the Payment Fund is
inadequate to pay the amounts to which holders of shares of Company Common Stock
shall be entitled under this Section 3.3, the Surviving Corporation shall in any
event be liable for payment thereof. The Payment Fund shall not be used for any
purpose except as expressly provided in this Agreement.
(b) Payment Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall instruct the Paying Agent to
mail to each holder of record (other than the Company or Parent, Sub or any
other Subsidiary of Parent) of a Certificate or Certificates which, immediately
prior to the Effective Time, evidenced outstanding shares of Company Common
Stock (the "Certificates"), (i) a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Paying Agent, and shall be in such form and have such other provisions as the
Surviving Corporation reasonably may specify) and
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(ii) instructions for use in effecting the surrender of the Certificates in
exchange for payment therefor. Upon surrender of a Certificate for cancellation
to the Paying Agent together with such letter of transmittal, duly executed, and
such other customary documents as may be required pursuant to such instructions,
the holder of such Certificate shall be entitled to receive in respect thereof
cash in an amount equal to the product of (x) the number of shares of Company
Common Stock represented by such Certificate and (y) the Merger Consideration,
and the Certificate so surrendered shall forthwith be canceled. Absolutely no
interest shall be paid or accrued on the Merger Consideration payable upon the
surrender of any Certificate. If payment is to be made to a person other than
the person in whose name the surrendered Certificate is registered, it shall be
a condition of payment that the Certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the person requesting
such payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the surrendered
Certificate or established to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable. Until surrendered in accordance
with the provisions of this Section 3.3(b), each Certificate (other than
Certificates representing Shares owned by Parent or Sub or held in the treasury
of the Company) shall represent for all purposes only the right to receive the
Merger Consideration.
(c) Termination of Payment Fund; Interest. Any portion of the Payment Fund
which remains undistributed to the holders of Company Common Stock for 180 days
after the Effective Time shall be delivered to the Surviving Corporation, upon
demand, and any holders of Company Common Stock who have not theretofore
complied with this Article III and the instructions set forth in the letter of
transmittal mailed to such holder after the Effective Time shall thereafter look
only to the Surviving Corporation for payment of the Merger Consideration to
which they are entitled. All interest accrued in respect of the Payment Fund
shall inure to the benefit of and be paid to the Surviving Corporation.
(d) No Liability. Neither Parent nor the Surviving Corporation shall be
liable to any holder of shares of Company Common Stock for any cash from the
Payment Fund delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
3.4 Stock Transfer Books. At the Effective Time, the stock transfer books
of the Company shall be closed and there shall be no further registration of
transfers of shares of Company Common Stock thereafter on the records of the
Company. On or after the Effective Time, any certificates presented to the
Paying Agent or Parent for any reason shall be converted into the Merger
Consideration.
3.5 Stock Options. Each stock option issued under the 1996-1997 Stock
Option Plan of the Company (the "Stock Option Plan") is referred to herein as an
"Employee/Director Stock Option" and all such options are referred to herein,
collectively, as the "Employee/Director Stock Options". Each stock option issued
pursuant to the First Amended Joint Plan of Reorganization of the Company and
Beverage Group Acquisition Corporation, dated as of June 19, 1996, and as
approved by the United States Bankruptcy Court, District of Delaware (the
"Bankruptcy Plan") is referred to herein as a "Management Option" and all such
options are referred to herein, collectively, as the "Management Options". The
Employee/Director Stock Options and the Management Options are referred to
herein, collectively, as the "Options" and, individually, as an "Option". At the
Effective Time, each holder of a then outstanding Option shall, in cancellation
and settlement thereof, receive for each Share subject to such Option an amount
(subject to any applicable withholding tax) in cash equal to the difference
between the Offer Consideration and the per Share exercise price of such Option
to the extent such difference is a positive number (such amount being
hereinafter referred to as, the "Option Consideration"); provided, however, that
with respect to any person subject to Section 16(a) of the Exchange Act, any
such amount shall be paid as soon as practicable after the first date payment
can be made without liability to such person under Section 16(b) of the Exchange
Act. Upon receipt of the Option Consideration, the Option shall be canceled. The
surrender of an Option to the Company in exchange for the Option Consideration
shall be deemed a release of any and all rights the holder had or may have had
in respect of such Option. Prior to the expiration of the Offer, the Company
shall obtain all necessary consents or releases from holders of Options under
the Stock Option Plan and take all such other lawful action as may be necessary
to give effect to the transactions contemplated by this Section 3.5. The Stock
Option Plan shall terminate as of the Effective Time, and the provisions in any
other plan, program or arrangement providing for the issuance or grant of any
other interest in respect of the capital stock of the Company shall be canceled
as
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of the Effective Time. Prior to the expiration of the Offer, the Company shall
take all action necessary to (i) ensure that, following the Effective Time, no
participant in the Stock Option Plan or any other plans, programs or
arrangements shall have any right thereunder to acquire equity securities of the
Company, the Surviving Corporation or any Subsidiary thereof and (ii) terminate
all such plans, programs and arrangements.
3.6 Dissenting Shares. Notwithstanding any other provisions of this
Agreement to the contrary, shares of Company Common Stock that are outstanding
immediately prior to the Effective Time and which are held by stockholders who
shall have not voted in favor of the Merger or consented thereto in writing and
who shall have demanded properly in writing appraisal for such shares in
accordance with Section 262 of the DGCL (collectively, the "Dissenting Shares")
shall not be converted into or represent the right to receive the Merger
Consideration. Such stockholders instead shall be entitled to receive payment of
the appraised value of such shares of Company Common Stock held by them in
accordance with the provisions of such Section 262, except that all Dissenting
Shares held by stockholders who shall
have failed to perfect or who effectively shall have withdrawn or lost their
rights to appraisal of such shares of Company Common Stock under such Section
262 shall thereupon be deemed to have been converted into and to have become
exchangeable, as of the Effective Time, for the right to receive, without any
interest thereon, the Merger Consideration upon surrender in the manner provided
in Section 3.3, of the Certificate or Certificates that, immediately prior to
the Effective Time, evidenced such shares of Company Common Stock.
3.7 Warrants. At the Effective Time, each holder of a then outstanding
warrant to purchase Shares, whether or not then exercisable, issued pursuant to
the Bankruptcy Plan (collectively, the "Warrants"), shall automatically become
exercisable (upon payment of the aggregate exercise price therefor) only for the
Offer Consideration (without any interest thereon and less any required
withholding taxes) that would be payable to such warrantholder had such
warrantholder exercised its Warrant in full immediately prior to the Effective
Time.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Company. The Company represents
and warrants to Parent and Sub as follows:
(a) Organization, Standing and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted, and
is duly qualified or licensed to do business as a foreign corporation and in
good standing to conduct business in each jurisdiction in which the business it
is conducting, or the operation, ownership or leasing of its properties, makes
such qualification or license necessary, other than in such jurisdictions where
the failure so to qualify or become so licensed would not (i) have a Material
Adverse Effect (as defined below) with respect to the Company or (ii) impair in
any material respect the ability of the Company to consummate the transactions
contemplated by this Agreement. The Company has heretofore made available to
Parent complete and correct copies of its Certificate of Incorporation and
Bylaws. The Company has no Subsidiaries. As used in this Agreement: a "Material
Adverse Effect" shall mean, with respect to any party, the result of one or more
events, changes or effects which, individually or in the aggregate, would have a
material adverse effect on the business, operations, results of operations,
assets, condition (financial or otherwise) or prospects of such party and its
Subsidiaries, taken as a whole.
(b) Capital Structure. As of the date hereof, the authorized capital stock
of the Company consists of 6,000,000 Shares. At the close of business on
February 27, 1997: (i) 5,000,000 Shares were issued and outstanding; (ii)
382,022 Shares were reserved for issuance pursuant to outstanding
Employee/Director Stock Options; (iii) 337,079 Shares were reserved for issuance
pursuant to outstanding Management Options; (iv) 280,899 Shares were reserved
for issuance pursuant to outstanding Warrants; (v) except for the issuance of
Shares pursuant to the exercise of outstanding Options and Warrants, there are
no employment, executive
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termination or similar agreements providing for the issuance of Shares; (vi) no
Shares were held by the Company; and (vii) no bonds, debentures, notes or other
instruments or evidence of indebtedness having the right to vote (or convertible
into, or exercisable or exchangeable for, securities having the right to vote)
on any matters on which the Company stockholders may vote ("Company Voting
Debt") were issued or outstanding. All outstanding Shares are validly issued,
fully paid and nonassessable and are not subject to preemptive or other similar
rights. Except as set forth in this Section 4.1(b), there are outstanding: (i)
no shares of capital stock, Company Voting Debt or other voting securities of
the Company; (ii) no securities of the Company convertible into, or exchangeable
or exercisable for, shares of capital stock, Company Voting Debt or other voting
securities of the Company; and (iii) no options, warrants, calls, rights
(including preemptive rights), commitments or agreements to which the Company is
a party or by which it is bound, in any case obligating the Company to issue,
deliver, sell, purchase, redeem or acquire, or cause to be issued, delivered,
sold, purchased, redeemed or acquired, additional shares of capital stock or any
Company Voting Debt or other voting securities of the Company, or obligating the
Company to grant, extend or enter into any such option, warrant, call, right,
commitment or agreement. Except as set forth on Schedule 4.1(b), since September
30, 1996, the Company has not (i) granted any options, warrants or rights to
purchase shares of Company Common Stock or (ii) amended or repriced any Option
or the Stock Option Plan. Set forth on Schedule 4.1(b) is a list of all
outstanding options, warrants and rights to purchase shares of Company Common
Stock and the exercise prices relating thereto. There are not as of the date
hereof and there will not be at the Effective Time any stockholder agreements,
voting trusts or other agreements or understandings to which the Company is a
party or by which it is bound relating to the voting of any shares of the
capital stock of the Company which will limit in any way the solicitation of
proxies by or on behalf of the Company from, or the casting of votes by, the
stockholders of the Company with respect to the Merger.
(c) Authority; No Violations; Consents and Approvals.
(i) The Company has all requisite corporate power and authority to
enter into this Agreement and, subject to the Company Stockholder Approval
(as defined in Section 4.1(c)(iii)), to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company,
subject, if required with respect to consummation of the Merger, to the
Company Stockholder Approval. This Agreement has been duly executed and
delivered by the Company and, subject, if required with respect to
consummation of the Merger, to the Company Stockholder Approval, and
assuming that this Agreement constitutes the valid and binding agreement of
Parent and Sub, constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms and conditions except that the
enforcement hereof may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws now
or hereafter in effect relating to creditors' rights generally and (b)
general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
(ii) Except as set forth on Schedule 4.1(c)(ii), the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby by the Company will not conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration
(including pursuant to any put right) of any obligation or the loss of a
material benefit under, or the creation of a lien, pledge, security
interest or other encumbrance on assets or property, or right of first
refusal with respect to any asset or property (any such conflict,
violation, default, right of termination, cancellation or acceleration,
loss, creation or right of first refusal, a "Violation"), pursuant to, (A)
any provision of the Certificate of Incorporation or Bylaws of the Company
or (B) except as to which requisite waivers or consents have been obtained
and assuming the consents, approvals, authorizations or permits and filings
or notifications referred to in paragraph (iii) of this Section 4.1(c) are
duly and timely obtained or made and, if required, the Company Stockholder
Approval has been obtained, result in any Violation of (1) any loan or
credit agreement, note, mortgage, deed of trust, indenture, lease, Benefit
Plan (as defined in Section 4.1(i)), Company Permit (as defined in Section
4.1(f)), or any other agreement, obligation, instrument, concession,
franchise, or license, except for any Violations that, individually or in
the aggregate, could not reasonably be expected to have a
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Material Adverse Effect on the Company or (2) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or
any of its properties or assets (collectively, "Laws"). The Company is not
subject to Section 203 of the DGCL.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, notice to, or permit from any
court, administrative agency or commission or other governmental authority
or instrumentality, domestic or foreign (a "Governmental Entity"), is
required by or with respect to the Company in connection with the execution
and delivery of this Agreement by the Company or the consummation by the
Company of the transactions contemplated hereby, except for: (A) the filing
of a pre-merger notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the expiration or termination of the applicable waiting period
thereunder; (B) the filing with the SEC of (x) an information statement (if
required by applicable law) in definitive form relating to the written
consent of holders of Company Common Stock approving the Merger (such
information statement as amended or supplemented from time to time being
hereinafter referred to as the "Information Statement"), (y) the Schedule
14D-9 in connection with the Offer, and (z) such reports under and such
other compliance with the Exchange Act and the rules and regulations
thereunder as may be required in connection with this Agreement and the
transactions contemplated hereby; (C) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware; (D) such
filings and approvals as may be required by any applicable state
securities, "blue sky" or takeover laws; (E) such filings in connection
with any state or local tax which is attributable to the beneficial
ownership of the Company's real property, if any (collectively, the "Gains
and Transfer Taxes"); (F) such other filings and consents as may be
required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval
necessitated by the Merger or the transactions contemplated by this
Agreement; (G) the approval of this Agreement and the Merger by the holders
of a majority of the outstanding Shares ("Company Stockholder Approval");
and (H) those requirements that become applicable to the Company as a
result of the specific regulatory status of Parent or Sub.
(d) SEC Documents. The Company has made available to Parent a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by the Company with the SEC since January 1, 1994 and
prior to the date of this Agreement (the "Company SEC Documents"), which are all
the documents (other than preliminary material) that the Company was required to
file with the SEC since such date. As of their respective dates, the Company SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act,
as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Company SEC Documents, and none of the Company SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the Company
SEC Documents complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of the unaudited statements, as permitted by Rule
10-01 of Regulation S-X of the SEC) and fairly present in accordance with
applicable requirements of GAAP (subject, in the case of the unaudited
statements, to normal, recurring adjustments, which will not be material, either
individually or in the aggregate) the consolidated financial position of the
Company as of their respective dates and the consolidated results of operations
and the consolidated cash flows of the Company for the periods presented
therein. The Shares are not listed for trading on a "national securities
exchange" (as defined under the Exchange Act) or authorized for quotation on the
NASDAQ inter-dealer quotation system.
(e) Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i) any
of the Offer Documents will, at the time the Offer Documents are first
published, sent or given to holders of Company Common Stock, and at any time
they are amended or supplemented, contain any untrue statement of a material
fact or omit to state any material fact
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required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading, and (ii)
the Information Statement will, on the date it is first mailed to the holders of
the Company Common Stock or at the time of the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If, at any time
prior to the expiration of the Offer or the Effective Time, any event with
respect to the Company, or with respect to other information supplied by the
Company for inclusion in the Offer Documents or the Information Statement, shall
occur which is required to be described in an amendment of, or a supplement to,
any of such documents, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of the Company. The information supplied or to
be supplied by the Company for inclusion or incorporation by reference in the
Information Statement will comply as to form, in all material respects, with the
provisions of the Exchange Act and the rules and regulations thereunder.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to the information supplied or to be supplied by Parent or Sub for
inclusion in the Offer Documents or the Information Statement.
(f) Compliance with Applicable Laws. Except as set forth in Schedule
4.1(f), the Company holds all permits, licenses, variances, exemptions, orders,
franchises and approvals of all Governmental Entities necessary for the lawful
conduct of their respective businesses (the "Company Permits"), except where the
failure to hold any such Company Permits could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on the
Company. The Company is in compliance with the terms of the Company Permits (a
list of which is set forth on Schedule 4.1(f)), except where the failure to be
in compliance could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on the Company. Except as disclosed
in the Company SEC Documents or as set forth on Schedule 4.1(f), the business of
the Company is not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity. Except as set forth in Schedule 4.1(f),
as of the date of this Agreement, no investigation or review by any Governmental
Entity with respect to the Company is pending or, to the knowledge of the
Company, threatened.
(g) Litigation. Except as disclosed in the Company SEC Documents or as set
forth on Schedule 4.1(g), there is no suit, action or proceeding pending or, to
the knowledge of the Company, threatened against or affecting the Company
("Company Litigation"), nor is there any material judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against the
Company ("Company Order"). In addition, except as set forth on Schedule 4.1(g),
the aggregate amount of all claims and judgments pending, or to the knowledge of
the Company, threatened pursuant to all Company Litigation and Company Orders,
excluding individual, unrelated claims or judgments of less than $2,500 each,
does not exceed 100,000.
(h) Taxes. Except as set forth on Schedule 4.1(h) hereto:
(i) All material Tax Returns required to be filed by or with respect
to the Company have been duly and timely filed, and all such Tax Returns
are true, correct and complete in all material respects. The Company has
duly and timely paid (or there has been paid on its behalf) all material
Taxes that are due from or with respect to it. With respect to any period
for which Taxes are not yet due with respect to the Company, the Company
has made due and sufficient current accruals for such Taxes in accordance
with GAAP in the most recent financial statements contained in the Company
SEC Documents. The Company has made (or there has been made on its behalf)
all required estimated Tax payments sufficient to avoid any material
underpayment penalties. The Company has withheld and paid all material
Taxes required by all applicable laws to be withheld or paid in connection
with any amounts paid or owing to any employee, creditor or independent
contractor.
(ii) There are no outstanding agreements, waivers, or arrangements
extending the statutory period of limitation applicable to any claim for,
or the period for the collection or assessment of, material Taxes due from
or with respect to the Company for any taxable period. No audit or other
proceeding by any court, governmental or regulatory authority, or similar
person is pending or, to the knowledge of the Company, threatened in regard
to any Taxes due from or with respect to the Company or any Tax Return
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filed by or with respect to the Company, other than normal and routine
audits by non-federal governmental authorities. The Company has not
received notice that any material assessment of Taxes is proposed against
the Company or any of its assets.
(iii) No election under Section 338 of the Code has been made or filed
by or with respect to the Company. No consent to the application of Section
341(f)(2) of the Code (or any predecessor provision) has been made or filed
by or with respect to the Company or any of its assets. The Company has not
agreed to make any adjustment pursuant to Section 481(a) of the Code (or
any predecessor provision) by reason of any change in any accounting
method, and there is no application pending with any taxing authority
requesting permission for any changes in any accounting method of the
Company. None of the assets of the Company is or will be required to be
treated as being owned by any person (other than the Company) pursuant to
the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954,
as amended and in effect immediately before the enactment of the Tax Reform
Act of 1986.
(iv) The Company is not a party to, bound by, or has any obligation
under, any Tax sharing agreement, Tax allocation agreement or similar
contract.
(v) There is no contract, agreement, plan or arrangement covering any
person that, individually or collectively, could give rise to the payment
of any amount that would not be deductible by the Company by reason of
Section 280G of the Code.
(vi) The term "Code" shall mean the Internal Revenue Code of 1986, as
amended. The term "Taxes" shall mean all taxes, charges, fees, levies, or
other similar assessments or liabilities, including without limitation (a)
income, gross receipts, ad valorem, premium, excise, real property,
personal property, sales, use, transfer, withholding, employment, payroll,
and franchise taxes imposed by the United States of America, or by any
state, local, or foreign government, or any subdivision, agency, or other
similar person of the United States or any such government; and (b) any
interest, fines, penalties, assessments, or additions to taxes resulting
from, attributable to, or incurred in connection with any Tax or any
contest, dispute, or refund thereof. The term "Tax Returns" shall mean any
report, return, or statement required to be supplied to a taxing authority
in connection with Taxes.
(i) Pension And Benefit Plans; ERISA.
(i) Schedule 4.1(i)(i) sets forth a complete and correct list of:
(A) all "employee benefit plans", as defined in Sections 3(3) and
4(b)(4) of ERISA, under which Company has any obligation or liability,
contingent or otherwise ("Benefit Plans"); and
(B) all employment or consulting agreements, and all bonus or other
incentive compensation, deferred compensation, salary continuation
during any absence from active employment for disability or other
reasons, severance, sick days, stock award, stock option, stock
purchase, tuition assistance, club membership, employee discount,
employee loan, or vacation pay agreements, policies or arrangements
which Company maintains or has any obligation or liability (contingent
or otherwise) with respect to any current officer, director or employee
of the Company and which individually has a cost to the Company in
excess of $10,000 per year (the "Employee Arrangements").
(ii) With respect to each Benefit Plan and Employee Arrangement, a
complete and correct copy of each of the following documents (if
applicable) has been provided to Purchaser: (i) the most recent plan and
related trust documents, and all amendments thereto; (ii) the most recent
summary plan description, and all related summaries of material
modifications thereto; (iii) the most recent Form 5500 (including schedules
and attachments); (iv) the most recent IRS determination letter; (v) the
most recent actuarial reports (including for purposes of Financial
Accounting Standards Board report no. 87, 106 and 112).
(iii) The Benefit Plans and their related trusts intended to qualify
under Sections 401(a) and 501(a) of the Code, respectively, have received
favorable determination letters from the Internal
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Revenue Service and the Company is not aware of any event or circumstance
that could result in the failure of such Benefit Plans to be so qualified.
(iv) All contributions or other payments required to have been made by
Company to or under any Benefit Plan or Employee Arrangement by applicable
law or the terms of such Benefit Plan or Employee Arrangement (or any
agreement relating thereto) have been timely and properly made.
(v) The Benefit Plans and Employee Arrangements have been maintained
and administered in all material respects in accordance with their terms
and applicable laws.
(vi) Except as disclosed in Schedule 4.1(i)(vi), there are no pending
or, to the best knowledge of the Company, threatened actions, claims or
proceedings against or relating to any Benefit Plan or Employee Arrangement
other than routine benefit claims by persons entitled to benefits
thereunder.
(vii) Except as disclosed in Schedule 4.1(i)(vii), Company do not
maintain or have an obligation to contribute to retiree life or retiree
health plans which provide for continuing benefits or coverage for current
or former officers, directors or employees of the Company except (i) as may
be required under Part 6 of Title I of ERISA) and at the sole expense of
the participant or the participant's beneficiary or (ii) a medical expense
reimbursement account plan pursuant to Section 125 of the Code.
(viii) Except as disclosed in Schedule 4.1(i)(viii), none of the
assets of any Benefit Plan is stock of the Company or any of its
affiliates, or property leased to or jointly owned by the Company or any of
its affiliates.
(ix) Except as disclosed in Schedule 4.1(i)(ix) or in connection with
equity compensation, neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will (A)
result in any payment becoming due to any employee (current, former or
retired) of Company, (B) increase any benefits under any Benefit Plan or
Employee Arrangement or (C) result in the acceleration of the time of
payment of, vesting of or other rights with respect to any such benefits.
(x) To the knowledge of the Company, the Company has no liability
(contingent or otherwise) under Section 4069 of ERISA by reason of a
transfer of an underfunded pension plan.
(j) Absence of Certain Changes or Events. Except as set forth on Schedule
4.1(j) or as contemplated by this Agreement, since September 30, 1996, the
business of the Company has been carried on only in the ordinary and usual
course and no event or events has or have occurred that (either individually or
in the aggregate) has had, or could reasonably be expected to have, a Material
Adverse Effect on the Company.
(k) No Undisclosed Material Liabilities. Except as specifically and
individually set forth on Schedule 4.1(k) or the other schedules hereto
(specific reference to which shall be made on Schedule 4.1(k)), there are no
liabilities of the Company of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, that are material to the
Company other than: (i) liabilities reflected on the Company's unaudited
financial statements (together with the related notes thereto) filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996; and (ii) liabilities under this Agreement.
(l) Opinion of Financial Advisor. The Company has received the opinion of
the Financial Advisor dated February 28, 1997, to the effect that, as of the
date thereof, the Offer Consideration to be received by the holders of Company
Common Stock in the Offer and the Merger Consideration to be received by the
holders of Company Common Stock in the Merger is fair from a financial point of
view to such holders, a signed, true and complete copy of which opinion shall be
delivered to Parent, and such opinion has not been withdrawn or modified. True
and complete copies of all agreements and understandings between the Company or
any of its affiliates and the Financial Advisor relating to the transactions
contemplated by this Agreement are attached hereto as Schedule 4.1(l).
(m) Vote Required. In the event that Section 253 of the DGCL is
inapplicable and unavailable to effectuate the Merger, the affirmative vote of
the holders of a majority of the outstanding shares of Company Common Stock is
the only vote of the holders of any class or series of the Company's capital
stock necessary
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(under applicable law or otherwise) to approve the Merger and this Agreement and
the transactions contemplated hereby. Neither the Certificate of Incorporation
of the Company, the By-laws of the Company, or any agreement or other instrument
to which the Company is a party or is bound prohibits the stockholders of the
Company from acting by written consent as permitted under Section 228 of the
DGCL.
(n) Labor Matters.
(i) Except as set forth in Schedule 4.1(n) hereto, (a) the Company is
not a party to any labor or collective bargaining agreement, and no
employees of Company are represented by any labor organization; (b) within
the preceding three years, there have been no representation or
certification proceedings, or petitions seeking a representation
proceeding, pending or, to the knowledge of the Company, threatened in
writing to be brought or filed with the National Labor Relations Board or
any other labor relations tribunal or authority; and (c) within the
preceding three years, to the knowledge of Company, there have been no
organizing activities involving Company with respect to any group of
employees of Company.
(ii) There are no strikes, work stoppages, slowdowns, lockouts,
material arbitrations or material grievances or other material labor
disputes pending or threatened in writing against or involving Company.
There are no unfair labor practice charges, grievances or complaints
pending or, to the knowledge of Company, threatened in writing by or on
behalf of any employee or group of employees of Company.
(iii) Except as set forth in Schedule 4.1(n) hereto, there are no
complaints, charges or claims against Company pending or, to the knowledge
of Company, threatened to be brought or filed with any governmental
authority, arbitrator or court based on, arising out of, in connection
with, or otherwise relating to the employment or termination of employment
of any individual by Company.
(iv) The Company is in material compliance with all laws, regulations
and orders relating to the employment of labor, including all such laws,
regulations and orders relating to wages, hours, Worker Adjustment
Retraining and Notification Act of 1988, as amended ("WARN Act"),
collective bargaining, discrimination, civil rights, safety and health,
workers' compensation and the collection and payment of withholding and/or
social security taxes and any similar tax.
(v) Since July 31, 1996, there has been no "mass layoff" or "plant
closing" (as defined by the WARN Act) with respect to the Company.
(o) Intangible Property. The Company owns or has a right to use each
trademark, trade name, patent, service mark, brand mark, brand name, computer
program, database, and copyright owned or used in connection with the operation
of the business of the Company, including any registrations thereof and pending
applications therefor, and each license or other contract relating thereto
(collectively, the "Company Intangible Property"), free and clear of any and all
liens, claims or encumbrances, except where the failure to own or have a right
to use such property could not reasonably be expected to have a Material Adverse
Effect on the Company. Schedule 4.1(o) hereto sets forth a complete list of the
Company Intangible Property. Except to the extent that such could not reasonably
be expected to have a Material Adverse Effect on the Company, the use of the
Company Intangible Property by the Company does not conflict with, infringe
upon, violate or interfere with or constitute an appropriation of any right,
title, interest or goodwill, including, without limitation, any intellectual
property right, trademark, trade name, patent, service mark, brand mark, brand
name, computer program, database, copyright or any pending application therefor
of any other person.
(p) Environmental Matters.
(i) For purposes of this Agreement:
(A) "Environmental Costs and Liabilities" means any and all losses,
liabilities, obligations, damages, fines, penalties, judgments, actions,
claims, costs and expenses (including, without limitation, fees,
disbursements and expenses of legal counsel, experts, engineers and
consultants and the costs of investigation and feasibility studies and
the costs to clean up, remove, treat, or in any other way address any
Hazardous Materials) arising from or under any Environmental Law.
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(B) "Environmental Law" means any applicable law regulating or
prohibiting Releases of Hazardous Materials into any part of the natural
environment, or pertaining to the protection of natural resources, the
environment and public and employee health and safety from Hazardous
Materials including, without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA") (42 U.S.C. Section
9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C.
Section 1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. Section 6901 et seq.), the Clean Water Act (33 U.S.C. Section
1251 et seq.), the Clean Air Act (33 U.S.C. Section 7401 et seq.), the
Toxic Substances Control Act (15 U.S.C. Section 7401 et seq.), the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section
136 et seq.), and the Occupational Safety and Health Act (29 U.S.C.
Section 651 et seq.) ("OSHA") and the regulations promulgated pursuant
thereto, and any such applicable state or local statutes, including,
without limitation, the Industrial Site Recovery Act ("IRSA"), and the
regulations promulgated pursuant thereto, as such laws have been and may
be amended or supplemented through the Closing Date;
(C) "Hazardous Material" means any substance, material or waste
which is regulated by any public or governmental authority in the
jurisdictions in which the applicable party or its Subsidiaries conducts
business, or the United States, including, without limitation, any
material or substance which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "extremely hazardous waste"
or "restricted hazardous waste," "contaminant," "toxic waste" or "toxic
substance" under any provision of Environmental Law and shall also
include, without limitation, petroleum, petroleum products, asbestos,
polychlorinated biphenyls and radioactive materials;
(D) "Release" means any release, spill, effluent, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching, or migration into the environment; and
(E) "Remedial Action" means all actions, including, without
limitation, any capital expenditures, required by a governmental entity
or required under any Environmental Law, or voluntarily undertaken to
(I) clean up, remove, treat, or in any other way ameliorate or address
any Hazardous Materials or other substance in the environment; (II)
prevent the Release or threat of Release, or minimize the further
Release of any Hazardous Material so it does not endanger or threaten to
endanger the public health or welfare or the environment; (III) perform
pre-remedial studies and investigations or post-remedial monitoring and
care pertaining or relating to a Release; or (IV) bring the applicable
party into compliance with any Environmental Law.
(ii) Except as set forth on Schedule 4.1(p) hereto:
(A) The operations of the Company have been and, as of the Closing
Date, will be, in compliance in all material respects with all
Environmental Laws;
(B) The Company has obtained and will, as of the Closing Date,
maintain all permits required under applicable Environmental Laws for
the continued operations of their respective businesses, except such
permits the lack of which would not materially impair the ability of the
Company to continue operations;
(C) The Company is not subject to any outstanding written orders
from, or written agreements with, any Governmental Entity or other
person respecting (A) Environmental Laws, (B) Remedial Action or (C) any
Release or threatened Release of a Hazardous Material;
(D) The Company has not received any written communication
alleging, with respect to any such party, the violation of or liability
under any Environmental Law, which violation or liability is
outstanding, except where the violation or liability could not
reasonably be expected to result in the Company incurring Environmental
Costs and Liabilities in excess of $100,000 individually or $250,000 in
the aggregate;
(E) The Company has no contingent liability in connection with the
Release of any Hazardous Material into the environment (whether on-site
or off-site) which would be reasonably likely to
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result in the Company incurring Environmental Costs and Liabilities in
excess of $250,000 individually and the aggregate amount of
Environmental Costs and Liabilities for all such Releases could not
reasonably be expected to have a Material Adverse Effect on the Company;
(F) The operations of the Company do not involve the
transportation, treatment, storage or disposal of hazardous waste for
purposes of the permitting requirements set forth under 40 C.F.R. Parts
260-270 (in effect as of the date of this Agreement) or any state
equivalent;
(G) There is not now, nor to the knowledge of the Company has there
been in the past, on or in any property of the Company any of the
following: (A) any underground storage tanks; (B) surface impoundments;
or (C) any polychlorinated biphenyls; to the knowledge of the Company,
there is not now any asbestos-containing materials on or in any property
of the Company; and
(H) No judicial or administrative proceedings or governmental
investigations are pending or, to the knowledge of the Company,
threatened against the Company alleging the violation of or seeking to
impose liability pursuant to any Environmental Law.
(iii) This Section 4.1(p) sets forth the sole representations and
warranties of the Company with respect to Environmental Laws.
(q) Real Property.
(i) Schedule 4.1(q)(i) sets forth all of the real property owned in
fee by the Company. The Company has good and marketable title to each
parcel of real property owned by it free and clear of all mortgages,
pledges, liens, encumbrances and security interests, except (1) those
reflected or reserved against in the balance sheet of the Company dated as
of September 30, 1996, (2) taxes and general and special assessments not in
default and payable without penalty and interest, (3) mechanics and similar
statutory liens arising or incurred in the ordinary course of business for
amounts that are not delinquent, (4) any zoning, building, and land use
regulation imposed by any Governmental Entity, and (5) any covenant,
restriction, or easement expressly set forth in the title documents
governing such real property filed with the appropriate Governmental
Entity.
(ii) Each lease, sublease or other agreement (collectively, the "Real
Property Leases") under which the Company uses or occupies or has the right
to use or occupy, now or in the future, any real property is valid, binding
and in full force and effect, all rent and other sums and charges payable
by the Company as a tenant thereunder are current, no termination event or
condition or uncured default of a material nature on the part of the
Company or, to the Company's knowledge, the landlord, exists under any Real
Property Lease. The Company has a good and valid leasehold interest in each
parcel of real property leased by it free and clear of all mortgages,
pledges, liens, encumbrances and security interests, except those reflected
or reserved against in the balance sheet of the Company dated as of
September 30, 1996.
(r) Board Recommendation. The Board of Directors of the Company, at a
meeting duly called and held, has by the vote of those directors present (who
constituted 100% of the directors then in office) (i) determined that this
Agreement and the transactions contemplated hereby, including the Offer and the
Merger, are fair to and in the best interests of the stockholders of the Company
and has approved the same, and (ii) resolved to recommend that the holders of
the shares of Company Common Stock approve this Agreement and the transactions
contemplated herein, including the Merger, and accept the Offer and tender their
shares of Company Common Stock pursuant thereto.
(s) Material Contracts. The Company has provided or made available to
Parent (i) true and complete copies of (A) all franchise and license agreements
concerning the production, packaging, marketing, selling, or distribution of
soft drink products or waters to which the Company is a party or by which it is
bound, and (B) all other written contracts, agreements, commitments,
arrangements, leases (including with respect to personal property), policies and
other instruments to which it is a party or by which it is bound which other
contracts (1) require payments to be made in excess of $50,000 per year for
goods and/or services, or (2) do
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not by their terms expire and are not subject to termination within 60 days from
the date of the execution and delivery thereof (collectively, "Material
Contracts"), and (ii) a written description of each Material Contract that has
not been reduced to writing. Each of the Material Contracts is listed on
Schedule 4.1(s). The Company is not, nor has it received any notice nor has any
knowledge that any other party is, in default in any respect under any such
Material Contract, except for those defaults which could not reasonably be
expected, either individually or in the aggregate, to have a Material Adverse
Effect with respect to the Company; and there has not occurred any event or
events that with the lapse of time or the giving of notice or both would
constitute such a material default.
(t) Related Party Transactions. Except as disclosed in the Company SEC
Documents or as set forth in Schedule 4.1(t) hereto, no director, officer,
"affiliate" or "associate" (as such terms are defined in Rule 12b-2 under the
Exchange Act) of the Company (i) has borrowed any monies from or has outstanding
any indebtedness or other similar obligations to the Company; (ii) owns any
direct or indirect interest of any kind in, or is a director, officer, employee,
partner, affiliate or associate of, or consultant or lender to, or borrower
from, or has the right to participate in the management, operations or profits
of, any person or entity which is (1) a competitor, supplier, customer,
distributor, lessor, tenant, creditor or debtor of the Company, (2) engaged in a
business related to the business of the Company, or (3) participating in any
transaction to which the Company is a party, or (iii) is otherwise a party to
any contract, arrangement or understanding with the Company.
(u) Indebtedness. Except as set forth on Schedule 4.1(u) hereto or in the
Company's unaudited financial statements (together with the related notes
thereto) filed with the Company's Quarterly Statement on Form 10-Q for the
quarter ended September 30, 1996 (as filed with the SEC), the Company has no
outstanding indebtedness for borrowed money or representing the deferred
purchase price of property or services or similar
liabilities or obligations, including any guarantee in respect thereof
("Indebtedness"), nor is a party to any agreement, arrangement or understanding
providing for the creation, incurrence or assumption thereof.
(v) Liens. Except as set forth on Schedule 4.1(v) hereto or as disclosed in
the Company SEC Documents, the Company has not granted, created, or suffered to
exist with respect to any of its assets, any mortgage, pledge, charge,
hypothecation, collateral assignment, lien (statutory or otherwise), encumbrance
or security agreement of any kind or nature whatsoever.
4.2 Representations and Warranties of Parent and Sub. Parent and Sub
represent and warrant to the Company as follows:
(a) Organization, Standing and Power. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation or organization, has all requisite
corporate power and authority to own, lease and operate its properties and
to carry on its business as now being conducted, and is duly qualified or
licensed to do business as a foreign corporation and in good standing to
conduct business in each jurisdiction in which the business it is
conducting, or the operation, ownership or leasing of its properties, makes
such qualification or license necessary, other than in such jurisdictions
where the failure so to qualify or become so licensed would not have a
Material Adverse Effect with respect to Parent. Parent and Sub have
heretofore made available to the Company complete and correct copies of
their respective Certificates of Incorporation and Bylaws.
(b) Authority; No Violations; Consents and Approvals.
(i) Each of Parent and Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part
of Parent and Sub. This Agreement has been duly executed and delivered
by each of Parent and Sub and assuming this Agreement constitutes the
valid and binding agreement of the Company, constitutes a valid and
binding obligation of Parent and Sub enforceable in accordance with its
terms and conditions except that the enforcement hereof may be limited
by (a) applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect
relating to creditors' rights generally and
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(b) general principles of equity (regardless of whether enforceability
is considered in a proceeding at law or in equity).
(ii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by each of Parent
and Sub will not result in any Violation pursuant to any provision of
the respective Articles or Certificates of Incorporation or Bylaws of
Parent or Sub or, except as to which requisite waivers or consents have
been obtained and assuming the consents, approvals, authorizations or
permits and filings or notifications referred to in paragraph (iii) of
this Section 4.2(b) are duly and timely obtained or made, the execution
and delivery of the amendment to the credit agreement of Parent as
provided in the Financing Commitment (as defined in Section 4.2(e)) and,
if required, the Company Stockholder Approval has been obtained, result
in any Violation of any loan or credit agreement, note, mortgage,
indenture, lease, or other agreement, obligation, instrument,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Parent or Sub or their
respective properties or assets, which would have a Material Adverse
Effect with respect to Parent.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, notice to, or permit from any
Governmental Entity, is required by or with respect to Parent or Sub in
connection with the execution and delivery of this Agreement by each of
Parent and Sub or the consummation by each of Parent or Sub of the
transactions contemplated hereby, except for: (A) filings under the HSR
Act; (B) the filing with the SEC of (x) the Schedule 14D-1 in connection
with the commencement and consummation of the Offer and (y) such reports
under and such other compliance with the Exchange Act and the rules and
regulations thereunder, as may be required in connection with this
Agreement and the transactions contemplated hereby; (C) the filing of
the Certificate of Merger with the Secretary of State of the State of
Delaware; (D) such filings and approvals as may be required by any
applicable state securities, "blue sky" or takeover laws; (E) such
filings in connection with any Gains and Transfer Taxes; (G) such other
such filings and consents as may be required under any environmental,
health or safety law or regulation pertaining to any notification,
disclosure or required approval necessitated by the Merger or the
transactions contemplated by this Agreement; and (H) those requirements
that become applicable to Parent or Sub as a result of the specific
regulatory status of the Company.
(c) Information Supplied. None of the information supplied or to be
supplied by Parent or Sub for inclusion or incorporation by reference in
(i) the Schedule 14D-9 will, at the time the Schedule 14D-9 is filed with
the SEC, and at any time it is amended or supplemented, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they are made, not misleading, and (ii) the
Information Statement will, at the date it is first mailed to the Company's
stockholders or at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If, at any
time prior to the Effective Time, any event with respect to Parent or Sub,
or with respect to information supplied by Parent or Sub for inclusion in
the Schedule 14D-9 or the Information Statement, shall occur which is
required to be described in an amendment of, or a supplement to, any of
such documents, such event shall be so described to the Company.
Notwithstanding the foregoing, neither Parent nor Sub makes any
representation or warranty with respect to the information supplied or to
be supplied by the Company for inclusion in the Schedule 14D-9 or the
Information Statement.
(d) Board Recommendation. The Board of Directors of the Parent, at a
meeting duly called and held, has by the vote of those directors present
determined that each of the Offer and the Merger is fair to and in the best
interests of Parent and has approved the same.
(e) Financing. Parent and Sub have delivered to the Company a true and
complete copy of a letter of commitment obtained by Parent and Sub from
Texas Commerce Bank National Association to provide additional debt
financing pursuant to an amendment to Parent's existing credit agreement
for the
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transactions contemplated hereby (the "Financing Commitment"). An executed
copy of the Financing Commitment is attached hereto as Exhibit 4.2(e).
Assuming that the financing contemplated by the Financing Commitment is
consummated in accordance with the terms thereof, the funds to be borrowed
thereunder by Parent will provide sufficient funds to pay the Merger
Consideration. As of the date of this Agreement, Parent is not aware of any
facts or circumstances that (i) contradict or are in conflict with the
terms and conditions set forth in the Financing Commitment or (ii) create a
reasonable basis for Parent to believe that it will not be able to obtain
financing in accordance with the terms of the Financing Commitment.
(f) No Separate Agreements. Except for (i) the First Amendment to
Management Agreement, dated as of the date of this Agreement (the "Brodkin
Amendment"), amending that certain Second Amended and Restated Management
Agreement, dated as of January 22, 1997, between the Company and Bart S.
Brodkin, and (ii) that certain Termination Agreement, dated as of the date
of this Agreement (the "Ferguson Agreement"), between the Company and Rick
Ferguson, as of the date of this Agreement, neither Parent nor Sub has
entered into any agreement with any director or officer of the Company
providing for the employment of any such officer or director following the
consummation of the Merger or the purchase by Parent or Sub of any Shares,
Options or Warrants held by any such officer or director.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Covenants of the Company. During the period from the date of this
Agreement and continuing until the Effective Time, the Company agrees as to the
Company that (except as expressly contemplated or permitted by this Agreement,
or to the extent that Parent shall otherwise consent in writing):
(a) Ordinary Course. The Company shall carry on its businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and shall use all reasonable efforts to preserve
intact its present business organization, keep available the services of
its current officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it to the end
that its goodwill and ongoing business shall not be impaired in any
material respect at the Effective Time.
(b) Dividends; Changes in Stock. The Company shall not: (i) declare or
pay any dividends on or make other distributions in respect of any of its
capital stock; (ii) split, combine or reclassify any of its capital stock
or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock;
or (iii) repurchase or otherwise acquire any shares of its capital stock,
except as required by the terms of any employee benefit plan as in effect
on the date hereof.
(c) Issuance of Securities. The Company shall not (i) grant any
options, warrants or rights, to purchase shares of Company Common Stock,
(ii) amend the terms of or reprice any Option or amend the terms of the
Stock Option Plan, or (iii) issue, deliver or sell, or authorize or propose
to issue, deliver or sell, any shares of its capital stock of any class or
series, any Company Voting Debt or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, Company Voting
Debt or convertible securities, other than: (A) the issuance of Shares upon
the exercise of Options that are outstanding on the date hereof or (B) the
issuance of Shares upon the exercise of Warrants that are outstanding on
the date hereof.
(d) Governing Documents. The Company shall not amend or propose to
amend its Certificate of Incorporation or Bylaws.
(e) No Solicitation. From and after the date hereof until the
termination of this Agreement, neither the Company nor any of its officers,
directors, employees, representatives, agents or affiliates (including,
without limitation, any investment banker, attorney or accountant retained
by the Company) (such officers, directors, employees, representatives,
agents, affiliates, investment bankers, attorneys and accountants being
referred to herein, collectively, as "Representatives"), will, directly or
indirectly,
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initiate, solicit or encourage (including by way of furnishing information
or assistance), or take any other action to facilitate, any inquiries or
the making of any proposal that constitutes, or may reasonably be expected
to lead to, any Acquisition Proposal (as defined below), or enter into or
maintain or continue discussions or negotiate with any person or entity in
furtherance of such inquiries or to obtain an Acquisition Proposal or agree
to or endorse any Acquisition Proposal, and the Company shall not authorize
or permit any of its Representatives to take any such action, and the
Company shall notify Parent orally (within one business day) and in writing
(as promptly as practicable) of all of the relevant details relating to,
and all material aspects of, all inquiries and proposals which it or any of
its Representatives may receive relating to any of such matters and, if
such inquiry or proposal is in writing, the Company shall deliver to Parent
a copy of such inquiry or proposal as promptly as practicable; provided,
however, that nothing contained in this Section 5.1(e) shall prohibit the
Board of Directors of the Company from:
(i) furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited
written, bona fide Acquisition Proposal (provided that such person or
entity has the necessary funds or commitments to provide the funds to
effect such Acquisition Proposal) if, and only to the extent that, (A)
the Board of Directors of the Company, after consultation with and based
upon the advice of independent legal counsel (who may be the Company's
regularly engaged independent legal counsel), determines in good faith
that such action is necessary for the Board of Directors of the Company
to comply with its fiduciary duties to stockholders under applicable
law, (B) prior to taking such action, the Company (x) provides
reasonable prior notice to Parent to the effect that it is taking such
action and (y) receives from such person or entity an executed
confidentiality agreement in reasonably customary form, and (C) the
Company shall promptly and continuously advise Parent as to all of the
relevant details relating to, and all material aspects, of any such
discussions or negotiations;
(ii) failing to make or withdrawing or modifying its recommendation
referred to in Section 4.1(r) if there exists an Acquisition Proposal
and the Board of Directors of the Company, after consultation with and
based upon the advice of independent legal counsel (who may be the
Company's regularly engaged independent counsel), determines in good
faith that such action is necessary for the Board of Directors of the
Company to comply with its fiduciary duties to holders of Shares under
applicable law; or
(iii) making a "stop-look-and-listen" communication with respect to
the Offer or this Agreement of the nature contemplated in, and otherwise
in compliance with, Rule 14d-9 under the Exchange Act as a result of an
Acquisition Proposal meeting the requirements of clause (i) above.
For purposes of this Agreement, "Acquisition Proposal" shall mean any of
the following (other than the transactions among the Company, Parent and
Sub contemplated hereunder) involving the Company: (i) any merger,
consolidation, share exchange, recapitalization, business combination, or
other similar transaction; (ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of 25% or more of the assets of the
Company, computed on the basis of book value, in a single transaction or
series of transactions; (iii) any tender offer or exchange offer for 10% or
more of the outstanding shares of capital stock of the Company or the
filing of a registration statement under the Securities Act in connection
therewith; or (iv) any public announcement of a proposal, plan or intention
to do any of the foregoing or any agreement to engage in any of the
foregoing.
(f) No Acquisitions; No Subsidiaries. The Company shall not merge or
consolidate with, or acquire any equity interest in, any corporation,
partnership, association or other business organization, or enter into an
agreement with respect thereto. The Company shall not acquire or agree to
acquire any assets of any corporation, partnership, association or other
business organization or division thereof, except for the purchase of
inventory and supplies in the ordinary course of business. The Company
shall not create or otherwise permit to exist any Subsidiary of the
Company.
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(g) No Dispositions. Other than dispositions in the ordinary course of
business consistent with past practice which are not material, individually
or in the aggregate, to such party, the Company shall not sell, lease,
encumber or otherwise dispose of, or agree to sell, lease (whether such
lease is an operating or capital lease), encumber or otherwise dispose of,
any of its assets.
(h) Governmental Filings. The Company shall promptly provide Parent
(or its counsel) with copies of all filings made by the Company with the
SEC or any other state or federal Governmental Entity in connection with
this Agreement and the transactions contemplated hereby.
(i) No Dissolution, Etc. Except as otherwise permitted or contemplated
by this Agreement, the Company shall not authorize, recommend, propose or
announce an intention to adopt a plan of complete or partial liquidation or
dissolution of the Company.
(j) Other Actions. Except as contemplated or permitted by this
Agreement, the Company will not take or agree or commit to take any action
that is reasonably likely to result in any of the Company's representations
or warranties hereunder being untrue in any material respect or in any of
the Company's covenants hereunder or any of the conditions to the Merger
not being satisfied in all material respects.
(k) Certain Employee Matters. The Company shall not: (i) grant any
increases in the compensation of any of its directors, officers or key
employees; (ii) pay or agree to pay any pension, retirement allowance or
other employee benefit not required or contemplated to be paid prior to the
Effective Time by any of the existing Benefit Plans or Employee
Arrangements as in effect on the date hereof to any such director, officer
or key employee, whether past or present; (iii) enter into any new, or
materially amend any existing, employment or severance or termination
agreement with any such director, officer or key employee; or (iv) except
as may be required to comply with applicable law, become obligated under
any new Benefit Plan or Employee Arrangement, which was not in existence on
the date hereof, or amend any such plan or arrangement in existence on the
date hereof if such amendment would have the effect of materially enhancing
any benefits thereunder.
(l) Indebtedness; Agreements.
(i) Except for indebtedness incurred by the Company from time to
time for working capital purposes in the ordinary course of business
under that certain Credit Agreement, dated as of August 2, 1996, by and
among the Company, the Lenders party thereto, and General Electric
Capital Corporation, the Company shall not assume or incur (which shall
not be deemed to include entering into credit agreements, lines of
credit or similar arrangements until borrowings are made under such
arrangements) any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights
to acquire any debt securities of the Company or guarantee any debt
securities of others or enter into any lease (whether such lease is an
operating or capital lease) or create any mortgages, liens, security
interests or other encumbrances on the property of the Company in
connection with any indebtedness thereof, or enter into any "keep well"
or other agreement or arrangement to maintain the financial condition of
another person.
(ii) The Company shall not enter into, modify, rescind, terminate,
waive, release or otherwise amend in any material respect any of the
terms or provisions of any Material Contract.
(m) Accounting. The Company shall not take any action, other than in
the ordinary course of business, consistent with past practice or as
required by the SEC or by law, with respect to accounting policies,
procedures and practices.
(n) Capital Expenditures. The Company shall not incur any capital
expenditures other than the capital expenditures set forth on Schedule
5.1(n), all of which shall be made in accordance with the schedule therefor
included in such Schedule 5.1(n).
(o) Requisite Consents. The Company shall use all commercially
reasonable efforts to (i) obtain consents (the "Requisite Consents") from
the Persons listed on Schedule 5.1(o) hereto to the consummation of the
Offer, the Merger and the transactions contemplated thereby and hereby and
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(ii) ensure that such Requisite Consents are in full force and effect as of
the expiration of the Offer and as of the Closing Date.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Preparation of the Information Statement; Merger Without a Company
Stockholders Meeting. (a) In the event that Parent or any Subsidiary of Parent
shall acquire at least 65% of the outstanding shares of Company Common Stock (on
a fully diluted basis) in the Offer or otherwise, the parties hereto agree, at
the request of Sub, to take all necessary and appropriate action to cause the
Merger to become effective, as soon as practicable after the expiration of the
Offer, in accordance with Section 251 of the DGCL. Such action shall include the
prompt preparation and distribution of the Information Statement to the holders
of Company Common Stock. The Company shall use all commercially reasonable
efforts to cause the Information Statement to be mailed to the Company's
stockholders at the earliest practicable date.
(b) Notwithstanding the foregoing clause (a), in the event that Parent or
any Subsidiary of Parent shall acquire at least 90% of the outstanding shares of
Company Common Stock in the Offer, the parties hereto agree, at the request of
Sub, to take all necessary and appropriate action to cause the Merger to become
effective, as soon as practicable after the expiration of the Offer, without a
meeting of stockholders of the Company, in accordance with Section 253 of the
DGCL.
(c) Sub shall promptly submit this Agreement and the transactions
contemplated hereby for approval and adoption by its stockholders by written
consent of such stockholders.
6.2 Access to Information. Upon reasonable notice, each of the Company or
Parent, as the case may be, shall (and shall cause each of its Subsidiaries to)
afford to the officers, employees, accountants, counsel and other
representatives of the other party (including, in the case of Parent and Sub,
potential financing sources and their employees, accountants, counsel and other
representatives), access, during normal business hours during the period prior
to the Effective Time, to all its properties, books, contracts, commitments and
records and, during such period, such party shall (and shall cause each of its
Subsidiaries to) furnish promptly to the other party, (a) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to SEC requirements and (b) all other information
concerning its business, properties and personnel as such other party may
reasonably request. The Confidentiality Agreement, dated as of February 26,
1997, between Parent and the Company (the "Confidentiality Agreement") shall
apply with respect to information furnished thereunder or hereunder and any
other activities contemplated thereby.
6.3 Settlements. The Company shall not effect any settlements of any legal
proceedings arising out of or related to the execution, delivery or performance
of this Agreement or the consummation of any of the transactions contemplated
hereby or thereby without the prior written consent of Parent.
6.4 Fees and Expenses. (a) Except as otherwise provided in this Section
6.4 and except with respect to claims for damages incurred as a result of the
breach of this Agreement, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expense.
(b) The Company agrees to pay Parent a fee in immediately available funds
equal to $2,500,000 (less any amounts paid to Parent pursuant to Section 6.4(d))
upon the termination of this Agreement under Section 8.1, if any of the events
set forth in either clause (i) or clause (ii) below occurs (each, a "Trigger
Event"):
(i) the Board of Directors of the Company shall have (A) withdrawn or
adversely modified in any material respect, or taken a public position
materially inconsistent with, its approval or recommendation of the Offer,
the Merger or this Agreement, (B) made a "stop-look-and-listen"
communication as provided under Section 5.1(e)(iii) less than five business
days prior to the 45th calendar day after the date of the commencement of
the Offer, or (C) failed to reaffirm its approval or recommendation of the
Offer, the Merger and this Agreement under the circumstances set forth in
Section 8.1(e); or
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(ii) an Acquisition Proposal has been recommended or accepted by the
Company or the Company shall have entered into an agreement (other than a
confidentiality agreement as contemplated by Section 5.1(e)) with respect
to an Acquisition Proposal.
(c) In the event (i) this Agreement shall be terminated in accordance with
its terms, (ii) on or after August 15, 1996 and at or prior to such termination,
any person or group of persons shall have made an Acquisition Proposal (each
such person or member of a group of such persons being referred to herein as a
"Designated Person"), and (iii) either (A) a transaction contemplated by the
term "Acquisition Proposal" shall be consummated, on or before the one year
anniversary of the termination of this Agreement, with any Designated Person or
any affiliate of any Designated Person or (B) the Company shall enter into an
agreement, on or before the one year anniversary of the termination of this
Agreement, with respect to an Acquisition Proposal with any Designated Person or
any affiliate of any Designated Person and a transaction contemplated by the
term "Acquisition Proposal" shall thereafter be consummated with such Designated
Person or affiliate thereof, then the Company shall pay to Parent a fee in
immediately available funds equal to $2,500,000. Such fee shall be paid
contemporaneously with the consummation of such contemplated transaction.
Notwithstanding the foregoing, such fee shall be reduced by any amounts paid to
Parent pursuant to Section 6.4(b) or (d).
(d) Unless Parent is materially in breach of this Agreement as of the final
expiration of the Offer (after giving effect to any extensions thereof), the
Company shall pay to Parent upon demand an amount, not to exceed $750,000, to
reimburse Parent and Sub for their Expenses (as such term is defined in Section
6.4(e)), payable in same-day funds, if the condition set forth in clause (i) or
clause (iv)(I) of Exhibit A hereto is not met as of the final expiration of the
Offer (after giving effect to any extensions thereof).
(e) For purposes of this Section 6.4, the term "Expenses" shall mean all
documented, reasonable out-of-pocket fees and expenses incurred or paid by or on
behalf of Parent or Sub to third parties in connection with the Merger, the
Offer or the consummation of any of the transactions contemplated by this
Agreement, including, without limitation, all printing costs and reasonable fees
and expenses of counsel, investment banking firms, accountants, experts and
consultants.
(f) Any amounts due under this Section 6.4 that are not paid when due shall
bear interest at the rate of 9% per annum from the date due through and
including the date paid.
6.5 Brokers or Finders. (a) The Company represents, as to itself and its
affiliates, that no agent, broker, investment banker, financial advisor or other
firm or person is or will be entitled to any broker's or finders fee or any
other commission or similar fee in connection with any of the transactions
contemplated by this Agreement, except the Financial Advisor, whose fees and
expenses will be paid by the Company in accordance with the Company's agreements
with such firm (copies of which have been delivered by the Company to Parent
prior to the date of this Agreement).
(b) Parent represents, as to itself, its Subsidiaries and its affiliates,
that no agent, broker, investment banker, financial advisor or other firm or
person is or will be entitled to any broker's or finders fee or any other
commission or similar fee in connection with any of the transactions
contemplated by this Agreement, except for Chase Securities Inc., whose fees and
expenses will be paid by Parent in accordance with the Parent's agreements with
such firm.
6.6 Indemnification; Directors' and Officers' Insurance. (a) The Company
shall, and from and after the Effective Time, the Surviving Corporation shall,
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date hereof or who becomes prior to the Effective Time, an
officer or director of the Company (the "Indemnified Parties") against all
losses, claims, damages, costs, expenses (including attorneys' fees and
expenses), liabilities or judgments or amounts that are paid in settlement with
the approval of the indemnifying party (which approval shall not be unreasonably
withheld) of or in connection with any threatened or actual claim, action, suit,
proceeding or investigation based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director or officer of the
Company whether pertaining to any matter existing or occurring at or prior to
the Effective Time and whether asserted or claimed prior to, or at or after, the
Effective Time ("Indemnified Liabilities"), including all
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<PAGE> 97
Indemnified Liabilities based in whole or in part on, or arising in whole or in
part out of, or pertaining to this Agreement or the transactions contemplated
hereby, in each case to the full extent a corporation is permitted under the
DGCL to indemnify its own directors or officers as the case may be (and the
Company and the Surviving Corporation, as the case may be, will pay expenses in
advance of the final disposition of any such action or proceeding to each
Indemnified Party to the full extent permitted by law). Without limiting the
foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Parties (whether arising before
or after the Effective Time), (i) the Indemnified Parties may retain counsel
satisfactory to them and the Company (or them and the Surviving Corporation
after the Effective Time) and the Company (or after the Effective Time, the
Surviving Corporation) shall pay all fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received; and (ii) the
Company (or after the Effective Time, the Surviving Corporation) will use all
reasonable efforts to assist in the vigorous defense of any such matter,
provided that neither the Company nor the Surviving Corporation shall be liable
for any settlement effected without its prior written consent which consent
shall not unreasonably be withheld. Any Indemnified Party wishing to claim
indemnification under this Section 6.6, upon learning of any such claim, action,
suit, proceeding or investigation, shall notify the Company (or after the
Effective Time, the Surviving Corporation) (but the failure so to notify shall
not relieve a party from any liability which it may have under this Section 6.6
except to the extent such failure prejudices such party), and shall deliver to
the Company (or after the Effective Time, the Surviving Corporation) the
undertaking contemplated by Section 145(e) of the DGCL. The Indemnified Parties
as a group may retain only one law firm to represent them with respect to each
such matter unless there is, under applicable standards of professional conduct,
a conflict on any significant issue between the positions of any two or more
Indemnified Parties. The Company and Sub agree that the foregoing rights to
indemnification, including provisions relating to advances of expenses incurred
in defense of any action or suit, existing in favor of the Indemnified Parties
with respect to matters occurring through the Effective Time, shall survive the
Merger and shall continue in full force and effect for a period of not less than
five years from the Effective Time; provided, however, that all rights to
indemnification in respect of any Indemnified Liabilities asserted or made
within such period shall continue until the disposition of such Indemnified
Liabilities. Furthermore, the provisions with respect to indemnification set
forth in the certificate of incorporation of the Surviving Corporation shall not
be amended for a period of five years following the Effective Time if such
amendment would materially and adversely affect the rights thereunder of
individuals who at any time prior to the Effective Time were directors or
officers of the Company in respect of actions or omissions occurring at or prior
to the Effective Time.
(b) For a period of two years after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by the Company (provided
that Parent may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are no less advantageous in any
material respect to the Indemnified Parties) with respect to matters arising
before the Effective Time, provided that Parent shall not be required to pay an
annual premium for such insurance in excess of 150% of the last annual premium
paid by the Company prior to the date hereof, but in such case shall purchase as
much coverage as possible for such amount. The last annual premium paid by the
Company was $125,000.
(c) The provisions of this Section 6.6 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his heirs and his
personal representatives and shall be binding on all successors and assigns of
the Company and the Surviving Corporation.
6.7 Commercially Reasonable Efforts. Subject to the terms and conditions
of this Agreement, each of the parties hereto agrees to use all commercially
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable, under applicable laws and
regulations or otherwise, to consummate and make effective the transactions
contemplated by this Agreement, subject, as applicable, to the Company
Stockholder Approval, including (i) cooperating fully with the other party,
including by provision of information and making of all necessary filings in
connection with, among other things, approvals under the HSR Act, (ii) using
commercially reasonable efforts to obtain the Requisite Consents, and (iii)
using commercially reasonable efforts to obtain the debt financing referenced in
the Financing Commitment.
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6.8 Conduct of Business of Sub. During the period of time from the date of
this Agreement to the Effective Time, Sub shall not engage in any activities of
any nature except as provided in or contemplated by this Agreement.
6.9 Publicity. The parties will consult with each other and will mutually
agree upon any press release or public announcement pertaining to the Offer and
the Merger and shall not issue any such press release or make any such public
announcement prior to such consultation and agreement, except as may be required
by applicable law, in which case the party proposing to issue such press release
or make such public announcement shall use reasonable efforts to consult in good
faith with the other party before issuing any such press release or making any
such public announcement.
6.10 Withholding Rights. Sub and the Surviving Corporation, as applicable,
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock such amounts as Sub or the Surviving Corporation, as applicable, is
required to deduct and withhold with respect to the making of such payment under
the Code or any provision of state, local or foreign tax law. To the extent that
amounts are so withheld by Sub or the Surviving Corporation, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of the shares of Company Common Stock in respect of which such
deduction and withholding was made by Sub or the Surviving Corporation, as
applicable.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the affirmative vote or written consent of the
holders of a majority of the outstanding Shares entitled to vote thereon if
such vote is required by applicable law; provided that the Parent and Sub
shall vote all Shares purchased pursuant to the Offer in favor of the
Merger.
(b) HSR Act. The waiting period (and any extension thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
expired, and no restrictive order or other requirements shall have been
placed on the Company, Parent, Sub or the Surviving Corporation in
connection therewith.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall be in effect;
provided, however, that prior to invoking this condition, each party shall
use all commercially reasonable efforts to have any such decree, ruling,
injunction or order vacated.
(d) Statutes. No statute, rule, order, decree or regulation shall have
been enacted or promulgated by any government or governmental agency or
authority which prohibits the consummation of the Merger.
(e) Payment for Shares. Sub shall have accepted for payment and paid
for the shares of Company Common Stock tendered in the Offer such that,
after such acceptance and payment, Parent and its affiliates shall own, at
consummation of the Offer, 65% of the outstanding shares of the Company
Common Stock on a fully diluted basis; provided that this condition shall
be deemed to have been satisfied if Sub fails to accept for payment and pay
for Shares pursuant to the Offer in violation of the terms and conditions
of the Offer.
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ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of the Company or Parent:
(a) by mutual written consent of the Company and Parent, or by mutual
action of their respective Boards of Directors;
(b) by either the Company or Parent (i) prior to the consummation of
the Offer if there has been a breach of any representation, warranty,
covenant or agreement on the part of the other set forth in this Agreement
which breach has not been cured within three business days following
receipt by the breaching party of notice of such breach, or (ii) if any
permanent injunction or other order of a court or other competent authority
preventing the consummation of the Offer or the Merger shall have become
final and non-appealable;
(c) by either the Company or Parent, so long as such party has not
breached its obligations hereunder, if the Merger shall not have been
consummated on or before the 45th calendar day following the consummation
of the Offer; provided, that the right to terminate this Agreement under
this Section 8.1(c) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date;
(d) by Parent in the event that a Trigger Event has occurred under
Section 6.4(b) prior to the consummation of the Offer;
(e) by Parent in the event an Acquisition Proposal has been made to
the Company prior to the consummation of the Offer and the Company shall
fail to publicly reaffirm its approval or recommendation of the Offer, the
Merger and this Agreement on or before the fifth business day following the
date on which Parent shall request such reaffirmation;
(f) by Parent, if the Offer terminates, is withdrawn, abandoned or
expires by reason of the failure to satisfy any condition set forth in
Exhibit A hereto;
(g) by the Company, if the Offer shall have expired or have been
withdrawn, abandoned or terminated without any shares of Company Common
Stock being purchased by Sub thereunder on or prior to the 45th calendar
day after the date of commencement of the Offer pursuant to Section 1.2
hereof; or
(h) by the Company, if the Board of Directors of the Company shall
take any of the actions permitted by Section 5.1(e)(ii) of this Agreement.
8.2 Effect of Termination. In the event of termination of this Agreement
by either the Company or Parent as provided in Section 8.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of Parent, Sub or the Company or their respective affiliates, officers,
directors or shareholders except (i) with respect to this Section 8.2, the
second sentence of Section 6.2, and Section 6.4, and (ii) to the extent that
such termination results from the material breach by a party hereto of any of
its representations or warranties, or of any of its covenants or agreements.
8.3 Amendment. Subject to applicable law, this Agreement may be amended,
modified or supplemented only by written agreement of Parent, Sub and the
Company at any time prior to the Effective Date with respect to any of the terms
contained herein; provided, however, that, after this Agreement is approved by
the Company's stockholders, no such amendment or modification shall (i) reduce
the amount or change the form of consideration to be delivered to the holders of
Shares, (ii) change the date by which the Merger is required to be effected, or
(iii) change the amounts payable in respect of the Options or Warrants as set
forth in Section 3.5 and Section 3.7 hereof, respectively.
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<PAGE> 100
8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto;
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto; and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party. The failure of
any party hereto to assert any of its rights hereunder shall not constitute a
waiver of such rights.
ARTICLE IX
GENERAL PROVISIONS
9.1 Nonsurvival of Representations, Warranties and Agreements. None of the
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the agreements contained in Article III, and Section 6.6
hereof. The Confidentiality Agreement shall survive the execution and delivery
of this Agreement, and the provisions of the Confidentiality Agreement shall
apply to all information and material delivered by any party hereunder.
9.2 Notices. Any notice or communication required or permitted hereunder
shall be in writing and either delivered personally, telegraphed or telecopied
or sent by certified or registered mail, postage prepaid, and shall be deemed to
be given, dated and received when so delivered personally, telegraphed or
telecopied or, if mailed, five business days after the date of mailing to the
following address or telecopy number, or to such other address or addresses as
such person may subsequently designate by notice given hereunder:
(a) if to Parent or Sub, to:
Dr Pepper Bottling Company of Texas, Inc.
2304 Century Center Blvd.
Irving, Texas 75062
Attn: Jim L. Turner
Telephone: (214) 721-8111
Telecopy: (214) 721-8141
with a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201-6950
Attn: R. Scott Cohen
Telephone: (214) 746-7738
Telecopy: (214) 746-7777
(b) if to the Company, to:
Seven-Up/RC Bottling Company
of Southern California, Inc.
3220 East 26th Street
Vernon, California 90023
Attn: Rick Ferguson
Telephone: (213) 268-7779
Telecopy: (213) 262-9566
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<PAGE> 101
with a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, New York 10022
Attn: Kirk A. Radke
Telephone: (212) 446-4800
Telecopy: (212) 446-4900
9.3 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents, glossary of defined terms and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the word "include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation". The phrase
"made available" in this Agreement shall mean that the information referred to
has been made available if requested by the party to whom such information is to
be made available.
9.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.5 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership.
This Agreement (together with the Confidentiality Agreement and any other
documents and instruments referred to herein) constitutes the entire agreement
and supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof and, except as
provided in Section 6.6, is not intended to confer upon any person other than
the parties hereto any rights or remedies hereunder.
9.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof.
9.7 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties, except that Sub may assign, in its sole discretion, any or all of its
rights, interests and obligations hereunder to any newly-formed direct
wholly-owned Subsidiary of Parent, provided that such assignment shall not
relieve either Sub or Parent from any of its obligations hereunder. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
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<PAGE> 102
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
PARENT:
DR PEPPER BOTTLING
COMPANY OF TEXAS
By: /s/ JIM L. TURNER
----------------------------------
Name: Jim L. Turner
Title: President
SUB:
DPB ACQUISITION CORP.
By: /s/ JIM L. TURNER
----------------------------------
Name: Jim L. Turner
Title: President
COMPANY:
SEVEN-UP/RC BOTTLING COMPANY OF
SOUTHERN CALIFORNIA, INC.
By: /s/ BART S. BRODKIN
----------------------------------
Name: Bart S. Brodkin
Title: President
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<PAGE> 103
EXHIBIT A
The capitalized terms used in this Exhibit A shall have the respective
meanings given to such terms in the Agreement and Plan of Merger, dated as of
February 28, 1997 (the "Merger Agreement"), by and among Dr Pepper Bottling
Company of Texas, a Texas corporation ("Parent"), DPB Acquisition Corp., a
Delaware corporation and wholly owned subsidiary of Parent ("Sub"), and
Seven-Up/RC Bottling Company of Southern California, Inc., a Delaware
corporation (the "Company"), to which this Exhibit A is attached.
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, Sub shall not be required
to accept for payment or, subject to any applicable rules and regulations of the
SEC, including Rule 14e-1(c) under the Exchange Act (relating to Sub's
obligation to pay for or return tendered Shares promptly after expiration or
termination of the Offer), to pay for any Shares tendered, and may postpone the
acceptance for payment or, subject to the restriction referred to above, payment
for any Shares tendered, and may amend (but only to the extent permitted under
Section 1.1(b) of the Merger Agreement) or terminate the Offer (whether or not
any Shares have theretofore been purchased or paid for), if (i) there have not
been validly tendered and not withdrawn prior to the time the Offer shall
otherwise expire a number of Shares which constitutes 65% of the Shares
outstanding on a fully-diluted basis on the date of purchase ("on a
fully-diluted basis" having the following meaning, as of any date: the number of
Shares outstanding, together with Shares the Company may be required to issue
pursuant to options, warrants, or other obligations outstanding at that date);
(ii) any applicable waiting periods under the HSR Act shall not have expired or
been terminated prior to the expiration of the Offer; (iii) the debt financing
sources for Parent and Sub shall not have provided the applicable debt financing
to Parent and Sub pursuant to the Financing Commitment; or (iv) at any time on
or after the date of the Merger Agreement and before acceptance for payment of,
or payment for, such Shares any of the following events shall occur:
(A) there shall be pending, as of the expiration of the Offer or at
any time thereafter, any litigation that seeks to (1) challenge the
acquisition by Parent, Sub or any of their respective affiliates or
Subsidiaries of Shares pursuant to the Offer or restrain, prohibit or delay
the making or consummation of the Offer or the Merger, (2) make the
purchase of or payment for some or all of the Shares pursuant to the Offer
or the Merger illegal, (3) impose limitations on the ability of Parent, Sub
or any of their respective affiliates or Subsidiaries effectively to
acquire or hold, or to require Parent, Sub, the Company or any of their
respective affiliates or Subsidiaries to dispose of or hold separate, any
material portion of their assets or business, (4) impose limitations on the
ability of Parent, Sub, the Company or any of their respective affiliates
or Subsidiaries to continue to conduct, own or operate, as heretofore
conducted, owned or operated, all or any material portion of their
businesses or assets; (5) impose or result in material limitations on the
ability of Parent, Sub or any of their respective affiliates or
Subsidiaries to exercise full rights of ownership of the Shares purchased
by them, including, without limitation, the right to vote the Shares
purchased by them on all matters properly presented to the stockholders of
the Company; or (6) prohibit or restrict in a material manner the financing
of the Offer;
(B) there shall have been promulgated, enacted, entered, enforced or
deemed applicable to the Offer or the Merger, any Law, or there shall have
been issued any decree, order or injunction, that results in any of the
consequences referred to in subsection (A) above;
(C) any event or events shall have occurred that, individually or in
the aggregate, could reasonably be expected to have a Material Adverse
Effect on the Company;
(D) there shall have occurred (1) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market in the United States for a
period in excess of five hours, (2) the declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States, (3)
any material adverse change in United States currency exchange rates or a
suspension of, or a limitation on, the markets therefor, (4) the
commencement of a war, armed hostilities or other international or national
calamity, directly or indirectly involving the
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<PAGE> 104
United States, (5) any limitations (whether or not mandatory) imposed by
any governmental authority on the nature or extension of credit or further
extension of credit by banks or other lending institutions, or (6) in the
case of any of the foregoing, a material acceleration or worsening thereof;
(E) the representations and warranties of the Company contained in the
Merger Agreement (without giving effect to any "Material Adverse Effect",
"materiality" or similar qualifications contained therein) shall not be
true and correct in all respects as of the expiration of the Offer or at
any time thereafter as though made as of such time except (1) for changes
specifically permitted by the Merger Agreement, (2) that those
representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date, and (3) for
breaches or inaccuracies which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the Company;
(F) the obligations of the Company contained in the Merger Agreement
(without giving effect to any "Material Adverse Effect", "materiality" or
similar qualifications contained therein) to be performed at or prior to
the consummation of the Offer shall not have been performed or complied
with in all material respects by the Company prior to the consummation of
the Offer;
(G) the Merger Agreement shall have been terminated in accordance with
its terms;
(H) prior to the purchase of Shares pursuant to the Offer, an
Acquisition Proposal for the Company exists and the Board shall have
withdrawn or materially modified or changed (including by amendment of the
Schedule 14D-9) in a manner adverse to Sub its recommendation of the Offer,
the Merger Agreement or the Merger;
(I) as of the expiration of the Offer or at any time thereafter, the
Requisite Consents (i) shall not have been obtained or (ii) shall not be
currently in full force and effect;
(J) as of the expiration of the Offer, the Company shall have failed
to deliver to Parent and Sub a copy of the audited financial statements of
the Company for the year ended December 31, 1996, prepared in accordance
with GAAP and accompanied by a signed report thereon by the Company's
independent certified public accountants; or
(K) either the Brodkin Amendment shall not be a valid and binding
obligation of the Company and Bart S. Brodkin or the Ferguson Agreement
shall not be a valid and binding obligation of the Company and Rick
Ferguson.
The foregoing conditions are for the sole benefit of Sub and its affiliates
and may be asserted by Sub regardless of the circumstances (including, without
limitation, any action or inaction by Sub or any of its affiliates) giving rise
to any such condition or may be waived by Sub, in whole or in part, from time to
time in its sole discretion, except as otherwise provided in the Agreement. The
failure by Sub at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right and each such right shall be deemed an ongoing
right and may be asserted at any time and from time to time.
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<PAGE> 105
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (the "First
Amendment") is made and entered as of the 28th day of April, 1997 by and among
Dr Pepper Bottling Company of Texas, a Texas corporation ("Parent"), DPB
Acquisition Corp., a Delaware corporation ("Sub"), and Seven-Up/RC Bottling
Company of Southern California, Inc., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, Parent, Sub and the Company are parties to an Agreement and Plan
of Merger, dated as of February 28, 1997 (the "Merger Agreement");
WHEREAS, Parent, Sub and the Company wish to amend certain provisions of
the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Defined Terms. Terms used herein with their initial letters capitalized
and not otherwise defined herein (including those terms so used and not defined
in the recitals above) shall have the respective meanings given such terms in
the Merger Agreement.
2. Amendment of Section 8.1(c) of the Merger Agreement. Section 8.1(c) of
the Merger Agreement is hereby amended by deleting the phrase "on or before the
45th calendar day following the consummation of the Offer" and inserting in lieu
thereof the following phrase: "promptly following the resolution of all
questions or comments raised by the SEC in connection with its review of the
Information Statement".
3. Counterparts. This First Amendment may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date and year first above written.
DR PEPPER BOTTLING COMPANY OF TEXAS
By: /s/ JIM L. TURNER
----------------------------------
Jim L. Turner, President
DPB ACQUISITION CORP.
By: /s/ JIM L. TURNER
----------------------------------
Jim L. Turner, President
SEVEN-UP/RC BOTTLING COMPANY OF
SOUTHERN CALIFORNIA, INC.
By: /s/ BART S. BRODKIN
----------------------------------
Bart S. Brodkin, President
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<PAGE> 106
ANNEX II
SECTION 262
OF THE
GENERAL CORPORATION LAW
OF THE
STATE OF DELAWARE
<PAGE> 107
SECTION 262 OF THE
GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE
262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec.228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate
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of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided that,
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
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(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
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other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
349, L. '96, eff. 7-1-96.)
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ANNEX III
OPINION
OF
HOULIHAN, LOKEY,
HOWARD AND ZUKIN
<PAGE> 112
HOULIHAN LOKEY HOWARD & ZUKIN
A SPECIALTY INVESTMENT BANKING FIRM
1930 CENTURY PARK WEST
LOS ANGELES, CALIFORNIA 90067-6902
TELEPHONE 310-553-8871 FAX 310-553-2173
February 28, 1997
To The Board of Directors
of Seven-Up/RC Bottling Company
of Southern California, Inc.
Gentlemen:
We understand that Dr Pepper Bottling Company of Texas, Inc., a Texas
corporation ("DP Texas"), proposes to make a cash tender offer (the "Offer") to
purchase 100% of the outstanding shares of common stock, par value $0.01 per
share ("Common Stock"), of Seven-Up/RC Bottling Company of Southern California,
Inc., a Delaware corporation (the "Company"), for $12.00 per share. In
connection with the Offer, the Company, DP Texas and a wholly owned subsidiary
of DP Texas ("Sub") will enter into an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which Sub will merge with and into the Company ("the
Merger"). The Offer, the Merger and all transactions related thereto are
referred to collectively herein as the "Transaction."
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the Company.
Furthermore, at your request, we have not negotiated the Transaction. We express
no opinion with regard to the terms and/or fairness of the Merger Agreement,
except with regard to the consideration to be received by the Company's
stockholders in the Transaction.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed (a) the Company's annual reports to shareholders and on
Form 10-K for the fiscal years ended December 31, 1995 and December 31,
1994, (b) quarterly report on Form 10-Q for the quarter ended September 30,
1996, and (c) Company-prepared financial and operating statements for the
fiscal years ended December 31, 1992, December 31, 1993, December 31, 1994,
December 31, 1995 and December 31, 1996, which the Company's management has
identified as being the most current financial statements available;
2. reviewed copies of the following documents:
a) the Merger Agreement,
b) the Company's 1996-1997 Stock Option Plan,
c) the Company's Management Incentive Plan, and
d) the Company's 1997 Cost Reduction Plan;
3. reviewed the various company prepared operating and other
statements, and other documentation presented to DP Texas by the Company on
February 7, 1997;
4. reviewed the Company's Disclosure Statement dated June 19, 1996;
5. met with certain members of senior management of the Company to
discuss the operations, financial condition, future prospects and projected
operations and performance of the Company;
6. visited certain facilities and business offices of the Company;
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7. reviewed management-prepared forecasts and projections of the
Company's financial performance for the years ended December 31, 1997
through 2000;
8. reviewed the historical market prices and trading volume for the
Company's publicly traded securities and selected individual block trades;
9. reviewed certain confidential detailed information regarding the
Company's 1997 financial performance, the Company's compensation
arrangements and employee benefit plans, and the Company's franchise assets
and fixed assets;
10. reviewed certain other publicly available financial data for
selected companies that we deem comparable to the Company, and publicly
available prices and premiums paid in other transactions that we considered
similar to the Transaction; and
11. conducted such other studies, analyses and inquiries as we have
deemed appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company, and that there has been no material change
in the assets, financial condition, business or prospects of the Company since
the date of the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility for independent verification with respect to it. We have not made
any physical inspection or independent appraisal of any of the properties or
assets of the Company. Our opinion is necessarily based on business, economic,
market and other conditions as they exist and can be evaluated by us at the date
of this letter.
For purposes of this opinion, we have assumed that the Company's capital
stock consists of five million shares of outstanding Common Stock, outstanding
warrants to purchase 280,899 shares of Common Stock exercisable at $7.30 per
share, outstanding options to purchase 337,079 shares of Common Stock
exercisable at $7.30 per share, and outstanding options to purchase 382,022
shares of Common Stock exercisable at $8.00 per share.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the consideration to be received by the stockholders of the Company in
connection with the Transaction is fair to them from a financial point of view.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
/s/ Houlihan Lokey Howard & Zukin
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