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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON July 29, 1997
REGISTRATION NO. 333-29357
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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PACKAGED ICE, INC., ISSUER
PACKAGED ICE LEASING, INC.
SOUTHCO ICE, INC.
MISSION PARTY ICE, INC.
SOUTHWEST TEXAS PACKAGED ICE, INC.
SOUTHWESTERN ICE, INC., GUARANTORS
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
TEXAS 2097 76-0316492
NEVADA 88-0300560
TEXAS 76-0452649
TEXAS 76-0533333
TEXAS 76-0533335
TEXAS 76-0533332
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
8572 Katy Freeway, Suite 101 James F. Stuart
Houston, Texas 77024 Chief Executive Officer
(713) 464-9384 Packaged Ice, Inc.
8572 Katy Freeway, Suite 101
(Address, including zip code, and Houston, Texas 77024
telephone number including area code (713) 464-9384
of registrant's principal executive (Name, address, including zip code, and telephone number,
offices) including area code of agent for service)
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Copies to:
Alan Schoenbaum, P.C.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
300 Convent Street, Suite 1500
San Antonio, Texas 78205
(210) 270-0853
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable following the effectiveness of this
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PER UNIT (1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
12% Senior Notes due $50,000,000 100% $50,000,000 $15,152 (3)
2004
Guarantees (2) ___ ___ ___ ___
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Guarantees by subsidiaries of the Registrant of the payment of the
principal and interest on the 12% Senior Notes due 2004. Pursuant to Rule
457(n), no additional fee is required.
(3) The fee of $15,152 has been previously paid.
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
------------------------------
<PAGE> 3
PACKAGED ICE, INC.
CROSS REFERENCE SHEET
BETWEEN ITEMS IN PART I OF THE REGISTRATION STATEMENT
(FORM S-4) AND PROSPECTUS PURSUANT TO ITEM 501(B)
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ITEM OF FORM S-4 LOCATION IN PROSPECTUS
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside
Front over Page of Prospectus . . . . . . . . . . Facing Page of the Registration Statement; Cross Reference
Sheet; Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus. . . . . . . . . . . . . . . . . . . . Inside Front Cover Page of Prospectus; Available
Information; Outside Back Cover Page of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information . . . . . . . . . . Summary Historical and Pro Forma Combined Financial Data;
Prospectus Summary; Risk Factors
4. Terms of the Transaction. . . . . . . . . . . . . Outside Front Cover Page of Prospectus; Prospectus Summary;
Risk Factors; The Private Placement; Use of Proceeds; The
Exchange Offer; Description of Notes; Transfer Restrictions
of Old Notes; Plan of Distribution
5. Pro Forma Financial Information . . . . . . . . . Unaudited Pro Forma Combined Condensed Financial Statements;
Selected Historical and Unaudited Pro Forma Combined
Financial Data
6. Material Contracts with the Company Being
Acquired . . . . . . . . . . . . . . . . . . . . *
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be
Underwriters. . . . . . . . . . . . . . . . . . . *
8. Interest of Named Experts and Counsel . . . . . . Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities. . *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants . . . *
11. Incorporation of Certain Information by . . . . . *
Reference
12. Information with Respect to S-2 or S-3 . . . . . *
Registrants
13. Incorporation of Certain Information by . . . . . *
Reference
14. Information with Respect to Registrants Other than Outside Front Cover Page; Available Information; Prospectus
S-2 or S-3 Registrants. . . . . . . . . . . . . . Summary; Risk Factors; Private Placement; Use of Proceeds;
Capitalization; Unaudited Pro Forma Combined Condensed
Financial Statements; Selected Historical and Unaudited
Pro Forma Combined Financial Data; Management's
Discussion and Analysis of Financial Condition and Results of
Operation; Business; Financial Statements.
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C. INFORMATION ABOUT THE COMPANY BEING
ACQUIRED
15. Information with Respect to S-3 Companies. . . . . *
16. Information with Respect to S-2 or S-3 Companies. *
17. Information with Respect to Companies other than
S-2 or S-3 Companies . . . . . . . . . . . *
18. Information if Proxies, Consents or Authorizations
are to be Solicited. . . . . . . . . . . . *
19. Information if Proxies, Consents or Authorizations
are not to be Solicited in an Exchange Offer. . . Management; Principal Shareholders; Certain Relationships
and Related Transactions; Description of Capital Stock and
Warrants
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* Not applicable
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********************************************************************************
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
********************************************************************************
SUBJECT TO COMPLETION, DATED ______________, 1997
PROSPECTUS
PACKAGED ICE, INC.
OFFER TO EXCHANGE
12% SENIOR NOTES DUE 2004, SERIES B
FOR ALL OUTSTANDING 12% SENIOR NOTES DUE 2004, SERIES A
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME,
ON ________________ , 1997, UNLESS EXTENDED
THE 12% SENIOR NOTES DUE 2004, SERIES B, WILL BE FULLY AND UNCONDITIONALLY ON A
JOINT AND SEVERAL BASIS GUARANTEED BY THE SUBSIDIARIES OF PACKAGED ICE, INC.
------------------------------
Packaged Ice, Inc., a Texas corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal," and together with this Prospectus, the "Exchange Offer"), to
exchange $1,000 principal amount of its 12% Senior Notes due 2004, Series B
(the "Exchange Notes"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement
(as defined herein) of which this Prospectus constitutes a part, for each
$1,000 principal amount of its outstanding 12% Senior Notes due 2004, Series A
(the "Old Notes"), of which $50,000,000 principal amount is outstanding. The
form and terms of the Exchange Notes are identical in all material respects to
the form and terms of the Old Notes except for certain transfer restrictions
and registration rights relating to the Old Notes. The Exchange Notes will
evidence the same debt as the Old Notes and will be issued under and be
entitled to the benefits of the Indenture (as defined herein). The Exchange
Notes and the Old Notes are collectively referred to herein as the "Notes."
(Cover continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is _________, 1997
<PAGE> 6
The Notes will be senior unsecured obligations of the Company, ranking
pari passu in right of payment with all senior Indebtedness (as defined) of the
Company and senior to all future Subordinated Indebtedness (as defined) of the
Company. The Notes will be unconditionally and fully guaranteed (the
"Subsidiary Guarantees") on a senior unsecured basis by the Company's principal
operating subsidiaries, which comprise all of the Company's direct and indirect
subsidiaries (the "Subsidiary Guarantors"), and the Subsidiary Guarantees will
rank pari passu in right of payment with all senior Indebtedness of the
Subsidiary Guarantors and senior to all future Subordinated Indebtedness of the
Subsidiary Guarantors. The Subsidiary Guarantees may be released only in the
event of (i) a sale or disposition (whether by merger, stock purchase, asset
sale or otherwise) of a particular Subsidiary Guarantor to an entity which is
not a subsidiary of the Company or (ii) a particular Subsidiary Guarantor
becoming an Unrestricted Subsidiary (as defined herein). The Notes and
Subsidiary Guarantees will be effectively subordinated to secured Indebtedness
of the Company and the Subsidiary Guarantors, respectively, to the extent of
any security interest in assets of the Company and Subsidiary Guarantors,
including any Indebtedness under the Senior Credit Facility (as defined), which
is secured by liens on substantially all of the assets of the Company and the
Subsidiary Guarantors. At March 31, 1997, giving pro forma effect to the
Acquisitions (as defined) and the related financings, the Notes and the
Subsidiary Guarantees would have been effectively subordinated to no secured
Indebtedness of the Company and the Subsidiary Guarantors. The indenture
governing the Notes (the "Indenture") will permit the Company and its
subsidiaries to incur additional Indebtedness in the future, subject to certain
limitations. In the event of a Change of Control, the Company will be required,
subject to certain conditions, to make an offer to purchase all of the Notes
at 101% of the principal amount thereof, plus accrued and unpaid interest
theron to the date of purchase; however, there can be no assurance that in the
event of a change of Control the Company will have or will have access to
sufficient funds to repurchase the Notes. See "Description of Notes -- Ranking
and Guarantees," "-- Change of Control" and "-- Certain Definitions."
The Company will accept for exchange any and all Old Notes that are
validly tendered on or prior to 5:00 p.m., New York City time, on the date the
Exchange Offer expires, which will be __________, 1997, unless the Exchange
Offer is extended. See "The Exchange Offer -- Expiration Date; Extensions;
Amendment." Tenders of Old Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the business day prior to the Expiration Date (as
defined herein), unless previously accepted for exchange. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to certain conditions
which may be waived by the Company and to the terms and provisions of the
Registration Rights Agreement (as defined herein). Old Notes may be tendered
only in denominations of $1,000 principal amount and integral multiples
thereof. The Company has agreed to pay the expenses of the Exchange Offer. See
"The Exchange Offer."
The Exchange Notes will bear interest at the rate of 12% per annum,
payable semi-annually on April 15 and October 15 of each year, commencing
October 15, 1997. Holders of Exchange Notes of record on October 1, 1997 will
receive interest on October 15, 1997 from the date of issuance of the Exchange
Notes, plus an amount equal to the accrued interest on the Old Notes from the
date of issuance of the Old Notes, April 17, 1997, to the date of exchange
thereof. Interest on the Old Notes accepted for exchange will cease to accrue
upon issuance of the Exchange Notes.
The Old Notes were sold by the Company on April 17, 1997 to the
Initial Purchaser (as defined herein) in a transaction not registered under the
Securities Act in reliance upon Section 4(2) of the Securities Act. The Old
Notes were thereupon offered and sold by the Initial Purchaser only to
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) and to a limited number of institutional "accredited investors" (as
defined in Rule 501(a)(1),(2),(3) or (7) under the Securities Act), each of
whom agreed to comply with certain transfer restrictions and other conditions.
Accordingly, the Old Notes may not be offered, resold or otherwise transferred
unless registered under the Securities Act or unless an applicable exemption
from the registration requirements of the Securities Act is available. The
Exchange Notes are being offered hereunder in order to satisfy the obligations
of the Company under the Registration Rights Agreement entered into with the
Initial Purchaser in connection with the offering of the Old Notes. See "The
Exchange Offer," "Description of Notes," and "Registration Rights; Additional
Interest."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission" or "SEC") to third parties, including
Exxon Capital Holdings Corporation, SEC No-Action Letter (available April 13,
1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available June 5, 1991)
(the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC No-Action
Letter (available June 5, 1991), the Company believes that the Exchange Notes
issued pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by the respective holders thereof (other than a
"Restricted Holder," being (i) a broker-dealer who purchased Old Notes
exchanged for such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii)
a person that is an affiliate of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder is not participating in, and has no arrangement with any person
to participate in, the distribution (within the meaning of the Securities Act)
of such Exchange Notes. Eligible holders wishing to accept the Exchange Offer
must represent to the Company that such conditions have been met. Holders who
tender Old Notes in the Exchange Offer with the intention to participate in a
distribution of the Exchange Notes may not rely upon the Morgan Stanley Letter
or similar no-action letters. See "The Exchange Offer-General." Each
broker-dealer that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. A broker-dealer that delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act and will be
bound by the provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations). This Prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Old Notes where such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that it will
make this Prospectus and any amendment or supplement to this Prospectus
available to any broker-dealer for use in connection with any such resale for a
period of up to
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<PAGE> 7
180 days after consummation of the Exchange Offer. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer.
The Exchange Notes will constitute a new issue of securities with no
established trading market, and there can be no assurance as to the liquidity
of any markets that may develop for the Exchange Notes or as to the ability of
or price at which the holders of Exchange Notes would be able to sell their
Exchange Notes. Future trading prices of the Exchange Notes will depend on many
factors, including, among others, prevailing interest rates, the Company's
operating results and the market for similar securities. The Company does not
intend to apply for listing of the Exchange Notes on any securities exchange.
Jefferies & Company, Inc. (the "Initial Purchaser") has informed the Company
that it currently intends to make a market for the Exchange Notes. However, it
is not so obligated, and any such market making may be discontinued at any time
without notice. Accordingly, no assurance can be given that an active public or
other market will develop for the Exchange Notes or as to the liquidity of or
the trading market for the Exchange Notes.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
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<PAGE> 8
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement
on Form S-4 (which term shall encompass any amendment thereto) under the
Securities Act, for the registration of the Exchange Notes offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain items of which are contained in the financial statement schedules and
exhibits to the Registration Statement as permitted by the rules and
regulations of the Commission. For further information, reference is made to
the Registration Statement, including the financial statement schedules and
exhibits filed as a part thereof. Statements made in this Prospectus
concerning the contents of any document referred to herein are not necessarily
complete. With respect to each such document filed with the Commission as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved and each such statement shall
be deemed qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto filed by the Company with the Commission may
be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following regional offices of the Commission: Seven World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials can be obtained by mail from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. In addition the Commission maintains a site on the World
Wide Web that contains reports, proxy and information statements and other
information filed electronically by the Company with the Commission which can
be accessed over the Internet at http://www.sec.gov.
As a result of this Exchange Offer the Company will be subject to
the periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). As long as the Company
is subject to such periodic reporting and informational requirements, it will
furnish all reports and other information required thereby to the Commission
and pursuant to the Indenture will furnish copies of such reports and other
information to the Trustee.
The Company has agreed that, whether or not it is required to do so
by the rules and regulations of the Commission (and within 15 days of the date
that is or would be prescribed thereby), for so long as any of the Notes remain
outstanding, it will furnish to the Holders of Notes (excluding exhibits, which
will be available upon request) and file with the Commission (unless the
Commission will not accept such a filing) (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants, and (ii) all
reports that would be required to be filed with the SEC on Form 8-K if the
Company were required to file such reports. In addition, for so long as any of
the Notes remain outstanding, the Company has agreed to make available, upon
request, to any prospective purchaser of the Notes and beneficial owner of the
Notes in connection with any sale thereof the information required by Rule
144A(d)(4) under the Securities Act. Information may be obtained from the
Company at 8572 Katy Freeway, Suite 101, Houston, Texas 77024 (telephone
number: (713) 464-9384), Attention: Corporate Secretary.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE EXCHANGE AGENT. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH
TOGETHER, CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to,
and should be read in conjunction with, the more detailed information and
financial statements of the Company, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, references in this
Prospectus to a fiscal year shall mean the fiscal year ending December 31 of
such year. As used herein, unless the context otherwise requires, the terms
the "Company" and "Packaged Ice" refers to Packaged Ice, Inc. and its
consolidated subsidiaries. Investors are urged to read this Prospectus in its
entirety, including, without limitation, the information set forth under "Risk
Factors."
THE COMPANY
The Company is a leading manufacturer and distributor of packaged
ice and has developed a proprietary ice machine which produces, packages and
stores ice through an automated, self-contained process (the "Packaged Ice
System"). Currently operating in Arizona, California, Florida, Louisiana,
Nevada, New Mexico, Oklahoma, Tennessee and Texas, the Company is pursuing a
consolidation strategy within the highly fragmented packaged ice industry. On
April 17, 1997, the Company completed acquisitions of Mission Party Ice, Inc.
("Mission"), Southwest Texas Packaged Ice, Inc. ("STPI") and Southwestern Ice,
Inc. ("SWI"). The Company has grown significantly, primarily through these
strategic acquisitions and the placement of Packaged Ice Systems. The Packaged
Ice System, which is typically installed in supermarkets, provides the Company
with several competitive advantages, including substantially higher margins,
reduced production and distribution costs and superior product quality. The
Company has fourteen traditional ice manufacturing facilities serving over
11,000 customer locations and, at December 31, 1996, had an installed base of
730 Packaged Ice Systems located primarily in Albertsons, Kroger, HEB Pantry,
Wal-Mart Supercenters, Super K-Mart stores, and supermarkets affiliated with
Fleming Companies. Management believes that the Company is the second largest
packaged ice company in the United States with pro forma revenues and earnings
before interest, income taxes, depreciation and amortization ("EBITDA") for
fiscal 1996 of $26.2 million and $4.6 million, respectively. See "Unaudited
Pro Forma Combined Condensed Financial Statements," and "Selected Historical
and Unaudited Pro Forma Combined Financial Data."
THE INDUSTRY
Management estimates that the packaged ice industry has grown by
approximately 3% per annum during the past ten years to over $2.4 billion in
wholesale revenues in 1996. The packaged ice industry is highly seasonal, but
on a year-to-year basis remains stable, generally only affected by excessive
mild weather or rain within a region. The industry has historically been
characterized as highly fragmented with over 3,000 companies, consisting
primarily of "mom and pop" packaged ice companies, many of which are
undercapitalized. Management believes that the six largest ice manufacturers
in the southern and western U.S. account for approximately 6% of wholesale
revenues with the Company's largest competitor accounting for less than 3% of
the market. Traditional ice manufacturers produce and package ice at
centrally-located facilities and distribute to a limited market radius of
approximately 100 miles, mainly due to high shipping and product distribution
costs. Efficient distribution and customer concentration are important, as
transportation is a high cost component in the price of manufactured ice within
a traditional ice delivery system. It is difficult to ensure prompt and
reliable delivery during peak seasonal months in large markets with traditional
ice delivery systems. As a result, the ice business is primarily a regional
service business. Management believes that significant acquisition
opportunities exist for those service-oriented companies with superior ice
delivery systems and significant capital resources.
PACKAGED ICE SYSTEM
In 1994, the Company completed the development of its proprietary
system that utilizes state-of-the-art technology to produce, package and store
ice directly at customer locations. The Packaged Ice System consists of
standard Hoshizaki America, Inc. ("Hoshizaki") ice cubers, an ice merchandiser
built to the Company's specifications by Beverage Air Corporation ("Beverage
Air") and a bagging machine, the heart of the Packaged Ice System, manufactured
by Lancer Corporation ("Lancer"), a shareholder of the Company, under an
exclusive equipment manufacturing agreement. Lancer is an engineering and
manufacturing company that is a primary vendor of fountain soft drink
dispensing machines for CocaCola, Inc. The majority of bags used in the
Packaged Ice System are manufactured to the Company's specifications by Arrow
Industries, Inc. ("Arrow"), a subsidiary of ConAgra Corporation. The Packaged
Ice System is capable of producing up to 40,000 bags of ice per year and is
most frequently used in large supermarkets. The latest generation of the
Packaged Ice System is equipped with remote communication capability which
allows the Company's national service center to track production, monitor the
systems, and diagnose and correct system errors through the use of a central
processing unit. The Packaged Ice Systems are serviced by trained
representatives and are designed to provide a high degree of reliability and
serviceability through the use of interchangeable parts and a durable,
stainless steel cabinet. To guard against product contamination and satisfy
consumer demand for high quality, sanitary ice, the Packaged Ice System was
engineered to meet all specifications delineated by the National Sanitation
Foundation ("NSF") for ice production and contains a patented automatic
sanitizing system. In addition, the Packaged Ice System is U.L. approved. The
Company began development of the Packaged Ice System in 1990, and experienced
cumulative losses from continuing operations of $1.4 million during the first
four years, which were devoted
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primarily to research and development. In addition, management estimates that
the Company's strategic partners, Hoshizaki, Lancer and Beverage Air, funded an
aggregate of over $3.5 million of the development of the Packaged Ice System.
The Packaged Ice System, when combined with traditional delivery
methods, provides the Company with significant advantages, including (i) higher
operating margins, due to significantly reduced production and distribution
costs, (ii) a delivery system designed to supply high volume locations and
capable of cost-effectively servicing a market in excess of 100 miles from its
traditional ice manufacturing facilities, and (iii) the ability to redistribute
production from its traditional ice facilities to additional customers as well
as satisfy seasonal peak demand at stores with Packaged Ice Systems. In
addition, the Packaged Ice System provides numerous advantages to the retailer
including (i) providing a continuous supply of ice, and thus reducing the
frequency of product shortages typical of traditional ice delivery, (ii)
significantly reducing costs associated with delivery and storage at the retail
location, (iii) satisfying consumer demand for a higher quality and more
sanitary ice than typically found with traditional ice delivery, (iv)
effectively managing inventory through computerized production tracking and
dedicated technical support, and (v) increasing safety by reducing "slip and
fall" accidents. Management believes the Packaged Ice System can significantly
lower the price of a fully costed bag of ice to a supermarket as compared to
traditional ice delivery. Management believes that the higher margins and
quality of the Packaged Ice System has enabled it to quickly gain market
acceptance. At March 31, 1997, the Company had an installed base of 776
Packaged Ice Systems, over 90% of which were placed in supermarkets where the
Company was not previously the primary source of packaged ice. Management
believes that the technology utilized in the Packaged Ice System is unique with
five existing and one pending patents covering the bagging device, and that
there are significant barriers to entry for new and existing competitors with
respect to the development of a competitive and reliable machine that performs
the same functions as the Packaged Ice System. See "Risk Factors --
Competition."
BUSINESS STRATEGY
The Company's strategy is to become a leading consolidator in the
packaged ice industry and to maximize its revenues and cash flows by (i)
expanding its market presence by leveraging its proprietary ice machine
technology, (ii) entering new markets by making strategic acquisitions in the
highly fragmented traditional packaged ice industry, and (iii) reducing costs
and exploiting economies of scale.
Expand Market Presence Through Packaged Ice System. Through
selective placement of its proprietary Packaged Ice Systems, the Company will
continue to reduce transportation, storage and service costs, thereby
overcoming traditional geographical constraints inherent to traditional ice
delivery. This strategy not only provides significant cost savings to the
Company but (i) allows for expansion of its delivery radius beyond that of
traditional ice manufacturers, (ii) maximizes sales in existing markets by
converting existing traditional ice customers to the Packaged Ice System,
thereby freeing-up manufacturing capacity for new customers in the market area,
and (iii) optimizes traditional production capacity utilization by reducing ice
shortages during peak demand seasons. The Company has expanded its geographic
scope by selling ice to major national and regional supermarket chains
including Albertsons, Kroger, HEB Pantry and supermarkets affiliated with
Fleming Companies, many of whom the Company has successfully convinced to
switch from traditional delivery to higher margin Packaged Ice Systems.
Acquire Traditional Ice Manufacturing Companies in Highly Fragmented
Industry. The Company believes that the highly fragmented packaged ice industry
contains numerous acquisition opportunities. The Company's acquisition
strategy is to target well-managed, traditional ice producers with favorable
demographics and significant customer bases in both new and current market
areas. This acquisition strategy is designed to allow the Company to gain
market share quickly and efficiently, provide for additional distribution
channels through which to place Packaged Ice Systems, and achieve greater
economies of scale. In determining which businesses may be suitable
acquisition candidates, management conducts demographic and competitive
analyses and performs comprehensive due diligence on the target's facilities,
management, existing customer base, and growth opportunities. Since April 17,
1997, the date the Old Notes were sold by the Company, the Company has
completed acquisitions of substantially all of the assets of the following
companies: Crystal Ice Co., Apache Ice Company, The Pipkin Company, Ice King,
Inc., Pure Flo Package Water and Ice Co. and Miramar Cold Storage. In
addition, the Company has entered into a transaction pursuant to which Fiesta
Fun Ice Co. ("Fiesta") has the option to sell all Fiesta stock to the Company
until January 1998, at which time the Company then has the right to purchase
all Fiesta stock until June 1996. The aggregate purchase price with respect to
all such transactions was approximately $6.9 million. The Company is currently
negotiating with several other ice companies regarding potential acquisitions,
but does not have a definitive agreement in place with any of such companies.
Reduce Costs and Exploit Economies of Scale. The Company will
continue to seek reductions in operating costs and working capital requirements
in its existing operations, as well as in its future acquisitions, by (i)
closing or combining less efficient or redundant manufacturing and distribution
facilities, (ii) managing vendor relationships to ensure a high level of
responsiveness and favorable pricing, (iii) increasing market concentration of
Packaged Ice Systems to improve merchandising and servicing efficiencies, and
(iv) consolidating certain administrative and selling functions to eliminate
redundancies and excess costs. Since the Company is focusing its acquisition
efforts on related businesses, it anticipates that the customer base of any
acquired business will be similar to its own and therefore administrative areas
such as management information systems, accounting systems and customer support
may be consolidated.
The Company believes that it is well-positioned to execute its
business strategy given the depth, experience and ability of its management
team. The Company's executive officers are led by James F. Stuart, Chairman
and Chief Executive Officer, who founded Packaged Ice in 1990, and who has
twelve years of industry experience. Mr. Stuart is chiefly responsible for the
development of the Packaged Ice System. Other key management personnel are
A.J. Lewis III, President and Chief Operating Officer, and Steven P.
Rosenberg, Vice Chairman. Management (including shares attributable to
6
<PAGE> 11
directors serving at the direction of certain investors) holds a 48% fully
diluted equity interest in the Company. The Company's shareholder group also
includes Norwest Equity Partners V ("Norwest"), a partnership managed by
Norwest Venture Capital Management, Inc., a venture capital firm with over $1
billion under management. Norwest is the Company's largest shareholder and
maintains board representation.
7
<PAGE> 12
THE ACQUISITIONS
On April 17, 1997, Packaged Ice acquired SWI, Mission, and STPI
(collectively, the "Acquisitions"). SWI serves over 5,100 customer locations
in Arizona, California, New Mexico, Tennessee and Texas. STPI and Mission
(previously under common ownership) serve over 5,400 customer locations in
South Texas. The aggregate consideration paid by Packaged Ice for the
Acquisitions was approximately $29.2 million, consisting of approximately $6.9
million payable in cash, $13.1 million in repayment of sellers' debt, and $9.6
million payable in shares of Common Stock.
THE PRIVATE PLACEMENT AND USE OF PROCEEDS
The Old Notes were sold by the Company on April 17, 1997 to the
Initial Purchaser and were thereupon offered and sold by the Initial Purchaser
only to certain qualified buyers. The $48 million net proceeds received by the
Company in connection with the sale of the Old Notes and warrants (the
"Warrants") to purchase an aggregate of 511,885 shares of the Company's $.01
per value common stock ("Common Stock") were used to finance the cash portion
of the purchase price for the Acquisitions and certain related expenses, to
repay outstanding indebtedness, make capital expenditures and provide working
capital for the Company. The Warrants have an exercise price of $.01 per
share, and are exercisable at any time prior to the maturity date of the Notes.
The Warrants are not being registered in the Exchange Offer, but are subject to
a registration rights agreement. See "Private Placement," "Capitalization" and
"Description of Capital Stock and Warrants."
THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $50,000,000
principal amount of Exchange Notes for up to $50,000,000 principal amount of
Old Notes. The form and terms of the Exchange Notes are identical in all
material respects to the form and terms of the Old Notes except that the
Exchange Notes have been registered under the Securities Act and will not
contain certain transfer restrictions and hence are not entitled to
registration rights with respect to the Exchange Notes. The Exchange Notes
will evidence the same debt as the Old Notes and will be issued under and be
entitled to the benefits of the Indenture governing the Old Notes. See
"Description of Notes."
The Exchange Offer Pursuant to a registration rights agreement (the
"Registration Rights Agreement") by and among the
Company, the Subsidiary Guarantors and the
Initial Purchaser, the Company agreed to (i) file
a registration statement with the Commission (the
"Exchange Offer Registration Statement") with
respect to an offer to exchange the Notes (the
"Exchange Offer") for senior debt securities of
the Company with terms substantially identical to
the Notes (the "Exchange Notes") (except that the
Exchange Notes generally will not contain terms
with respect to transfer restrictions) within 60
days after the date of original issuance of the
Notes and (ii) use its best efforts to cause such
registration statement to become effective under
the Securities Act within 120 days after such
issue date. The Registration Statement of which
this Prospectus is a part constitutes such
Exchange Offer Registration Statement. In the
event that applicable law or interpretations of
the staff of the Commission do not permit the
Company to effect the Exchange Offer, or if
certain holders of the Notes notify the Company
that they are not permitted to participate in, or
would not receive freely tradeable Notes pursuant
to, the Exchange Offer, the Company will use its
best efforts to cause to become effective a
registration statement (the "Shelf Registration
Statement") with respect to the resale of the
Notes and to keep the Shelf Registration
Statement effective until three years after the
date of original issuance of the Notes. The
interest rate on the Old Notes is subject to
increase under certain circumstances if the
Company is not in compliance with its obligations
under the Registration Rights Agreement. See
"Registration Rights; Additional Interest."
Each $1,000 principal amount of Exchange Notes
will be issued in exchange for each $1,000
principal amount of outstanding Old Notes. As of
the date hereof, $50,000,000 principal amount of
Old Notes are issued and outstanding. The Company
will issue the Exchange Notes to tendering
holders of Old Notes on or promptly after the
Expiration Date.
Resale The Company believes that the Exchange Notes
issued pursuant to the Exchange Offer generally
will be freely transferable by the holders
thereof without registration or any prospectus
delivery requirement under the Securities Act.
See "The Exchange Offer -- General" and "Plan of
Distribution."
The Old Notes were not registered under the
Securities Act and unless so registered may not
be offered or sold except pursuant to an
exemption from, or in a transaction not subject
to, the registration requirements of the
Securities Act. See "Transfer Restrictions on the
Old Notes".
8
<PAGE> 13
Expiration Date 5:00 p.m., New York City time, on _______, 1997,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date to which the Exchange Offer is extended. See
"The Exchange Offer -- Expiration Date;
Extensions; Amendments."
Procedures for Tendering
Old Notes Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile,
together with the Old Notes to be exchanged and
any other required documentation to the Exchange
Agent at the address set forth herein and therein
or effect a tender of Old Notes pursuant to the
procedures for book-entry transfer as provided
for herein. See "The Exchange Offer -- Procedures
for Tendering."
Special Procedures for
Beneficial Holders Any beneficial holder whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender in the Exchange Offer
should contact such registered holder promptly
and instruct such registered holder to tender on
beneficial holder's behalf. If such beneficial
holder wishes to tender directly, such beneficial
holder must, prior to completing and executing
the Letter of Transmittal and delivering the Old
Notes, either make appropriate arrangements to
register ownership of the Old Notes in such
holder's name or obtain a properly completed bond
power from the registered holder. The transfer
of record ownership may take considerable time.
See "The Exchange Offer -- Procedures for
Tendering."
Guaranteed Delivery
Procedures Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are not
immediately available or who cannot deliver their
Old Notes and a properly completed Letter of
Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date, or who cannot
complete the procedure for book-entry transfer on
a timely basis, must tender their Old Notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer -- Guaranteed
Delivery Procedures."
Withdrawal Rights Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
business day prior to the Expiration Date, unless
previously accepted for exchange. See "The
Exchange Offer -- Withdrawal of Tenders."
Termination of the
Exchange Offer The Company may terminate the Exchange Offer if
it determines that the Exchange Offer violates
any applicable law or interpretation of the staff
of the SEC. Holders of Old Notes will have
certain rights against the Company under the
Registration Rights Agreement should the Company
fail to consummate the Exchange Offer. See "The
Exchange Offer -- Termination" and "Registration
Rights; Additional Interest."
Acceptance of Old Notes and
Delivery of Exchange Notes Subject to certain conditions (as summarized
above in "Termination of the Exchange Offer" and
described more fully in "The Exchange Offer --
Termination"), the Company will accept for
exchange any and all Old Notes which are properly
tendered in the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration Date.
The Exchange Notes issued pursuant to the
Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer -- General."
Exchange Agent U.S. Trust Company of Texas, N.A. is serving as
exchange agent (the "Exchange Agent") in
connection with the Exchange Offer. The mailing
and hand delivery address of the Exchange Agent
is: U.S. Trust Company of Texas, N.A., Attention:
Corporate Trust Department, 2001 Ross Avenue,
27th Floor, Dallas TX 75201. For information
with respect to the Exchange Offer, the telephone
number for the Exchange Agent is (214) 754-1303
and the facsimile number for the Exchange Agent
is (214) 754-1255. See "The Exchange Offer --
Exchange Agent."
Use of Proceeds There will be no cash proceeds payable to the
Company from the issuance of the Exchange Notes
pursuant to the Exchange Offer. See "Use of
Proceeds." For a discussion of the use of the
9
<PAGE> 14
net proceeds received by the Company from the
sale of the Old Notes, see "Private Placement."
TERMS OF THE NOTES
Notes Outstanding $50 million principal amount of 12% Senior Notes
due 2004.
Maturity Date April 15, 2004.
Interest Rate and
Payment Dates The Notes will bear interest at the rate of 12%
per annum. Interest will accrue from the Issue
Date and will be payable semi-annually on April
15 and October 15 of each year, commencing on
October 15, 1997.
Holders of Exchange Notes of record on October 1,
1997 will receive interest on October 15, 1997
from the date of issuance of the Exchange Notes,
plus an amount equal to the accrued interest on
the Old Notes from the date of issuance of the
Old Notes, April 17, 1997, to the date of
exchange thereof. Consequently, assuming the
Exchange Offer is consummated prior to the record
date in respect of the October 15, 1997 interest
payment for the Old Notes, holders who exchange
their Old Notes for Exchange Notes will receive
the same interest payment on October 15, 1997
that they would have received had they not
accepted the Exchange Offer. Interest on the Old
Notes accepted for exchange will cease to accrue
upon issuance of the Exchange Notes. See "The
Exchange Offer -- Interest on the Exchange
Notes."
Optional Redemption The Notes will be redeemable, in whole or in
part, at the option of the Company at any time on
or after April 15, 2001 at the redemption prices
set forth herein, plus accrued and unpaid
interest thereon, if any, to the redemption date.
In addition, prior to April 15, 2000, up to an
aggregate of $17.5 million in principal amount of
the Notes are redeemable at the option of the
Company, in whole or in part, from time to time,
at 112% of the principal amount thereof, plus
accrued and unpaid interest thereon to the
redemption date, with the net proceeds of a
Public Equity Offering provided that at least
$32.5 million in aggregate principal amount of
Notes remains outstanding immediately after such
redemption. See "Description of Notes --
Optional Redemption."
Change of Control In the event of a Change of Control, the Company
will be required, subject to certain conditions,
to make an offer to purchase all of the Notes at
101% of the principal amount thereof, plus
accrued and unpaid interest thereon to the date
of purchase; however, there can be no assurance
that in the event of a Change of Control the
Company will have or will have access to
sufficient funds to repurchase the Notes. See
"Description of Notes -- Change of Control."
Ranking and Guarantees The Notes will be senior unsecured obligations of
the Company that will rank senior in right of
payment to all Subordinated Indebtedness (as
defined) of the Company. The Notes will rank
pari passu in right of payment to all existing
and future senior Indebtedness (as defined) of
the Company. The Notes will be unconditionally
guaranteed on a senior basis by each of the
Company's Subsidiary Guarantors. The guarantee
of each such Subsidiary Guarantor will rank pari
passu in right of payment to all existing and
future senior Indebtedness of such Subsidiary
Guarantor. The Notes are unsecured, and holders
of secured Indebtedness of the Company, including
the Senior Credit Facility, will effectively rank
prior to Holders of the Notes with respect to the
assets securing such Indebtedness. The Indenture
will permit the Company and its subsidiaries to
incur additional indebtedness under certain
circumstances. See "Description of Notes --
Ranking and Guarantees" and "Description of
Senior Credit Facility."
The Subsidiary Guarantees may be released under
the following circumstances. A Subsidiary
Guarantee may be terminated upon the sale or
disposition (whether by merger, stock purchase,
asset sale or otherwise) of a particular
Subsidiary Guarantor to an entity which is not a
subsidiary of the Company, provided that (i) such
transaction complies with the Indenture
(including, without limitation, provisions
relating to restricted payment, asset sales, and
sale leaseback transactions, and additional
subsidiary guarantees) and (ii) such termination
shall occur only to the extent that all
obligations of such Subsidiary Guarantor under
all of its guarantees of, and under all of its
pledges of assets or other security interests
which secure, any other indebtedness of the
Company shall also terminate upon such release,
sale or transfer. A Subsidiary Guarantee may also
be released by a subsidiary of the Company
becoming an Unrestricted Subsidiary. The Board of
Directors may designate any subsidiary of the
Company to be an Unrestricted Subsidiary unless
such subsidiary owns an capital stock of, or owns
or holds any lien on any property of, any other
subsidiary of the Company which is not a
subsidiary of the subsidiary of the Company to be
so designated or otherwise an Unrestricted
Subsidiary, provided that either (i) the
subsidiary of the Company to be so designated has
total consolidated assets of $100,000 or less at
the time of such designation or (ii) immediately
after giving pro forma effect to such
designation, the Company could incur $1.00 of
additional indebtedness pursuant to the terms of
the Indenture (which mandate that no default or
event of default shall have occurred and be
continuing on the date of the proposed incurrence
of debt and that immediately after giving effect
to such proposed incurrence the Company meets a
particular fixed charge coverage ratio or test).
Consequently, any Unrestricted Subsidiary would
have insignificant assets, or would be created
only if the cited charge coverage ratio would not
be effected. See "Description of Notes -- Ranking
and Guarantees" and -- "Certain Definitions."
Certain Covenants The Indenture will contain certain covenants
that, among other things, limit the ability of
the Company and its Subsidiaries to pay dividends
or make distributions with respect to the
Company's capital stock or make certain other
restricted payments, to incur Indebtedness, to
create liens, to issue preferred or other capital
stock of subsidiaries, to sell assets, to permit
restrictions on dividends and other payments by
subsidiaries to the Company, to consolidate,
merge or sell all or substantially all of its
assets, to engage in transactions with
affiliates, or to engage in certain businesses.
See "Description of Notes -- Certain Covenants."
Original Issue Discount The Notes will be issued with original issue
discount for federal income tax purposes. See
"Certain Federal Income Tax Considerations."
For additional information regarding the Notes, see "Description of Notes."
10
<PAGE> 15
RISK FACTORS
An investment in the Units involves certain risks that should be
considered by a potential investor. See "Risk Factors."
11
<PAGE> 16
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(in thousands, except per share, ratio and percentage data)
The following sets forth the summary historical financial data
derived from the audited financial statements of Packaged Ice as of and for the
three years ended December 31, 1996 and contains summary historical financial
data derived from the unaudited financial statements of Packaged Ice for the
three months ended March 31, 1996 and 1997. The unaudited financial statements
of Packaged Ice as of and for the three months ended March 31, 1996 and 1997
reflect all adjustments necessary in the opinion of management (consisting only
of normal recurring adjustments), for a fair presentation of such data. The
unaudited pro forma combined financial data for the year ended December 31,
1996 and as of and for the three months ended March 31, 1997 reflects operating
and other financial data as if (i) the Acquisitions and (ii) the issuance of
the Old Notes and Warrants and the application of the proceeds therefrom, had
occurred at January 1, 1996 and 1997, respectively; and reflects balance sheet
data as if the transactions in (i) and (ii) had occurred at March 31, 1997. The
unaudited pro forma financial data should not be considered indicative of
actual results that would have been achieved had the Acquisitions been
consummated on the dates or for the periods indicated and do not purport to
indicate results of operations as of any future date or any future period. The
following information should be read in conjunction with the Consolidated
Financial Statements of Packaged Ice, including the Notes thereto, "Unaudited
Pro Forma Combined Condensed Financial Statements" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------- -------------------------------------
UNAUDITED
UNAUDITED PRO FORMA
PRO FORMA COMBINED
COMBINED MARCH 31 MARCH 31 MARCH 31
1994 1995 1996 1996(4) 1996 1997 1997(4)
---------- ---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 784 $ 2,830 $ 4,427 $ 26,182 $ 650 $ 846 $ 4,051
Cost of goods sold 352 1,251 2,035 15,892 325 460 3,049
Gross profit 432 1,579 2,392 10,290 325 386 1,002
Operating expenses(1) 974 1,515 1,981 5,792 410 575 1,485
Depreciation and amortization 224 751 1,456 4,517 350 479 1,272
Interest expense 25 76 130 7,534 10 85 1,807
Other income 69 75 185 103 17 161 187
Loss from continuing
operations (722) (688) (990) (7,450) (428) (592) (3,375)
OTHER FINANCIAL DATA:
Cash flows - operating
activities (647) 148 1,094 (38) 750
Cash flows - investing
activities (3,497) (2,961) (5,925) (841) (1,531)
Cash flows - financing
activities 4,897 3,034 3,968 73 889
EBIT(2) $ (697) $ (612) $ (860) $ 84 (418) (507) (1,568)
EBITDA(2) (473) 139 596 4,601 (68) (28) (296)
Capital expenditures 2,999 2,717 5,745 8,006 711 1,354 1,639
Revenue growth 405.8% 261.0% 56.4% -- -- -- --
Gross margin 55.1% 55.8% 54.0% 39.3% 50.0% 45.6% 24.7%
EBIT margin (88.9%) (21.6%) (19.4%) 0.3% (64.3)% (59.9)% (38.7)%
EBITDA margin (60.3%) 4.9% 13.5% 17.6% (10.5)% (3.3)% (7.3)%
Ratio of earnings to fixed
charges(3) N/A N/A N/A 0.01x N/A N/A N/A
SUPPLEMENTAL DATA:
Loss per share of
common stock $ (0.28) $ (0.26) $ (0.35) $ (2.15) $ (0.15) $ (0.21) $ (0.97)
Weighted average
shares outstanding 2,614,681 2,682,261 2,826,371 3,466,228 2,826,371 2,828,085 3,467,942
BALANCE SHEET DATA:
Cash and equivalents $ 812 $ 1,033 $ 170 $ 279 $ 21,971
Working capital (deficiency) 639 696 (1,228) (2,610) 20,917
Total assets 5,513 8,050 11,523 12,922 71,617
Total long-term debt, net of
discount 566 211 3,582 3,075 44,612
Total preferred stock with put
redemption option 2,497 2,497 3,223 3,223
Total common stock with put
redemption option 1,972 1,972 1,972 1,972
Total shareholders' equity 4,427 2,582 1,597 1,050 17,335
</TABLE>
(1) Excludes depreciation and amortization.
(2) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. EBIT represents earnings before interest and income taxes.
The Company has included EBITDA and EBIT data (which are not measures of
financial performance under generally accepted accounting principles)
because it understands such data are used by certain investors to
determine a company's historical ability to service its indebtedness.
EBITDA and EBIT should not be considered by an investor as alternatives to
net income, as indicators of the Company's operating performance or as
alternatives to cash flow as measures of liquidity.
(3) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings from continuing operations before income
taxes and fixed charges. Fixed charges consist of interest expense.
Earnings were not sufficient during each fiscal year, quarter and pro forma
period presented to cover
12
<PAGE> 17
fixed charges. The deficiencies were $722,000 in 1994, $688,000 in 1995,
$990,000 in 1996, $7,450,000 for pro forma combined 1996, $428,000 and
$592,000 for the three months ended March 31, 1996 and 1997, respectively,
and $3,375,000 for the pro forma combined three months ended March 31,
1997.
(4) Pro forma to reflect the Acquisitions as if they had each occurred at
January 1, 1996 and 1997, respectively, for the operating data and at March
31, 1997 for the balance sheet data. See "Unaudited Pro Forma Combined
Condensed Financial Statements."
13
<PAGE> 18
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act, and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") which represent the
Company's expectations and beliefs concerning future events that involve risks
and uncertainties, including those associated with the effects of national and
regional economic conditions. Investors are cautioned that all forward-looking
statements involve risks and uncertainty. Discussions containing such
forward-looking statements may be found in the material set forth under
"Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations --Liquidity and Capital Resources,"
"Unaudited Pro Forma Combined Condensed Financial Statements," "Business" and
"Description of Notes," as well as elsewhere herein. Actual results may differ
materially from those projected in the forward-looking statements. Although
the Company believes that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore, there can be no assurance that the forward-looking
statements included in this Prospectus will prove to be accurate. Important
factors that could cause actual results to differ materially from the Company's
expectations are disclosed in this Prospectus. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will
be achieved. The reader should note that initial public offerings are excluded
from Section 27A of the Securities Act and Section 21E of the Exchange Act.
RISK FACTORS
The Securities offered hereby involve a high degree of risk.
Prospective purchasers should carefully consider the following factors,
together with other information contained herein, before purchasing the
Securities offered hereby.
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT
The Company is highly leveraged, with substantial debt service in
addition to operating expenses and planned capital expenditures. At March 31,
1997, after giving pro forma effect to the Acquisitions and the sale of the
Notes, the total non-subordinated Indebtedness of the Company would have been
approximately $50.0 million, excluding unamortized debt issue costs. The
Indenture will permit the Company to incur up to $15.0 million of additional
Indebtedness, or a greater amount depending on the Company's Consolidated Fixed
Charge Coverage Ratio (as defined), up to $37.5 million of which may be
secured. See "-- Senior Credit Facility; Effective Subordination,"
"Description of Senior Credit Facility," and "Description of Notes -- Certain
Covenants."
The Company has historically operated at substantially lower levels of
debt than will be outstanding after giving effect to the foregoing
transactions. The Company's level of indebtedness will have several important
effects on its future operations, including, without limitation, (i) a
substantial portion of the Company's cash flow from operations must be
dedicated to the payment of interest and principal on its indebtedness, (ii)
covenants contained in the Company's Indenture or the Senior Credit Facility
will require the Company to meet certain financial tests, and other
restrictions will limit its ability to borrow additional funds or to dispose of
assets, and may affect the Company's flexibility in planning for, and reacting
to, changes in its business, including possible acquisition activities, (iii)
the Company's leveraged position will substantially increase its vulnerability
to adverse changes in general economic, industry and competitive conditions,
and (iv) the Company's ability to obtain additional financing for working
capital, capital expenditures, acquisitions, general corporate and other
purposes may be limited. The Company's ability to meet its debt service
obligations and to reduce its total indebtedness will be dependent upon the
Company's future performance, which will be subject to general economic,
industry and competitive conditions. There can be no assurance that the
Company's business will continue to generate cash flow at or above current
levels. If the Company is unable to generate sufficient cash flow from
operations in the future to service its debt, it may be required, among other
things, to seek additional financing in the debt or equity markets, to
refinance or restructure all or a portion of its indebtedness, including the
Notes, to sell selected assets, or to reduce or delay planned capital
expenditures. There can be no assurance that any such measures would be
sufficient to enable the Company to service its debt, or that any of these
measures could be effected on satisfactory terms, if at all.
SENIOR CREDIT FACILITY; EFFECTIVE SUBORDINATION
The Company anticipates entering into a Senior Credit Facility to
provide additional liquidity. The Company has received a binding commitment
from Frost National Bank, San Antonio, Texas and Zion National Bank, Salt Lake
City for a senior credit facility of up to $20 million. If the Company is
unable to obtain the Senior Credit Facility, it may be required to postpone
and/or change significant elements of its business strategy. The terms of the
Senior Credit Facility will require a pledge of substantially all of the assets
of the Company and the Subsidiary Guarantors. Accordingly, the Notes and
Subsidiary Guarantees will be effectively subordinated to the extent of the
collateral used to secure such bank indebtedness. In the event of a default on
the Notes, or a bankruptcy, liquidation or reorganization of the Company, such
assets will be available to satisfy obligations with respect to the
indebtedness secured thereby before any payment therefrom could be made on the
Notes. See
14
<PAGE> 19
"Description of Senior Credit Facility."
COMPETITION
The packaged ice business is highly competitive. The Company faces a
number of competitors in the packaged ice business, including other ice
manufacturers, convenience and grocery retailers that operate captive
commercial ice plants, and retailers that manufacture and package ice at store
locations. Competition exists primarily on a regional basis, with service,
price and quality as the principal competitive factors. Certain of the
Company's competitors have greater financial resources than the Company, which
may enable them to compete more effectively on the basis of price and to better
withstand industry downturns. A significant increase in the utilization of
captive commercial ice plants, on-site manufacturing and packaging by operators
of large retail chains served by the Company, or the successful introduction by
a competitor of a machine which duplicates the function of the Packaged Ice
System could have a material adverse effect on the Company's operations. See
"Business -- Packaged Ice System" and "Business -- Competition."
RISKS ASSOCIATED WITH THE ACQUISITIONS
The Acquisitions will require the Company to integrate and manage
businesses that are related to, but substantially different from, Packaged
Ice's traditional business of marketing and servicing Packaged Ice Systems.
While the Company has retained key members of management from each of SWI and
Mission, no assurance can be given that the Company will be successful in
managing and incorporating such businesses into its existing operations or that
such activities will not require a disproportionate amount of management's
attention. The Company's failure to successfully incorporate the acquired
businesses into its existing operations, or the occurrence of unexpected costs
or liabilities in the acquired businesses, could have a material adverse effect
on the Company. See "The Acquisitions."
SUBSTANTIAL NET OPERATING LOSSES
Packaged Ice has incurred substantial net operating losses since its
inception. At December 31, 1996, Packaged Ice had an accumulated deficit since
inception of $3,096,643. Such deficits reflect the cost of developmental and
other start-up activities, including the industrial design, development and
marketing of the Packaged Ice Systems. The Company also anticipates that it
will incur net operating losses during 1997, primarily as a result of the
increased interest expense associated with the Notes. While management
believes that it has developed a plan of operations that when combined with the
Acquisitions, if successfully implemented, should permit the Company to achieve
and sustain profitable operations, no assurance can be given that the Company's
operations will be profitable in the future.
DEPENDENCE ON MANUFACTURERS
The Company's proprietary bagging device is manufactured by Lancer
under an exclusive original equipment manufacturing agreement ("OEM
Agreement"). The bagging device is highly technical in nature and there can be
no assurance that the Company would be able to locate, on a timely basis or at
all, alternative sources of supply for the bagging device if Lancer was unable
to meet its obligations under the OEM Agreement. The inability to locate such
alternative sources of supply would likely have a material adverse effect on
the Company's business and financial condition.
EFFECTS OF INFLATION; RAW MATERIALS
Inflation has not had a significant effect on the operations of the
Company. However, in the event of increases in inflation or commodity prices
from recent levels, the Company could experience sudden and significant
increases in the cost of plastic bags, fuel, or utilities such as water and
electricity. The Company may be unable to pass these increases on to its
customers. The Company uses large quantities of plastic bags. Historically,
market prices for plastic bags have fluctuated in response to a number of
factors, including changes in polyethylene prices. The Company historically
has not attempted to pass through changes in the price of plastic bags,
therefore a large, abrupt change in the price of plastic bags could have a
material adverse effect on the Company's operating margins, although such
adverse effects historically have been temporary. There can be no assurance
that significant changes in plastic bag, electricity, fuel or other commodity
prices would not have a material adverse effect on the Company's business,
results of operations and debt service capabilities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISK OF PRODUCT LIABILITY
The Company is subject to the inherent business risk of product
liability claims and adverse publicity in the event that any of its products
are alleged to have resulted in adverse effects to a user of such products.
The Company presently carries product liability insurance that management
believes is adequate under the Company's current circumstances, although there
can be no assurance that such circumstances will not change and that such
insurance will remain available at reasonable costs, if at all. In the event
of an inadequately insured product liability claim, the Company's business and
financial condition could be materially adversely affected.
15
<PAGE> 20
LIMITED PATENT PROTECTION
Other than patents which it owns or licenses on its bagging device,
the Company currently does not have patents relating to its products. While
the Company views the patents relating to the bagging device as important to
the value of the Packaged Ice System as a whole, there can be no assurance that
any issued patent will provide the Company with a meaningful competitive
advantage, that competitors will not design alternatives to reduce or eliminate
the benefits of any issued patent, or that challenges will not be instituted
against the validity or enforceability of these patents. Other companies may
obtain patents claiming products or processes that are necessary for, or useful
to, the development of the Company's products, in which event the Company may
be required to obtain licenses for patents or for proprietary technology in
order to develop, manufacture or market its products. There can be no
assurance that the Company would be able to obtain such licenses on
commercially reasonable terms, if at all.
It is the Company's practice to protect certain of its proprietary
materials and processes by relying on trade secret laws and non-disclosure and
confidentiality agreements. There can be no assurance that confidentiality or
trade secrets will be maintained or that others will not independently develop
or obtain access to such materials or processes.
POSSIBLE CONFLICTS OF INTEREST; RELATED TRANSACTIONS
The Company and certain of its officers and directors are parties to
certain transactions with the Company and have a number of potential conflicts
of interest concerning the Acquisitions, the Company's facilities, and other
matters relating to their respective businesses. In particular, the Company's
President and Chief Operating Officer and shareholder, A. J. Lewis III, will
lease real property and improvements to the Company and is the owner of one of
the Company's primary vendors, Southwest Texas Equipment Distributors, Inc.,
which supplies ice cubers to the Company. In addition, a director of the
Company, Robert G. Miller, leases real property and improvements to SWI. See
"Certain Relationships and Related Transactions."
POTENTIAL LIMITATIONS ON EXPANSION, CAPITAL CONSTRAINTS
The Company's strategy is to continue to expand its ice manufacturing
and distribution business primarily through placement of Packaged Ice Systems
in suitable locations, acquisitions of strong regional operators in new
markets, and consolidating or making acquisitions in its existing markets. The
Company will evaluate specific acquisition opportunities based on market
conditions and economic factors existing at the time and intends to pursue
favorable opportunities as they arise. The Company may encounter increased
competition for acquisitions in the future, which could result in acquisition
prices or terms that the Company does not consider acceptable. There can be no
assurance that the Company will find suitable acquisition candidates at
acceptable prices and terms or succeed in integrating any acquired business
into the Company's existing business or in retaining key customers of acquired
businesses. There can also be no assurance that the Company will have
sufficient available capital resources to realize its acquisition and growth
strategy. See "-- Substantial Leverage and Ability to Service Debt,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Business Strategy."
SEASONALITY OF ICE BUSINESS
The Company's ice business is seasonal, with its highest sales
occurring during the second and third calendar quarters. In 1996, the Company
recorded an average of approximately 66% of its annual net sales of ice during
these two quarters. Because the Company's operating results depend
significantly on sales during its peak season, adverse weather during this
season (such as an unusually mild or rainy period) could have a
disproportionate impact on the Company's operating results for the full year.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General Economic Trends and Seasonality."
DEPENDENCE ON KEY PERSONNEL
The future success of the Company's business operations is dependent
in part on the efforts and skills of certain key members of management,
including James F. Stuart, Chairman and Chief Executive Officer, A. J. Lewis
III, President and Chief Operating Officer and Steven P. Rosenberg, Vice
Chairman. The loss of any of its key members of management could have an
adverse effect on the Company. The Company maintains $2.0 million of key-man
life insurance on James F. Stuart. The success of the Company will also depend
in part upon the Company's ability to find, hire and retain additional key
management personnel, including senior management, who are also being sought by
other businesses. See "Management."
RESTRICTIONS IMPOSED BY LENDERS
Each of the Indenture and Senior Credit Facility will contain a number
of covenants that will restrict the ability of the Company to dispose of
assets, merge or consolidate with another entity, incur additional
indebtedness, create liens, make
16
<PAGE> 21
capital expenditures or other investments or acquisitions and otherwise
restrict corporate activities. The ability of the Company to comply with such
provisions may be affected by events that are beyond the Company's control.
The breach of any of these covenants could result in a default under the
Indenture or the Senior Credit Facility, and the terms of the Company's
Indebtedness would permit the holders of the Notes and/or the lenders under the
Senior Credit Facility, as the case may be, to declare all amounts borrowed
thereunder to be due and payable, together with accrued and unpaid interest.
If the Company were unable to repay its indebtedness to its lender under the
Senior Credit Facility, such lender could proceed against any and all
collateral securing such indebtedness. In addition, as a result of these
covenants, the ability of the Company to respond to changing business and
economic conditions and to secure additional financing, if needed, may be
significantly restricted, and the Company may be prevented from engaging in
transactions that might otherwise be considered beneficial to the Company. See
"Description of Notes" and "Description of Senior Credit Facility."
FRAUDULENT CONVEYANCE CONSIDERATIONS
Various fraudulent conveyance laws enacted for the protection of
creditors may apply to the Subsidiary Guarantors' issuance of the Subsidiary
Guarantees. To the extent that a court were to find that (x) a Subsidiary
Guarantee was incurred by a Subsidiary Guarantor with intent to hinder, delay
or defraud any present or future creditor or the Subsidiary Guarantor
contemplated insolvency with a design to prefer one or more creditors to the
exclusion in whole or in part of others or (y) a Subsidiary Guarantor did not
receive fair consideration or reasonably equivalent value for issuing its
Subsidiary Guarantee and such Subsidiary Guarantor (i) was insolvent, (ii) was
rendered insolvent by reason of the issuance of such Subsidiary Guarantee,
(iii) was engaged or about to engage in a business or transaction for which the
remaining assets of such Subsidiary Guarantor constituted unreasonably small
capital to carry on its business, or (iv) intended to incur, or believed that
it would incur, debts beyond its ability to pay such debts as they matured, the
court could avoid or subordinate such Subsidiary Guarantee in favor of the
Subsidiary Guarantor's creditors. Among other things, a legal challenge of a
Subsidiary Guarantee on fraudulent conveyance grounds may focus on the
benefits, if any, realized by the Subsidiary Guarantor as a result of the
Company's issuance of the Notes. The Indenture will contain a savings clause,
which generally will limit the obligations of each Subsidiary Guarantor under
its Subsidiary Guarantee to the maximum amount as will, after giving effect to
all of the liabilities of such Subsidiary Guarantor, result in such obligations
not constituting a fraudulent conveyance. To the extent a Subsidiary Guarantee
of any Subsidiary Guarantor was avoided or limited as a fraudulent conveyance
or held unenforceable for any other reason, holders of the Notes would cease to
have any claim against such Subsidiary Guarantor and would be creditors solely
of the Company and any Subsidiary Guarantor whose Subsidiary Guarantee was not
avoided or held unenforceable. In such event, the claims of the holders of the
Notes against the issuer of an invalid Subsidiary Guarantee would be subject to
the prior payment of all liabilities (including trade payables) of such
Subsidiary Guarantor. There can be no assurance that, after providing for all
prior claims, there would be sufficient assets to satisfy the claims of the
holders of the Notes relating to any avoided portions of any of the Subsidiary
Guarantees.
The measure of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any such proceeding. Generally,
however, a Subsidiary Guarantor may be considered insolvent either (i) if the
sum of its debts, including contingent liabilities, was greater than the fair
market value or fair saleable value of all of its assets at a fair valuation or
if the present fair market value or fair saleable value of its assets was less
than the amount that would be required to pay its total outstanding debts and
liabilities including its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature, or (ii) if it is
incurring debts beyond its ability to pay as such debts mature. Based upon
financial and other information, the Company and the Subsidiary Guarantors
believe that the Subsidiary Guarantees are being incurred for proper purposes
and in good faith and that the Company and each Subsidiary Guarantor is solvent
and will continue to be solvent after issuing its Subsidiary Guarantee, will
have sufficient capital for carrying on its business after such issuance and
will be able to pay its debts as they mature. There can be no assurance,
however, that a court passing on such standards would agree with the Company.
See "Description of Notes -- Ranking and Guarantees."
PREFERENTIAL TRANSFER
The Indenture will require the Restricted Subsidiaries created or
acquired after the issue date of the Notes to guarantee the Notes. If
bankruptcy or insolvency proceedings were initiated by or against the Company
or any Subsidiary Guarantor within 90 days (or, in certain cases, one year)
after any such guarantee, or if any such guarantee were made in contemplation
of insolvency, such guarantee would be vulnerable to avoidance as a
preferential transfer. In addition, a court could require holders of the Notes
to return any payments made during the 90-day (or one-year) period.
ENVIRONMENTAL MATTERS
The Company's ice manufacturing and ice storage operations are subject
to federal, state and local environmental laws and regulations. As a result,
the Company has the potential to be involved from time to time in
administrative or legal proceedings relating to environmental matters. There
can be no assurance that the aggregate amount of any environmental liabilities
that might be asserted in any such proceeding will not be material. The
Company cannot predict the types of environmental laws or regulations that may
from time to time be enacted in the future by federal, state or local
governments, how existing or future laws or regulations will be interpreted or
enforced or what types of environmental conditions may be
17
<PAGE> 22
found to exist at its facilities. The enactment of more stringent laws or
regulations or a more strict interpretation of existing laws and regulations
may require additional expenditures by the Company, some of which could be
material.
The Company generates and handles certain hazardous substances in
connection with the manufacture and storage of packaged ice. The handling and
disposal of these substances and wastes is subject to federal, state and local
regulations, and site contamination originating from the release or disposal of
such substances or wastes can lead to significant liabilities. In addition,
certain of the Company's current and former facilities are located in
industrial areas and have been in operation for many years. As a consequence,
it is possible that historical activities on property currently or formerly
owned by the Company or that current or historical activities on neighboring
properties have affected properties currently or formerly owned by the Company
and that, as a result, additional environmental issues may arise in the future,
the precise nature of which the Company cannot now predict. Therefore, the
Company may become liable for site contamination at properties currently or
formerly owned by the Company. Although such liability has not had a material
adverse affect on the financial condition or operating results of the Company
in the past, and the Company has no knowledge of claims that could be expected
to have a material adverse affect on its financial condition or operations,
there can be no assurance that the Company will not incur significant costs in
connection with historical handling or disposal of such substances and wastes.
GOVERNMENT REGULATION
The packaged ice industry is subject to various federal, state and
local laws and regulations, which require the Company, among other things, to
obtain licenses for its manufacturing plants and machines, to pay annual
license and inspection fees, to comply with certain detailed design and quality
standards regarding its plants and its Packaged Ice Systems and to continuously
control the quality and quantity of its ice. See "Business -- Government
Regulation."
LACK OF PUBLIC MARKET FOR THE NOTES; POSSIBLE VOLATILITY OF NOTE PRICE
The Exchange Notes will constitute a new issue of securities with no
established trading market. The Company does not intend to apply for listing
of the Exchange Notes on any securities exchange or to seek approval for
quotation through any automated quotation system.
There can be no assurance as to the development or liquidity of any
market for the Exchange Notes. If an active market does not develop, the
market price and liquidity of the Exchange Notes will be adversely affected.
If such a market were to develop, the Notes could trade at prices that may be
higher or lower than their initial offering price depending upon many factors,
including prevailing interest rates, the Company's operating results and the
markets for similar securities. Although the Initial Purchaser has informed
the Company that it currently intends to make a market in the Exchange Notes,
the Initial Purchaser is not obligated to do so and any such market-making
activity may be discontinued at any time without notice. Historically, the
market for non-investment grade debt has been subject to disruptions that have
caused substantial volatility in the prices of securities similar to the Notes.
In addition, such market-making activity will be subject to the limits imposed
by the Securities Act and the Exchange Act and may be limited during the
Exchange Offer and the pendency of the Shelf Registration Statement. See
"Registration Rights; Additional Interest."
CONSEQUENCES OF FAILURE TO EXCHANGE
Untendered Old Notes not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain subject to the existing restrictions upon transfer
of such Old Notes. See "Transfer Restrictions on Old Notes." Because the
Company anticipates that most holders of Old Notes will elect to exchange such
Old Notes for Exchange Notes due to the general lack of restrictions on the
resale of Exchange Notes under the Securities Act, the Company anticipates that
the liquidity of the market for any Old Notes remaining after the consummation
of the Exchange Offer may be substantially limited. Additionally, holders
(other than Restricted Holders) of any Old Notes not tendered in the Exchange
Offer prior to the Expiration Date will not be entitled to require the Company
to file the Shelf Registration Statement and the stated interest rate on such
Old Notes will remain at its initial level of 12%.
CHANGE OF CONTROL
In the event of a Change of Control (as defined in the Indenture), the
Company may be required to repurchase all of the outstanding Notes at 101% of
the principal amount, as the case may be, of the Notes plus any accrued and
unpaid interest thereon, and Additional Interest, if any, to the date of
repurchase. The exercise by the holders of the Notes of their rights to
require the Company to offer to purchase Notes upon a Change of Control could
also cause a default under other indebtedness of the Company, even if the
Change of Control itself does not, because of the financial effect of such
repurchase on the Company. The Company's ability to pay cash to any of the
holders of Notes upon a repurchase may be limited by the Company's then
existing capital resources. There can be no assurance that in the event of a
Change of Control, the Company will have, or will have access to, sufficient
funds, or will be contractually permitted under the terms of outstanding
indebtedness, to pay the required purchase price for any Notes. See
"Description of Notes."
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<PAGE> 23
ORIGINAL ISSUE DISCOUNT; POSSIBLE TAX AND OTHER LEGAL CONSEQUENCES FOR HOLDERS
OF NOTES AND THE COMPANY
The Notes will be issued at a substantial discount from their
principal amount at maturity. However, an original issue discount (i.e., the
difference between the "stated redemption price at maturity" of the Notes and
the "issue price" of the Notes) will accrue from the issue date of the Notes
and will be included as interest income periodically in a holder's gross income
for federal income tax purposes in advance of receipts of the cash payments to
which the income is attributable. See "Certain Federal Income Tax
Considerations -- Taxation of the Notes -- to the applicable high-yield
discount obligation rules, in which case the Company would not be able to
deduct the original issue discount attributable to the Notes until paid in cash
or property or, in certain circumstances, at all.
If a bankruptcy case were commenced by or against the Company under
the United States Bankruptcy Code after the issuance of the Notes, the claim of
a holder of the Notes with respect to the principal amount thereof may be
limited to an amount equal to the sum of (i) the initial offering price and
(ii) that portion of the original issue discount that is not deemed to
constitute "unmatured interest" for purposes of the United States Bankruptcy
Code. Any original issue discount that had not amortized as of the date of any
such bankruptcy filing would constitute "unmatured interest" for purposes of
the United States Bankruptcy Code.
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<PAGE> 24
THE ACQUISITIONS
THE SWI ACQUISITION
On April 17, 1997, Packaged Ice consummated an agreement with SWI to
merge SWI into a wholly-owned subsidiary of Packaged Ice (the "SWI
Acquisition"). The total consideration for the SWI Acquisition was $18.8
million, consisting of $3.5 million in cash, $9.3 million in repayment of
seller debt and $6.0 million in shares of the Company's Common Stock (valued at
$10.00 per share) payable to the SWI shareholders.
SWI operates ice manufacturing facilities in Phoenix, Arizona, Tucson,
Arizona, Albuquerque, New Mexico, El Centro, California, Harlingen, Texas,
McAllen, Texas, and Memphis, Tennessee, which can produce approximately 995 tons
per day, serving approximately 5,100 customer locations. At September 6, 1996,
SWI and Packaged Ice entered into a master lease agreement for Packaged Ice
Systems, and, at December 31, 1996, had placed 92 Packaged Ice Systems in
supermarkets in Arizona and New Mexico. Management anticipates closing the El
Centro, California and Albuquerque, New Mexico facilities as part of a strategic
plan to achieve greater operating efficiencies.
THE MISSION ACQUISITION
On April 17, 1997, Packaged Ice entered into agreements with Mission
and STPI, both of which are controlled by A.J. Lewis III, the Company's
President and Chief Operating Officer and a shareholder, to merge Mission and
STPI, respectively, into two wholly-owned subsidiaries of Packaged Ice (the
"Mission Acquisition"). The total consideration for the Mission Acquisition is
$10.4 million, consisting of $3.4 million in cash, $3.4 million in repayment of
seller debt and $3.6 million in shares of the Company's Common Stock (valued at
$10.00 per share) payable to shareholders of Mission and STPI.
Mission operates ice manufacturing facilities in San Antonio, Texas,
Corpus Christi, Texas and Gonzales, Texas which can produce approximately 275
tons per day, serving approximately 5,400 customer locations. In addition,
STPI owned 83 Packaged Ice Systems and leased five Ice Factory Systems at
December 31, 1996, which are strategically located in supermarkets in Mission's
trade area. Mission was the first company to combine the Packaged Ice System
with traditional ice operations. Management expects to model its future
operations on the operations of Mission and STPI.
GENERAL TERMS
Each of the SWI Acquisition and the Mission Acquisition was structured
as a "tax-free" forward subsidiary merger. The merger agreements contain
customary representations and warranties, including representations and
warranties as to financial statements, liabilities, the absence of material
changes in its business, compliance with laws, title to property, contracts,
litigation, employee benefit matters, taxes and environmental matters. Five
percent of the purchase price paid to shareholders will be held in escrow for
one year to protect against breach of the agreements. The merger agreements
also require the companies to operate their respective businesses in the
ordinary course pending the closing.
PRIVATE PLACEMENT
On April 17, 1997, the Company completed the private sale to the
Initial Purchaser of $50,000,000 principal amount of the Old Notes at a price
of 96% of the principal amount thereof in a transaction not registered under
the Securities Act in reliance upon Section 4(2) of the Securities Act. The
Initial Purchasers thereupon offered and resold the Old Notes only to qualified
institutional buyers and a limited number of institutional accredited investors
at an initial price to such purchasers of 100% of the principal amount thereof.
The $48 million net proceeds received by the Company in connection with the
sale of the Old Notes were used to finance the cash portion of the purchase
price for the Acquisitions and certain related expenses, repay outstanding
indebtedness, make capital expenditures and provide working capital for the
Company.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of
the Exchange Notes offered hereby. In consideration for issuing the Exchange
Notes as contemplated in this Prospectus, the Company will receive in exchange
a like principal amount of Old Notes, the terms of which are identical in all
material respects to the Exchange Notes. The Old Notes surrendered in exchange
for the Exchange Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any change in
capitalization of the Company.
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<PAGE> 25
DIVIDEND POLICY
The Company has never paid or declared cash dividends on its Common
Stock or other securities. The Company currently anticipates that it will
retain all of its future earnings, if any, for use in the expansion and
operation of its business and does not anticipate paying any cash dividends in
the foreseeable future. The Indenture will restrict the Company's ability to
pay dividends to the holders of Common Stock. See "Description of Notes."
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<PAGE> 26
CAPITALIZATION
The following table sets forth at March 31, 1997 the actual cash,
short-term debt and capitalization of Packaged Ice and the cash, short-term
debt and capitalization of the Company as adjusted to give effect to (i) the
Acquisitions, (ii) the sale of the Old Notes and Warrants and the application
of the net proceeds therefrom (assumed to be $46 million), and (iii) the
issuance of $9.6 million of Common Stock in connection with the Acquisitions as
if they had each occurred at March 31, 1997. This table should be read in
conjunction with the "Unaudited Pro Forma Combined Condensed Financial
Statements", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Packaged Ice's Consolidated Financial Statements,
including the notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
AT MARCH 31, 1997
-----------------------------
ACTUAL AS ADJUSTED(1)
------------ --------------
($ IN THOUSANDS)
<S> <C> <C>
Cash and equivalents $ 279 $ 21,971
============ ============
Current maturities of long-term debt $ 1,308 $ 0
============ ============
LONG-TERM DEBT:
Existing bank indebtedness $ 3,075 $ 0
Senior Credit Facility 0 0
Senior Notes due 2004, net of discount 0 44,612
------------ ------------
Total long-term debt 3,075 44,612
------------ ------------
Preferred stock with put redemption option:
Series A convertible, 450,000 shares
outstanding (historical and as adjusted) 2,497 2,497
Series B convertible, 124,831 shares
outstanding (historical and as adjusted) 726 726
Common stock with put redemption option,
420,000 shares outstanding (historical and
as adjusted) 1,972 1,972
SHAREHOLDERS' EQUITY:
Common Stock, $.01 par value; 50,000,000 shares authorized; 2,412,371
shares outstanding (historical) and 3,367,371 shares outstanding
(as adjusted) 24 34
Additional paid-in capital(1) 4,715 20,990
Retained earnings (deficit) (3,689) (3,689)
------------ ------------
Total shareholders' equity 1,050 17,335
------------ ------------
Total capitalization $ 9,320 $ 67,142
============ ============
</TABLE>
(1) Includes an increase to additional paid-in capital of $6,735,000 related
to the estimated fair value ascribed to all warrants issued in connection
with the offering of the Old Notes.
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<PAGE> 27
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial
statements are derived from the historical financial statements of Packaged
Ice, SWI, Mission and STPI included elsewhere herein, and certain assumptions
deemed appropriate by the Company. The Unaudited Pro Forma Combined Statement
of Operations for the year ended December 31, 1996 and the three months ended
March 31, 1997 reflects (i) the Acquisitions, including the issuance of 955,000
shares of Common Stock and (ii) the issuance of the Notes and Warrants and the
application of the net proceeds therefrom, as if such transactions had occurred
on January 1, 1996 and 1997, respectively. The Unaudited Pro Forma Combined
Balance Sheet at March 31, 1997 reflects the transactions in (i) and (ii) as if
they had occurred at March 31, 1997. Such unaudited pro forma combined
condensed financial statements combine (i) the audited operating results for
Packaged Ice for the year ended December 31, 1996 and unaudited operating
results and balance sheet data for Packaged Ice for the three months ended and
at March 31, 1997, (ii) the audited operating results for SWI for the year
ended December 31, 1996 and unaudited operating results and balance sheet data
for SWI for the three months ended and at March 31, 1997, and (iii) the audited
combined operating results for Mission and STPI for the year ended December 31,
1996 and unaudited operating results and combined balance sheet data for
Mission and STPI for the three months ended and at March 31, 1997. The
Unaudited Pro Forma Combined Condensed Financial Statements should be read in
conjunction with the notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the historical financial
statements of Packaged Ice, SWI, and the combined Mission and STPI, including
the notes thereto, included elsewhere herein.
The pro forma adjustments to give effect to the various events
described above are based upon currently available information and upon certain
assumptions that management believes are reasonable. The Acquisitions are
accounted for by the Company under the purchase method of accounting and the
assets and liabilities of SWI, Mission and STPI are recorded at their estimated
fair market values at the date of acquisition. The adjustments included in the
Unaudited Pro Forma Combined Condensed Financial Statements reflect the
Company's preliminary assumptions and estimates based upon available
information. There can be no assurance that the actual adjustments will not
vary significantly from the estimated adjustments reflected in the Unaudited
Pro Forma Combined Condensed Financial Statements.
The Unaudited Pro Forma Combined Condensed Financial Statements do not
purport to be indicative of the financial position or results of operations
that would actually have occurred or that may be obtained in the future if the
transactions described had occurred as presented in such statements. In
addition, future results may vary significantly from the results reflected in
such statements due to general economic conditions, utility prices, labor
costs, competition, the Company's ability to successfully integrate the
operations of SWI, Mission and STPI with its current business, and several
other factors, many of which are beyond the Company's control. See "Risk
Factors."
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<PAGE> 28
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------------------------------ ----------------------------
PACKAGED ICE MISSION STPI SWI ADJUSTMENTS COMBINED
------------ ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 278,571 $ 12,175 $ 33,919 $ 82,595 $28,442,992 (d) $21,970,810(j)
(6,879,442)(e)
Accounts receivable:
Trade 361,250 433,472 87,323 1,379,319 (125,000)(a) 2,136,364
Affiliates 223,535 888,833 (62,319) (543,471)(a) 506,578
Inventories 98,550 125,256 17,450 427,362 668,618
Prepaid expenses 29,877 24,673 0 55,664 110,214
----------- ---------- ---------- ----------- ----------- -----------
Total current assets 991,783 1,484,409 76,373 1,944,940 20,895,079 25,392,584
Property, net 10,762,789 3,495,231 1,023,186 10,047,796 (471,543)(e) 24,857,459
Other assets, net 1,167,104 160,140 109,494 170,202 (36,000)(e) 1,570,940
Unamortized debt issue costs 5,347,067 (c) 5,347,067
Goodwill 14,448,617 (e) 14,448,617
----------- ---------- ---------- ----------- ----------- -----------
Total $12,921,676 $5,139,780 $1,209,053 $12,162,938 $40,183,220 $71,616,667
=========== ========== ========== =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of
long-term debt $ 1,005,484 $1,566,268 $ 340,365 $ 1,643,137 $(4,555,254)(d) $ 0
Accounts payable 439,057 419,457 77,114 1,168,779 (125,000)(a) 1,979,407
Payables to affiliates 1,641,791 0 230,477 (230,477)(a) 1,641,791
Accrued wages 94,952 94,952
Accrued expenses 118,855 97,829 20,950 521,669 759,303
Notes payable 302,080 40,000 122,436 0 (464,516)(d) 0
----------- ---------- ---------- ----------- ----------- -----------
Total current
liabilities 3,602,219 2,123,554 791,342 3,333,585 (5,375,247) 4,475,453
Long-term debt, net of
discount 3,075,310 1,191,009 513,369 7,757,550 44,611,732 (d) 44,611,732
(12,537,238)(d)
Preferred stock with put
option:
Series A 2,496,527 2,496,527
Series B 726,226 726,226
Common stock with put
option 1,971,851 1,971,851
Shareholders' equity:
Common Stock 24,124 10 1,250 1,110 (2,370)(e) 33,674
9,550 (e)
Additional paid-in
capital 4,714,241 1,514,513 23,513 (1,538,026)(e) 20,990,026
9,540,450 (e)
6,735,335 (f)
Retained earnings
(deficit) (3,688,822) 310,694 (110,421) 1,070,693 (1,270,966)(e) (3,688,822)
Treasury stock (10,000) 10,000 (e) 0
----------- ---------- ---------- ----------- ----------- -----------
Total shareholders'
equity 1,049,543 1,825,217 (95,658) 1,071,803 13,483,973 17,334,878
----------- ---------- ---------- ----------- ----------- -----------
Total $12,921,676 $5,139,780 $1,209,053 $12,162,938 $40,183,220 $71,616,667
=========== ========== ========== =========== =========== ===========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
24
<PAGE> 29
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
HISTORICAL PRO FORMA
------------------------------------------------------------ ----------------------------
PACKAGED ICE MISSION STPI SWI ADJUSTMENTS COMBINED
------------ ---------- --------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $4,426,860 $6,853,645 $ 850,869 $ 14,050,305 $26,181,679
Cost of goods sold 2,034,828 4,327,267 356,040 9,174,084 15,892,219
---------- ---------- --------- ------------ ----------- -----------
Gross profit 2,392,032 2,526,378 494,829 4,876,221 10,289,460
Operating expenses(i) 1,981,278 1,387,837 110,785 2,612,786 $ (165,741)(a) 5,791,945
(135,000)(g)
Depreciation and
amortization 1,455,693 698,136 275,576 1,124,380 963,241 (b) 4,517,026
Interest expense (income) 130,475 182,179 93,932 920,136 6,206,897 (c) 7,533,619
Other income(expense) 184,982 68,448 560 14,682 (165,741)(a) 102,931
---------- ---------- --------- ------------ ----------- -----------
Income(loss) before
income taxes (990,432) 326,674 15,096 233,601 (7,035,138) (7,450,199)
Income taxes 0 0 0 0 0 (h) 0
---------- ---------- --------- ------------ ----------- -----------
Income (loss) from
continuing operations $ (990,432) $ 326,674 $ 15,096 $ 233,601 $(7,035,138) $(7,450,199)
========== ========== ========= ============ =========== ===========
Net loss per share $ (0.35) $ (2.15)
========== ===========
Weighted average number
of common shares
outstanding 2,826,371 639,857 3,466,228
========== =========== ===========
FOR THE THREE MONTHS ENDED MARCH 31, 1997
Revenues $ 845,732 $ 880,409 $ 118,293 $ 2,206,840 $ 4,051,274
Cost of goods sold 459,780 757,169 56,496 1,775,321 3,048,766
---------- ---------- --------- ------------ ----------- -----------
Gross profit 385,952 123,240 61,797 431,519 1,002,508
Operating expenses(i) 574,638 370,067 48,661 680,413 $ (155,186)(a) 1,484,843
(33,750)(g)
Depreciation and
amortization 478,836 180,934 73,204 298,856 240,810 (b) 1,272,640
Interest expense(income) 85,302 61,967 27,767 226,730 1,405,253 (c) 1,807,019
Other income(expense) 160,645 9,489 103 172,086 (155,186)(a) 187,137
---------- ---------- --------- ------------ ----------- -----------
Income(loss) before
income taxes (592,179) (480,239) (87,732) (602,394) (1,612,313) (3,374,857)
Income taxes 0 0 0 0 0 (h) 0
---------- ---------- --------- ------------ ----------- -----------
Income (loss) from
continuing operations $ (592,179) $ (480,239) $ (87,732) $ (602,394) $(1,612,313) $(3,374,857)
========== ========== ========= ============ =========== ===========
Net loss per share $ (0.21) $ (0.97)
========== ===========
Weighted average number
of common shares
outstanding 2,828,085 639,857 3,467,942
========== =========== ===========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
25
<PAGE> 30
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(a) Elimination of intercompany revenues/expenses and related intercompany
accounts receivable/payable with respect to equipment leasing and service
agreements between Packaged Ice and SWI and/or STPI. Intercompany transactions
during the year ended December 31, 1996 and the three months ended March 31,
1997 totaled $165,741 and $155,186, respectively. The related intercompany
receivable/payable at March 31, 1997 was $125,000. Additionally, a $230,477
intercompany receivable/payable between Mission and STPI and a Mission
receivable of $312,994 that will not be acquired (see (e) below) are eliminated
for pro forma purposes.
(b) Amortization of goodwill is calculated using the following assumptions:
<TABLE>
<S> <C>
Total goodwill(e) $14,448,617
15-year estimated life 15
-----------
Calculated annual amortization $ 963,241
===========
Calculated quarterly amortization $ 240,810
===========
</TABLE>
(c) Interest expense adjustments are as follows:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
12/31/96 3/31/97
----------- ------------------
<S> <C> <C>
Offering debt(d) $50,000,000
Interest rate on Offering debt 12.00%
-----------
Adjustment to 1996 interest expense 6,000,000 $1,500,000
Less: Historical interest expense for debt to be
retired with Offering debt(d) (1,326,722) (401,765)
Add: Additional interest on amortization of debt
issuance costs and debt discount:
Total debt issue costs(1) $5,347,067
Calculated amortization, 7-year life 763,867 190,967
Total debt discount(2) $5,388,268
Calculated amortization, 7-year life 769,752 192,438
----------- ----------
Net adjustment to interest expense $ 6,206,897 $1,481,640
=========== ==========
</TABLE>
(1) Debt issue costs include (i) $4,000,000, of direct cash
expenditures, and (ii) $1,347,067 of estimated fair value of the
warrants to purchase 127,972 shares of Common Stock issued
to the Initial Purchaser as partial consideration for services
performed.
(2) Estimated fair value of the Warrants offered hereby to purchase
511,885 shares of Common Stock.
(d) Net proceeds from the Offering are calculated using the following
assumptions:
<TABLE>
<S> <C> <C>
Long-term debt, net of debt discount $44,611,732
Debt discount(c) 5,388,268
-----------
Proceeds from the Offering $50,000,000
Less cash used for:
Debt issue costs(c) 4,000,000
Historical debt assumed to be retired:
Current portion of long-term debt 4,555,254
Long-term debt, net 12,537,238
Notes payable 464,516
-----------
Total debt retired 17,557,008
-----------
Net proceeds $28,442,992
===========
</TABLE>
Proceeds from the debt are based on the Offering of $50,000,000 12%
Senior Notes due 2004. The retired debt assumes all historical interest bearing
debt is retired effective on the date of acquisition.
(e) The excess of total purchase price over the allocation of fair value to the
net assets will be recorded as goodwill, which is calculated and based on the
following assumptions:
<TABLE>
<S> <C> <C>
Value of Common Stock consideration $ 9,550,000
Cash consideration 6,879,442
-----------
Total purchase price $16,429,442
Historical net asset value of
acquired companies(1)(2) $2,801,362
Less net assets of the Acquisitions that will
not be acquired:
Certain net assets of Mission and STPI
not acquired $ (312,994)
Certain other assets of Mission (36,000)
Certain net assets of SWI (471,543)
Net assets acquired 1,980,825
-----------
Goodwill $14,448,617(3)
===========
</TABLE>
(1) In recording the purchase price allocation, all historical equity balances
of the acquired companies are eliminated.
(2) The Company has not completed an assessment of the fair value of the net
assets to be acquired for purposes of allocating the purchase price.
Accordingly, the excess of the purchase price over the net asset value of
the acquired companies has been allocated entirely to goodwill. To the
extent that such assessments indicate the fair value of fixed assets is in
excess of net book value, this excess would be allocated to fixed assets
and reduce the goodwill calculated above. Assuming a weighted average
depreciable life for fixed assets of five years, every $500,000 allocated
to fixed assets, rather than goodwill, would increase pro forma 1996
depreciation and amortization expense by $67,000.
(f) Adjustment to additional paid-in capital of $6,735,335 includes the
$5,388,268 of total estimated fair value of the Warrants offered hereby, and
$1,347,067 of total estimated fair value of the warrants issued to the Initial
Purchaser as partial consideration for services performed.
(g) Elimination of compensation in 1996 and for the three months ended March
31, 1997 relating to an officer and shareholder of SWI who will not be retained
after the Acquisitions.
(h) The pro forma income tax provision (benefit) has been calculated as if each
acquired company had been included in Packaged Ice's consolidated income tax
return and, therefore, was subject to corporate income taxation. The pro forma
combined statement of operations reflects a loss before income taxes, however,
no income tax benefit is reflected due to the uncertainty of the Company's
ability to utilize such losses in future periods to reduce income taxes.
(i) Excludes depreciation and amortization.
(j) Included in cash and equivalents for SWI are $50,000 of short-term
investments with original maturities of 180 days.
26
<PAGE> 31
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(in thousands, except per share, ratio and percentage data)
The following table sets forth the selected historical financial data
derived from the audited financial statements of Packaged Ice as of and for the
five years ended December 31, 1996 and contains selected financial data derived
from the unaudited financial statements of Packaged Ice for the three months
ended March 31, 1996 and 1997. The unaudited financial statements of Packaged
Ice as of and for the three months ended March 31, 1996 and 1997 reflect all
adjustments necessary in the opinion of management (consisting only of normal
recurring adjustments) for a fair presentation of such data. The unaudited pro
forma combined selected financial data for the year ended December 31, 1996 and
as of and for the three months ended March 31, 1997 reflects operating and other
financial data as if (i) the Acquisitions and (ii) the issuance of the Old Notes
and Warrants and the application of the net proceeds therefrom had occurred at
January 1, 1996 and 1997, respectively; and reflects balance sheet data as
if the transactions in (i) and (ii) had occurred at March 31, 1997. The
unaudited pro forma financial data should not be considered indicative of
actual results that would have been achieved had the Acquisitions been
consummated on the dates or for the periods indicated and do not purport to
indicate results of operations as of any future date or for any future
period. The following information should be read in conjunction with the
Consolidated Financial Statements of Packaged Ice, including the notes
thereto, "Unaudited Pro Forma Combined Condensed Financial Statements"
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------- ---------------------------------
UNAUDITED UNAUDITED
PRO FORMA PRO FORMA
COMBINED COMBINED
1992 1993 1994 1995 1996 1996(4) 1996 1997 1997(4)
------ ------ -------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 29 $ 155 $ 784 $ 2,830 $ 4,427 $ 26,182 $ 650 $ 846 4,051
Cost of goods sold 10 56 352 1,251 2,035 15,892 325 460 3,049
Gross profit 19 99 432 1,579 2,392 10,290 325 386 1,002
Operating expenses(1) 178 431 974 1,515 1,981 5,792 410 575 1,485
Depreciation and
amortization 10 48 224 751 1,456 4,517 350 479 1,272
Interest expense 1 11 25 76 130 7,534 10 85 1,807
Other income 4 -- 69 75 185 103 17 161 187
Loss from continuing
operations (166) (391) (722) (688) (990) (7,450) (428) (592) (3,375)
OTHER FINANCIAL DATA:
Cash flows - operating
activities (144) (289) (647) 148 1,094 (38) 750
Cash flows - investing
activities (215) (292) (3,497) (2,961) (5,925) (841) (1,531)
Cash flows - financing
activities 320 492 4,897 3,034 3,968 73 889
EBIT(2) $ (165) $ (380) $ (697) $ (612) $ (860) $ 84 (418) (507) (1,568)
EBITDA(2) (155) (332) (473) 139 596 4,601 (68) (28) (296)
Capital expenditures 185 252 2,999 2,717 5,745 8,006 711 1,354 1,639
Revenue growth -- 434.5% 405.8% 261.0% 56.4% -- -- -- --
Gross margin 65.5% 63.9% 55.1% 55.8% 54.0% 39.3% 50.0% 45.6% 24.7%
EBIT margin (569.0%) (245.2%) (88.9%) (21.6%) (19.4%) 0.3% (64.3%) (59.9%) (38.7%)
EBITDA margin (534.5%) (214.2%) (60.3%) 4.9% 13.5% 17.6% (10.5%) (3.3%) (7.3%)
Ratio of earnings to
fixed charges(3) N/A N/A N/A N/A N/A .01x N/A N/A N/A
SUPPLEMENTAL DATA:
Loss per share of common
stock $ (0.11) $ (0.25) $ (0.28) $ (0.26) $ (0.35) $ (2.15) $ (0.15) $ (0.21) $ (0.97)
Weighted average shares
outstanding 1,491,000 1,538,435 2,614,681 2,682,261 2,826,371 3,466,228 2,826,371 2,828,085 3,467,942
BALANCE SHEET DATA:
Cash and equivalents $ 147 $ 58 $ 812 $ 1,033 $ 170 279 21,971
Working capital
(deficiency) 75 (137) 639 696 (1,228) (2,610) 20,917
Total assets 435 618 5,513 8,050 11,523 12,922 71,617
Total long-term debt, net of
discount -- 125 566 211 3,582 3,075 44,612
Total preferred stock with
put redemption option 2,497 2,496 3,223 3,223
Total common stock with
put redemption option 1,972 1,972 1,972 1,972
Total shareholders'
equity 339 247 4,427 2,582 1,597 1,050 17,335
</TABLE>
(1) Excludes depreciation and amortization.
(2) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. EBIT represents earnings before interest and income taxes.
The Company has included EBITDA and EBIT data (which are not measures of
financial performance under generally accepted accounting principles)
because it understands such data are used by certain investors to
determine a Company's historical ability to service its indebtedness.
EBITDA and EBIT should not be considered by an investor as alternatives to
net income, as indicators of the Company's operating performance or as
alternatives to cash flow as measures of liquidity.
(3) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings from continuing operations before income
taxes and fixed charges. Fixed charges consist of interest expense.
Earnings were not sufficient during the fiscal years ended December 31,
1992 through 1996 and pro forma combined 1996 to cover fixed charges. The
deficiencies were $166,000 in 1992, $391,000 in 1993, $722,000 in 1994,
$688,000 in 1995, $990,000 in 1996, $7,450,000 in pro forma combined 1996,
$428,000 and $592,000 for the three months ended March 31, 1996 and 1997,
respectively, and $3,375,000 for the pro forma combined three months ended
March 31, 1997.
(4) Pro forma to reflect the Offering and the Acquisitions as if they had each
occurred at January 1, 1996 and 1997, respectively, for the operating
data and at March 31, 1996 for the balance sheet data. See "Unaudited Pro
Forma Combined Condensed Financial Statements."
27
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
"Unaudited Pro Forma Combined Condensed Financial Statements," the "Selected
Historical and Unaudited Pro Forma Combined Financial Data," and the Company's
Consolidated Financial Statements, and the notes thereto, included elsewhere
herein.
OVERVIEW
The Company derives its revenues from the sale of packaged ice through
the Packaged Ice System, which manufactures, packages and stores ice at the
retail location, and through traditional delivery methods, whereby ice is
manufactured, packaged and stored at a central facility and transported to the
retail location when needed. Packaged Ice has historically sold ice primarily
through Packaged Ice Systems, but upon acquiring SWI, Mission and STPI
(collectively, "Mission/STPI"), all of which sell ice through both Packaged Ice
Systems and traditional ice delivery methods, now sells ice through both
distribution methods. Such combination is expected to provide the Company with
(i) higher operating margins, due to reduced production and distribution costs,
(ii) a delivery system designed to supply high volume locations and capable of
cost-effectively servicing a market in excess of 100 miles from its traditional
ice manufacturing facilities, and (iii) an ability to redistribute production
from its traditional ice facilities to additional customers and satisfy
seasonal peak demands at customer locations with Packaged Ice Systems.
The Company manufactures its ice in crushed, cubed, half-moon and
cylindrical forms and packages its ice primarily in eight to 40 pound bags for
eventual sale to retail customers and sells block ice in 10 and 300 pound sizes
primarily to commercial and industrial users. Eight pound bags are the most
commonly purchased size in the industry and accounted for $19.2 million, or
73.3%, of the Company's pro forma 1996 revenues. Packaged ice sold in 20 pound
and 40 pound bags is typically purchased by restaurants and other commercial
users, and accounted for $3.6 million, or 13.7%, of the Company's pro forma
1996 revenues. Block ice in 10 pound and 300 pound units is typically sold to
customers in the commercial and agricultural sectors and accounted for $0.9
million, or 3.4%, and $1.3 million, or 5.0%, of the Company's pro forma 1996
revenues, respectively. The Company also provides other services including cold
storage rental which accounted for $1.2 million, or 4.6%, of pro forma 1996
revenues.
Prices for packaged ice are generally stable with some price variation
between markets based on geography and customer base. Pro forma for the
Acquisitions, management believes that it services more states (eight) than any
other ice manufacturer. Texas is the Company's largest market and accounted for
$12.5 million, or 47.7%, of pro forma 1996 revenues; Arizona accounted for
$11.1 million, or 42.4%, of pro forma 1996 revenues. Other markets include
Tennessee, California, Louisiana, Nevada, New Mexico and Florida. The Company
is currently expanding into Oklahoma and Colorado. Pro forma for the
Acquisitions, no single customer represented more than 9.0% of pro forma 1996
revenues. The Company, as the primary supplier to several national or regional
supermarket chains, and many national or regional convenience and pharmacy
chains, services over 11,000 customer locations at March 31, 1997. Following
the Acquisitions, the Company will service the significant segments of the ice
industry, from supermarket and convenience store retailers, to restaurants,
commercial users and the agricultural sector. Management believes that this
market diversity helps insulate the Company from both price and demand
fluctuations caused by geography, customer base and product segment.
The Company's costs of goods sold include costs associated with both
traditional ice delivery and the Packaged Ice Systems. In the traditional ice
business, plant occupancy, plastic bags, delivery, labor and utility-related
expenses account for the largest costs. Costs vary significantly by region and
fluctuate based upon, among other things, freezer capacity and local utility
rates. With the Packaged Ice System, ice storage and general operating utility
costs are eliminated. The Company's costs of goods sold also include the cost
of plastic bags which are incurred by both the traditional ice manufacturer
plants and the Packaged Ice Systems. The cost of the bag used in the Packaged
Ice System is substantially higher than that used in traditional delivery due
to special components and greater thickness. Costs of goods sold also includes
labor costs associated with manufacturing, delivery and maintenance. These
costs accounted for approximately 30.0% and 32.0% of historical 1996 revenues
at SWI and Mission, respectively, and have historically grown with inflation.
The Packaged Ice System eliminates certain costs related to production and
distribution but does require in-store customer service representatives and
machine technicians. In the aggregate, labor costs associated with the Packaged
Ice System are substantially lower than labor costs associated with traditional
ice manufacturing. As a result, total production and distribution labor costs
for traditional manufacturing operations at SWI and Mission represented
approximately 30.5% of historical 1996 revenues while corresponding labor costs
at Packaged Ice represented 21.3% of historical 1996 revenues.
The Company's operating expenses include costs associated with
selling, general and administrative functions. These costs include executive
officers' compensation, office and administrative salaries and costs associated
with leasing office space. Selling, general and administrative functions are
similar at both the traditional facilities and at Packaged Ice. These operating
expenses are typically higher when the Company enters new markets, in which it
intends to place Packaged Ice Systems, as new marketing, systems and office
facilities must be established.
28
<PAGE> 33
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, on a historical
basis for Packaged Ice and on a pro forma basis for the Company, selected
operating data and supplemental data expressed as a percentage of total revenue
and the number of ice systems operating at the end of each period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------- ---------------------------
HISTORICAL PRO FORMA PRO FORMA
------------------------ COMBINED COMBINED
1994 1995 1996 1996(3) 1996 1997 1997(3)
----- ----- ----- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of goods sold 44.9 44.2 46.0 60.7 50.0 54.4 75.3
Gross profit 55.1 55.8 54.0 39.3 50.0 45.6 24.7
Operating expenses(1) 124.2 53.5 44.7 22.1 63.1 68.0 45.7
Depreciation and amortization 28.6 26.5 32.9 17.3 53.8 56.6 31.4
Interest expense 3.2 2.7 2.9 28.8 1.5 10.0 44.6
Other income 8.8 2.7 4.2 0.4 2.6 19.0 4.6
SUPPLEMENTAL DATA:
EBIT(2) (88.9%) (21.6%) (19.4%) 0.3% (64.3%) (59.9%) (38.7%)
EBITDA(2) (60.3) 4.9 13.5 17.6 (10.5) (3.3) (7.3)
</TABLE>
(1) Excludes depreciation and amortization.
(2) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. EBIT represents earnings before interest and income taxes.
The Company has included EBITDA and EBIT data (which are not measures of
financial performance under generally accepted accounting principles)
because it understands such data are used by certain investors to
determine a company's historical ability to service its indebtedness.
EBITDA and EBIT should not be considered by an investor as alternatives to
net income, as indicators of the Company's operating performance or as
alternatives to cash flow as measures of liquidity.
(3) Pro forma combined operating data for the year ended December 31, 1996
and the three months ended March 31, 1997 reflect the Offering and the
Acquisitions as if they had each occurred at January 1, 1996 and 1997,
respectively. See "Unaudited Pro Forma Combined Condensed Financial
Statements" included elsewhere herein.
29
<PAGE> 34
HISTORICAL RESULTS OF OPERATIONS
Quarter Ended March 31, 1997 Compared to Quarter Ended March 31, 1996
Revenues. Revenues increased $.2 million, or 30.2%, from $.6 million for
the quarter ended March 31, 1996 to $.8 million for the quarter ended March 31,
1997. Revenues increased due to Packaged Ice's continued success in obtaining
additional machine locations and expansion of its Arizona market under the
terms of its master lease arrangement with SWI. In the first quarter of 1997,
Packaged Ice placed 38 Packaged Ice Systems, 14 of which were placed in
Arizona, and benefited from an entire quarter of revenues from an installed
machine base of 658 machines at December 31, 1996.
Gross Profit. Gross profit increased $0.06 million, or 18.8%, from $0.33
million for the quarter ended March 31, 1996 to $0.39 million for the quarter
ended March 31, 1997. As a percentage of revenues, gross profit decreased 4.4
percentage points from 50.0% in fiscal 1996 to 45.6% in fiscal 1997. Gross
margins decreased in part as a result of increases in subcontract costs,
service technician costs, equipment maintenance and utility hookups related to
the retrofitting of the Company's existing machines with new technology,
including its remote monitoring systems. As a percentage of total revenues such
utility and service costs increased 1.5 percentage points from .4% in the first
quarter of 1996 to 1.9% in the first quarter of 1997. An expected benefit of
such activity is reduced service costs in future periods. Additionally,
purchases of outside ice as a percentage of total revenues increased 1.07
percentage points from 0.05% in fiscal 1996 to 1.12% in the first quarter of
1997 due to supplementary ice required during storm related power failures.
Increased employee benefits, resulting from a greater number of employees
eligible for vacation pay, also contributed to the decrease in gross profit.
Operating Expenses. Operating expenses increased $0.2 million, or 40.2%,
from $.4 million for the quarter ended March 31, 1996 to $.6 million for the
quarter ended March 31, 1997. As a percentage of revenues, operating expenses
increased 4.9 percentage points from 63.1% in the first quarter of 1996 to
68.0% in the first quarter of 1997. This increase was due first to marketing
related salaries which, as a percentage of revenues, increased 3.2 percentage
points from 3.6% in the first quarter 1996 to 6.8% in the same quarter 1997.
Increased legal costs, combined with a change in the fiscal quarter in which
certain license fees were incurred, increased the cost of these items by 7.3
percentage points from 0.6% in the first quarter of 1996 to 7.9% in the first
quarter of 1997. Other operating expenses decreased 2.9 percentage points from
the first quarter of 1996 to the first quarter of 1997. This decrease reflected
greater efficiencies realized by Packaged Ice associated with salary related
expenses.
Depreciation and Amortization. Depreciation and amortization increased
$0.13 million, or 36.9%, from $0.35 million for the quarter ended March 31,
1996 to $.48 million for the quarter ended March 31, 1997. This increase was
due primarily to the increase in capital expenditures from $2.7 million in
fiscal 1995 to $5.7 in fiscal 1996 and the increase in such expenditures from
$0.7 million in the first quarter of 1996 to $1.4 million in the first quarter
of 1997.
Interest Expense. Interest expense increased $0.08 million, from $0.01
million for the quarter ended March 31, 1996 to $0.09 million for the quarter
ended March 31, 1997. This increase was a result of higher levels of debt
associated with Packaged Ice borrowing $4.0 million from its credit facility
with Bank One, Texas, N.A. to finance equipment placements in fiscal 1996 and
the first quarter of fiscal 1997.
Other Income. Other income increased $0.14 million, from $0.02 million for
the quarter ended March 31, 1996 to $0.16 million for the quarter ended March
31, 1997. As a percentage of revenues, other income increased 16.4 percentage
points from 2.6% in the first quarter of fiscal 1996 to 19.0% in the first
quarter of fiscal 1997. The increase was due primarily to increased lease and
management income derived from Packaged Ice's master lease agreement with SWI.
EBITDA. As a result of the foregoing, EBITDA increased $0.04 million, or
57.9%, from a negative $0.07 million for the quarter ended March 31, 1996 to a
negative $0.03 million for the quarter ended March 31, 1997. As a percentage of
revenues, EBITDA increased 7.2 percentage points from a negative 10.6% in the
first quarter of fiscal 1996 to a negative 3.3% in the first quarter of fiscal
1997. This increase was due primarily to increased sales from new Packaged Ice
System installations and additional other income from the master lease
arrangement with SWI offset partly by increased cost of goods sold margins
for the new systems and increased operating expense margins associated with
legal, licensing and marketing costs.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues. Revenues increased $1.6 million, or 56.4%, from $2.8 million for
the year ended December 31, 1995 to $4.4 million for the year ended December
31, 1996. Revenues increased due to Packaged Ice's continued success in
penetrating existing markets and its entry into the Arizona market under the
terms of its master lease arrangement with SWI. In fiscal 1996, Packaged Ice
placed 241 Packaged Ice Systems, 92 of which were placed in Arizona, and
benefitted from an entire year of revenues from an installed machine base of
417 machines at December 31, 1995.
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Gross Profit. Gross profit increased $0.8 million, or 51.5%, from $1.6
million for the year ended December 31, 1995 to $2.4 million for the year ended
December 31, 1996. As a percentage of revenues, gross profit decreased 1.8
percentage points from 55.8% in fiscal 1995 to 54.0% in fiscal 1996. Gross
margins decreased primarily as a result of purchases of manufactured ice needed
to supplement the Company's Packaged Ice Systems. This increase in demand was
due to unseasonably hot weather in Packaged Ice's primary markets. Purchases as
a percentage of total revenues increased 1.3 percentage points from 0.6% in
fiscal 1995 to 1.9% in fiscal 1996. As an expected benefit from the
Acquisitions, demand exceeding the capacity of in-store Packaged Ice Systems
will be satisfied, where it is economically feasible, by Packaged Ice's
traditional ice production facilities, thereby reducing such costs in the
future.
Operating Expenses. Operating expenses increased $0.5 million, or 30.8%,
from $1.5 million for the year ended December 31, 1995 to $2.0 million for the
year ended December 31, 1996. As a percentage of revenues, operating expenses
decreased 8.8 percentage points from 53.5% in fiscal 1995 to 44.7% in fiscal
1996. This decrease was due primarily to salary-related expenses which, as a
percentage of revenues, decreased 4.4 percentage points from 25.4% in fiscal
1995 to 21.0% in fiscal 1996. This decrease reflected greater efficiencies
realized by Packaged Ice as it continued to consolidate its sales force in its
primary markets.
Depreciation and Amortization. Depreciation and amortization increased
$0.7 million, or 93.9%, from $0.8 million for the year ended December 31, 1995
to $1.5 million for the year ended December 31, 1996. This increase was due
primarily to an increase in capital expenditures from $2.7 million in fiscal
1995 to $5.7 in fiscal 1996.
Interest Expense. Interest expense increased $0.05 million, or 71.1%,
from $0.08 million for the year ended December 31, 1995 to $0.13 million for the
year ended December 31, 1996. This increase was a result of higher levels of
indebtedness associated with Packaged Ice borrowing $3.5 million from its credit
facility with Bank One, Texas, N.A. and $0.8 million of convertible notes from
its shareholders to finance equipment placements in fiscal 1996. The convertible
notes were converted into Series B Convertible Preferred Stock in January 1997.
Other Income. Other income increased $0.1 million, or 146.7%, from $0.1
million for the year ended December 31, 1995 to $0.2 million for the year ended
December 31, 1996. As a percentage of revenues, other income increased 1.5
percentage points from 2.7% in fiscal 1995 to 4.2% in fiscal 1996. The increase
was due primarily to increased lease and management income derived from
Packaged Ice's master lease agreement with SWI.
EBITDA. As a result of the foregoing, EBITDA increased $0.5 million, or
328.8%, from $0.1 million for the year ended December 31, 1995 to $0.6 million
for the year ended December 31, 1996. As a percentage of revenues, EBITDA
increased 8.6 percentage points from 4.9% in fiscal 1995 to 13.5% in fiscal
1996. This increase was due primarily to increased sales from new Packaged Ice
System installations, relatively constant cost of goods sold margins for the
new systems, and reduced operating expense margins.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues. Revenues increased $2.0 million, or 261.0%, from $0.8 million
for the year ended December 31, 1994 to $2.8 million for the year ended
December 31, 1995. This increase was due primarily to the placement of 146
Packaged Ice Systems during fiscal 1995 and from a full year of revenues
generated from Packaged Ice's installed base of 271 machines at December 31,
1994.
Gross Profit. Gross profit increased $1.2 million, or 265.5%, from $0.4
million for the year ended December 31, 1994 to $1.6 million for the year ended
December 31, 1995. As a percentage of revenues, gross profit increased 0.7
percentage points from 55.1% in fiscal 1994 to 55.8% in fiscal 1995. Although
gross margins increased at Dallas and Houston, where the increase in the number
of locations serviced provided greater efficiencies in service routing, these
increases were offset by lower gross margins from new operations in Nevada and
California. In new markets, costs per store are typically higher until service
route densities increase. Management believes that in any market area, the
greater the density of customers, the lower the cost per store as more stores
can be serviced per day by service representatives.
Operating Expenses. Operating expenses increased $0.5 million, or 55.5%,
from $1.0 million for the year ended December 31, 1994 to $1.5 million for the
year ended December 31, 1995. As a percentage of revenues, operating expenses
decreased 70.7 percentage points from 124.2% in fiscal 1994 to 53.5% in fiscal
1995. This decrease was due primarily to the absorption of office personnel
costs over a larger revenue base which caused a 46.6 percentage point decrease
in salary-related expense margins. In addition, other operating expense margins
decreased 24.1 percentage points as general overhead costs were absorbed over a
larger revenue base.
Depreciation and Amortization. Depreciation and amortization increased
$0.6 million, or 235.3%, from $0.2 million for the year ended December 31, 1994
to $0.8 million for the year ended December 31, 1995. The increase is primarily
the result of the full year depreciation impact of 1994 capital additions of
$3.0 million and the partial year impact of $2.7 million of 1995 capital
additions.
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Interest Expense. Interest expense increased $0.05 million, or 204.0%,
from $0.03 million for the year ended December 31, 1994 to $0.08 million for
the year ended December 31, 1995. This modest increase was primarily a result
of acquisition-related debt incurred in 1994.
Other Income. Other income remained constant between fiscal 1995 and
fiscal 1996. As a percentage of revenues, other income decreased 6.1 percentage
points from 8.8% in fiscal 1995 to 2.7% in fiscal 1996. This decrease reflected
the growth of Packaged Ice's primary revenue sources while other income sources
remained constant.
EBITDA. As a result of the foregoing, EBITDA increased $0.6 million from a
negative $0.5 million for the year ended December 31, 1994 to a positive $0.1
million for the year ended December 31, 1995. As a percentage of revenues,
EBITDA increased 65.2 percentage points from a negative 60.3% in fiscal 1994 to
a positive 4.9% in fiscal 1995. This increase was due primarily to constant
gross margins and substantial decreases in operating expense margins from
fiscal 1994 to fiscal 1995.
PRO FORMA RESULTS OF OPERATIONS
Pro forma results of operations are not necessarily indicative of what the
Company's results of operations would have been had the Company actually made
the Acquisitions reflected in the Unaudited Pro Forma Combined Condensed
Financial Statements on the dates indicated, nor do they purport to project
future results of operations. Any significant acquisitions and/or new
placements of Packaged Ice Systems in future periods could materially impact
the mix of revenues, costs of sales and the Company's operating margins.
For the Three Months Ended March 31, 1997 (Pro forma as compared to historical)
Revenues. The Company's pro forma revenues for the three month period
ended March 31, 1997 were $4.1 million. Pro forma for the Acquisitions,
Company's revenues include sales of eight pound bags through Packaged Ice
Systems and sales of packaged and block ice sold through the traditional ice
facilities of SWI and Mission. Pro forma for the Acquisitions, the Company's
diversified sales base expanded to nine states with the assumed commencement of
operations in Oklahoma.
Gross Profit. Gross profit represented 24.7% of pro forma total revenues
for the first quarter of 1997 as compared to 45.6% of historical total revenues
for the same period in 1996. This decrease reflects the lower gross margins of
traditional ice operations at SWI and Mission which are accentuated during the
low volume first quarter of each year. Such gross margins were 19.6% at SWI
and reflect the lower costs of on-site manufacturing and delivery associated
with the Packaged Ice Systems. The lower overall pro forma gross margin
percentage reflects the higher costs experienced by traditional ice companies.
Operating Expenses. Operating expenses represented 45.7% of pro forma
total revenues for the three month period ended March 31, 1997 as compared to
68.0% of Packaged Ice's historical total revenues for the same period. This
decrease was due primarily to lower operating expenses at SWI and Mission/STPI.
The lower expenses for selling, general and administrative overhead experienced
by the traditional operations reflect the greater efficiencies experienced
in established market positions. Packaged Ice's historical operating expense
margins reflect the high selling, general and administrative expenses
associated with new market penetration which has required new facilities,
management and reporting centers. The Company anticipates that its existing
and acquired production facilities, accounting and administrative departments
will permit operating expenses as a percentage of revenues to decrease as it
expands in those markets.
Depreciation and Amortization. Depreciation and amortization represented
31.4% of pro forma total revenues as compared to 56.6% of historical total
revenues for the same period. This decrease was due primarily to the lower
historical depreciation and amortization margins of 13.5% and 20.6% at the
traditional operations of SWI and Mission, respectively, for the period ended
March 31, 1997. These margins refect the longer estimated useful lives of
traditional ice plant and equipment as compared to Packaged Ice Systems. This
decrease more than offset the increase related to the amortization of goodwill
on a pro forma basis.
Interest Expense. Interest expense represented 44.6% of pro forma
revenues for the first quarter of fiscal 1997 as compared to 10.0% of
historical revenues for the same period as a result of the pro forma issuance
of the Old Notes.
Other Income. Other income represented 4.6% of pro forma total revenues
for the three months ended March 31, 1997, as compared to 19.0% of historical
total revenues for the same period. This decrease was due primarily to the pro
forma elimination of royalties, lease income and management fees paid by SWI and
Mission/STPI to Packaged Ice.
EBITDA. EBITDA was a negative 7.3% of pro forma total revenues as
compared to a negative 3.3% of historical total revenues for the same period.
This decrease was due primarily to higher cost of goods sold margins at the
traditional ice companies.
For the Year Ended December 31, 1996 (Pro forma as compared to historical)
Revenues. The Company's pro forma 1996 revenues were $26.2 million.
Following the Acquisitions, the Company's revenues include not only sales from
eight pound bags through Packaged Ice Systems but sales of various bag sizes
and block ice sold through the traditional ice facilities of SWI and Mission.
Pro form for the Acquisitions, the Company derives its revenues from the sale
of packaged ice in eight states to a diversified base of over 11,000 customer
locations.
Gross Profit. Gross profit represented 39.9% of pro forma total revenues
as compared to 54.0% of historical total revenues for the same period. This
decrease was primarily due to lower gross margins at SWI and Mission, both
traditional ice companies. Packaged Ice's historical gross margins reflect the
lower costs of on-site manufacturing and delivery associated with the Packaged
Ice Systems, however, such gross margin was only 23% of the pro forma combined
gross margin. The lower pro forma gross margin percentage reflects the higher
costs experienced by traditional ice companies.
Operating Expenses. Operating expenses represented 22.1% of pro forma
total revenues as compared to 44.7% of Packaged Ice's historical total revenues
for the same period. This decrease was due primarily to lower operating
expenses at SWI and Mission/STPI. These traditional ice companies have operated
in their respective markets for an extended period and require less selling,
general and administrative overhead than Packaged Ice to general sales.
Packaged Ice's historical operating expense margins reflect the high selling,
general and administrative expenses associated with expanding into new markets
which has required new facilities, management and reporting centers. In the
future, the Company expects to capitalize on its existing and acquired
production facilities, accounting and administrative departments as it
continues its expansion and placement of machines in the market areas of these
acquired companies and expects operating expenses as a percentage of revenues
to decrease.
Depreciation and Amortization. Depreciation and amortization represented
17.5% of pro forma revenues as compared to 32.9% of historical total revenues
for the same period. This decrease was due primarily to the acquired companies
having a combined historical depreciation and amortization margin of 9.6%,
which is reflective of longer estimated useful lives of traditional ice plant
and equipment as compared to Packaged Ice Systems. This decrease more than
offset the increase related to the amortization of goodwill on a pro forma
basis.
Interest Expense. Interest expense represented 27.6% of pro forma 1996
revenues as compared to 2.9% of historical revenues for the same period as a
result of the pro forma issuance of the Notes.
Other Income. Other income represented 0.4% of pro forma total revenues
as compared to 4.2% of historical total revenues for the same period. This
decrease was due primarily to the pro forma elimination of royalties, lease
income and management fees paid by SWI and Mission/STPI to Packaged Ice.
EBITDA. EBITDA represented 17.6% of pro forma total revenues as compared
to 13.5% of historical total revenues for the same period. This increase was
due primarily to lower operating expense margins at the traditional ice
companies which more than offset lower cost of goods sold margins at Packaged
Ice.
LIQUIDITY AND CAPITAL RESOURCES
For the fiscal year ended December 31, 1996, Packaged Ice had net cash
provided by operating activities of $1.1 million; net cash used in investing
activities of $5.9 million, consisting primarily of $5.7 million used to
purchase Packaged Ice Systems; and net cash provided by financing activities of
$4.0 million, consisting of $3.2 million of additional net debt and $0.8
million from the issuance of convertible demand notes, resulting in a net
decrease in cash and cash equivalents of $0.9 million.
To date, the Company has financed its operations and expansion through
cash provided by operating activities, bank loans and proceeds from the
issuance of common and preferred stock. The Company expects to meet its
short-term liquidity requirements through net cash provided by operations and
from the proceeds of the sale of the Notes and borrowings under the Senior
Credit Facility. Management believes that these sources of cash will be
sufficient to meet the Company's operating needs for at least the next 12
months.
Concurrent with the Acquisitions, Packaged Ice utilized $24.5 million of
the net proceeds from the sale of the Old Notes, which totaled $46.0 million
after estimated costs of $4.0 million, to pay $6.9 million of the purchase price
of the Acquisitions, to repay $13.1 million of long term debt and notes payable
of the Acquisitions, to repay $4.4 million of existing debt of the Company and
to pay $.1 million of accrued interest. Following the closing of the
Acquisitions, the Company completed the first of its anticipated 1997
acquisitions for a cash purchase price of $0.5 million
At April 30, 1997 the Company had cash on hand of $21.1 million to meet its
short-term liquidity requirements. Subsequently the Company has received and
accepted a formal commitment letter issued jointly by Zion Bank N.A. and Frost
National Bank for its Senior Credit Facility in the amount of $20.0 million. The
Senior Credit Facility will bear interest at a variable maximum rate of prime
plus 1% and as low as prime dependent upon certain ratios of the Company's
EBITDA to total debt service coverage requirements. The Company, at its option,
may fix any portion of the loan at a margin above LIBOR rates, again dependent
upon the same ratios, at any time. Borrowings under the Senior Credit Facility
will be repayable interest only for a period of two years. Thereafter,
principal payments equal to $250,000 per month plus accrued interest on
outstanding balances will be due until six years from original date when any
outstanding principal balance together with accrued interest will be due and
payable. The terms of the Senior Credit Facility will require a pledge of
substantially all of the assets of the Company and the Subsidiary Guarantors.
Accordingly, the Notes and Subsidiary Guarantees will be effectively
subordinated to the extent of the collateral used to secure such bank
indebtedness. In the event of a default on the Notes, or a bankruptcy,
liquidation or reorganization of the Company, such assets will be available to
satisfy obligations with respect to the indebtedness secured thereby before any
payment therefrom could be made on the Notes.
The Company expects to finance the placement of Packaged Ice Systems, the
acquisition of additional traditional ice manufacturing companies, and capital
expenditures to maintain existing operations with cash provided by operations,
the proceeds of the sale of the Notes, borrowings under the Senior Credit
Facility, and the issuance of Common Stock. See "Risk Factors -- Senior Credit
Facility; Effective Subordination" and "Risk Factors -- Potential Limitations
on Expansion, Capital Constraints."
The Company's Packaged Ice Systems are expected to range in cost from
$11,500 to $18,500 per installation and capital expenditures are expected to be
approximately $9.3 million in fiscal 1997 and $11.6 million per annum
thereafter. During the next two years, the Company expects to continue acquiring
traditional ice companies using a combination of cash and Common Stock, and has
budgeted approximately $16.5 million of acquisitions in fiscal 1997 and $15.0
million in fiscal 1998. See "Unaudited Pro Forma Combined Condensed Financial
Statements." There can be no assurance that acquisitions based upon the
Company's criteria can be obtained or that funds will be available in sufficient
amounts to finance such acquisitions. Capital expenditures at traditional ice
facilities are expected to be approximately $1.1 million in fiscal 1997 and $1.9
million in fiscal 1998.
The Company may also seek additional debt or equity capital through
private or public offerings of securities. The availability of such capital
will depend upon prevailing market conditions and other factors over which the
Company has no control, as well as the Company's financial condition and
results of operations. There can be no assurance that sufficient funds will be
available to finance intended acquisitions or capital expenditures for the
placement of Packaged Ice Systems to sustain the Company's recent rate of
growth.
The Company intends to satisfy its obligations under the Notes, as well as
its future capital expenditures and working capital requirements, primarily
with cash flow from operations. Management believes that cash flow from
operations and funds
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available under the Senior Credit Facility will provide sufficient liquidity to
enable it to meet its current working capital and capital expenditure
requirements.
GENERAL ECONOMIC TRENDS AND SEASONALITY
The Company's results of operations are generally affected by economic
trends in its market area but results to date have not been impacted by
inflation. If an extended period of high inflation is encountered, the Company
believes that it will be able to pass on its higher costs to its customers.
The packaged ice industry as a whole is extremely seasonal. In the warm
weather regions where the Company primarily operates, however, this seasonality
is less pronounced. Historically, approximately 65.6% of the Company's revenues
occur during the second and third fiscal quarters when the weather conditions
are generally warmer and demand is greater. Approximately 15.2% of the Company's
revenues occur during the first fiscal quarter, and approximately 19.2% of the
Company's revenues occur during the fourth fiscal quarter when the weather is
generally cooler. These percentages can vary slightly from region to region
within the sunbelt depending upon the degree of volatility of the seasons.
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BUSINESS
COMPANY OVERVIEW
The Company is a leading manufacturer and distributor of packaged ice
and has developed the Packaged Ice System. Currently operating in Arizona,
California, Florida, Louisiana, Nevada, New Mexico, Oklahoma, Tennessee and
Texas, the Company is pursuing a consolidation strategy within the highly
fragmented packaged ice industry. The Company has grown significantly,
primarily through strategic acquisitions and the placement of Packaged Ice
Systems. The Packaged Ice System, which is typically installed in
supermarkets, provides the Company with several competitive advantages,
including substantially higher margins, reduced production and distribution
costs and superior product quality. The Company has fourteen traditional ice
manufacturing facilities serving over 11,000 customer locations and, at
March 31, 1997, had an installed base of 776 Packaged Ice Systems located
primarily in Albertsons, Kroger, HEB Pantry, Wal-Mart Supercenters, Super
K-Mart stores, and supermarkets affiliated with Fleming Companies. Management
believes that the Company will be the second largest packaged ice company in
the United States with pro forma revenues and EBITDA for fiscal 1996 of $26.2
million and $4.6 million, respectively. See "Unaudited Pro Forma Combined
Condensed Financial Statements," and "Selected Historical and Unaudited Pro
Forma Combined Financial Data."
INDUSTRY OVERVIEW
Management estimates that the packaged ice industry has grown by
approximately 3% per annum during the past ten years to over $2.4 billion in
wholesale revenues in 1996. The packaged ice industry is highly seasonal, but
on a year-to-year basis remains stable, generally only affected by excessive
mild weather or rain within a region. The industry has historically been
characterized as highly fragmented with over 3,000 companies, consisting
primarily of "mom and pop" packaged ice companies, many of which are
undercapitalized. Management believes that the six largest ice manufacturers
in the southern and western U.S. account for approximately 6% of wholesale
revenues with the Company's largest competitor accounting for less than 3% of
the market. Traditional ice manufacturers produce and package ice at
centrally-located facilities and distribute to a limited market radius of
approximately 100 miles, mainly due to high shipping and product distribution
costs. Efficient distribution and customer concentration are important, as
transportation is a high cost component in the price of manufactured ice within
a traditional ice delivery system. It is difficult to ensure prompt and
reliable delivery during peak seasonal months in large markets with traditional
ice delivery systems. As a result, the ice business is primarily a regional
service business. Management believes that significant acquisition
opportunities exist for those service-oriented companies with superior ice
delivery systems and significant capital resources.
PACKAGED ICE SYSTEM
In 1994, the Company completed the development of its proprietary
system that utilizes state-of-the-art technology to produce, package and store
ice directly at customer locations. The Packaged Ice System consists of
standard Hoshizaki ice cubers, an ice merchandiser built to the Company's
specifications by Beverage Air, and a bagging machine, the heart of the
Packaged Ice System, manufactured by Lancer, a shareholder of the Company,
under an exclusive equipment manufacturing agreement. Lancer is an engineering
and manufacturing company that is a primary vendor of fountain soft drink
dispensing machines for Coca-Cola, Inc. The majority of bags used in the
Packaged Ice System are manufactured to the Company's specifications by Arrow,
a subsidiary of ConAgra Corporation. The Packaged Ice System is capable of
producing up to 40,000 bags of ice per year and is most frequently used in
large supermarkets. The latest generation of the Packaged Ice System is
equipped with remote communication capability which allows the Company's
national service center to track production, monitor the systems, and diagnose
and correct system errors through the use of a central processing unit. The
Packaged Ice Systems are serviced by trained representatives and are designed
to provide a high degree of reliability and serviceability through the use of
interchangeable parts and a durable stainless steel cabinet. To guard against
product contamination and satisfy consumer demand for high quality, sanitary
ice, the Packaged Ice System was engineered to meet all specifications
delineated by the NSF for ice production and contains a patented automatic
sanitizing system. In addition, the Packaged Ice System is U.L. approved.
The Company began development of the Packaged Ice System in 1990, and
experienced cumulative losses from continuing operations of $1.4 million during
the first four years, which were devoted primarily to research and development.
In addition, management estimates that the Company's strategic partners,
Hoshizaki, Lancer and Beverage Air, funded an aggregate of over $3.5 million of
the development of the Packaged Ice System.
The Packaged Ice System, when combined with traditional delivery
methods, provides the Company with significant advantages, including (i) higher
operating margins, due to significantly reduced production and distribution
costs, (ii) a delivery system designed to supply high volume locations and
capable of cost-effectively servicing a market in excess of 100 miles from its
traditional ice manufacturing facilities, and (iii) the ability to redistribute
production from its traditional ice facilities to additional customers as well
as satisfy seasonal peak demand at stores with Packaged Ice Systems. In
addition, the Packaged Ice System provides numerous advantages to the retailer
including (i) providing a continuous supply of ice, and thus reducing the
frequency of product shortages typical of traditional ice delivery, (ii)
significantly reducing costs associated with delivery and storage at the retail
location, (iii) satisfying consumer demand for a higher quality and more
sanitary ice than typically found with traditional ice delivery, (iv)
effectively managing inventory through computerized production tracking and
dedicated technical
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support, and (v) increasing safety by reducing "slip and fall" accidents.
Management believes the Packaged Ice System can significantly lower the price
of a fully costed bag of ice to a supermarket as compared to traditional ice
delivery. Management believes that the higher margins and quality of the
Packaged Ice System has enabled it to quickly gain market acceptance. At
March 31, 1997, the Company had an installed base of 776 Packaged Ice
Systems, over 90% of which were placed in supermarkets where the Company was
not previously the primary source of packaged ice. Management believes that
the technology utilized in the Packaged Ice System is unique with four existing
and two pending patents covering the bagging device, and that there are
significant barriers to entry for new and existing competitors with respect to
the development of a competitive and reliable machine that performs the same
functions as the Packaged Ice System. See "Risk Factors -- Competition."
BUSINESS STRATEGY
The Company's strategy is to become the leading consolidator in the
packaged ice industry and to maximize its revenues and cash flows by (i)
expanding its market presence by leveraging its proprietary ice machine
technology, (ii) entering new markets by making strategic acquisitions in the
highly fragmented traditional ice industry, and (iii) reducing costs and
exploiting economies of scale.
Expand Market Presence Through Packaged Ice System. Through selective
placement of its proprietary Packaged Ice Systems, the Company will continue to
reduce transportation, storage and service costs, thereby overcoming
traditional geographical constraints inherent to traditional ice delivery.
This strategy not only provides significant cost savings to the Company but (i)
allows for expansion of its delivery radius beyond that of traditional ice
manufacturers, (ii) maximizes sales in existing markets by converting existing
traditional ice customers to the Packaged Ice System, thereby freeing-up
manufacturing capacity for new customers in the market area, and (iii)
optimizes traditional production capacity utilization by reducing ice shortages
during peak demand seasons. The Company has expanded its geographic scope by
selling ice to major national and regional supermarket chains including
Albertsons, Kroger, HEB Pantry and certain stores affiliated with Fleming
Foods, many of whom the Company has successfully convinced to switch from
traditional delivery to higher margin Packaged Ice Systems.
Acquire Traditional Ice Manufacturing Companies in Highly Fragmented
Industry. The Company believes that the highly fragmented packaged ice industry
contains numerous acquisition opportunities. The Company's acquisition
strategy is to target well-managed, traditional ice producers with favorable
demographics and significant customer bases in both new and current market
areas. This acquisition strategy is designed to allow the Company to gain
market share quickly and efficiently, provide for additional distribution
channels through which to place Packaged Ice Systems, and achieve greater
economies of scale. In determining which businesses may be suitable
acquisition candidates, management conducts demographic and competitive
analyses and performs comprehensive due diligence on the target's facilities,
management, existing customer base, and potential for revenue and operating
cash flow improvement.
Reduce Costs and Exploit Economies of Scale. The Company will continue
to seek reduction in operating costs and working capital requirements in its
existing operations, as well as in its future acquisitions, by (i) closing or
combining less efficient or redundant manufacturing and distribution
facilities, (ii) managing vendor relationships to ensure a high level of
responsiveness and favorable pricing, (iii) increasing market concentration of
Packaged Ice Systems to improve merchandising and servicing efficiencies, and
(iv) consolidating certain administrative and selling functions to eliminate
redundancies and excess costs. Since the Company is focusing its acquisition
efforts on related businesses, it anticipates that the customer base of any
acquired business will be similar to its own and therefore administrative areas
such as management information systems, accounting systems and customer support
may be consolidated. Although the Company expects to realize certain cost
savings and economies of scale from the Acquisitions, none are reflected in
"Unaudited Pro Forma Combined Condensed Financial Data."
The Company believes that it is well-positioned to execute its
business strategy given the depth, experience and ability of its management
team. The Company's executive officers are led by James F. Stuart, Chairman
and Chief Executive Officer, who founded Packaged Ice in 1990, and who has
twelve years of industry experience. Mr. Stuart is primarily responsible for
the development of the Packaged Ice System. Other key management personnel are
A.J. Lewis III, President and Chief Operating Officer, and Steven P.
Rosenberg, Vice Chairman. The Company's directors and officers as a group hold
a 48% fully diluted equity interest in the Company (including shares
attributable to directors designated by shareholders). The Company's
shareholder group also includes Norwest Equity Partners V ("Norwest"), a
partnership managed by Norwest Venture Capital Management, Inc., a venture
capital firm with over $1 billion under management. Norwest is the Company's
largest shareholder and maintains board representation.
DISTRIBUTION AND SALES
Efficient service, distribution and pricing are the key determinants
of profitability due to the limited amount of product differentiation in the
packaged ice industry. The Company delivers ice to consumers through (i)
placement of Packaged Ice Systems, and (ii) traditional distribution methods.
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<PAGE> 40
Packaged Ice System Placement. By producing and bagging the ice at the
customer's location, the Company's Packaged Ice System reduces the Company's
distribution costs. To store and inventory ice, traditional producers build
expensive refrigerated facilities and incur significant utility costs to
maintain temperatures below freezing. The Packaged Ice System eliminates these
storage costs by moving ice production to the site of the customer.
Traditional manufacturers are also subject to high transportation costs,
especially over long distances. These expenses are minimized by on-site
production. Remote communications systems between the Packaged Ice Systems and
the Company's national service center allow for monitoring of on-site
inventories and usage, thereby enhancing the Company's service quality and
efficiency. In severe weather conditions this technology provides instant
information on the need for supplemental ice deliveries and allows rapid,
cost-effective responses to each individual customer's product and servicing
needs. As a result of these cost savings, the proprietary Packaged Ice System
provides the Company with (i) higher operating margins, and (ii) a delivery
system designed to supply high volume locations and capable of cost-effectively
servicing a market in excess of 100 miles from its traditional ice
manufacturing facilities.
The Company places its Packaged Ice Systems inside supermarkets and
other commercial locations, such as airport catering facilities, construction
staging areas, and large manufacturing plants. The Company provides the
machines and pays for all installation costs, while the retailer provides and
pays for the cost of water, sewer and electricity. The Company maintains
ownership of the machines and charges its customers by the bag. The Company's
prices are competitive with prices for bagged ice delivered by traditional ice
companies. The Company believes that retailers are becoming increasingly aware
of the benefits of the Packaged Ice System, which provides a high quality
product without the necessity of receiving large shipments of ice on a weekly
or more frequent basis.
In accordance with the Company's expansion strategy, the placement of
the Packaged Ice Systems at customer locations is based upon a thorough review
of each site, which primarily focuses on the historical ice sales at the site.
Also included in the site review is an analysis of the surrounding trade area,
the level of overall retail activity, the level of direct competition and the
proximity of the site to other Packaged Ice Systems operated by the Company.
Further, the Company reviews each site in order to ensure that the site has
high visibility and easy access for the consumer, that the site meets the
Company's standards for sanitary conditions including a connection to the
municipal water supply, that it has received, where available, an acceptable
rating from the local health department, and that it has an acceptable power
source. Upon completion of this review, the Company makes a determination as
to the viability of the location and whether a single machine or multiple
machines are required at the time of initial installation. Multiple machines
may be installed at a site if the volume of sales so warrants.
The Company believes that providing frequent, regular and reliable
service and support is one of the most important elements in the operation of
its machine network. In order to maintain this level of service and support,
the Company has implemented its route servicing system, utilizing trained
service representatives to perform the Company's regularly scheduled service
procedures. A service representative has a route consisting of up to 30
Packaged Ice Systems, each of which are visited and serviced on a regular
basis. The Company maintains regional centers in Tucson, Arizona; Phoenix,
Arizona; Orange County, California; Baton Rouge, Louisiana; Las Vegas, Nevada;
Albuquerque, New Mexico; Dallas, Texas; San Antonio, Texas; Austin, Texas;
Corpus Christi, Texas; Houston, Texas; and Miami, Florida which are designed to
support the activities of the service representatives. Inventories of filters,
supplies and machine parts are maintained at the centers for use in service
calls. Finally, the Company maintains 24-hour, toll-free telephone support for
responding to consumer calls regarding machine operation problems.
Traditional Distribution. The Company transports packaged ice produced
at its traditional manufacturing facilities to its retail and commercial
customers. The Company utilizes an extensive computerized database which
tracks the time and quantity of customer purchases, estimates customer
inventory levels, catalogues client service histories and details on-site
storage capacities. The system then interrelates this data with information
concerning truck availability and capacity. This allows the Company to
efficiently schedule daily deliveries and service calls. In addition, the
Company's market presence provides it with the necessary customer density to
efficiently transport its products.
PRODUCTS
The Company markets its products to satisfy a broad range of
customers, including retailers, commercial users, restaurants and agricultural
users under a variety of brand names, including Mission Party Ice and Crystal
Ice. The Company produces its ice in cube, half-moon, cylindrical and crushed
forms to satisfy the demand of particular customers. The Company's primary ice
product is cocktail ice packaged in eight pound bags, which it sells
principally to convenience stores and supermarkets. The Company also sells
cocktail ice in assorted bag sizes ranging from 20 to 40 pounds to restaurants,
bars, stadiums, vendors and caterers. In addition, the Company sells block ice
in 10 and 300 pound sizes, primarily to commercial, agricultural and industrial
customers.
CUSTOMERS
The Company markets its products to a broad range of customers,
including supermarket chains, convenience stores, commercial users,
agricultural buyers, resorts and restaurants and competitive producers and
self-suppliers who experience
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<PAGE> 41
supply shortages. Management believes that the superior economics and product
quality of the Packaged Ice System has allowed it to develop relationships with
certain high volume national supermarket chains, and will continue its
penetration into this segment.
Retailers with no internal ice production capacity are the primary
purchasers of the Company's manufactured ice products and users of its Packaged
Ice System. Management believes that reasonable pricing when combined with
quality service results in customer loyalty. The Company has a diversified
customer base, with its largest customer accounting for approximately 8.6% of
pro forma net sales in 1996. In addition, the Company has geographically
diversified its customer base. The geographic expansion of the Company's
customer base protects it from adverse environmental factors such as abnormally
cold summer weather in a particular region.
COMPETITION
The traditional manufactured ice industry is highly competitive. In
addition to the Company's direct competition, numerous convenience and grocery
retailers operate commercial ice plants for internal use or manufacture and bag
ice at their store locations. Because only one ice manufacturer typically
services an individual retail site, the Company's products generally do not
face competition at the retail level. The traditional delivery packaged ice
industry in the southern and western U.S. is led by six regional,
multi-facility competitors, consisting of the Company, Reddy Ice, Mountain
Water, Glacier Ice, Mid-South Ice, and Triangle Ice, and includes numerous
local and regional companies of varying sizes and competitive resources. The
Company believes that the capabilities of the Packaged Ice System and the
Company's associated cost structure and technological resources, enable it to
increase sales to supermarkets quickly and expand beyond its existing market.
The Company's principal competitor within many of its primary market areas is
Reddy Ice, a subsidiary of Suiza Foods, Inc., a company with greater financial
resources than the Company. The remaining competitors vary greatly in terms of
their relative size and market strength.
Competition in the packaged ice industry is based primarily on
service, price and quality. In order to successfully compete, an ice
manufacturer must be able to substantially increase production and distribution
on a seasonal basis while maintaining cost efficiency. Management believes
that the Company's high quality traditional production facilities, substantial
financial resources resulting from this Offering, high regional market share
and associated route density and proprietary ice machine technology provide it
with numerous competitive advantages. The Company believes that there are
significant barriers to entry to new and existing competitors with respect to
the development of a machine with the same functions as the Packaged Ice
System, such as the substantial capital outlay required to develop such a
machine, the larger number of machines needed to achieve competitive operating
efficiencies, the time and cost involved in developing a sophisticated service
network, and the identification of locations suitable to place the machines.
To the Company's knowledge, of its principal competitors, only Reddy Ice
delivers ice through the use of a similar machine known as the "Ice Factory."
In 1994, the Company acquired the assets of Southco, Inc., which had
approximately 175 Ice Factory systems in Texas. The Company has systematically
replaced the Ice Factory machines with the Packaged Ice System and now operates
only 16 Ice Factory systems, all of which are scheduled for replacement in
1997. See "Risk Factors -- Competition."
INTELLECTUAL PROPERTY
The Company regards the Packaged Ice System as proprietary and relies
primarily on a combination of patents, nondisclosure and confidentiality
agreements, and other copy protection methods to secure and protect its
intellectual property rights. The Company holds or has exclusive rights to
five United States patents and has one patent pending relating to the Packaged
Ice Systems.
While the Company views the patents relating to the bagging device as
important to the value of the Packaged Ice System as a whole, there can be no
assurance that any issued patent will provide the Company with a meaningful
competitive advantage, that competitors will not design alternatives to reduce
or eliminate the benefits of any issued patent or that challenges will not be
instituted against the validity or enforceability of these patents. Other
companies may obtain patents claiming products or processes that are necessary
for, or useful to, the development of the Company's products, in which case the
Company may be required to obtain licenses for patents or for proprietary
technology in order to develop, manufacture or market its products. There can
be no assurance that the Company would be able to obtain such licenses on
commercially reasonable terms, if at all.
The Company does not hold any registered trademarks, but believes that
it has common law protection for certain of its trademarks in certain markets.
The Company protects certain of its proprietary materials and
processes by relying on trade secret laws and non-disclosure and
confidentiality agreements and requires all of its employees and third-party
developers to sign nondisclosure agreements. There can be no assurance that
confidentiality or trade secrets will be maintained or that others will not
independently develop or obtain access to such materials or processes.
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<PAGE> 42
FACILITIES
The Company has fourteen manufacturing plants located in Arizona,
California, New Mexico, Tennessee and Texas. These fourteen plants have a
combined manufacturing capacity of approximately 1390 tons per day. The
Company intends to consolidate or close two of its manufacturing facilities in
order to obtain greater efficiencies in certain markets. In addition, the
Company has service centers for its Packaged Ice Systems in Arizona,
California, Florida, Louisiana and Nevada. These service centers are staffed
by trained route service representatives who visit and merchandise the Packaged
Ice Systems on a weekly or more frequent basis.
GOVERNMENT REGULATION
The packaged ice industry is subject to various federal, state and
local laws and regulations, which require the Company, among other things, to
obtain licenses for its business plants and machines, to pay annual license and
inspection fees, to comply with certain detailed design and quality standards
regarding its plants and the Packaged Ice Systems and to continuously control
the quality and quantity of its ice.
The Company's packaged ice products are subject to federal and state
regulation as a food pursuant to the federal Food, Drug and Cosmetic Act,
regulations promulgated thereunder by the Food and Drug Administration ("FDA")
and analogous state statutes. These statutes and regulations impose
comprehensive good manufacturing practices requirements governing the sanitary
conditions of the facilities where ice is manufactured, the design and
maintenance of the equipment used to manufacture the ice, the quality of source
water and the sanitary practices of employees during ice production. The State
of Florida has imposed yet additional requirements that include quarterly
testing of the ice for the presence of microbes and certain substances
regulated under the federal Safe Drinking Water Act, specific requirements for
keeping ice packaging operations separate from other activities and labeling
requirements for the bags used including the name of the company and the net
weight. All of the Company's Packaged Ice Systems and ice manufacturing
facilities are subject to routine and random safety, health and quality
inspections. The Company believes that its facilities, manufacturing practices
and Packaged Ice Systems are in compliance with all applicable federal, state
and local laws and regulations and that the Company will be able to maintain
such substantial compliance in the future.
The Company is subject to certain health and safety regulations
including regulations issued pursuant to the Occupational Safety and Health Act
("OSHA"). These regulations require the Company to comply with certain
manufacturing, health and safety standards to protect its employees from
accidents.
ENVIRONMENTAL MATTERS
The Company's ice manufacturing and ice storage operations are subject
to federal, state and local environmental laws and regulations. As a result,
the Company has the potential to be involved from time to time in
administrative or legal proceedings relating to environmental matters. There
can be no assurance that the aggregate amount of any environmental liabilities
that might be asserted in any such proceeding will not be material. The
Company cannot predict the types of environmental laws or regulations that may
from time to time be enacted in the future by federal, state or local
governments, how existing or future laws or regulations will be interpreted or
enforced or what types of environmental conditions may be found to exist at its
facilities. The enactment of more stringent laws or regulations or a more
strict interpretation of existing laws and regulations may require additional
expenditures by the Company, some of which could be material.
The Company generates and handles certain hazardous substances in
connection with the manufacture and storage of packaged ice. The handling and
disposal of these substances and wastes is subject to federal, state and local
regulations, and site contamination originating from the release or disposal of
such substances or wastes can lead to significant liabilities. In addition,
certain of the Company's current and former facilities are located in
industrial areas and have been in operation for many years. As a consequence,
it is possible that historical activities on property currently or formerly
owned by the Company or that current or historical activities on neighboring
properties have affected properties currently or formerly owned by the Company
and that, as a result, additional environmental issues may arise in the future,
the precise nature of which the Company cannot now predict.
The Company thus may become liable for site contamination at
properties currently or formerly owned by the Company. Although such liability
has not had a material adverse affect on the financial condition or operating
results of the Company in the past, and the Company has no knowledge of claims
that could be expected to have a material adverse affect on its financial
condition or operations, there can be no assurance that the Company will not
incur significant costs in connection with historical handling or disposal of
such substances and wastes.
INSURANCE
The Company carries general and product liability insurance. Its
combined coverage per occurrence and aggregate loss coverages are in amounts
the Company believes to be adequate. Although the Company is not aware of any
actions having ever been filed and believes that the technology utilized at its
manufacturing facilities and contained in its machines makes any
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<PAGE> 43
contamination of the ice manufactured at its plants or dispensed by its
machines unlikely, any significant damage awards against the Company in excess
of the Company's insurance coverage could result in a material loss to the
Company.
EMPLOYEES AND LABOR RELATIONS
At March 14, 1997, the Company had 393 full-time employees, 44 of whom
are local managers or corporate executives, 299 of whom are hourly employees
and 50 of whom are sales, clerical, data processing or other administrative
employees. The Company also employs approximately 60 additional employees
during its summer peak season. The Company generally has not experienced
difficulty in meeting its seasonal employment needs.
With the exception of 63 employees of SWI, none of the Company's
employees are represented by a union or are subject to a collective bargaining
agreement. The Company has never experienced a work stoppage due to labor
difficulties and management believes its relationship with its employees is
good.
LITIGATION AND OTHER LEGAL PROCEEDINGS
The Company is a party in certain legal proceedings that have resulted
from the ordinary conduct of its business, including several personal injury
lawsuits. In the opinion of the Company's management, none of these
proceedings is expected to have a material adverse effect on the Company.
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<PAGE> 44
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Company has assembled an experienced management team to oversee
the development and operation of the Company. The name, age and respective
position of each director and executive officer of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James F. Stuart 55 Chairman of the Board of Directors and Chief Executive Officer
A.J. Lewis III 41 President and Chief Operating Officer, Director
Steven P. Rosenberg 38 Vice Chairman of the Board of Directors
H.D. Wiginton 59 Vice President, Marketing
Diana F. Rice 47 Treasurer, Controller and Secretary
Stephen R. Sefton 41 Director
Richard A. Coonrod 66 Director
Robert G. Miller 46 Director
Rod Sands* 49 Director
</TABLE>
The following is a brief description of the background and principal
occupation of each director and executive officer:
James F. Stuart, Chairman of the Board and Chief Executive Officer and
a founder of Packaged Ice, served as President of the Company from 1990 until
January 1997, when he was elected Chairman of the Board of Directors and Chief
Executive Officer. Mr. Stuart is Chairman of the Executive Committee of the
Board of Directors.
A.J. Lewis III is President and Chief Operating Officer, a position to
which he was elected in January 1997. Mr. Lewis has been an investor and
director of the Company since 1991, and also serves on the Executive Committee.
Mr. Lewis acquired Mission in 1988 and was its president and the sole director
until its acquisition by the Company. He founded STPI in 1991 and was its
president and a director from inception until its acquisition by the Company.
Since 1989, Mr. Lewis has been a director and president of Southwest Texas
Equipment Distributors, Inc., which is a distributor of Hoshizaki ice
equipment.
Steven P. Rosenberg is Vice Chairman of the Board of Directors, an
officer position to which he was elected in March 1997. Mr. Rosenberg has been
an investor and a director since 1991 and also serves on the Executive
Committee. Mr. Rosenberg is involved in special projects for the Company.
From 1992 to February 1997, Mr. Rosenberg was President of Arrow, now a wholly
owned subsidiary of ConAgra. Arrow is a diversified food product packaging
company which supplies the Company with a substantial portion of its plastic
bags.
H.D. Wiginton is Vice President, Marketing. He joined the Company in
July 1996. For the five years prior to joining the Company, Mr. Wiginton was
Executive Vice President of Tower Marketing, a Texas-based, regional food
brokerage concern.
Diana F. Rice is Treasurer, Controller and Assistant Secretary of the
Company. Ms. Rice joined the Company in July 1993 as a contract controller,
became full-time controller in January 1994, and was elected to the offices of
Controller and Assistant Secretary in June 1996. Ms. Rice was elected to the
office of Treasurer in March 1997. From 1992 until joining the Company, Ms.
Rice was a contract controller to Glass Wholesalers, Inc., Houston, Texas, a
wholesale distributor of glass doors and custom glass products.
Stephen R. Sefton has been a director since 1995 and is a member of
the Compensation and Audit Committee of the Board of Directors. Mr. Sefton was
designated to be elected as a director by Norwest Equity Partners V, L.P., the
Company's largest shareholder. Since 1986, Mr. Sefton has been Vice President
of Norwest Venture Capital Management, Inc. where he is responsible for
originating, approving and managing investments for its various investment
partnerships. Mr. Sefton is a general partner of Itasca Partners II which is
general partner of Norwest Equity Partners V, L.P.
Richard A. Coonrod has been a director since 1995 and is a member of
the Compensation Committee of the Board of Directors. Mr. Coonrod was
designated to be elected as a director by The Food Fund Limited Partnership
("Food Fund"), a shareholder of the Company. Mr. Coonrod has been a general
partner of The Food Fund Limited Partnership, a Minneapolis-based limited
partnership specializing in food-related investments, since 1989 and has been
President of Coonrod Agriproduction Corporation, a food and agribusiness
consulting and investment firm, since 1985. Mr. Coonrod has been a director of
Orange-co, Inc. since 1987, and has been a director of Michael Foods, Inc.
since 1994.
Robert G. Miller is a private investor and was Chairman of the Board
of Directors of SWI for the past five years until its acquisition by the
Company. From 1980 to 1992, Mr. Miller was President and Chief Executive
Officer of Glacier Water, Inc., a publicly traded water vending company.
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<PAGE> 45
* In connection with the investment in the Company by SV Capital Partners,
L.P. ("SV") on July 17, 1997, the holders of at least 60% of the outstanding
capital stock of the Company executed a voting agreement pursuant to which SV
may designate a representative to be elected to the Board of Directors of the
Company. SV has designated Rod Sands to be its Board representative, and it is
anticipated that Mr. Sands will be elected to the Board of Directors at its
next regular meeting. Mr. Sands is a limited partner in SV, and a member of
its investment committee. From 1992 to 1997, Mr. Sands served as President and
Chief Operating Officer of Pace Foods, Inc., San Antonio, Texas, a producer of
picante sauce products. See "Certain Relationships and Related Transactions
- -- Stock Puchase Agreement with SV Capital Partners, L.P."
VOTING AGREEMENT
In excess of 80% of the shareholders have entered into a voting
agreement (the "Voting Agreement") which fixes the number of directors at no
less than five and no more than nine and provides for the election to the Board
of Directors of the Company of (i) James F. Stuart, (ii) one representative
designated by The Food Fund, who shall initially be Richard A. Coonrod, (iii)
one representative designated by Norwest Equity Partners V, who shall initially
be Stephen R. Sefton, (iv) one representative designated by Steven P.
Rosenberg, who shall initially be Steven P. Rosenberg, and (v) A. J. Lewis III.
The Voting Agreement terminates upon the earlier of (i) the agreement of the
holders of 80% of the Company's Common Stock, Series A Preferred Stock and
Series B Preferred Stock voting as a single class on as converted basis, (ii)
the completion by the Company of an initial public offering resulting in
aggregate net proceeds to the Company and any selling shareholders of
$7,500,000 or more, (iii) the merger or consolidation of the Company with or
into another entity which results in the shareholders holding less than 50% of
the voting securities of the surviving entity, or the sale of all or
substantially all of the Company's assets, or (iv) as to any party's right to
designate a director, the reduction of such shareholder's holdings to less than
50% of the September 20, 1995 levels. Amendments to the Voting Agreement
require the agreement of holders of 80% of the Company's Common Stock, Series A
Preferred Stock and Series B Preferred Stock voting on an as converted basis.
In addition, certain holders of in excess of 50% of the Company's voting stock
have entered into a Voting Agreement with certain former shareholders of SWI to
elect Robert G. Miller to the Board of Directors.
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<PAGE> 46
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for
the Chief Executive Officer of the Company and the Company's only other highly
compensated executive officer (the "Named Executive Officers.") Compensation
information is shown for fiscal 1994, 1995 and 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
SECURITIES
UNDERLYING
OTHER ANNUAL OPTIONS/ ALL OTHER
NAME/PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION SARS COMPENSATION
- ----------------------- ---- ------ ----- ------------ ---- ------------
<S> <C> <C> <C> <C> <C> <C>
James F. Stuart 1996 $125,000 -- --(1) -- $1,827(2)
Chairman, Chief Executive Officer 1995 75,000 -- --(1) -- --
1994 75,000 -- --(1) -- --
A.J. Lewis III (3) $125,000 -- --(1) -- --
President, Chief Operating Officer
H. D. Wiginton 1996(4) 18,333 -- --(1) 6,000 3,000(5)
Vice President, Marketing
</TABLE>
(1) Did not receive perquisites and other personnel benefits from Packaged
Ice in excess of $50,000 or 10% of the Named Executive Officer's total
annual salary and bonus paid for the years indicated.
(2) Contributions to Packaged Ice's 401(k) plan made by Packaged Ice in
1996 in the amount of $1,827.
(3) Did not serve as executive officer of Packaged Ice at the end of the
last completed fiscal year.
(4) Represents partial year compensation. No compensation information is
provided for prior years as Mr. Wiginton's employment commenced
November 1996.
(5) Automobile allowance.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table provides certain information regarding the number
of stock options to purchase shares of the Company's Common Stock granted to
the Named Executive Officers during the year ended December 31, 1996.
<TABLE>
<CAPTION>
PERCENTAGE POTENTIAL REALIZABLE VALUE
OF TOTAL AT ASSUMED ANNUAL RATES
NUMBER OF OPTIONS OF STOCK PRICE
SECURITIES GRANTED IN APPRECIATION FOR OPTION
UNDERLYING FISCAL PER SHARE TERM
OPTIONS YEAR EXERCISE OR EXPIRATION ----
NAME GRANTED 1996 BASE PRICE DATE 5% 10%
- ---- ------- ---- ---------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
H. D. Wiginton 6,000 100% $7.50 12/17/2006 $28,300 $71,718
</TABLE>
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<PAGE> 47
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
The following table provides certain information regarding the
exercise of stock options to purchase shares of the Company's Common Stock
during the year ended December 31, 1996, by the Named Executive Officers, and
the fiscal year-end value of stock options held by such officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
NUMBER OF OPTIONS/SARS AT SAR'S AT FISCAL
SHARES FISCAL YEAR END(#) YEAR END(1)
ACQUIRED ON ------------------ -----------
NAME EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
James F. Stuart __ __ __ __ __
A.J. Lewis III __ __ __ __ __
H. D. Wiginton __ __ 6,000 __ $15,000
</TABLE>
(1) Based on a fiscal year end of December 31, 1996, and a fair market
value of $10.00 per share, as determined by the Company's Board of
Directors. The value of in-the-money options is calculated as the
difference between the fair market value of the Packaged Ice Common
Stock underlying the options at fiscal year end and the exercise price
of the options. Exercisable options refer to those options that are
exercisable as of December 31, 1996, while Unexercisable options refer
to those options that become exercisable at various times thereafter.
DIRECTOR COMPENSATION
Directors of the Company are elected annually and hold office until
the next annual meeting of shareholders or until their successors are elected
and qualified. See "-- Voting Agreement." Directors are not compensated for
their services as directors. Directors are reimbursed, however, for ordinary
and necessary expenses incurred in attending board or committee meetings.
STOCK OPTION PLAN
The Company adopted the Packaged Ice, Inc. Stock Option Plan on July
26, 1994 (the "Option Plan"). Under the Option Plan, options to purchase up to
130,000 shares of Common Stock may be granted to employees, outside directors
and consultants and advisers to the Company or any subsidiary. The purposes of
the Option Plan are to further the growth, development and financial success of
the Company by providing additional financial incentives to key personnel and
to retain and attract qualified individuals who will contribute to the overall
success of the Company. Shares that by reason of the expiration of an option
(other than by reason of exercise) or which are no longer subject to purchase
pursuant to an option granted under the Option Plan may be reoptioned
thereunder. The Option Plan is currently administered by the Board of
Directors, but the Board of Directors may determine to delegate this
responsibility to a committee of the Board which would then have the authority
to set specific terms and conditions of options granted under the Option Plan
and administer the Option Plan. Options granted under the Option Plan are
non-qualified options and are not intended to be "incentive stock options"
under Section 422 of the Internal Revenue Code of 1986, as amended. Stock
options granted under the Option Plan may be granted for a term not to exceed
ten years and are not transferable other than by will or the laws of descent
and distribution. Each option may be exercised within the term of the option
pursuant to which it was granted (so long as the optionee, if an employee,
continues to be employed by the Company). In addition, an option may be
exercised as to vested shares within 90 days after the termination of
employment of the optionee (except in the case of a termination for cause, in
which case the option shall automatically expire on termination), and in the
event of a termination in case of death, disability or eligible retirement, all
options shall become exercisable and may be exercised until the earlier of the
first anniversary of such event or the stated expiration date.
The exercise price of all stock options must be at least equal to the
fair market value of the Common Stock on the date of grant. Stock options may
be exercised by payment in cash of the exercise price with respect to each
share to be purchased, or by a method in which a concurrent sale of the
acquired stock is arranged, with the exercise price payable in cash from such
sale proceeds.
At June 3, 1997, the Company had outstanding options for 75,900 shares
of Common Stock at a weighted average exercise price of $7.24 of which 28,500
were presently exercisable. All options granted under the Option Plan have a
five-year vesting period, which will be accelerated in the event of a change of
control or initial public offering. All of the outstanding options were
granted at exercise prices determined by the Board of Directors to be equal to
the fair market value of the Common Stock on the date of grant. To date, no
options have been exercised under the Option Plan.
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<PAGE> 48
EMPLOYMENT AND TERMINATION
None of the executive officers currently have employment agreements,
with the exception of H. D. Wiginton. Mr. Wiginton, the Company's Vice
President, Marketing, entered into an employment agreement effective November
1, 1996, which establishes a base salary of $110,000 per year, provides for
certain cash bonus incentives relating to his performance and grants Mr.
Wiginton the immediate right to purchase 6,000 shares of Common Stock plus
6,000 shares under the Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1996, A. J. Lewis III and Richard
A. Coonrod served as members of the Compensation Committee. During 1996, no
member of the Compensation Committee was an officer, former officer or employee
of the Company or any of its subsidiaries. During 1996, no executive officer
of the Company served as a member of: (i) the compensation committee of another
entity in which one of the executive officers of such entity served on the
Company's Compensation Committee, (ii) the Board of Directors of another entity
in which one of the executive officers of such entity served on the Company's
Compensation Committee, or (iii) the compensation committee of another entity
in which one of the executive officers of such entity served as a member of the
Company's Board of Directors. A. J. Lewis III resigned from the Compensation
Committee upon being named an executive officer.
45
<PAGE> 49
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of June 16, 1997
with respect to the beneficial ownership of Packaged Ice Common Stock (assuming
conversion of the Series A Preferred Stock and Series B Preferred Stock which
have voting rights equivalent to that of the Common Stock) by: (i) each
director of the Company, (ii) each Named Executive Officer of the Company,
(iii) each other person known to hold 5% or more of the outstanding shares of
Common Stock, and (iv) all current executive officers (regardless of salary and
bonus level) and directors of the Company as a group. Unless otherwise
indicated, the persons listed in the table below have sole voting and
investment powers with respect to the shares indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
SHARES %
------ -
<S> <C> <C>
James F. Stuart 358,700 7.0%
8572 Katy Freeway, Suite 101
Houston, Texas 77024
A. J. Lewis III (1) 393,943 7.7%
1120 E. Durango
San Antonio, Texas 78205
Steven P. Rosenberg (2) 473,401 9.2%
5430 LBJ Freeway, Suite 1600
Dallas, Texas 75219
Stephen R. Sefton (3) 820,449 16.0%
Jack Stazo (4) 260,864 5.1%
10606 N. Evers Park
Houston, Texas 77024
Norwest Equity Partners V (5) 820,449 16.0%
222 South Ninth St, Suite 2800
Minneapolis, MN 55402-3388
Richard A. Coonrod (6) 91,161 1.8%
5720 Smetana Drive, Suite 300
Minnetonka, MN 55343
H. D. Wiginton 12,000 0.2%
8572 Katy Freeway, Suite 101
Houston, Texas 77024
Robert G. Miller 286,540 5.6%
4425 West Olive, Suite 310
Glendale, Arizona 85302
SV Capital Partners, L.P. (7) (9) 400,000 7.8%
200 Concord Plaza, Suite 620
San Antonio, Texas 78716
Rod Sands (8) (9) 400,000 7.8%
200 Concord Plaza, Suite 620
San Antonio, Texas 78716
All directors and executive officers
as a group (9 persons) (1) (10) (11) 2,848,194 55.7%
</TABLE>
(1) Includes 2,000 shares of Common Stock held by Mr. Lewis, as Trustee,
25,000 shares owned by South Texas Equipment Distributors, Inc., a
corporation owned by Mr. and Mrs. Lewis, and 69,350 shares held by Mr.
and Mrs. Lewis as tenants in common.
(2) Includes 83,221 shares of Series B Preferred Stock.
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<PAGE> 50
(3) Includes 405,000 shares of Series A Preferred Stock and 37,449 shares
of Series B Preferred Stock. Mr. Sefton does not own any shares of
record. However, as Vice President of Norwest Venture Capital
Management, Inc., and general partner of Itasca Partners II, the
general partner of Norwest Equity Partners V, Mr. Sefton may be deemed
to be the beneficial owner of the shares held by Norwest Equity
Partners V. Mr. Sefton disclaims beneficial ownership of the shares
held by Norwest Equity Partners V.
(4) Includes 4,000 shares of Common Stock held by Jack Stazo as Trustee.
(5) Includes 405,000 shares of Series A Preferred Stock and 37,449 shares
of Series B Preferred Stock.
(6) Includes 45,000 shares of Series A Preferred Stock and 4,161 shares of
Series B Preferred Stock. Mr. Coonrod does not own any shares of
record. However, as general partner of Food Fund, Mr. Coonrod may be
deemed to be the beneficial owner of the shares held by Food Fund.
Mr. Coonrod disclaims beneficial ownership of the Shares held by Food
Fund.
(7) Christopher Goldsbury, Jr. is a director and controlling shareholder
of the corporate general partner of SV Capital Partners, L.P. and the
majority limited partner of SV Capital Partners, L.P. As a result,
Mr. Goldsbury may be deemed to have indirect beneficial ownership of
the shares of the Company owned by SV Capital Partners, L.P.
(8) Comprised solely of 400,000 shares of Common Stock beneficially owned
by SV Capital Partners, L.P. Mr. Sands, a limited partner of SV
Capital Partners, L.P. and a member of its investment committee, may
be deemed to have indirect beneficial ownership of the shares of the
Company owned by SV Capital Partners, L.P. Mr. Sands disclaims any
such beneficial ownership.
(9) Includes 100,000 shares of Common Stock subject to warrants currently
exercisable.
(10) Includes 450,000 shares of Series A Preferred Stock and 124,831 shares
of Series B Preferred Stock.
(11) In connection with the investment in the Company by SV Capital
Partners, L.P. ("SV") on July 17, 1997, the holders of at least 60% of
the outstanding capital stock of the Company executed a voting
agreement pursuant to which SV may designate a representative to be
elected to the Board of Directors of the Company. SV has designated
Rod Sands to be its Board representative, and it is anticipated that
Mr. Sands will be elected to the Board of Directors at its next
regular meeting. As a result, Mr. Sands is included as a director and
the 400,000 shares of Common Stock beneficially owned by SV Capital
Partners, L.P. are included in the shares and percent of total shares
beneficially owned by all directors and officers as a group.
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<PAGE> 51
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain decisions concerning the operations or financial structure of
the Company, including, without limitation, matters relating to the
Acquisitions, may present conflicts of interest between the Company, certain
shareholders, directors and officers, described as follows:
Shareholders Agreement. All current shareholders of Packaged Ice are
parties to a Shareholders Agreement (the "Shareholders Agreement") which
restricts the transfer of their shares of capital stock of the Company and
grants the Company and the other shareholders a right of first refusal to
purchase shares which a shareholder attempts to transfer. The Shareholders
Agreement terminates upon the occurrence of any of the following: (i) if the
Company permanently ceases to do business; (ii) the Company completes an
underwritten public offering of its Common Stock which results in net proceeds
to the Company and any selling shareholders of at least $7,500,000; or (iii)
upon the written agreement of the holders of no less than eighty percent (80%)
of the voting power of the outstanding Common Stock and Preferred Stock voting
as a single class.
Tag-Along and Co-Sale Rights. James F. Stuart and Jack Stazo, founding
shareholders, have entered into agreements with certain other shareholders
granting such shareholders the right to participate pro rata in sales to third
parties.
Voting Agreement. In excess of 80% of the Company's shareholders are
bound by a Voting Agreement which establishes the number and make up of the
Board of Directors. See "Management -- Voting Agreement."
Stock Purchase Agreements with Norwest, et al. On September 20, 1995,
Packaged Ice entered into a stock purchase agreement with Norwest and Food Fund
("Norwest Agreement") pursuant to which the Company issued 450,000 shares of
Series A Preferred Stock at a price of $5.56 per share and 420,000 shares of
Common Stock at a price of $5.00 per share. In addition, the Stock Purchase
Agreement requires a vote of two-thirds of the Board of Directors before the
Company may take certain actions relating to distributions, granting demand
registration rights, guaranteeing indebtedness, making loans, changing the
business, making acquisitions, issuing securities and pledging assets. In
connection with the issuance of stock, Norwest and Food Fund were granted
demand and piggy-back registration rights under a registration rights
agreement. The demand right gives the investors the right to cause the Company
to register their securities at any time after September 20, 2000 and before
September 20, 2004. In addition, Norwest and Food Fund were granted a put
option to sell their stock back to the Company at fair market value, which
option becomes effective only if Norwest and Food Fund have been unable to
register their stock by September 20, 2004. The put option terminates in the
event the Company completes a firmly underwritten public offering of Common
Stock, provided that the gross offering price equals or exceeds $7,500,000. In
December 1996, Norwest, Food Fund and Steven P. Rosenberg advanced $750,000 to
the Company under convertible demand notes. On January 17, 1997, the Company
entered into a stock purchase agreement with Norwest, Food Fund and Steven P.
Rosenberg pursuant to which the Company issued 124,831 shares of Series B
Preferred Stock at a price of $6.07 per share in exchange for the cancellation
of the $750,000 of demand notes. As a result of the issuance of Series B
Preferred Stock, the Shareholders Agreement and the Voting Agreement were
amended to include the Series B Preferred Stock. In addition, Mr. Rosenberg
was granted demand registration rights under the September 20, 1995
registration rights agreement. The Company has amended the September 20, 1995
registration rights agreement to grant demand registration rights to Mr.
Rosenberg, Food Fund and Norwest which are substantially similar to those
granted in connection with the issuance of the Warrants. Holders of Series A
Preferred Stock and Series B Preferred Stock have contractual preemptive rights
to acquire capital stock and have waived such preemptive rights with respect to
the Offering.
Stock Purchase Agreements with Individual Investors. The Company
entered into a stock purchase agreement dated December 23, 1993 which granted
certain individual shareholders piggy-back registration rights with respect to
the Common Stock and the right to receive financial and other information and
notice of certain events. The Company entered into a stock purchase agreement
on September 20, 1995 with individual investors which granted them piggy-back
registration rights, contractual preemptive rights to acquire capital stock,
and the right to receive financial and other information. Such holders have
waived their preemptive rights with respect to the Offering. In addition, this
agreement requires a vote of two-thirds of the Board of Directors before the
Company may take certain actions relating to distributions, granting demand
registration rights, guaranteeing indebtedness, making loans, changing the
business, making acquisitions, issuing securities and pledging assets. The
Board of Directors has unanimously approved the issuance of the securities and
all ancillary agreements.
Agreements with A.J. Lewis III. A.J. Lewis III is the President and
Chief Operating Officer and a director of the Company. Mr. Lewis and his wife,
Liza B. Lewis, own 7.7% of the fully diluted shares of Common Stock of the
Company. Mr. and Mrs. Lewis have been granted demand registration rights in
connection with the Mission Acquisition. Prior to completion of the Mission
Acquisition, Mr. Lewis and his wife owned 100% of Mission and 80% of STPI. Mr.
Lewis and his wife also own Southwest Texas Equipment Distributors, Inc. which
is a shareholder of the Company. Southwest Texas Equipment Distributors, Inc.,
an ice equipment sales and rental company, has the exclusive right to supply
Hoshizaki ice cubers to the Company under an agreement dated September 9, 1991.
Mr. Lewis holds the option to purchase the real estate on which Mission's
facilities are located. Mr. Lewis intends to exercise this option in 1998. As
part of the Mission Acquisition, the Company will lease these facilities from
Mr. Lewis on arms-length terms approved by a disinterested majority of the
Board of Directors. These agreements with Mr. Lewis may result in conflicts of
interest with respect to certain matters affecting the
48
<PAGE> 52
Company, such as potential business opportunities, business dealings, demands
on Mr. Lewis' time, possible corporate transactions and other strategic
decisions affecting the future of the Company and Mr. Lewis.
Agreements with SWI and its Principals. Prior to completion of the SWI
Acquisition, Dale M. Johnson, Robert G. Miller and Alan S. Bernstein together
owned 95% of SWI. After completion of the Acquisition, Messrs. Johnson, Miller
and Bernstein will own an aggregate of 16% of the fully diluted shares of
Common Stock of the Company. Messrs. Johnson, Miller and Bernstein will be
granted demand registration rights in connection with the SWI Acquisition.
Prior to the SWI Acquisition, Packaged Ice and SWI were parties to an option
agreement and master lease agreement under which SWI granted to the Company the
right to acquire SWI on specified terms, and under which SWI obtained the right
to lease Packaged Ice Systems and place them in SWI's market area. The option
agreement and master lease agreement with SWI terminated upon consummation of
the SWI Acquisition. Mr. Miller owns and leases to SWI the real property on
which an ice manufacturing plant in Phoenix, Arizona is located.
Stock Purchase Agreement with SV Capital Partners, L.P. On July 17,
1997, Packaged Ice entered into a stock purchase agreement with SV Capital
Partners, L.P. ("SV") pursuant to which the company issued 300,000 shares of
Common Stock at a price of $10 per share and a warrant to purchase 100,000
shares of Common Stock at an exercise price of $14 per share until July 17,
2002. In addition, the Stock Purchase Agreement requires a vote of two-thirds
of the Board of Directors before the company may take certain action relating
to distributions, granting demand registration rights, guaranteeing
indebtedness, making loans, changing the business, making acquisitions,
pledging assets and becoming a party to a merger, consolidation or
reorganization resulting in less than 51% voting power by persons who held at
least 51% of the voting power before such transaction or selling all or
substantially all of the Company's assets. In connection with the investment by
SV, the holders of at least 60% of the outstanding capital stock of the Company
executed a voting agreement pursuant to which SV may designate a representative
to be elected to the Board of Directors and the shareholders shall elect such
person to the Board. Also in connection with the issuance of stock, SV was
granted demand and piggy back registration rights under a registration rights
agreement. The demand gives SV the right to cause the Company to register its
securities at any time after 180 days following completion by the Company of a
public equity offering. In addition, James F. Stuart, A. J. Lewis III and
Steven Rosenberg entered into a parallel exit agreement with SV guaranteeing SV
the right to participate pro rata in sales to third parties. SV also became a
party to the Shareholders Agreement and Voting Agreement in connection with the
issuance of stock to SV.
Other Transactions and Relationships with Shareholders. Akin, Gump,
Strauss, Hauer & Feld, L.L.P. ("Akin Gump") provides legal services to the
Company. Cecil Schenker, a shareholder of the Company, is the sole shareholder
of Cecil Schenker, P.C., a partner of Akin Gump. Alan Schoenbaum, the son of
Stanley Schoenbaum, a shareholder of the Company, is the sole shareholder of
Alan Schoenbaum, P.C., a partner of Akin Gump. Kenneth H. Johnson, a
shareholder, provides legal services to the Company. Bill Highsmith, a
shareholder, has acted as an insurance agent for the Company in connection with
the Company's health insurance and key-man life insurance. James M. Raines, a
shareholder, provided investment banking services to the Company in connection
with the sale of the Old Notes, for which he was granted an extension of a
Common Stock purchase warrant granted previously to him, and for which he will
receive a finder's fee from Jefferies & Company, Inc. The warrant gave Mr.
Raines the right to purchase 43,296 shares of Common Stock at a price of $5.78
per share. Mr. Raines acquired 18,271 shares under his warrant pursuant to a
cashless exercise Steven P. Rosenberg, a shareholder and director of the
Company, is a consultant and former president of Arrow, which supplies plastic
bags to the Company. Lancer Corporation, a shareholder, supplies the Company's
proprietary bagging devices under an exclusive contract. Fleming Companies, a
shareholder, is a significant customer of the Company. Fleming Companies has
offered to sell its shares of Common Stock to the Company under the
Shareholders Agreement. See "Principal Shareholders," footnote 7 on page 47.
The Company believes that the transactions referred to above are no
less favorable than transactions which would have been obtained from unrelated
third parties. Any future transactions between the Company and related parties
will be approved by outside directors and will be on terms no less favorable
then those which could have been obtained from unrelated third parties.
49
<PAGE> 53
THE EXCHANGE OFFER
GENERAL
In connection with the sale of the Old Notes, the purchasers thereof
became entitled to the benefits of certain registration rights under the
Registration Rights Agreement. The Exchange Notes are being offered hereunder
in order to satisfy the obligations of the Company under the Registration
Rights Agreement. See "Registration Rights; Additional Interest."
For each $1,000 principal amount of Old Notes surrendered to the
Company pursuant to the Exchange Offer, the holder of such Old Notes will
receive $1,000 principal amount of Exchange Notes. Upon the terms and subject
to the conditions set forth in this Prospectus and in the accompanying Letter
of Transmittal, the Company will accept all Old Notes properly tendered prior
to 5:00 p.m., New York City time, on the Expiration Date. Holders may tender
some or all of their Old Notes pursuant to the Exchange Offer in integral
multiples of $1,000 principal amount.
Under existing interpretations of the staff of the SEC, including
Exxon Capital Holdings Corporation, SEC No-Action Letter (available April 13,
1989),the Morgan Stanley Letter and Mary Kay Cosmetics, Inc., SEC No-Action
Letter (available June 5, 1991), the Company believes that the Exchange Notes
would in general be freely transferable after the Exchange Offer without
further registration under the Securities Act by the respective holders thereof
(other than a "Restricted Holder," being (i) a broker-dealer who purchased Old
Notes exchanged for such Exchange Notes directly from the Company to resell
pursuant o Rule 144A or any other available exemption under the Securities Act
or (ii) a person that is an affiliate of the Company within the meaning of Rule
405 under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder is not participating in, and has no arrangement with any person
to participate in, the distribution (within the meaning of the Securities Act)
of such Exchange Notes. Eligible holders wishing to accept the Exchange Offer
must represent to the Company that such conditions have been met. Any holder of
Old Notes who tenders in the Exchange Offer for the purpose of participating in
a distribution of the Exchange Notes could not rely on the interpretation by
the staff of the SEC enunciated in the Morgan Stanley Letter and similar
no-action letters, and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
Each holder of Old Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including that (i) it is neither an affiliate of the Company nor a
broker-dealer tendering Old Notes acquired directly from the Company for its
own account, (ii) any Exchange Notes to be received by it are being acquired in
the ordinary course of its business and (iii) it is not participating in, and
it has no arrangement with any person to participate in, the distribution
(within the meaning of the Securities Act) of the Exchange Notes. In addition,
in connection with any resales of Exchange Notes, any broker-dealer (a
"Participating Broker-Dealer") who acquired Old Notes for its own account as a
result of market-making activities or other trading activities must acknowledge
that it will deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such Exchange Notes. The staff of the SEC
has taken the position in no-action letters issued to third parties including
Shearman & Sterling, SEC No-Action Letter (available July 2, 1993), that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Notes (other than a resale of an unsold allotment
from the original sale of Old Notes) with this Prospectus, as it may be amended
or supplemented from time to time. Under the Registration Rights Agreement, the
Company is required to allow Participating Broker-Dealers to use this
Prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of such Exchange Notes. See "Plan of Distribution."
The Exchange Offer shall be deemed to have been consummated upon the
earlier to occur of (i) the Company having exchanged Exchange Notes for all
outstanding Old Notes (other than Old Notes held by a Restricted Holder)
pursuant to the Exchange Offer and (ii) the Company having exchanged, pursuant
to the Exchange Offer, Exchange Notes for all Old Notes that have been tendered
and not withdrawn on the date that is 30 days following the commencement of the
Exchange Offer. In such event, holders of Old Notes seeking liquidity in their
investment would have to rely on exemptions to registration requirements under
the securities laws, including the Securities Act.
As of the date of this Prospectus, $50,000,000 principal amount of Old
Notes are issued and outstanding. In connection with the issuance of the Old
Notes, the Company arranged for the Old Notes to be eligible for trading in the
Private Offering, Resale and Trading through Automated Linkages (PORTAL)
Market, the National Association of Securities Dealers' screen based, automated
market trading of securities eligible for resale under Rule 144A.
The Company shall be deemed to have accepted for exchange validly
tendered Old Notes when, as and if the Company has given oral or written notice
thereof to the Exchange Agent. See "-- Exchange Agent." The Exchange Agent will
act as agent for the tendering holders of Old Notes for the purpose of
receiving Exchange Notes from the Company and delivering Exchange Notes to such
holders. If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date. Holders of Old Notes who tender in the Exchange
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<PAGE> 54
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange of Old Notes pursuant to the Exchange Offer. The Company will pay
all charges and expenses, other than certain applicable taxes, in connection
with the Exchange Offer. See "-- Fees and Expenses."
This Prospectus, together with the accompanying Letter of Transmittal,
is being sent to all registered holders as of the date of this Prospectus.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean ______________ , 1997 unless the
Company, in its sole discretion, extends the Exchange Offer, in which case the
term "Expiration Date" shall mean the latest date to which the Exchange Offer
is extended. In order to extend the Expiration Date, the Company will notify
the Exchange Agent of any extension by oral or written notice and will mail to
the record holders of Old Notes an announcement thereof, each prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. Such announcement may state that the Company is
extending the Exchange Offer for a specified period of time. The Company
reserves the right (i) to delay acceptance of any Old Notes, to extend the
Exchange Offer or to terminate the Exchange Offer and to refuse to accept Old
Notes not previously accepted, if any of the conditions set forth herein under
"-- Termination" shall have occurred and shall not have been waived by the
Company (if permitted to be waived by the Company), by giving oral or written
notice of such delay, extension or termination to the Exchange Agent, and (ii)
to amend the terms of the Exchange Offer in any manner deemed by it to be
advantageous to the holders of the Old Notes. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment in a manner reasonably calculated to inform
the holders of the Old Notes of such amendment. Without limiting the manner in
which the Company may choose to make public announcements of any delay in
acceptance, extension, termination or amendment of the Exchange Offer, the
Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest payable semi-annually on April
15 and October 15 of each year, commencing October 15, 1997. Holders of
Exchange Notes of record on October 1, 1997 will receive interest on May 15,
1997 from the date of issuance of the Exchange Notes, plus an amount equal to
the accrued interest on the Old Notes from the date of issuance of the Old
Notes, April 17, 1997,to the date of exchange thereof. Consequently, assuming
the Exchange Offer is consummated prior to the record date in respect of the
October 15, 1997 interest payment for the Old Notes, holders who exchange their
Old Notes for Exchange Notes will receive the same interest payment on October
15, 1997 that they would have received had they not accepted the Exchange
Offer. Interest on the Old Notes accepted for exchange will cease to accrue
upon issuance of the Exchange Notes.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and
date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile or an Agent's
message, together with the Old Notes and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
The tender by a holder of Old Notes will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal. Delivery of all
documents must be made to the Exchange Agent at its address set forth herein.
Holders may also request that their respective brokers, dealers, commercial
banks, trust companies or nominees effect such tender for such holders. The
method of delivery of Old Notes and the Letter of Transmittal and all other
required documents to the Exchange Agent is at the election and risk of the
holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Old Notes should
be sent to the Company. Only a holder of Old Notes may tender such Old Notes in
the Exchange Offer. The term "holder" with respect to the Exchange Offer means
any person in whose name Old Notes are registered on the books of the Company
or any other person who has obtained a properly completed stock power from the
registered holder.
The term "Agent's Message" means a message, transmitted by the
Book-Entry Transfer Facility to, and received by, the Exchange Agent and
forming a part of a Book-Entry Confirmation, which states that such Book-Entry
Transfer Facility has received an express acknowledgment from the participant
in such Book-Entry Transfer Facility tendering Old Notes which are the subject
of such Book-Entry Confirmation that such participant has received and agrees
to be bound by the terms of the Letter of Transmittal, and that the Company may
enforce such agreement against such participant.
Any beneficial holder whose Old Notes are registered in the name of
such holder's broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender should contact such registered holder promptly and
instruct such registered holder to tender on behalf of the registered holder.
If such beneficial holder wishes to tender directly, such beneficial holder
must, prior to completing and executing the Letter of Transmittal and
delivering his Old Notes, either make appropriate
51
<PAGE> 55
arrangements to register ownership of the Old Notes in such holder's name or
obtain a properly completed bond power from the registered holder. The transfer
of record ownership may take considerable time. If the Letter of Transmittal
is signed by the record holder(s) of the Old Notes tendered thereby, the
signature must correspond with the name(s) written on the face of the Old Notes
without alteration, enlargement or any change whatsoever. If the Letter of
Transmittal is signed by a participant in DTC, the signature must correspond
with the name as it appears on the security position listing as the holder of
the Old Notes. Signatures on a Letter of Transmittal or a notice of withdrawal,
as the case may be, must be guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution")unless the Old Notes tendered pursuant thereto are tendered (i) by
a registered holder (or by a participant in DTC whose name appears on a
security position listing as the owner) who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the
Letter of Transmittal and the Exchange Notes are being issued directly to such
registered holder (or deposited into the participant's account at DTC) or (ii)
for the account of an Eligible Institution. If the Letter of Transmittal is
signed by a person other than the registered holder of any Old Notes listed
therein, such Old Notes must be endorsed or accompanied by appropriate bond
powers which authorize such person to tender the Old Notes on behalf of the
registered holder, in either case signed as the name of the registered holder
or holders appears on the Old Notes. If the Letter of Transmittal or any Old
Notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and unless waived by the Company, evidence satisfactory to the Company
of their authority to so act must be submitted with the Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by Old Notes
(or a timely confirmation received of a book-entry transfer of Old Notes into
the Exchange Agent's account at DTC with an Agent's Message) or a Notice of
Guaranteed Delivery from an Eligible Institution is received by the Exchange
Agent. Issuances of Exchange Notes in exchange for Old Notes tendered pursuant
to a Notice of Guaranteed Delivery by an Eligible Institution will be made only
against delivery of the Letter of Transmittal (and any other required
documents) and the tendered Old Notes (or a timely confirmation received of a
book-entry transfer of Old Notes into the Exchange Agent's account at DTC) with
the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Old Notes not properly tendered or any Old Notes the Company's acceptance
of which would, in the opinion of the Company or its counsel, be unlawful. The
Company also reserves the absolute right to waive any conditions of the
Exchange Offer or defects or irregularities in tender as to particular Old
Notes. The Company's interpretation of the terms and conditions of the Exchange
Offer (including the instructions in the Letter of Transmittal) shall be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes nor shall any of them incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such irregularities have been cured or
waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned without cost by the Exchange Agent to the tendering
holder of such Old Notes unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date. In addition,
the Company reserves the right in its sole discretion to (i) purchase or make
offers for any Old Notes that remain outstanding subsequent to the Expiration
Date, or, as set forth under "-- Termination," to terminate the Exchange Offer
and (ii) to the extent permitted by applicable law, purchase Old Notes in the
open market, in privately negotiated transactions or otherwise. The terms of
any such purchases or offers may differ from the terms of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account with respect to the Old
Notes at DTC within two business days after the date of this Prospectus, and
any financial institution which is a participant in DTC may make book-entry
delivery of the Old Notes by causing DTC to transfer such Old Notes into the
Exchange Agent's account in accordance with DTC's procedure for such transfer.
Although delivery of Old Notes may be effected through book-entry transfer into
the Exchange Agent's account at DTC, and Agent's Message must be transmitted to
an received by the Exchange Agent on or prior to the Expiration Date at one of
its addresses set forth below under "B Exchange Agent", or the guaranteed
delivery procedure described below must be complied with. DELIVERY OF DOCUMENTS
TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All references in
this Prospectus to deposit or delivery of Old Notes shall be deemed to include
DTC's book-entry delivery method.
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<PAGE> 56
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and whose Old Notes are not
immediately available or who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or who cannot complete the procedure for book-entry transfer
on a timely basis and deliver an Agent's Message, may effect a tender if: (i)
the tender is made by or through an Eligible Institution; (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by
facsimile transmission, mail or hand delivery)setting forth the name and
address of the holder of the Old Notes, the registration number or numbers of
such Old Notes (if applicable), and the total principal amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that,
within five business days after the Expiration Date, the Letter of Transmittal,
together with the Old Notes in proper form for transfer (or a confirmation of a
book-entry transfer into the Exchange Agent's account at DTC) and any other
documents required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) such properly completed
and executed Letter of Transmittal, together with the certificate(s)
representing all tendered Old Notes in proper form for transfer(or a
confirmation of such a book-entry transfer) and all other documents required by
the Letter of Transmittal are received by the Exchange Agent within five
business days after the Expiration Date.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, certain terms
and conditions which are summarized below and are part of the Exchange Offer.
Each holder who participates in the Exchange Offer will be required to
represent that any Exchange Notes received by it will be acquired in the
ordinary course of its business, that such holder is not participating in, and
has no arrangement with any person to participate in, the distribution (within
the meaning of the Securities Act) of the Exchange Notes, and that such holder
is not a Restricted Holder.
Old Notes tendered in exchange for Exchange Notes (or a timely
confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC) must be received by the Exchange Agent, with the Letter
of Transmittal and any other required documents, by the Expiration Date or
within the time periods set forth above pursuant to a Notice of Guaranteed
Delivery from an Eligible Institution. Each holder tendering the Old Notes for
exchange sells, assigns and transfers the Old Notes to the Exchange Agent, as
agent of the Company, and irrevocably constitutes and appoints the Exchange
Agent as the holder's agent and attorney-in-fact to cause the Old Notes to be
transferred and exchanged. The holder warrants that it has full power and
authority to tender, exchange, sell, assign and transfer the Old Notes and to
acquire the Exchange Notes issuable upon the exchange of such tendered Old
Notes, that the Exchange Agent, as agent of the Company, will acquire good and
unencumbered title to the tendered Old Notes, free and clear of all liens,
restrictions, charges and encumbrances, and that the Old Notes tendered for
exchange are not subject to any adverse claims when accepted by the Exchange
Agent, as agent of the Company. The holder also warrants and agrees that it
will, upon request, execute and deliver any additional documents deemed by the
Company or the Exchange Agent to be necessary or desirable to complete the
exchange, sale, assignment and transfer of the Old Notes. All authority
conferred or agreed to be conferred in the Letter of Transmittal by the holder
will survive the death, incapacity or dissolution of the holder and any
obligation of the holder shall be binding upon the heirs, personal
representatives, successors and assigns of such holder.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the business
day prior to the Expiration Date, unless previously accepted for exchange. To
withdraw a tender of Old Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
business day prior to the Expiration Date and prior to acceptance for exchange
thereof by the Company. Any such notice of withdrawal must (i) specify the name
of the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including, if applicable, the
registration number or numbers and total principal amount of such Old Notes),
(iii) be signed by the Depositor in the same manner as the original signature
on the Letter of Transmittal by which such Old Notes were tendered (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to permit the Trustee with respect to the Old Notes to register the
transfer of such Old Notes into the name of the Depositor withdrawing the
tender, (iv) specify the name in which any such Old Notes are to be registered,
if different from that of the Depositor and (v) if applicable because the Old
Notes have been tendered pursuant to the book-entry procedures, specify the
name and number of the participant's account at DTC to be credited, if
different than that of the Depositor. All questions as to the validity, form
and eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company ,whose determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be
issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. Any Old Notes which have been tendered but which are not accepted
for exchange will be returned to the holder thereof without cost to such holder
as soon as practicable after withdrawal, rejection of tender or termination of
the Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described above under "--Procedures for Tendering" at any
time prior to the
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<PAGE> 57
Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will
not be required to accept for exchange any Old Notes not theretofore accepted
for exchange, and may terminate the Exchange Offer if it determines that the
Exchange Offer violates any applicable law or interpretation of the staff of
the SEC.
If the Company determines that it may terminate the Exchange Offer, as
set forth above, the Company may (i) refuse to accept any Old Notes and return
any Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration of the
Exchange Offer, subject to the rights of such holders of tendered Old Notes to
withdraw their tendered Old Notes or (iii) waive such termination event with
respect to the Exchange Offer and accept all properly tendered Old Notes that
have not been withdrawn. If such waiver constitutes a material change in the
Exchange Offer, the Company will disclose such change by means of a supplement
to this Prospectus that will be distributed to each registered holder of Old
Notes, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered holders of the Old Notes, if the Exchange Offer
would otherwise expire during such period. Holders of Old Notes will have
certain rights against the Company under the Registration Rights Agreement
should the Company fail to consummate the Exchange Offer.
EXCHANGE AGENT
U.S. Trust Company has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
U.S. Trust Company of Texas, N.A.
2001 Ross Avenue, 27th Floor
Dallas, Texas 75201
Attention: Corporate Trust Department
Facsimile: (214) 754-1303
Telephone: (214) 754-1255
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will
be borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or telephone. The Company will not make any payments to brokers,
dealers or other persons soliciting acceptances of the Exchange Offer. The
Company, however, will pay the Exchange Agent reasonable and customary fees for
its services and will reimburse the Exchange Agent for its reasonable
out-of-pocket expenses in connection therewith. The Company may also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus, Letters of Transmittal and related documents to the beneficial
owners of the Old Notes and in handling or forwarding tenders for exchange.
The other expenses incurred in connection with the Exchange Offer
including fees and expenses of the Exchange Agent and Trustee and accounting
and legal fees, will be paid by the Company. The Company will pay all transfer
taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange
Offer. If, however, Exchange Notes or Old Notes not tendered or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Old Notes tendered, or
if tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the
Company upon the consummation of the Exchange Offer. The expenses of the
Exchange Offer will be amortized by the Company over the term of the Exchange
Notes under generally accepted accounting principles.
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<PAGE> 58
DESCRIPTION OF NOTES
The Exchange Notes will be issued, and the Old Notes were issued,
pursuant to the indenture (the "Indenture"), by and among the Company, the
Subsidiary Guarantors and U.S. Trust Company of Texas, N.A., as Trustee (the
"Trustee") dated April 17, 1997. The terms of the Notes include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "TIA"). The following summary of
certain provisions of the Indenture, the Notes and the Subsidiary Guarantees
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the TIA, and to all of the provisions of the
Indenture (copies of which can be obtained from the Company upon request),
including the definitions of certain terms therein and those terms made a part
of the Indenture by reference to the TIA as in effect on the date of the
Indenture. The definitions of certain capitalized terms used in the following
summary are set forth under "-- Certain Definitions" below. For purposes of
this Section, references to the "Company" shall mean Packaged Ice, Inc.,
excluding its Subsidiaries.
The Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as Paying Agent and Registrar for the Notes. The Notes
may be presented for registration of transfer and exchange at the offices of
the Registrar, which currently is the Trustee's corporate trust office. The
Company may change any Paying Agent and Registrar without notice to Holders of
the Notes. The Company will pay principal (and premium, if any) on the Notes
at the Trustee's corporate office in New York, New York. In addition, in the
event the Notes do not remain in book-entry form, interest may be paid at the
Company's option, by wire transfer or check mailed to the registered address of
the Holders as shown on the Note Register.
As of the date of the Indenture, all of the Company's Subsidiaries
will be Restricted Subsidiaries. Subject to the requirements of the Indenture,
the Company will be able to designate future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to the restrictive
covenants set forth in the Indenture.
Any Old Notes that remain outstanding after the completion of the
Exchange Offer, together with the Exchange Notes issued in connection with the
Exchange Offer, will be treated as a single class of securities under the
Indenture.
The obligations of the Company under the Notes will be guaranteed on a
senior basis, jointly and severally, by each of the Subsidiary Guarantors. See
"-- Ranking and Guarantees."
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $50,000,000
and will mature on April 15, 2004. Interest on the Notes will accrue at the
rate of 12% per annum and will be payable semi-annually on each April 15 and
October 15 commencing on October 15, 1997 to the persons who are registered
Holders at the close of business on the April 1 and October 1 immediately
preceding the applicable interest payment date. Interest on the Notes will
accrue from and including the most recent date to which interest has been paid
or, if no interest has been paid, from and including the Issue Date. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months. Interest on the Notes may increase if the Company fails to fulfill its
obligations under the Registration Rights Agreement, and all references to
"interest" herein include any such increased interest. See "Exchange Offer;
Registration Rights; Additional Interest."
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole at any
time or in part from time to time, on and after April 15, 2001, at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the twelve-month period commencing on April 15 of the year
set forth below, plus, in each case, accrued and unpaid interest thereon to the
date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2001 107.00%
2002 103.50%
2003 and thereafter 100.00%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to April 15,
2000, the Company may redeem up to an aggregate of $17.5 million principal
amount of Notes at a redemption price of 112% of the principal amount thereof,
plus accrued and unpaid interest thereon to the redemption date, with the net
proceeds of any Public Equity Offering; provided that at least $32.5 million in
aggregate principal amount of Notes remain outstanding immediately after the
occurrence of such redemption; and provided, further, that such redemption
occurs within 90 days of the date of the closing of such Public Equity
Offering.
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<PAGE> 59
SINKING FUND
There will be no mandatory sinking fund payments for the Notes.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which such Notes are listed or, if such Notes are not then listed on
a national securities exchange, on a pro rata basis, by lot or by such method
as the Trustee shall deem fair and appropriate; provided, however, that no
Notes of a principal amount of $1,000 or less shall be redeemed in part.
Notice of redemption shall be mailed by first-class mail at least 30 but not
more than 60 days before the redemption date to each Holder of Notes to be
redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in a
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. On and
after the redemption date, interest will cease to accrue on Notes or portions
thereof called for redemption.
RANKING AND GUARANTEES
The indebtedness of the Company evidenced by the Notes will rank
senior in right of payment to all Subordinated Indebtedness of the Company and
pari passu in right of payment with all existing and future senior Indebtedness
of the Company. The Notes are unsecured and holders of secured Indebtedness of
the Company will effectively rank prior to Holders of the Notes with respect to
the assets securing such secured Indebtedness. As of December 31, 1996, after
giving pro forma effect to the issuance of the Notes and the application of the
estimated net proceeds therefrom, the Company would have had no senior
Indebtedness outstanding.
Each Subsidiary Guarantor fully and unconditionally guarantees,
jointly and severally, to each Holder and the Trustee, the full and prompt
performance of the Company's obligations under the Indenture and the Notes,
including the payment of principal of and interest on the Notes. The
Subsidiary Guarantee of each Subsidiary Guarantor will rank pari passu in right
of payment to all existing and future senior Indebtedness of such Subsidiary
Guarantor. As of December 31, 1996, after giving pro forma effect to the
issuance of the Notes and the application of the estimated net proceeds
therefrom, the Subsidiary Guarantors would have had no senior Indebtedness
outstanding. The obligations of each Subsidiary Guarantor are limited to the
maximum amount which, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor
under its Subsidiary Guarantee or pursuant to its contribution obligations
under the Indenture, will result in the obligations of such Subsidiary
Guarantor under the Subsidiary Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Subsidiary
Guarantor that makes a payment or distribution under a Subsidiary Guarantee
shall be entitled to a contribution from each other Subsidiary Guarantor in an
amount pro rata, based on the net assets of each Subsidiary Guarantor,
determined in accordance with GAAP.
Each Subsidiary Guarantor may consolidate with or merge into or sell
its assets to the Company or another Subsidiary Guarantor without limitation,
or with other Persons upon the terms and conditions set forth in the Indenture.
See "-- Certain Covenants -- Mergers, Consolidations and Sale of Assets" and
"-- Certain Covenants -- Asset Sales." In the event all of the capital stock of
a Subsidiary Guarantor is sold (including by way of merger or consolidation) by
the Company and the sale complies with the provisions set forth in "-- Certain
Covenants -- Asset Sales," the Subsidiary Guarantee with respect to such
Subsidiary Guarantor will be released.
Separate financial statements of the Subsidiary Guarantors are not
included herein (except for SWI, Mission and STPI) because such Subsidiary
Guarantors are jointly and severally liable with respect to the Company's
obligations pursuant to the Notes, and the aggregate net assets, earnings and
equity of the Subsidiary Guarantors and the Company are substantially
equivalent to the net assets, earnings and equity of the Company on a
consolidated basis.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes on a Business
Day (the "Change of Control Payment Date") not more than 60 nor less than 30
days following such Change of Control, pursuant to the offer described below
(the "Change of Control Offer") at an offer price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest thereon to
the date of repurchase (the "Change of Control Payment"). Within 30 days
following any Change of Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Notes pursuant to the procedures required by
the Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other
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<PAGE> 60
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being repurchased
by the Company. The Paying Agent will promptly mail or otherwise deliver to
each Holder of Notes so tendered the Change of Control Payment for such Notes,
and the Trustee will promptly authenticate and mail (or cause to be transferred
by book-entry) to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture will not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction. The provisions of the Indenture may
not afford Holders protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction affecting the
Company that may adversely affect Holders, if such transaction is not the type
of transaction included within the definition of Change of Control. A
transaction involving the management of the Company or its Affiliates, or a
transaction involving a recapitalization of the Company will result in a Change
of Control only if it is the type of transaction specified in such definition.
The existence of a Holder's rights to require the Company to
repurchase Notes in connection with a Change of Control may deter a third party
from acquiring the Company in a transaction that would constitute a "Change of
Control."
The source of funds for any repurchase of Notes upon a Change of
Control will be the Company's cash or cash generated from operations or other
sources, including borrowings or sales of assets; however, there can be no
assurance that sufficient funds will be available at the time of any Change of
Control to repay all Indebtedness owing under other senior Indebtedness or to
make any required repurchases of the Notes. Any failure by the Company to
repurchase Notes tendered pursuant to a Change of Control Offer will constitute
an Event of Default. See "Risk Factors -- Substantial Leverage and Ability to
Service Debt."
The Company will not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and repurchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of the Company and its Subsidiaries, taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under New York law, which is the law governing the Indenture and the Notes.
Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries, taken as a whole, to another Person or group may be uncertain.
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<PAGE> 61
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
Limitation on Indebtedness. (a) The Indenture provides that neither
the Company nor any of its Subsidiaries will, directly or indirectly, Incur any
Indebtedness, including, without limitation, any Acquired Indebtedness (other
than Permitted Indebtedness).
(b) Notwithstanding the foregoing limitations, the Company and its
Subsidiaries may Incur Indebtedness (including, without limitation, Acquired
Indebtedness), in each case, if (i) no Default or Event of Default shall have
occurred and be continuing on the date of the proposed Incurrence thereof or
would result as a consequence of such proposed Incurrence and (ii) immediately
after giving effect to such proposed Incurrence, the Consolidated Fixed Charge
Coverage Ratio of the Company is at least equal to 2.0 to 1.0 if such proposed
Incurrence is on or prior to March 31, 1999; and at least equal to 2.50 to 1.0
if such proposed Incurrence is thereafter.
(c) Neither the Company nor any Subsidiary Guarantor will, directly
or indirectly, in any event Incur any Indebtedness that by its terms (or by the
terms of any agreement governing such Indebtedness) is subordinated to any
other Indebtedness of the Company or such Subsidiary Guarantor, as the case may
be, unless such Indebtedness is also by its terms (or by the terms of any
agreement governing such Indebtedness) made expressly subordinate to the Notes
or the Subsidiary Guarantee of such Subsidiary Guarantor, as the case may be,
to the same extent and in the same manner as such Indebtedness is subordinated
pursuant to subordination provisions that are most favorable to the holders of
any other Indebtedness of the Company or such Subsidiary Guarantor, as the case
may be.
(d) Notwithstanding the foregoing limitations, the Company and its
Subsidiaries may Incur no more than $37,500,000 of secured Indebtedness.
Limitation on Restricted Payments. The Indenture provides that neither
the Company nor any of its Subsidiaries will, directly or indirectly (a)
purchase, redeem or otherwise acquire or retire for value any Capital Stock of
the Company, or any warrants, rights or options to acquire shares of any class
of such Capital Stock, other than through the exchange therefor solely of
Qualified Capital Stock of the Company or warrants, rights or options to
acquire Qualified Capital Stock of the Company, (b) make any principal payment
on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire
for value, prior to any scheduled final maturity, scheduled repayment or
scheduled sinking fund payment, any Subordinated Indebtedness of the Company or
(c) make any Investment (other than Permitted Investments) in any Person (each
of the foregoing prohibited actions set forth in clauses (a), (b) and (c) being
referred to as a "Restricted Payment"), if at the time of such proposed
Restricted Payment or immediately after giving effect thereto, (i) a Default or
an Event of Default has occurred and is continuing or would result therefrom,
or (ii) the Company is not able to Incur at least $1.00 of additional
Indebtedness in accordance with paragraph (b) of "-- Limitation on
Indebtedness" above (as if such Restricted Payment had been made as of the last
day of the Four Quarter Period), or (iii) the aggregate amount of Restricted
Payments (including such proposed Restricted Payment) made subsequent to the
Issue Date exceeds or would exceed the sum of: (u) 50% of the Consolidated Net
Income (or if Consolidated Net Income shall be a loss, minus 100% of such loss)
of the Company during the period (treating such period as a single accounting
period) from the beginning of the first fiscal quarter commencing after the
Issue Date to the end of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
Restricted Payment; (v) 100% of the aggregate Net Equity Proceeds received by
the Company from any Person from the issuance and sale subsequent to the Issue
Date of Qualified Capital Stock of the Company other than any Qualified Capital
Stock sold to a Subsidiary of the Company; (w) the aggregate net cash proceeds
received after the Issue Date by the Company (other than from any of its
Subsidiaries) upon the exercise of any options, warrants or rights to purchase
shares of Qualified Capital Stock of the Company; (x) the aggregate net cash
proceeds received after the Issue Date by the Company from the issuance or sale
(other than to any of its Subsidiaries) of debt securities or shares of
Disqualified Capital Stock that have been converted into or exchanged for
Qualified Capital Stock of the Company, together with the aggregate cash
received by the Company at the time of such conversion or exchange; (y) an
amount equal to the net reduction in Investments, subsequent to the date of the
Indenture, in any Person resulting from payments of interest on debt,
dividends, repayments of loans or advances, return of capital, or other
transfers of property (but only to the extent such distributions are not
included in the calculation of Consolidated Net Income), in each case, to the
Company or any Subsidiary from any Person, not to exceed in the case of any
Person, the amount of Investments previously made by the Company or any
Subsidiary in such Person and which was treated as a Restricted Payment; and
(z) $100,000.
Notwithstanding the foregoing, these provisions do not prohibit: (1)
the acquisition of Capital Stock of the Company or warrants, rights or options
to acquire Capital Stock of the Company either (i) solely in exchange for
shares of Qualified Capital Stock of the Company or warrants, rights or options
to acquire Qualified Capital Stock of the Company, or (ii) through the
application of net proceeds of a substantially concurrent sale for cash (other
than to a Subsidiary of the Company) of shares of Qualified Capital Stock of
the Company or warrants, rights or options to acquire Qualified Capital Stock
of the Company; (2) the acquisition of any Subordinated Indebtedness of the
Company either (i) solely in exchange for shares of Qualified Capital Stock of
the Company, or (ii) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a
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Subsidiary of the Company) of (A) shares of Qualified Capital Stock of the
Company or warrants, rights or options to acquire Qualified Capital Stock of
the Company or (B) Permitted Refinancing Indebtedness; or (3) loans by the
Company or any Subsidiary to employees in the ordinary course of business up to
an aggregate principal amount of $100,000 at any one time outstanding;
provided, however, that in the case of clauses (1), (2) and (3) of this
paragraph, no Default or Event of Default shall have occurred and be continuing
at the time of such payment or as a result thereof. In determining the
aggregate amount of Restricted Payments made subsequent to the Issue Date,
amounts expended pursuant to clauses (1)(ii), (2)(i) and (2)(ii)(A) shall, in
each case, be included in such calculation.
For purposes of the foregoing provisions, the amount of any Restricted
Payment (other than cash) shall be the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) on the date of the Restricted Payment of the asset(s)
proposed to be transferred by the Company or such Subsidiary, as the case may
be, pursuant to the Restricted Payment. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment complies with the Indenture
and setting forth in reasonable detail the basis upon which the required
calculations were computed, which calculations may be based upon the Company's
latest available internal quarterly financial statements.
The Board of Directors may designate any Restricted Subsidiary to be
an Unrestricted Subsidiary if such designation would be permitted by the
provisions of this "Limitation on Restricted Payments" covenant and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the
extent repaid in cash prior to such designation) in the Restricted Subsidiary
so designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
clause (iii) of the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
fair market value of such Investments at the time of such designation.
For purposes of this covenant, if a particular Restricted Payment
involves a non-cash payment, including a distribution of assets, then such
Restricted Payment shall be deemed to be an amount equal to the cash portion of
such Restricted Payment, if any, plus an amount equal to the fair market value
of the non-cash portion of such Restricted Payment.
Limitation on Dividends. The Indenture provides that the Company will
not declare or pay any dividend or make any distribution (other than dividends
or distributions payable solely in Qualified Capital Stock of the Company) on
shares of the Company's Capital Stock to holders of such Capital Stock.
Asset Sales. The Indenture provides that the Company will not, and
will not permit any of its Subsidiaries to, engage in an Asset Sale unless (i)
the Company or the Subsidiary, as the case may be, receives consideration at
the time of such Asset Sale at least equal to the fair market value (evidenced
by a resolution of the Board of Directors of the Company set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Properties
issued or sold or otherwise disposed of and (ii) at least 85% of the
consideration therefor received by the Company or such Subsidiary is in the
form of cash or Cash Equivalents; provided that the amount of (x) any
liabilities (as shown on the Company's or such Subsidiary's most recent balance
sheet) of the Company or any Subsidiary (other than contingent liabilities and
liabilities that are Subordinated Indebtedness or otherwise by their terms
subordinated to the Notes or the Subsidiary Guarantees) that are assumed by the
transferee of any such assets pursuant to a customary novation agreement that
releases the Company or such Subsidiary from further liability and (y) any
notes or other obligations received by the Company or any such Subsidiary from
such transferee that are converted by the Company or such Subsidiary into cash
within 180 days of closing such Asset Sale (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision.
Within 180 days after the receipt of any Net Cash Proceeds from any
Asset Sale, the Company may (i) apply all or any of the Net Cash Proceeds
therefrom to repay Indebtedness (other than Subordinated Indebtedness) of the
Company or any Subsidiary, provided, in each case, that the related loan
commitment of any revolving credit facility or other borrowing (if any) is
thereby permanently reduced by the amount of such Indebtedness so repaid, or
(ii) invest all or any part of the Net Cash Proceeds thereof in properties and
other capital assets that replace the properties or other capital assets that
were the subject of such Asset Sale or in other properties or other capital
assets that will be used in the Ice Business. Pending the final application of
any such Net Cash Proceeds, the Company may temporarily reduce borrowings under
any revolving credit facility or otherwise invest such Net Cash Proceeds in any
manner that is not prohibited by the Indenture. Any Net Cash Proceeds from an
Asset Sale that are not applied or invested as provided in the first sentence
of this paragraph will be deemed to constitute "Available Proceeds Amount."
When the aggregate Available Proceeds Amount exceeds $2.5 million, the Company
shall make an offer to purchase, from all Holders of the Notes and any then
outstanding Pari Passu Indebtedness required to be repurchased or repaid on a
permanent basis in connection with an Asset Sale, an aggregate principal amount
of Notes and any such Pari Passu Indebtedness equal to such Available Proceeds
Amount as follows:
(i) (A) The Company shall make an offer to purchase (an
"Asset Proceeds Offer") from all Holders of the Notes in accordance
with the procedures set forth in the Indenture the maximum principal
amount (expressed as a multiple of $1,000) of Notes that may be
purchased out of an amount (the "Payment Amount") equal to the product
of
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such Available Proceeds Amount multiplied by a fraction, the numerator
of which is the outstanding principal amount of the Notes and the
denominator of which is the sum of the outstanding principal amount of
the Notes and such Pari Passu Indebtedness, if any (subject to
proration in the event such amount is less than the aggregate Offered
Price (as defined in clause (ii) below) of all Notes tendered), and
(B) to the extent required by any such Pari Passu Indebtedness and
provided there is a permanent reduction in the principal amount of
such Pari Passu Indebtedness, the Company shall make an offer to
purchase such Pari Passu Indebtedness (a "Pari Passu Offer") in an
amount (the "Pari Passu Indebtedness Amount") equal to the excess of
the Available Proceeds Amount over the Payment Amount.
(ii) The offer price for the Notes shall be payable in cash
in an amount equal to 100% of the principal amount of the Notes
tendered pursuant to an Asset Proceeds Offer, plus accrued and unpaid
interest, if any, to the date such Asset Proceeds Offer is consummated
(the "Offered Price"), in accordance with the procedures set forth in
the Indenture. To the extent that the aggregate Offered Price of the
Notes tendered pursuant to an Asset Proceeds Offer is less than the
Payment Amount relating thereto or the aggregate amount of the Pari
Passu Indebtedness that is purchased or repaid pursuant to the Pari
Passu Offer is less than the Pari Passu Indebtedness Amount (such
shortfall constituting an "Asset Proceeds Deficiency"), the Company
may use such Asset Proceeds Deficiency, or a portion thereof, for
general corporate purposes, subject to the limitations of the
"Limitation on Restricted Payments" covenant.
(iii) If the aggregate Offered Price of Notes validly
tendered and not withdrawn by Holders thereof exceeds the Payment
Amount, Notes to be purchased will be selected on a pro rata basis.
Upon completion of such Net Proceeds Offer and Pari Passu Offer, the
amount of Excess Proceeds shall be reset to zero.
The Company will not permit any Subsidiary to enter into or suffer to
exist any agreement (excluding Permitted Liens) that would place any
restriction of any kind (other than pursuant to law or regulation) on the
ability of the Company to make an Asset Proceeds Offer following any Asset
Sale. The Company will comply with Rule 14e-1 under the Exchange Act, and any
other securities laws and regulations thereunder, if applicable, in the event
that an Asset Sale occurs and the Company is required to purchase Notes as
described above.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Indenture provides that neither the Company nor any of its
Subsidiaries will, directly or indirectly, create or otherwise cause or permit
or suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (a) pay dividends or make any other distributions
on its Capital Stock; (b) make loans or advances or pay any Indebtedness or
other obligation owed to the Company or to any Subsidiary of the Company; or
(c) transfer any of its property or assets to the Company or to any Subsidiary
of the Company (each such encumbrance or restriction in clause (a), (b), or (c)
a "Payment Restriction"), except for such encumbrances or restrictions existing
under or by reason of: (1) applicable law; (2) the Indenture; (3) customary
non-assignment provisions of any lease or license agreements or similar
agreements entered into in the ordinary course of business of any Subsidiary of
the Company; (4) any instrument governing Acquired Indebtedness Incurred in
accordance with paragraph (b) of the covenant "-- Limitation on Indebtedness";
provided that such encumbrance or restriction is not, and will not be,
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, becoming a Subsidiary of
the Company; (5) agreements existing on the Issue Date to the extent and in the
manner such agreements are in effect on the Issue Date; (6) any restriction or
encumbrance contained in contracts for the sale of assets to be consummated in
accordance with the Indenture solely in respect of the assets to be sold
pursuant to such contract; (7) any restrictions on the sale or other
disposition or encumbrance of any property securing Indebtedness as a result of
a Permitted Lien on such property; (8) any agreement relating to an acquisition
of property, so long as the encumbrances or restrictions in any such agreement
relate solely to the property so acquired and are not or were not created in
anticipation of or in connection with the acquisition thereof; (9) the Credit
Facilities; or (10) any encumbrance or restriction contained in Permitted
Indebtedness or Permitted Refinancing Indebtedness Incurred to Refinance the
Indebtedness Incurred pursuant to an agreement referred to in clause (4), (5)
or (9) above; provided that the provisions relating to such encumbrance or
restriction contained in any such Permitted Refinancing Indebtedness are no
less favorable to the Company or to the Holders in any material respect in the
reasonable and good faith judgment of the Board of Directors of the Company
than the provisions relating to such encumbrance or restriction contained in
agreements referred to in such clause (4), (5) or (9).
Limitation on Issuances and Sales of Capital Stock of Subsidiaries.
The Indenture provides that the Company will not cause or permit any of its
Subsidiaries to issue or sell any Capital Stock (other than to the Company or
to a wholly-owned Subsidiary of the Company) or permit any Person (other than
the Company or a wholly-owned Subsidiary of the Company) to own or hold any
Capital Stock of any Subsidiary of the Company or any Lien or security interest
therein; provided, however, that such covenant shall not prohibit the
disposition (by sale, merger or otherwise) of all of the Capital Stock of a
Subsidiary provided any Net Cash Proceeds therefrom are applied in accordance
with the covenants described under "-- Asset Sales."
Limitation on Liens. The Indenture provides that the Company will not,
and will not permit any Subsidiary to, directly or indirectly, create, incur,
assume, affirm or suffer to exist or become effective any Lien of any kind
except for Permitted Liens, upon any of their respective property or assets,
whether now owned or acquired after the Issue Date, or any income, profits or
proceeds therefrom, to secure (a) any Indebtedness of the Company or such
Subsidiary (if it is not also a Subsidiary Guarantor),
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unless prior to, or contemporaneously therewith, the Notes are equally and
ratably secured, or (b) any Indebtedness of any Subsidiary Guarantor, unless
prior to, or contemporaneously therewith, the Subsidiary Guarantees are equally
and ratably secured; provided, however, that if such Indebtedness is expressly
subordinated to the Notes or the Subsidiary Guarantees, the Lien securing such
Indebtedness will be subordinated and junior to the Lien securing the Notes or
the Subsidiary Guarantees, as the case may be, with the same relative priority
as such Indebtedness has with respect to the Notes or the Subsidiary
Guarantees. The foregoing covenant will not apply to any Lien securing
Acquired Indebtedness, provided that any such Lien extends only to the property
or assets that were subject to such Lien prior to the related acquisition by
the Company or such Subsidiary and was not created, incurred or assumed in
contemplation of such transaction. The incurrence of additional secured
Indebtedness by the Company and its Subsidiaries is subject to further
limitations on the incurrence of Indebtedness as described under "-- Limitation
on Indebtedness."
Mergers, Consolidations and Sale of Assets. The Indenture provides
that the Company will not, in a single transaction or series of related
transactions, consolidate or merge with or into any Person, or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
Company's assets (determined on a consolidated basis for the Company and the
Company's Subsidiaries) whether as an entirety or substantially as an entirety
to any Person unless: (i) either (1) the Company shall be the surviving or
continuing corporation or (2) the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other disposition
the properties and assets of the Company and of the Company's Subsidiaries
substantially as an entirety (the "Surviving Entity") (x) shall be a
corporation organized and validly existing under the laws of the United States
or any State thereof or the District of Columbia and (y) shall expressly
assume, by supplemental indenture (in form and substance satisfactory to the
Trustee), executed and delivered to the Trustee, the due and punctual payment
of the principal of, and premium, if any, and interest on all of the Notes and
the performance of every covenant of the Notes, the Indenture and the
Registration Rights Agreement on the part of the Company to be performed or
observed; (ii) immediately after giving effect to such transaction and, if
applicable, the assumption contemplated by clause (i)(2)(y) above (including
giving effect to any Indebtedness and Acquired Indebtedness Incurred or
anticipated to be Incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be, (1)
shall have a Consolidated Net Worth equal to or greater than the Consolidated
Net Worth of the Company immediately prior to such transaction and (2) shall be
able to Incur at least $1.00 of additional Indebtedness pursuant to paragraph
(b) of "-- Limitation on Indebtedness"; provided that in determining the
Consolidated Fixed Charge Coverage Ratio of the Company or such Surviving
Entity, as the case may be, such ratio shall be calculated as if the
transaction (including the Incurrence of any Indebtedness or Acquired
Indebtedness) took place on the first day of the Four Quarter Period; (iii)
immediately before and immediately after giving effect to such transaction and,
if applicable, the assumption contemplated by clause (i)(2)(y) above
(including, without limitation, giving effect to any Indebtedness and Acquired
Indebtedness Incurred or anticipated to be Incurred and any Lien granted in
connection with or in respect of the transaction), no Default and no Event of
Default shall have occurred or be continuing; and (iv) the Company or the
Surviving Entity shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture comply with the applicable provisions of the Indenture
and that all conditions precedent in the Indenture relating to such transaction
have been satisfied.
Upon any such consolidation, merger, conveyance, lease or transfer in
accordance with the foregoing, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
lease or transfer is made will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture with the
same effect as if such successor had been named as the Company therein, and
thereafter (except in the case of a sale, assignment, transfer, lease,
conveyance or other disposition) the predecessor corporation will be relieved
of all further obligations and covenants under the Indenture and the Notes.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Subsidiary Guarantee is to be released in accordance with the terms of the
Guarantee and the Indenture in connection with any transaction complying with
the provisions of "-- Asset Sales") will not, and the Company will not cause or
permit any Subsidiary Guarantor to, consolidate with or merge with or into any
Person, or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets, other than the Company or any other Subsidiary
Guarantor unless: (i) the entity formed by or surviving any such consolidation
or merger (if other than the Subsidiary Guarantor), or to which such
disposition shall have been made, is a corporation organized and existing under
the laws of the United States, any state thereof or the District of Columbia;
(ii) such entity assumes by supplemental indenture all of the obligations of
the Subsidiary Guarantor on the Subsidiary Guarantee; (iii) immediately after
giving effect to such transaction, no Default or Event of Default shall have
occurred and be continuing; and (iv) immediately after giving effect to such
transaction and the use of any net proceeds therefrom on a pro forma basis, the
Company could satisfy the provisions of clause (ii) of the first paragraph of
this covenant. Any merger or consolidation of a Subsidiary Guarantor with and
into the Company (with the Company being the surviving entity) or another
Subsidiary Guarantor need only comply with clause (iv) of the first paragraph
of this covenant.
Limitation on Transactions with Affiliates. The Indenture provides
that neither the Company nor any Subsidiary of the Company will conduct any
business or enter into any transaction or series of transactions with or for
the benefit of any of their Affiliates (each an "Affiliate Transaction") but
excluding Specified Affiliate Transactions, except in good faith and on terms
that
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are no less favorable to the Company or such Subsidiary, as the case may be,
than those that could have been obtained in a comparable transaction on an
arm's-length basis from a Person not an Affiliate of the Company or such
Subsidiary. All Affiliate Transactions (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $250,000 shall
be approved by the Board of Directors of the Company, such approval to be
evidenced by a Board Resolution stating that such Board of Directors has
determined that such transaction complies with the foregoing provisions. If
the Company or any Subsidiary of the Company enters into an Affiliate
Transaction (or a series of related Affiliate Transactions related to a common
plan) that involves an aggregate fair market value of more than $3,000,000, the
Company or such Subsidiary shall, prior to the consummation thereof, obtain a
favorable opinion as to the fairness of such transaction or series of related
transactions to the Company or the relevant Subsidiary, as the case may be,
from a financial point of view, from an Independent Financial Advisor and file
the same with the Trustee. Notwithstanding the foregoing, the restrictions set
forth in this covenant shall not apply to (i) transactions between the Company
and any Subsidiary or between Subsidiaries, (ii) any employee compensation
arrangement of the Company or any Subsidiary which has been approved by a
majority of the Company's disinterested directors and found in good faith by
such directors to be in the reasonable best interest of the Company or such
Subsidiary, as the case may be, or (iii) customary directors' fees,
indemnification and similar arrangements.
Additional Subsidiary Guarantees. If the Company or any of its
Subsidiaries transfers or causes to be transferred, in one transaction or a
series of related transactions, any property to any Subsidiary that is not a
Subsidiary Guarantor, or if the Company or any of its Subsidiaries shall
organize, acquire or otherwise invest in another Subsidiary having total assets
with a book value in excess of $50,000, then such transferee or acquired or
other Subsidiary shall (i) execute and deliver to the Trustee a supplemental
indenture in form reasonably satisfactory to the Trustee pursuant to which such
Subsidiary shall fully and unconditionally guarantee all of the Company's
obligations under the Notes and the Indenture on the terms set forth in the
Indenture and (ii) deliver to the Trustee an Opinion of Counsel that such
supplemental indenture has been duly authorized, executed and delivered by such
Subsidiary and constitutes a legal, valid, binding and enforceable obligation
of such Subsidiary. Thereafter, such Subsidiary shall be a Subsidiary
Guarantor for all purposes of the Indenture.
Limitation on Conduct of Business. The Indenture provides that the
Company will not, and will not permit any of its Subsidiaries to, engage in the
conduct of any business other than the Ice Business on a basis consistent with
the conduct of such business as it is conducted on the Issue Date.
Limitation on Status as Investment Company. The Indenture will
prohibit the Company and the Subsidiary Guarantors from being required to
register as an "investment company" (as that term is defined in the Investment
Company Act of 1940, as amended), or from otherwise becoming subject to
regulation under the Investment Company Act of 1940.
Sale and Leaseback Transactions. The Indenture provides that the
Company will not, and will not permit any of its Subsidiaries to, enter into
any sale and leaseback transaction; provided that the Company or any
Subsidiary, as applicable, may enter into a sale and leaseback transaction if
(i) the Company could have (a) incurred Indebtedness in an amount equal to the
Attributable Indebtedness relating to such sale and leaseback transaction
pursuant to the Consolidated Fixed Charge Coverage Ratio test set forth in
clause (b) of the covenant described above under the caption "-- Limitation on
Indebtedness" and (b) incurred a Lien to secure such Indebtedness pursuant to
the covenant described above under the caption "-- Limitation on Liens," (ii)
the gross cash proceeds of such sale and leaseback transaction are at least
equal to the fair market value (as determined in good faith by the Board of
Directors of the Company and set forth in an Officers' Certificate delivered to
the Trustee) of the property that is the subject of such sale and leaseback
transaction and (iii) the transfer of assets in such sale and leaseback
transaction is permitted by, and the Company applies the proceeds of such
transaction in compliance with, the covenant described under the caption "--
Asset Sales."
Reports to Holders. The Company will file with the Commission all
information, documents and reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the Company
is then subject to such filing requirements so long as the Commission will
accept such filings. The Company will file with the Trustee, within 15 days
after it files them with the Commission, copies of the annual reports and of
the information, documents and other reports (or copies of such portions of any
of the foregoing as the Commission may by rules and regulations prescribe),
without exhibits, which the Company files with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act. Regardless of whether the Company is
required to furnish such reports to its stockholders pursuant to the Exchange
Act, the Company will cause its consolidated financial statements, comparable
to that which would have been required to appear in annual or quarterly
reports, to be delivered to the Trustee and the Holders. The Company will also
make such reports available to prospective purchasers of the Notes, securities
analysts and broker-dealers upon their request. In addition, the Indenture
requires that for so long as any of the Notes remain outstanding the Company
will make available to any prospective purchaser of the Notes or beneficial
owner of the Notes in connection with any sale thereof the information required
by Rule 144A(d)(4) under the Securities Act, until such time as the Company has
either consummated the exchange offer for the Notes for securities identical in
all material respects which have been registered under the Securities Act or
until such time as the holders thereof have disposed of such Notes pursuant to
an effective registration statement filed by the Company.
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EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of
Default":
(i) the failure to pay interest on any Note for a period of
30 days or more after such interest becomes due and payable; or
(ii) the failure to pay the principal on any Note, when such
principal becomes due and payable, at maturity, upon redemption,
pursuant to an Asset Sale Offer or a Change of Control Offer or
otherwise; or
(iii) (x) the failure of the Company or any Subsidiary
Guarantor to comply with any of the terms or provisions of "-- Certain
Covenants -- Mergers, Consolidations and Sale of Assets" or (y) a
default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a
period of 30 days after the Company receives written notice specifying
the default from the Trustee or from Holders of at least 25% in
principal amount of outstanding Notes; or
(iv) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness of the Company or of any Subsidiary of the
Company (or the payment of which is guaranteed by the Company or any
Subsidiary of the Company) which default (a) is caused by a failure to
pay principal of or premium, if any, or interest on such Indebtedness
after any applicable grace period provided in such Indebtedness on the
date of such default (a "payment default") or (b) results in the
acceleration of such Indebtedness prior to its express maturity and,
in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which
there has been a payment default or the maturity of which has been so
accelerated, aggregates $1,000,000; or
(v) one or more judgments in an aggregate amount in excess of
$1,000,000 (which are not covered by third-party insurance as to which
a financially sound insurer has not disclaimed coverage) being
rendered against the Company or any of its Subsidiaries and such
judgments remain undischarged, or unstayed or unsatisfied for a period
of 60 days after such judgment or judgments become final and
non-appealable; or
(vi) certain events of bankruptcy, insolvency or
reorganization affecting the Company or any of its Subsidiaries; or
(vii) any of the Subsidiary Guarantees cease to be in full
force and effect or any of the Subsidiary Guarantees are declared to
be null and void and unenforceable or any of the Subsidiary Guarantees
are found to be invalid or any of the Subsidiary Guarantors denies its
liability under its Subsidiary Guarantee (other than by reason of
release of a Subsidiary Guarantor in accordance with the terms of the
Indenture).
If an Event of Default (other than an Event of Default specified in
clause (vi) above with respect to the Company) occurs and is continuing, then
and in every such case the Trustee or the Holders of not less than 25% in
aggregate principal amount of the then outstanding Notes may declare the unpaid
principal of, premium, if any, and accrued and unpaid interest on, all the
Notes then outstanding to be due and payable, by a notice in writing to the
Company (and to the Trustee, if given by Holders) and upon such declaration
such principal amount, premium, if any, and accrued and unpaid interest will
become immediately due and payable. If an Event of Default with respect to the
Company specified in clause (vi) above occurs, all unpaid principal of, and
premium, if any, and accrued and unpaid interest on, the Notes then outstanding
will ipso facto become due and payable without any declaration or other act on
the part of the Trustee or any Holder.
The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may rescind an acceleration and its
consequences if all existing Events of Default (other than the nonpayment of
principal of and premium, if any, and interest on the Notes which has become
due solely by virtue of such acceleration) have been cured or waived and if the
rescission would not conflict with any judgment or decree. No such rescission
shall affect any subsequent Default or impair any right consequent thereto.
Notwithstanding the foregoing, if an Event of Default specified in
clause (iv) above shall have occurred and be continuing, such Event of Default
and any consequential acceleration shall be automatically rescinded if the
Indebtedness that is the subject of such Event of Default has been repaid, or
if the default relating to such Indebtedness is waived or cured and if such
Indebtedness has been accelerated, the holders thereof have rescinded their
declaration of acceleration in respect of such Indebtedness (provided, in each
case, that such repayment, waiver, cure or rescission is effected within a
period of 10 days from the continuation of such default beyond the applicable
grace period or the occurrence of such acceleration).
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The Holders of a majority in principal amount of the Notes may waive
any existing Default or Event of Default under the Indenture, and its
consequences, except a Default in the payment of the principal of or interest
on any Notes or a Default in respect of any term or provision of the Notes or
the Indenture that cannot be modified or amended without the consent of all
Holders.
Holders of the Notes may not enforce the Indenture or the Notes except
as provided in the Indenture and under the TIA. Subject to the provisions of
the Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable security or indemnity. Subject to all
provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the then outstanding Notes have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
Under the Indenture, the Company is required to provide an Officers'
Certificate to the Trustee promptly upon any such officer obtaining knowledge
of any Default or Event of Default (provided, that such officers shall provide
such certification at least annually whether or not they know of any Default or
Event of Default) that has occurred and, if applicable, describe such Default
or Event of Default and the status thereof.
DEFEASANCE
The Indenture provides that the Company may, at its option and at any
time, elect to have the obligations of the Company and the Subsidiary
Guarantors discharged in accordance with the provisions set forth below with
respect to the Notes then outstanding. Such defeasance means that the Company
shall be deemed to have paid and discharged the entire indebtedness represented
by such outstanding Notes and the Company and the Subsidiary Guarantors shall
be deemed to have satisfied all their respective other obligations under the
Notes, the Subsidiary Guarantees and the Indenture, except for (i) the rights
of holders of such outstanding Notes to receive payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments
are due, (ii) the Company's and the Subsidiary Guarantors' respective
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and (iv) the redemption and defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
respective obligations of the Company and the Subsidiary Guarantors released
with respect to certain covenants in the Indenture ("covenant defeasance"), and
any omission to comply with such obligations shall not constitute a Default or
an Event of Default with respect to the Notes. In order to exercise either
defeasance or covenant defeasance, (i) the Company must irrevocably deposit
with the Trustee, in trust, for the benefit of the holders of the Notes, cash
in U.S. dollars, U.S. Government Obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay the principal of, premium, if any,
and interest on such outstanding Notes on the stated maturity thereof or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of defeasance, the Company shall have delivered to the
Trustee an Opinion of Counsel stating that (A) the Company has received from,
or there has been published by, the Internal Revenue Service a ruling or (B)
since the Issue Date, there has been a change in the applicable federal income
tax law, in either case to the effect that, and based thereon such Opinion of
Counsel shall confirm that, the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred; (iii) in the case of covenant defeasance, the
Company shall have delivered to the Trustee an Opinion of Counsel to the effect
that the holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit; (v) such defeasance or
covenant defeasance shall not result in a breach or violation of, or constitute
a default under, the Indenture or any other material agreement or instrument to
which the Company is a party or by default under, the Indenture or any other
material agreement or instrument to which the Company is a party or by which it
is bound; (vi) in the case of defeasance or covenant defeasance, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect that
after the 91st day following the deposit, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization or
similar law affecting creditors' rights generally and that such defeasance or
covenant defeasance will not result in the Trustee or the trust arising from
such deposit constituting an Investment Company as defined in the Investment
Company Act of 1940, as amended; and (vii) the Company shall have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel each stating
that all conditions precedent provided for relating to either the defeasance or
the covenant defeasance, as the case may be, have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, without the consent of
the Holders, may amend the Indenture for certain specified purposes, including
curing ambiguities, defects or inconsistencies, so long as such change does not
adversely affect the rights of any of the Holders. Other modifications and
amendments of the Indenture may be made with the consent of
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the Holders of a majority in principal amount of the then outstanding Notes
issued under the Indenture, except that, without the consent of each Holder of
the Notes affected thereby, no amendment may, directly or indirectly: (i)
reduce the amount of Notes whose Holders must consent to an amendment; (ii)
reduce the rate of or change the time for payment of interest, including
defaulted interest, on any Notes; (iii) reduce the principal of or change the
fixed maturity of any Notes, or change the date on which any Notes may be
subject to redemption or repurchase, or reduce the redemption or repurchase
price therefor; (iv) make any Notes payable in money other than that stated in
the Notes; (v) make any change in provisions of the Indenture protecting the
right of each Holder to receive payment of principal of and interest on such
Note on or after the due date thereof or to bring suit to enforce such payment,
or permitting Holders of a majority in principal amount of the Notes to waive
Defaults or Events of Default; (vi) amend, modify or change the obligation of
the Company to make or consummate a Change of Control Offer, an Asset Sale
Offer or waive any default in the performance thereof or modify any of the
provisions or definitions with respect to any such offers; (vii) adversely
affect the ranking of the Notes or the Subsidiary Guarantees; or (viii) release
any Subsidiary Guarantor from any of its obligations under its Subsidiary
Guarantee or the Indenture otherwise than in accordance with the terms of the
Indenture.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees are governed
by, and construed in accordance with, the laws of the State of New York.
THE TRUSTEE
U.S. Trust Company of Texas, N.A. is the Trustee under the Indenture.
The Indenture provides that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it by the Indenture, and
use the same degree of care and skill in its exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain
limitations on the rights of the Trustee, should it become a creditor of the
Company, to obtain payments of claims in certain cases or to realize on certain
property received in respect of any such claim as security or otherwise.
Subject to the TIA, the Trustee will be permitted to engage in other
transactions; provided, that if the Trustee acquires any conflicting interest
as described in the TIA, it must eliminate such conflict or resign within 90
days of becoming aware of such conflicting interest as provided in the TIA or
apply to the Commission for permission to continue as Trustee. The Trustee may
resign at any time, in which case a successor trustee is to be appointed
pursuant to the terms of the Indenture.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in
the Indenture. Reference is made to the Indenture for the full definition of
all such terms, as well as any other terms used herein for which no definition
is provided.
"Acquired Indebtedness" of any Person means Indebtedness of another
Person and any of its Subsidiaries existing at the time such other Person
becomes a Subsidiary of such Person or at the time it merges or consolidates
with such Person or any of such Person's Subsidiaries or is assumed by such
Person or any Subsidiary of such Person in connection with the acquisition of
assets from such other Person and in each case not Incurred by such Person or
any Subsidiary of such Person or such other Person in connection with, or in
anticipation or contemplation of, such other Person becoming a Subsidiary of
such Person or such acquisition, merger or consolidation, and which
Indebtedness is without recourse to the Company or any of its Subsidiaries or
to any of their respective properties or assets other than the Person or such
Person's Subsidiaries or the assets to which such Indebtedness related prior to
the time such Person becomes a Subsidiary of the Company or the time of such
acquisition, merger or consolidation.
"Affiliate" means, when used with reference to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. For the purposes of this
definition, "control" when used with respect to any specified Person means the
power to direct or cause the direction of management or policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative of the foregoing.
"Affiliate Transaction" has the meaning set forth in "-- Certain
Covenants -- Limitation on Transactions with Affiliates."
"Asset Acquisition" means (i) an Investment by the Company or any
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Subsidiary of the Company or shall be merged with or into the
Company or any Subsidiary of the Company or (ii) the acquisition by the Company
or any Subsidiary of the Company of assets of any Person
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comprising an existing business (whether existing as a separate entity),
subsidiary, division or unit of such Person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition to any Person other than the Company or any of its
Subsidiaries (including, without limitation, by means of a sale and leaseback
transaction or a merger or consolidation) (collectively, for purposes of this
definition, a "transfer"), directly or indirectly, in one or a series of
related transactions, of (a) any Capital Stock of any Subsidiary held by the
Company or any other Subsidiary, (b) all or substantially all of the properties
and assets of any division or line of business of the Company or any of its
Subsidiaries, (c) any other properties or assets of the Company or any of its
Subsidiaries other than transfers of cash, Cash Equivalents, accounts
receivable, or properties or assets in the ordinary course of business;
provided that the transfer of all or substantially all of the properties or
assets of the Company and its Subsidiaries, taken as a whole, will be governed
by the provisions of the Indenture described above under the captions "--
Certain Covenants -- Mergers, Consolidations and Sale of Assets" and/or "--
Change of Control" and not by the provisions of the "Asset Sales" covenant.
For the purposes of this definition, the term "Asset Sale" also shall not
include any of the following: (i) sales of damaged, worn-out or obsolete
equipment or assets that, in the Company's reasonable judgment, are either (A)
no longer used or (B) no longer useful in the business of the Company or its
Subsidiaries; (ii) any lease of any property entered into in the ordinary
course of business and with respect to which the Company or any Subsidiary is
the lessor, except any such lease that provides for the acquisition of such
property by the lessee during or at the end of the term thereof for an amount
that is less than the fair market value thereof at the time the right to
acquire such property is granted; (iii) a Restricted Payment or Permitted
Investment permitted under "Certain Covenants -- Limitation on Restricted
Payments;" and (iv) any transfers that, but for this clause (iv), would be
Asset Sales, if (A) the Company elects to designate such transfers as not
constituting Asset Sales and (B) after giving effect to such transfers, the
aggregate fair market value of the properties or assets transferred in such
transaction or any such series of related transactions so designated by the
Company does not exceed $1,000,000.
"Asset Proceeds Offer" has the meaning set forth in "-- Certain
Covenants -- Asset Sales."
"Attributable Indebtedness" in respect of a sale and leaseback
transaction means, at the time of determination, the present value (discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended). As used in the preceding sentence, the
"net rental payments" under any lease for any such period shall mean the sum of
rental and other payments required to be paid with respect to such period by
the lessee thereunder, excluding any amounts required to be paid by such lessee
on account of maintenance and repairs, insurance, taxes, assessments, water
rates or similar charges. In the case of any lease that is terminable by the
lessee upon payment of penalty, such net rental payment shall also include the
amount of such penalty, but no rent shall be considered as required to be paid
under such lease subsequent to the first date upon which it may be so
terminated.
"Available Proceeds Amount" has the meaning set forth in "-- Certain
Covenants -- Asset Sales."
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the board of directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than a Saturday, Sunday or any
other day on which banking institutions in the City of New York are required or
authorized by law or other governmental action to be closed.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and (ii) with
respect to any Person that is not a corporation, any and all partnership or
other equity interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease that are
required to be classified and accounted for as capital lease obligations under
GAAP and, for purposes of this definition, the amount of such obligations at
any date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than 270 days from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
180 days from the date of acquisition thereof issued by any commercial bank
organized under the laws of the United States of America or any state thereof
or the District of Columbia or any U.S. branch of a foreign bank having at the
date of acquisition thereof combined capital and surplus of not less than
$250,000,000; (v) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in clause
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(iv) above; (vi) deposits available for withdrawal on demand with any
commercial bank not meeting the qualifications specified in clause (ii) above,
provided that all such deposits do not exceed $5,000,000 in the aggregate at
any one time; (vii) demand and time deposits and certificates of deposit with
any commercial bank organized in the United States not meeting the
qualifications specified in clause (ii) above, provided that such deposits and
certificates support bond, letter of credit and other similar types of
obligations incurred in the ordinary course of business; and (viii) investments
in money market or other mutual funds substantially all of whose assets
comprise securities of the types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way
of merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Subsidiaries taken as
a whole to any person (as such term is used in Section 13(d)(3) of the Exchange
Act) other than to the Company or a Subsidiary Guarantor; (ii) the Company
consolidates with or merges into another Person or any Person consolidates
with, or merges into, the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is changed into or
exchanged for cash, securities or other property, other than any such
transaction where (a) the outstanding Voting Stock of the Company is changed
into or exchanged for Voting Stock of the surviving or resulting Person that is
Qualified Capital Stock and (b) the holders of the Voting Stock of the Company
immediately prior to such transaction own, directly or indirectly, not less
than a majority of the Voting Stock of the surviving or resulting Person
immediately after such transaction; (iii) the adoption of a plan relating to
the liquidation or dissolution of the Company not involving a merger or
consolidation or a sale or other disposition of assets described in clause (i)
above; (iv) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any person (as defined
above), excluding Permitted Holders, becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly
or indirectly, of more than 50% of the total voting power of the Voting Stock
of the Company; provided that the sale of Voting Stock of the Company to a
Person or Persons acting as underwriters in connection with a firm commitment
underwriting shall not constitute a Change of Control; or (v) the first day on
which a majority of the members of the Board of Directors of the Company are
not Continuing Directors (other than by action of the Permitted Holders). For
purposes of this definition, any transfer of an equity interest of an entity
that was formed for the purpose of acquiring Voting Stock of the Company will
be deemed to be a transfer of such portion of such Voting Stock as corresponds
to the portion of the equity of such entity that has been so transferred.
"Common Stock" of any Person means any and all shares, interests or
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation,
all series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any
period, the sum (without duplication) of (i) Consolidated Net Income plus (ii)
to the extent that any of the following shall have been taken into account in
determining Consolidated Net Income, (A) all income taxes of such Person and
its Subsidiaries paid or accrued in accordance with GAAP for such period (other
than income taxes attributable to extraordinary, unusual or nonrecurring gains
or losses or taxes attributable to sales or dispositions of assets outside the
ordinary course of business), Consolidated Interest Expense, amortization
expense and depreciation expense, and (B) other non-cash items (other than
non-cash interest) reducing Consolidated Net Income, other than any non-cash
item which requires the accrual of or a reserve for cash charges for any future
period and other than any non-cash charge constituting an extraordinary item of
loss, less other non-cash items increasing Consolidated Net Income, all as
determined on a consolidated basis for such Person and its Subsidiaries in
conformity with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters for which financial information is available (the "Four Quarter
Period") ending on or prior to the date of the transaction or event giving rise
to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the
"Transaction Date") to Consolidated Fixed Charges of such Person for the Four
Quarter Period. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect on a pro forma basis for the
period of such calculation to (i) the Incurrence or repayment of any
Indebtedness of such Person or any of its Subsidiaries (and the application of
the proceeds thereof) giving rise to the need to make such calculation and any
Incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the Incurrence or repayment of Indebtedness in
the ordinary course of business for working capital purposes pursuant to
working capital facilities, at any time subsequent to the first day of the Four
Quarter Period and on or prior to the Transaction Date, as if such Incurrence
or repayment, as the case may be (and the application of the proceeds thereof),
occurred on the first day of the Four Quarter Period, and (ii) any Asset Sales
or Asset Acquisitions (including, without limitation, any Asset Acquisition
giving rise to the need to make such calculation as a result of such Person or
one of its Subsidiaries (including any Person who becomes a Subsidiary as a
result of any such Asset Acquisition) Incurring, assuming or otherwise being
liable for Acquired Indebtedness) at any time subsequent to the first day of
the Four Quarter Period and on or prior to the Transaction Date, as if such
Asset Sale or Asset Acquisition (including the Incurrence, assumption or
liability for any such Indebtedness or Acquired Indebtedness and also including
any Consolidated EBITDA, based upon the four fiscal quarters of such Person for
which financial information is available immediately preceding such Asset
Acquisition, associated with such Asset Acquisition) occurred on the first day
of the Four Quarter Period; provided that the Consolidated EBITDA of any Person
acquired shall be included only to the extent includable pursuant to the
definition of "Consolidated Net Income." If such Person or any of its
Subsidiaries directly or indirectly guarantees Indebtedness of a third person,
the preceding sentence shall give effect to the
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Incurrence of such guaranteed Indebtedness as if such Person or any Subsidiary
of such Person had directly Incurred or otherwise assumed such guaranteed
Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated Fixed Charge Coverage Ratio," (1) interest on Indebtedness
determined on a fluctuating basis as of the Transaction Date (including
Indebtedness actually Incurred on the Transaction Date) and which will continue
to be so determined thereafter shall be deemed to have accrued at a fixed rate
per annum equal to the rate of interest on such Indebtedness in effect on the
Transaction Date; and (2) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense and
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Common Stock)
paid, accrued or scheduled to be paid or accrued during such period times (y) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current effective consolidated Federal, state and local tax rate
of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for
any period, the aggregate of the interest expense (without deduction of
interest income) of such Person and its Subsidiaries (excluding amortization of
deferred financing fees) for such period, on a consolidated basis, as
determined in accordance with GAAP, and including (a) all amortization of
original issue discount (other than any original issue discount on Indebtedness
attributable to proceeds of the sale of warrants issued in connection with the
Incurrence of such Indebtedness); (b) the interest component of Capitalized
Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such
Person and its Subsidiaries during such period; (c) net cash costs under all
Interest Swap Obligations (including amortization of fees); (d) all capitalized
interest; and (e) the interest portion of any deferred payment obligations for
such period.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP;
provided that there shall be excluded therefrom (a) after-tax gains from Asset
Sales or abandonments or reserves relating thereto, (b) after-tax items
classified as extraordinary or nonrecurring gains, (c) the net income or loss
of any Person acquired in a "pooling of interests" transaction accrued prior to
the date it becomes a Subsidiary of the referent Person or is merged or
consolidated with the referent Person or any Subsidiary of the referent Person,
(d) the net income (but not loss) of any Subsidiary of the referent Person to
the extent that the declaration of dividends or similar distributions by that
Subsidiary of that income is restricted by a contract, operation of law or
otherwise, (e) the net income of any Person, other than a Subsidiary of the
referent Person, except to the extent of cash dividends or distributions paid
to the referent Person or to a wholly-owned Subsidiary of the referent Person
by such Person, (f) any restoration to income of any contingency reserve,
except to the extent that provision for such reserve was made out of
Consolidated Net Income accrued at any time following the Issue Date, (g)
income or loss attributable to discontinued operations (including, without
limitation, operations disposed of during such period whether or not such
operations were classified as discontinued), and (h) in the case of a successor
to the referent Person by consolidation or merger or as a transferee of the
referent Person's assets, any earnings of the successor corporation prior to
such consolidation, merger or transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Capital Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to any Person for
any period, the aggregate depreciation, amortization and other non-cash
expenses of such Person and its Subsidiaries for such period, on a consolidated
basis, as determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Issue Date; (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination or election or (iii) was elected or nominated for election
pursuant to the Voting Agreement.
"Credit Facilities" means, with respect to the Company, one or more
debt facilities or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing or letters of credit, in each case, as amended, restated,
modified, renewed, refunded, replaced or refinanced in whole or in part from
time to time.
"Default" means an event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Disqualified Capital Stock" means any Capital Stock which, by its
terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof, in whole or in part, on
or prior
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to the final maturity date of the Notes.
"Events of Default" has the meaning set forth in "-- Events of
Default."
"Exchange Act" means the Securities Exchange Act of 1934, as amended
or any successor statute or statutes thereto.
"Existing Indebtedness" means up to $4.0 million in aggregate
principal amount of Indebtedness of the Company and its Subsidiaries in
existence on the Issue Date, until such amounts are repaid.
"Fair market value" or "fair value" means, with respect to any asset
or property, the price which could be negotiated in an arm's-length, free
market transaction, for cash, between an informed and willing seller and an
informed and willing and able buyer, neither of whom is under undue pressure or
compulsion to complete the transaction. Fair market value shall be determined
by the Board of Directors of the Company acting reasonably and in good faith
and shall be evidenced by a Board Resolution delivered to the Trustee;
provided, however, that if the aggregate non-cash consideration to be received
by the Company or any of its Subsidiaries from any Asset Sale could be
reasonably likely to exceed $2,500,000 the fair market value shall be
determined by an Independent Financial Advisor.
"Family Member" means, when used with reference to any natural Person,
such Person's spouse, siblings, parents, children, or other lineal descendants
(whether by adoption or consanguinity), and shall mean a trust, the primary
beneficiary of which is the Person's spouse, siblings, parents, children, or
other lineal descendants (whether by adoption or consanguinity).
"Financial Advisor" means an accounting, appraisal or investment
banking firm of nationally recognized standing that is, in the reasonable and
good faith judgment of the Board of Directors of the Company, qualified to
perform the task for which such firm has been engaged.
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio."
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Holder" means a Person in whose name a Note is registered on the
Registrar's books.
"Ice Business" means (i) the manufacture and sale (including, without
limitation, direct sales, wholesale sales and retail sales) of ice; (ii) the
manufacture and sale of ice and water by means of ice manufacturing or water
purification equipment (including ice makers, bins, baggers, merchandisers,
delivery devices and related equipment) installed on the premises of the
Company's customer(s) whether or not such equipment is owned by the Company,
the customers, or a third party; (iii) contract on-premises ice or water
service (including leasing of ice or water related equipment) for a customer's
internal use; (iv) providing cold storage and freezer related services in
conjunction with the traditional ice business; (v) the sale of products
incidental or related to the foregoing; and (v) all logical extensions of the
foregoing.
"Incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise,
of any such Indebtedness or other obligation on the balance sheet of such
Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall have
meanings correlative to the foregoing); provided, however, that (A) any
Indebtedness assumed in connection with an acquisition of assets and any
Indebtedness of a Person existing at the time such Person becomes a Subsidiary
(whether by merger, consolidation, acquisition or otherwise) of the Company or
at the time such Person is merged or consolidated with the Company or any
Subsidiary of the Company shall be deemed to be Incurred at the time of the
acquisition of such assets or by such Subsidiary at the time it becomes, or is
merged or consolidated with, a Subsidiary of the Company or by the Company at
the time of such merger or consolidation, as the case may be, and (B) any
amendment, modification or waiver of any document pursuant to which
Indebtedness was previously Incurred shall not be deemed to be an Incurrence of
Indebtedness unless such amendment, modification or waiver shall increase the
principal or premium thereof or interest rate thereon (including by way of
original issue discount). A guarantee by the Company or a Subsidiary Guarantor
of Indebtedness Incurred by the Company or a Subsidiary Guarantor, as
applicable, shall not be a separate incurrence of Indebtedness.
"Indebtedness" means with respect to any Person, without duplication,
(i) all Obligations of such Person for borrowed money, (ii) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all Capitalized Lease Obligations of such Person, (iv) all Obligations of
such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and accrued liabilities arising
in the ordinary course of business that are not overdue by 90 days or more or
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted), (v) all Obligations for the
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reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction, (vi) all Indebtedness of others (including all
dividends of other Persons for the payment of which is) guaranteed, directly or
indirectly, by such Person or that is otherwise its legal liability or which
such Person has agreed to purchase or repurchase or in respect of which such
Person has agreed contingently to supply or advance funds but excluding
endorsements of negotiable instruments and documents in the ordinary course of
business, (vii) net liabilities of such Person under Interest Swap Obligations,
(viii) all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on any asset or property (including, without limitation, leasehold
interests and any other tangible or intangible property) of such Person,
whether or not such Indebtedness is assumed by such Person or is not otherwise
such Person's legal liability; provided that if the Obligations so secured have
not been assumed by such Person or are otherwise not such Person's legal
liability, the amount of such Indebtedness for the purposes of this definition
shall be limited to the lesser of the amount of such Indebtedness secured by
such Lien or the fair market value of the assets or property securing such
Lien, and (ix) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price, but excluding accrued dividends if any.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and
the maximum liability, upon the occurrence of the contingency giving rise to
the obligation, of any contingent obligations at such date; provided that the
amount outstanding at any time of any non-interest bearing Indebtedness or
other Indebtedness issued with original issue discount is the full amount of
such Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP, but such Indebtedness shall only be deemed to be Incurred as of the date
of original issuance thereof.
"Independent" when used with respect to any specified Person means
such a Person who (a) is in fact independent, (b) does not have any direct
financial interest or any material indirect financial interest in the Company
or any of its Subsidiaries, or in any Affiliate of the Company or any of its
Subsidiaries and (c) is not an officer, employee, promoter, underwriter,
trustee, partner, director or person performing similar functions for the
Company or any of its Subsidiaries. Whenever it is provided in the Indenture
that any Independent Person's opinion or certificate shall be furnished to the
Trustee, such Person shall be appointed by the Company and approved by the
Trustee in the exercise of reasonable care, and such opinion or certificate
shall state that the signer has read this definition and that the signer is
Independent within the meaning thereof.
"Interest Swap Obligations" means the obligations of any Person under
any interest rate protection agreement, interest rate future, interest rate
option, interest rate swap, interest rate cap or other interest rate hedge or
arrangement.
"Investment" by any Person means any direct or indirect (i) loan,
advance or other extension of credit or capital contribution (by means of
transfers of cash or other property (valued at the fair market value thereof as
of the date of transfer) to others or payments for property or services for the
account or use of others, or otherwise) (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business); (ii) purchase or acquisition of Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued by any other
Person; (iii) guarantee or assumption of any Indebtedness or any other
obligation of any other Person (except for an assumption of Indebtedness for
which the assuming Person receives consideration at the time of such assumption
in the form of property or assets with a fair market value at least equal to
the principal amount of the Indebtedness assumed, extensions of trade credit or
other advances to customers on commercially reasonable terms in accordance with
normal trade practices or otherwise in the ordinary course of business,
workers' compensation, utility, lease and similar deposits and prepaid expenses
made in the ordinary course of business, and endorsements of negotiable
instruments and documents in the ordinary course of business); and (iv) all
other items that would be classified as investments on a balance sheet of such
Person prepared in accordance with GAAP. The amount of any Investment shall
not be adjusted for increases or decreases in value, or write-ups, write-downs
or write-offs with respect to such Investment. If the Company or any
Subsidiary of the Company sells or otherwise disposes of any Common Stock of
any direct or indirect Subsidiary of the Company such that, after giving effect
to any such sale or disposition, the Company no longer owns, directly or
indirectly, greater than 50% of the outstanding Common Stock of such
Subsidiary, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Common
Stock of such Subsidiary not sold or disposed of.
"Issue Date" means the date on which the Notes were first issued under
the Indenture.
"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, easement, restriction, covenant, right-of-way, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property of such Person, or a security interest of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option, right of first refusal or other similar agreement to sell,
in each case securing obligations of such Person and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or
equivalent statute or statutes) of any jurisdiction other than to reflect
ownership by a third party of property leased to the referent Person or any of
its Subsidiaries under a lease that is not in the nature of a conditional sale
or title retention agreement).
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents (including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents) received by the Company or any of its Subsidiaries from such Asset
Sale net of (a) reasonable out-of-pocket expenses and fees relating to
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such Asset Sale (including, without limitation, brokerage, legal, accounting
and investment banking fees and sales commissions), (b) taxes paid or payable
((1) including, without limitation, income taxes reasonably estimated to be
actually payable as a result of any disposition of property within two years of
the date of disposition and (2) after taking into account any reduction in tax
liability due to available tax credits or deductions and any tax sharing
arrangements) and (c) appropriate amounts to be provided by the Company or any
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"Net Equity Proceeds" means (a) in the case of any sale by the Company
of Qualified Capital Stock of the Company, the aggregate net cash proceeds
received by the Company, after payment of expenses, commissions and the like
(including, without limitation, brokerage, legal, accounting and investment
banking fees and commissions) incurred in connection therewith, and (b) in the
case of any exchange, exercise, conversion or surrender of any outstanding
Indebtedness of the Company or any Subsidiary issued after the Issue Date for
or into shares of Qualified Capital Stock of the Company, the amount of such
Indebtedness (or, if such Indebtedness was issued at an amount less than the
stated principal amount thereof, the accrued amount thereof as determined in
accordance with GAAP) as reflected in the consolidated financial statements of
the Company prepared in accordance with GAAP as of the most recent date next
preceding the date of such exchange, exercise, conversion or surrender (plus
any additional amount required to be paid by the holder of such Indebtedness to
the Company or to any wholly-owned Subsidiary of the Company upon such
exchange, exercise, conversion or surrender and less any and all payments made
to the holders of such Indebtedness, and all other expenses incurred by the
Company in connection therewith), in each case (a) and (b) to the extent
consummated after the Issue Date.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed by two officers of
the Company.
"Opinion of Counsel" means a written opinion from legal counsel which
and who are reasonably acceptable to the Trustee.
"Pari Passu Indebtedness" means any Indebtedness of the Company that
is pari passu in right of payment to the Notes.
"Paying Agent" shall initially be the Trustee until a successor paying
agent for the Notes is selected in accordance with the Indenture.
"Payment default" has the meaning set forth in "-- Events of Default."
"Permitted Holders" means the following Persons: Norwest Equity
Partners V, a Minnesota Limited Partnership, Fleming Companies, Inc., The Food
Fund II Limited Partnership, A. J. Lewis III, Steven P. Rosenberg, and James F.
Stuart, and any of their respective Affiliates and Family Members, each of the
foregoing individually being a Permitted Holder.
"Permitted Indebtedness" means, without duplication, each of the
following:
(i) Indebtedness under the Notes;
(ii) Indebtedness under any Existing Indebtedness;
(iii) Indebtedness in respect of bid, performance or surety
bonds issued for the account of the Company or any Subsidiary thereof
in the ordinary course of business, including guarantees or
obligations of the Company or any Subsidiary thereof with respect to
letters of credit supporting such bid, performance or surety
obligations (in each case other than for an obligation for money
borrowed);
(iv) Permitted Refinancing Indebtedness;
(v) the Subsidiary Guarantees of the Notes;
(vi) Interest Swap Obligations of the Company; provided,
however, that such Interest Swap Obligations are entered into to
protect the Company and its Subsidiaries from fluctuations in interest
rates on Indebtedness Incurred in accordance with the Indenture to the
extent the notional principal amount of such Interest Swap Obligation
does not exceed the principal amount of the Indebtedness to which such
Interest Swap Obligation relates;
(vii) Indebtedness of a direct or indirect Subsidiary of the
Company to the Company or to a direct or indirect Subsidiary of the
Company for so long as such Indebtedness is held by the Company or a
direct or indirect Subsidiary of
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the Company in each case subject to no Lien held by a Person other
than the Company or a direct or indirect Subsidiary of the Company;
provided, that if as of any date any Person other than the Company or
a direct or indirect Subsidiary of the Company owns or holds any such
Indebtedness or holds a Lien in respect of such Indebtedness, such
date shall be deemed the date of the Incurrence of Indebtedness not
constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(viii) Indebtedness of the Company to a direct or indirect
Subsidiary of the Company for so long as such Indebtedness is held by
a direct or indirect Subsidiary of the Company in each case subject to
no Lien; provided that (a) any Indebtedness of the Company to any
direct or indirect Subsidiary of the Company is unsecured and
subordinated, pursuant to a written agreement, to the Company's
Obligations under the Indenture and the Notes, and (b) if as of any
date any Person other than a direct or indirect Subsidiary of the
Company owns or holds any such Indebtedness or any Person holds a Lien
in respect of such Indebtedness, such date shall be deemed the date of
the Incurrence of Indebtedness not constituting Permitted Indebtedness
by the issuer of such Indebtedness; and
(ix) additional Indebtedness not to exceed an aggregate
principal amount of $15,000,000 at any one time outstanding and any
guarantee thereof.
"Permitted Investments" means (a) Investments in cash and Cash
Equivalents; (b) Investments by the Company or by any Subsidiary of the Company
in any Person that is or will become immediately after such Investment a direct
or indirect Subsidiary of the Company; (c) any Investments in the Company by
any Subsidiary of the Company; provided that any Indebtedness evidencing such
Investment is unsecured; (d) Investments made by the Company or by its
Subsidiaries as a result of an Asset Sale made in compliance with "-- Certain
Covenants -- Asset Sales"; (e) Interest Swap Obligations to the extent the same
constitute Permitted Indebtedness; (f) Investments in an amount not to exceed
$2,000,000 at any one time outstanding; (g) Investments held by any Person on
the date such Person becomes a Subsidiary to the extent such Investments are
not incurred in anticipation of or in connection with such acquisition; and (h)
Investments in stock, obligations or securities received in settlement of debts
owing to the Company or any Subsidiary as a result of bankruptcy or insolvency
proceedings or upon the foreclosure, perfection or enforcement of any Lien in
favor of the Company or any Subsidiary, in each case as to debt owing to the
Company or any Subsidiary that arose in the ordinary course of business of the
Company or any such Subsidiary, provided that any stocks, obligations or
securities received in settlement of debts that arose in the ordinary course of
business (and received other than as a result of bankruptcy or insolvency
proceedings or upon foreclosure, perfection or enforcement of any Lien) that
are, within 30 days of receipt, converted into cash or Cash Equivalents shall
be treated as having been cash or Cash Equivalents at the time received.
"Permitted Liens" means the following types of Liens:
(i) Liens existing as of the date of the Indenture;
(ii) Liens securing the Notes, the Subsidiary Guarantees or
any Indebtedness under the Credit Facilities;
(iii) Liens in favor of the Company;
(iv) Liens for taxes, assessments and governmental charges
or claims either (i) not delinquent or (ii) contested in good faith by
appropriate proceedings and as to which the Company or its
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(v) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law incurred in the ordinary course of business for
sums not delinquent for more than 30 days or being contested in good
faith, if such reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made in respect thereof;
(vi) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment
insurance and other types of social security, or to secure the payment
or performance of tenders, statutory or regulatory obligations, surety
and appeal bonds, bids, government contracts and leases, performance
and return of money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
(vii) judgment Liens not giving rise to an Event of Default
so long as any appropriate legal proceedings which may have been duly
initiated for the review of such judgment shall not have been finally
terminated or the period within which such proceeding may be initiated
shall not have expired;
(viii) any interest or title of a lessor under any Capital
Lease Obligation or operating lease;
(ix) Liens securing Purchase Money Indebtedness incurred in
compliance with the "Limitation on Indebtedness" covenant; provided,
however, that (i) the related Purchase Money Indebtedness shall not be
secured by
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any property or assets of the Company or any Subsidiary other than the
property or assets so acquired and any proceeds therefrom and (ii) the
Lien securing any such Indebtedness shall be created within 90 days of
such acquisition;
(x) Liens securing obligations under or in respect of
Interest Swap Obligations;
(xi) Liens upon specific items of inventory or other goods
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or
other goods;
(xii) Liens securing reimbursement obligations with respect
to commercial letters of credit that encumber documents and other
property or assets relating to such letters of credit and products and
proceeds thereof;
(xiii) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual or warranty
requirements of the Company or any of its Subsidiaries, including
rights of offset and set-off; and
(xiv) Liens on property existing at the time of acquisition
thereof by the Company or any Subsidiary of the Company and Liens on
property or assets of a Subsidiary existing at the time it became a
Subsidiary, provided that such Liens were in existence prior to the
contemplation of the acquisition and do not extend to any assets other
than the property of such Person or the acquired property (and the
proceeds thereof), as applicable.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used to refinance, renew, replace, defease or refund, other
Indebtedness of the Company or any of its Subsidiaries incurred pursuant to
clause (i), (ii) or (v) of the definition of "Permitted Indebtedness"; provided
that: (i) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so exchanged, refinanced,
renewed, replaced, defeased or refunded (plus the amount of related prepayment
penalties, fees and reasonable expenses incurred in connection therewith); (ii)
such Permitted Refinancing Indebtedness has a final maturity date later than
the final maturity date of, and has a Weighted Average Life to Maturity equal
to or greater than the Weighted Average Life to Maturity of, the Indebtedness
being exchanged, refinanced, renewed, replaced, defeased or refunded; (iii) if
the Indebtedness being exchanged, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes or the Subsidiary
Guarantees, such Permitted Refinancing Indebtedness is subordinated in right of
payment to, the Notes or the Subsidiary Guarantees, as the case may be, on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being exchanged, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either
by the Company or by the Subsidiary that is the obligor on the Indebtedness
being exchanged, refinanced, renewed, replaced, defeased or refunded.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"Purchase Money Indebtedness" means Indebtedness or that portion of
Indebtedness of the Company or any Subsidiary incurred in connection with the
acquisition by the Company or such Subsidiary, subsequent to the Issue Date, of
any property or assets.
"Public Equity Offering" means an underwritten offer and sale of
Qualified Capital Stock of the Company pursuant to a registration statement
that has been declared effective by the Commission pursuant to the Securities
Act (other than a registration statement on Form S-8 or otherwise relating to
equity securities issuable under any employee benefit plan of the Company).
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, renew, refund, repay, prepay, redeem, defease or retire, or to issue
a security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Registrar" shall initially mean the Trustee until a successor
registrar for the Notes is selected in accordance with the Indenture.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Specified Affiliate Transactions" means certain transactions among
the Company and Subsidiaries and certain Affiliates which were entered into
prior to the Issue Date as set forth in a Schedule to the Indenture.
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"Subordinated Indebtedness" means any Indebtedness of the Company or a
Subsidiary Guarantor that is expressly subordinated in right of payment to the
Notes or the Subsidiary Guarantees, as the case may be.
"Subsidiary," with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
Notwithstanding the foregoing, an Unrestricted Subsidiary shall be deemed not
to be a Subsidiary of the Company for purposes hereof and of the Indenture.
"Subsidiary Guarantee" means any guarantee of the Notes by a
Subsidiary Guarantor in accordance with the provisions described under "--
Ranking and Guarantees."
"Subsidiary Guarantor" means (i) each of Packaged Ice Leasing, Inc.,
Southco Ice, Inc., Packaged Ice Mission, Inc., Packaged Ice STPI, Inc. and
Packaged Ice Southwestern, Inc. and (ii) each of the Company's Subsidiaries
that in the future executes a supplemental indenture in which such Subsidiary
agrees to be bound by the terms of the Indenture as a Subsidiary Guarantor;
provided that any Person constituting a Subsidiary Guarantor as described above
shall cease to constitute a Guarantor when its respective Subsidiary Guarantee
is released in accordance with the terms of the Indenture.
"Unrestricted Subsidiary" means (1) any Subsidiary of the Company
which at the time of determination shall be an Unrestricted Subsidiary (as
designated by the Board of Directors as provided below) and (2) any Subsidiary
or Subsidiaries of an Unrestricted Subsidiary. The Board of Directors may
designate any Subsidiary of the Company (including any newly acquired or newly
formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any lien on any property
of, any other Subsidiary of the Company which is not a Subsidiary of the
Subsidiary of the Company to be so designated or otherwise an Unrestricted
Subsidiary, provided that either (x) the Subsidiary of the Company to be so
designated has total consolidated assets of $100,000 or less at the time of
designation or (y) immediately after giving pro forma effect to such
designation, the Company could incur $1.00 of additional Indebtedness pursuant
to paragraph (b) of the covenant entitled "Limitation on Indebtedness." Any
such designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a Board Resolution giving effect to such designation
and an Officers' Certificate certifying that such designation complied with the
foregoing conditions.
"Voting Stock" means, with respect to any Person, securities of any
class or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or only so long as no senior class of stock has voting
power by reason of any contingency) to vote in the election of members of the
Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the total
of the product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly-owned Subsidiary" of any Person means any Subsidiary of such
Person of which all the outstanding voting securities which normally have the
right to vote in the election of directors, other than director's qualifying
shares, are owned by such Person or any wholly-owned Subsidiary of such Person.
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REGISTRATION RIGHTS; ADDITIONAL INTEREST
Pursuant to the Registration Rights Agreement, the Company agreed to
file with the Commission the Exchange Offer Registration Statement on the
appropriate form under the Securities Act with respect to the Exchange Notes.
Upon the effectiveness of the Exchange Offer Registration Statement, the
Company will offer to the Holders of Transfer Restricted Securities pursuant to
the Exchange Offer who are able to make certain representations the opportunity
to exchange their Transfer Restricted Securities for Exchange Notes. Under
existing SEC interpretations, the Transfer Restricted Securities would, in
general, be freely transferable after the Exchange Offer without further
registration under the Securities Act; provided, however, that in the case of
broker-dealers participating in the Exchange Offer, a prospectus meeting the
requirements of the Securities Act will be delivered upon resale by such
broker-dealers in connection with resales of the Exchange Notes. If (i) the
Company is not required to file the Exchange Offer Registration Statement or
permitted to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy or (ii) any Holder of Transfer
Restricted Securities notifies the Company within the specified time period
that (A) it is prohibited by law or Commission policy from participating in the
Exchange Offer or (B) that it may not resell the Exchange Notes acquired by it
in the Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (C) that it is a broker-dealer and
owns Old Notes acquired directly from the Company or an affiliate of the
Company, the Company will file with the Commission a Shelf Registration
Statement to cover resales of the Old Notes by the Holders thereof who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement. The Company will use its best efforts to
cause the applicable registration statement to be declared effective as
promptly as possible by the Commission. For purposes of the foregoing,
"Transfer Restricted Securities" means each Note until (i) the date on which
such Note has been exchanged by a person other than a broker-dealer for an
Exchange Note in the Exchange Offer, (ii) following the exchange by a
broker-dealer in the Exchange Offer of a Note for an Exchange Note, the date on
which such Exchange Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Note has been effectively registered under the Securities Act and disposed
of in accordance with the Shelf Registration Statement or (iv) the date on
which such Note is distributed to the public pursuant to Rule 144 under the
Securities Act.
The Registration Rights Agreement provides that: (i) the Company will
file an Exchange Offer Registration Statement with the Commission on or prior
to 60 days after the Issue Date, (ii) the Company will use its best efforts to
have the Exchange Offer Registration Statement declared effective by the
Commission on or prior to 120 days after the Issue Date, (iii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company will commence the Exchange Offer and use its best efforts to issue
on or prior to 30 business days after the date on which the Exchange Offer
Registration Statement was declared effective by the Commission, Exchange Notes
in exchange for all Old Notes tendered prior thereto in the Exchange Offer and
(iv) if obligated to file the Shelf Registration Statement, the Company will
use its best efforts to file the Shelf Registration Statement with the
Commission on or prior to 30 days after such filing obligation arises (and in
any event within 90 days after the Issue Date) and to cause the Shelf
Registration to be declared effective by the Commission on or prior to 90 days
after such obligation arises. If (a) the Company fails to file any of the
Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), (c) the
Company fails to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement, or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with the Exchange Offer or resales of
Transfer Restricted Securities, as the case may be, during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (d) above a "Registration Default"), then the interest rate
on the Transfer Restricted Securities, with respect to the first 90-day period
immediately following the occurrence of such Registration Default will increase
("Additional Interest") by 0.50% per annum and will increase by an additional
0.50% per annum with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of Additional
Interest of 1.5% per annum with respect to all Registration Defaults. All
accrued Additional Interest will be paid by the Company on each Interest
Payment Date to the Global Note Holder by wire transfer of immediately
available funds and to Holders of Certificated Securities by wire transfer to
the accounts specified by them or by mailing checks to their registered
addresses if no such accounts have been specified. Following the cure of all
Registration Defaults, the accrual of Additional Interest will cease.
Each holder of Old Notes who wishes to exchange such Notes for
Exchange Notes in the Exchange Offer will be required to make certain
representations, including representations that (i) any Exchange Notes to be
received by it will be acquired in the ordinary course of business, (ii) it is
not participating in, and it has no arrangement with any person to participate
in the distribution (within the meaning of the Securities Act) of the Exchange
Notes and (iii) it is neither an affiliate of the Company, as defined in Rule
405 of the Securities Act, nor a broker-dealer tendering notes acquired
directly from the Company for its own account. If the holder is a broker-dealer
that will receive Exchange Notes for its own account in exchange for Old Notes
that were acquired as a result of market-making activities or other trading
activities, it will be required to acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Company
has agreed, for a period of 180 days after consummation of the Exchange Offer,
to make available a prospectus meeting the requirements of the Securities Act
to any such broker-dealer for use in connection with any resale of any Exchange
Notes acquired in the Exchange Offer. Holders of Notes will also be required
to deliver information to be used in connection with the Shelf Registration
Statement and to provide
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comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Additional Interest set forth above.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth in the next paragraph, the Exchange Notes will be
issued in the form of one or more fully registered Global Notes (collectively,
the "Global Note"). The Global Note will be deposited with, or on behalf of,
DTC and registered in the name of a nominee of DTC.
Notes (i) originally purchased by or transferred to Accredited
Investors who are not qualified institutional buyers (as defined in "Transfer
Restrictions"), or (ii) held by qualified institutional buyers which elect to
take physical delivery of their certificates instead of holding their interest
through the Global Note (and which are thus ineligible to trade through DTC)
(collectively referred to herein as the "Non-Global Purchasers") will be
issued, in registered certificated form, "Certificated Securities"). Upon the
transfer to a qualified institutional buyer of any Certificated Security
initially issued to a Non-Global Purchaser, such Certificated Security will,
unless the transferee requests otherwise or the Global Note has previously been
exchanged in whole for Certificated Securities, be exchanged for an interest in
the Global Note.
The Company expects that pursuant to procedures established by DTC (i)
upon deposit of the Global Note, DTC or its custodian will credit, on its
internal system, portions of the Global Note which shall be comprised of the
corresponding respective principal amount of the Global Note to the respective
accounts of persons who have accounts with such depositary and (ii) ownership
of the Notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC or its nominee (with respect
to interests of participants) and the records of participants (with respect to
interests of persons other than participants). Such accounts initially will be
designated by or on behalf of the Initial Purchaser and ownership of beneficial
interests in the, Global Note will be limited to persons who have accounts with
DTC ("participants") or persons who hold interests through participants.
Qualified institutional buyers may hold their interests in the Global Note
directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of
the Notes, DTC or such nominee will be considered the sole owner or holder of
the Notes represented by the Global Note for all purposes under the Indenture.
No beneficial owner of an interest in the Global Note will be able to transfer
such interest except in accordance with DTC's applicable procedures, in
addition to those provided for under the Indenture with respect to the Notes.
Payments of the principal of, premium (if any) and interest (including
Additional Interest) on the Global Note will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
trustee or any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interest in the Global Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any
payment of the principal of, premium (if any) and interest (including
Additional Interest) on the Global Note, will credit participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Global Note as shown on the records of DTC or
its nominee. The Company also expects that payments by participants to owners
of beneficial interests in the Global Note held through such participants will
be governed by standing instructions and customary practice, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary
way in accordance with DTC rules and be settled in accordance with DTC rules in
same day funds. If a holder requires physical delivery of a Certificated
Security for any reason, including to sell Notes to persons in states which
require physical delivery of such securities or to pledge such securities, such
holder must transfer its interest in the Global Note in accordance with the
normal procedures of DTC and with the procedures set forth in the Indenture.
DTC has advised the Company that DTC will take any action permitted to
be taken by a holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Note are credited and only in respect
to such portion of Notes, the aggregate principal amount of Notes as to which
such participant or participants have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Note
for Certificated Securities, which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to
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hold securities for its participants and facilitate the clearance and
settlement of securities transactions between participants through electronic
book-entry changes in accounts of its participants, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and
certain other organizations. Indirect access to the DTC system is available to
others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of DTC,
it is under no obligation to perform such procedures, and such procedures may
be discontinued at any time. None of the Company, the Trustee or the Warrant
Agent will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary
for the Global Note and a successor depositary is not appointed by the Company,
within 90 days, the Company will issue Certificated Securities in exchange for
the Global Note.
TRANSFER RESTRICTIONS ON OLD NOTES
The Old Notes have not been registered under the Securities Act and
may not be offered or sold except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act. Accordingly, the Old Notes were offered and sold by the Initial Purchaser
only (i) to a limited number of "qualified institutional buyers" (as defined in
Rule 144A promulgated under the Securities Act) ("QIBs") in compliance with
Rule 144A; and (ii) to a limited number of other institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) promulgated under the
Securities Act) ("Accredited Investors") that prior to their purchase of any
Notes delivered to the Initial Purchaser a letter containing certain
representations and agreements.
Each purchaser of Old Notes, by its acceptance thereof, will be deemed
to have acknowledged represented and agreed as follows:
1. It is purchasing the Old Notes for its own account or an
account with respect to which it exercises sole investment discretion
and that it and any such account is (i) a QIB, and is aware that the
sale to it is being made in reliance on Rule 144A; or (ii) an
Accredited Investor.
2. It acknowledges that the Old Notes have not been
registered under the Securities Act and may not be offered or sold
except as set forth below.
3. It shall not resell or otherwise transfer the Old Notes
except (i) to the Company or any subsidiary thereof, (ii) to a QIB in
compliance with Rule 144A, (iii) to an Accredited Investor that, prior
to such transfer, furnishes (or has furnished on its behalf by a U.S.
broker-dealer) to the Trustee, a signed letter containing certain
representations and agreements relating to the restrictions on
transfer of the Old Notes (the form of which letter can be obtained
from the Trustee), (iv) pursuant to the exemption from registration
provided by Rule 144 promulgated under the Securities Act (if
available), or (v) pursuant to an effective registration under the
Securities Act. Each Accredited Investor that is not a QIB and that
is an original purchaser of the Old Notes will be required to sign an
agreement to the foregoing effect.
4. It agrees that it will give to each person to whom it
transfers Old Notes notice of any restrictions on transfer of Old
Notes.
5. It understands that the Old Note will bear a legend
substantially to the following effect unless otherwise agreed by the
Company and the holder thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF,
THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A PROMULGATED UNDER THE SECURITIES ACT)
OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN
RULE 501 (a) (1), (2), (3) OR (7) PROMULGATED UNDER THE SECURITIES
ACT) (AN "ACCREDITED INVESTOR"), (2) AGREES THAT IT WILL NOT RESELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER THEREOF OR
ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A PROMULGATED UNDER THE SECURITIES ACT, (C) TO
AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER,
FURNISHED (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO
THE TRUSTEE OR WARRANT AGENT A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THIS SECURITY), (D) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 PROMULGATED UNDER THE SECURITIES ACT
(IF AVAILABLE)
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OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM
THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN
THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE
PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE
HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE OR WARRANT
AGENT AND THE ISSUER SUCH CERTIFICATIONS, WRITTEN LEGAL OPINIONS OR
OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM
THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
6. It acknowledges that the Trustee will not be required to
accept for registration of transfer any Old Note acquired by it,
except upon presentation of evidence satisfactory to the Company and
the Trustee that the restrictions set forth herein have been complied
with.
7. It acknowledges that the Company, the Initial Purchaser
and others will rely upon the truth and accuracy of the foregoing
acknowledgments, representations and agreements and agrees that if any
of the acknowledgments, representations or agreements deemed to have
been made by its purchase of Old Notes are no longer accurate, it
shall promptly notify the Company and Initial Purchaser. If it is
acquiring any Old Notes as a fiduciary or agent for one or more
investor accounts, it represents that it has sole investment
discretion with respect to each such account and it has full power to
make the foregoing acknowledgments, representations and agreements on
behalf of each account.
The Old Notes may not be sold or transferred to, and each
purchaser by its purchase of the Old Notes shall be deemed to have represented
and covenanted that it is not acquiring the Old Notes for or on behalf of, any
pension or welfare plan (as defined in Section 3 of the Employee Retirement
Income Security Act of 1974 ("ERISA")), except that such a purchase for or on
behalf of a pension or welfare plan shall be permitted:
(1) to the extent such purchase is made by or on behalf of a
bank collective investment fund maintained by the purchase in which no
plan (together with any other plans maintained by the same employer or
employee organization) has an interest in excess of 10% of the total
assets in such collective investment fund and the applicable
conditions of Prohibited Transaction exemption 91-38 issued by the
Department of Labor are satisfied;
(2) to the extent such purchase is made by or on behalf of an
insurance company pooled separate account maintained by the purchase
in which, at any time while the Old Notes are outstanding, no plan
(together with any other plans maintained by the same employer or
employee organization) has an interest in excess of 10% of the total
of all assets in such pooled separate account and the applicable
conditions of Prohibited Transaction Exemption 90-1 issued by the
Department of Labor are satisfied;
(3) to the extent such purchase is made on behalf of a plan
by (A) an investment advisor registered under the Investment Advisers
Act of 1940 that had as of the last day of its most recent fiscal year
total assets under its management and control in excess of $50,000,000
and had shareholders' or partners' equity in excess of $750,000, as
shown in its most recent balance sheet prepared in accordance with
generally accepted accounting principles, (B) a bank as defined in
Section 202(a) of the Investment Advisers Act of 1940 with equity
capital in excess of $1,000,000 as of the last day of its most recent
fiscal year or (C) an insurance company which is qualified under the
laws of more than on state to manage, acquire or dispose of any assets
of a plan, which company had, as of the last day of its most recent
fiscal year, net worth in excess of $1,000,000 and which is subject to
supervision and examination by a state authority having supervision
over insurance companies, in each case, such investment advisor, bank
or insurance company is otherwise a qualified professional asset
manager, as such term is used in the Prohibited Transaction Exemption
84-14 issued by the Department of Labor, and the assets of such plan
when combined with the assets of other plans established or maintained
by the same employer (or affiliate thereof) or employee organization
and managed by such investment advisor, bank or insurance company, do
not represent more than 20% of the total client assets managed by such
investment advisor, bank or insurance company and the applicable
conditions or Prohibited Transaction Exemption 84-14 are otherwise
satisfied; or
(4) to the extent such plan is a governmental plan (as
defined in Section 3 of ERISA) which is not subject to the provisions
of Title 1 of ERISA or Section 4975 of the Code.
Each purchaser by its purchase of the Old Notes shall also be deemed
to have represented that (a) if it is an insurance company, no part of the
funds to be used to purchase the Old Notes to be purchased by it constitutes
assets allocated to any separate account maintained by it such that the use of
such funds constitutes a transaction in violation of Section 406 of ERISA or a
Prohibited Transaction, as such term is defined in Section 4975 of the Code,
which could be subject to, respectively, a civil penalty assessed pursuant to
Section 502 of ERISA or a tax imposed by Section 4975 of the Code and (b) if it
is not an insurance company, that no part of the funds to be used to purchase
the Old Notes to be purchased by it constitutes assets allocated to any
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trust, plan or account which contains the assets of any employee pension
benefit plan, welfare plan or account prohibited pursuant to the preceding
paragraph of these "Transfer Restrictions."
Purchasers are advised that the Prohibited Transaction Exemptions
described above do not relieve a fiduciary or other party from all prohibited
transaction provisions of the Code and ERISA and from ERISA's general fiduciary
responsibilities including, but not limited to, a fiduciary's obligation to
discharge his or her duties solely in the interests of participants and
beneficiaries.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that it will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale for a period of 180
days after consummation of the Exchange Offer, or such shorter period as will
terminate when all Old Notes acquired by broker-dealers for their own accounts
as a result of market-making activities or other trading activities have been
exchanged for Exchange Notes and resold by such broker-dealers. A broker-dealer
that delivers such a prospectus to purchasers in connection with such resales
will be subject to certain of the civil liability provisions under the
Securities Act and will be bound by the provisions of the Registration Rights
Agreement (including certain indemnification rights and obligations).
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such Exchange Notes may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any such resale of Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. For a period of 180 days after
consummation of the Exchange Offer, or such shorter period as will terminate
when all Old Notes acquired by broker-dealers for their own accounts as a
result of market-making activities or other trading activities have been
exchanged for Exchange Notes and resold by such broker-dealers, the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed in the Registration Rights
Agreement to indemnify such broker-dealers against certain liabilities,
including liabilities under the Securities Act.
Any Old Notes not exchanged in the Exchange Offer for Exchange Notes
will remain subject to the transfer restrictions described above.
DESCRIPTION OF SENIOR CREDIT FACILITY
The Company has received a joint commitment from Frost National Bank,
San Antonio and Zion National Bank, Salt Lake City for a Senior Credit Facility
which is expected to provide for a revolving credit and/or term loan facility
in the aggregate principal amount of approximately $20 million. The Senior
Credit Facility is expected to be available to provide liquidity, fund future
working capital requirements of the Company, and finance future acquisitions
consistent with the Company's business strategy. It is anticipated that the
Senior Credit Facility will be guaranteed by the Subsidiary Guarantors, will be
secured by substantially all of the assets of the Company and the stock and
assets of the Subsidiary Guarantors, and will contain customary
representations, warranties and covenants, including financial covenants. See
"Risk Factors -- Senior Credit Facility; Effective Subordination."
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DESCRIPTION OF CAPITAL STOCK AND WARRANTS
GENERAL
The Company's total authorized capital stock consists of 50,000,000
shares of common stock, par value $.01 per share (the "Common Stock") and
5,000,000 shares of preferred stock, par value $.01 per share (the "Preferred
Stock"). The Board of Directors has designated 450,000 shares of the Preferred
Stock as the Series A Convertible Preferred Stock (the "Series A Preferred
Stock") and has designated 200,000 shares of the Preferred Stock as the Series
B Convertible Preferred Stock (the "Series B Preferred Stock"). The Company
has 3,817,039 shares of Common Stock, 450,000 shares of Series A Preferred
Stock and 124,831 shares of Series B Preferred Stock issued and outstanding.
In addition, a total of 130,000 shares of Common Stock have been reserved for
issuance upon exercise of stock options under the Stock Option Plan, 574,831
shares of Common Stock have been reserved for issuance upon conversion of the
Series A Preferred Stock and Series B Preferred Stock, and 639,857 shares have
been reserved for issuance upon exercise of the Warrants.
SERIES A PREFERRED STOCK
In September 1995, the Board of Directors authorized the designation
of 450,000 shares of Series A Preferred Stock. The Series A Preferred Stock
has no rights of redemption or sinking fund provisions, but upon liquidation of
the Company, the Company must pay the holders of Series A Preferred Stock $5.56
per share (an aggregate of $2,502,000) before any amounts may be paid to the
holders of Common Stock. Holders of Series A Preferred Stock are entitled to
vote on all matters upon which the holders of Common Stock have the right to
vote and are generally entitled to vote as a class on any matters adversely
affecting their rights as holders of this series of preferred stock. Each
share of Series A Preferred Stock entitles the holder thereof to such number of
votes per share as equals the whole number of shares of Common Stock into which
each share of Series A Preferred Stock is then convertible. Each share of
Series A Preferred Stock is convertible into Common Stock without payment of
additional consideration at a conversion price of $5.56 per share, subject to
anti-dilution adjustments.
SERIES B PREFERRED STOCK
In December 1996, the Board of Directors authorized the designation of
200,000 shares of Series B Preferred Stock and on January 17, 1997 the Company
issued 124,831 shares in full satisfaction of $750,000 of convertible demand
notes bearing interest at a rate of 10% per annum which were issued in December
1996. The Series B Preferred Stock has no rights of redemption or sinking fund
provisions, but upon liquidation of the Company, the Company must pay the
holders of Series B Preferred Stock $6.07 per share (an aggregate of $757,724)
before any amounts may be paid to the holders of Common Stock. Holders of
Series B Preferred Stock are entitled to vote on all matters upon which the
holders of Common Stock have the right to vote and are generally entitled to
vote as a class on any matters adversely affecting their rights as holders of
this series of preferred stock. Each share of Series B Preferred Stock
entitles the holder thereof to such number of votes per share as equals the
whole number of shares of Common Stock into which each share of Series B
Preferred Stock is then convertible. Each share of Series B Preferred Stock is
convertible into Common Stock without payment of additional consideration at a
conversion price of $6.07 per share, subject to anti-dilution adjustments.
WARRANTS
General. The Company issued Warrants as part of the issuance of Old
Notes. Each Warrant, when exercised, will entitle the holder thereof to
receive 10.2377 shares of Common Stock of the Company (each, a "Warrant Share")
at an exercise price of $.01 per share (the "Exercise Price"). A total of
50,000 Warrants, representing 511,885 Warrant Shares were issued in connection
with the Old Notes; in addition, the Company issued to the Initial Purchaser
warrants to purchase 127,972 shares of Common Stock at an exercise price of
$.01 per share, and the Company issued to SV Capital Partner, L.P. warrants to
purchase 100,000 shares of Common Stock at an exercise price of $14.00 per
share. The Exercise Price and the number of Warrant Shares issuable on
exercise of a Warrant are both subject to adjustment in certain cases. See
"Adjustments" below. The Warrants are exercisable at any time on or after the
Issue Date (the "Exercisability Date"). Unless exercised, the Warrants will
automatically expire on the maturity date of the Notes (the "Expiration Date").
The Company will give notice of expiration not less than 90 nor more than 120
days prior to the Expiration Date to the registered holders of the then
outstanding Warrants. The Warrants will entitle the holders thereof to
purchase in the aggregate approximately 10% of the outstanding Common Stock of
the Company on a fully diluted basis as of the date of issuance of the
Warrants.
Voting Rights. The holders of the Warrants will have no right to vote
on matters submitted to the stockholders of the Company and will have no right
to receive cash dividends. The holders of the Warrants will not be entitled to
share in the assets of the Company in the event of the liquidation, dissolution
or winding up of the Company's affairs.
Adjustments. Each of the number of Warrant Shares purchasable upon
the exercise of the Warrants and the Exercise Price will be subject to
adjustment in certain events including: (i) the payment by the Company of
dividends (or other distributions) on the Common Stock of the Company payable
in shares of such Common Stock or other shares of the Company's capital stock,
(ii) subdivisions, combinations and reclassifications of the Common Stock, and
(iii) the distribution to all holders of the Common Stock of any of the
Company's assets, debt securities or any rights or warrants to purchase
securities (excluding
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cash dividends or other cash distributions from current or retained earnings).
Subject to certain exceptions set forth in the Warrant Agreement, if
the Company issues (i) shares of Common Stock for a consideration per share
less than the current market value per share or (ii) any securities convertible
into or exchangeable for Common Stock for a consideration per share of Common
Stock initially deliverable upon conversion or exchange of such securities that
is less than the current market value per share on the date of issuance of such
securities, the Company shall offer to sell to each holder of Warrants, at the
same price and on the same terms offered to all other prospective buyers
(provided that the holders of Warrants shall not be required to buy any other
securities in order to buy such Common Stock or convertible securities), a
portion of such Common Stock or convertible securities that is equal to such
holder's portion of the Common Stock then outstanding if immediately prior
thereto all the Warrants had been exercised. Each such holder may elect to buy
all or any portion of the Common Stock or convertible securities offered or may
decline to purchase any.
Registration Rights. The Company has granted demand and piggy back
registration rights to holders of the Warrants pursuant to a Securityholders'
and Registration Rights Agreement (the "Securityholders' Agreement"). From
time to time after 180 days following the completion by the Company of a public
equity offering, holders of Warrant shares owning, individually or in the
aggregate, not less than the not less than 25% of the Warrant shares held in
the aggregate by all holders of Warrant shares may make a written request for
registration under the Securities Act of their warrant shares. Subject to
certain conditions, within 120 days of the receipt of such written request for
such a demand registration, the Company shall file with the Commission and use
its best efforts to cause to become effective under the Securities Act a
registration statement with respect to such securities. This summary of the
Securityholders' Agreement does not purport to be complete and is qualified in
its entirety by reference to the terms and provisions of the Securityholders'
Agreement.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by shareholders of the Company. Subject to any
preferential rights of any outstanding series of preferred stock designated by
the Board of Directors, the holders of Common Stock are entitled to receive,
ratably, with the holders of the Series A Preferred Stock and the Series B
Preferred Stock, such dividends, if any, as may be declared from time to time
by the Board of Directors out of funds legally available therefor. In the
event of liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive pro rata all assets of the Company
available for distribution to such holders after distribution in full of the
preferential amount to be distributed to holders of shares of the Series A
Preferred Stock and the Series B Preferred Stock. All outstanding shares of
Common Stock are validly issued, fully paid and nonassessable. The Company's
Articles of Incorporation deny preemptive rights and cumulative voting, however
the Company has granted certain preferential rights to purchase new issuances
of shares to certain shareholders. These rights expire upon an initial public
offering of at least $7.5 million. The Common Stock has no conversion rights
or other subscription rights and there are no redemption or sinking fund
provisions applicable to the Common Stock. The Company has granted piggy-back
and/or demand registration rights to certain shareholders. See "Certain
Relationships and Related Transactions."
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
The Company's Articles of Incorporation (the "Articles of
Incorporation") provide that the Board of Directors is vested with authority to
establish, from time-to-time, series of unissued shares of any class, to
determine and fix the designation and the relative rights, preferences and
limitations of the shares of each series so established, and to increase or
decrease the number of shares within each such series. The relative rights and
preferences of shares may vary in any respect between series, but all shares of
the same series shall be identical in all respects. The authority possessed by
the Board of Directors to issue different classes and series of stock could
potentially be used to discourage attempts by others to obtain control of the
Company through a merger, tender offer, proxy contest or otherwise by making
such attempts more difficult to achieve or more costly. The Board of Directors
may issue Preferred Stock with voting and conversion rights that could
adversely affect the voting power of the holders of Common Stock. There are no
agreements or understandings for the issuance of Preferred Stock and the Board
of Directors has no present intention to issue any Preferred Stock other than
the Series A Preferred Stock and Series B Preferred Stock described herein.
Article 1302-7.06 of the Texas Miscellaneous Corporation Act ("TMCA")
authorizes a Texas corporation to include a provision in its articles of
incorporation limiting or eliminating the personal liability of its directors
to the corporation and its shareholders for monetary damages for breach of
directors' fiduciary duty of care. The duty of care requires that, when acting
on behalf of the corporation, directors exercise an informed business judgment
based on all material information reasonably available to them. Absent the
limitations authorized by such provision, directors are accountable to
corporations and their shareholders for monetary damages for conduct
constituting gross negligence in the exercise of their duty of care. Although
Article 1302-7.06 of the TMCA does not change a director's duty of care, it
enables corporations to limit available relief to equitable remedies such as
injunction or rescission. Pursuant to such provision, the Articles of
Incorporation limit the personal liability of directors of the Company (in
their capacity as directors but not in their capacity as officers) to the
Company or its shareholders to the fullest extent permitted by the TMCA.
Specifically, a director of the Company will not be personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for (i) any breach of
81
<PAGE> 85
the director's duty of loyalty to the Company or its shareholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) unlawful payments of dividends or unlawful
stock repurchases, redemptions or other distributions, and (iv) any transaction
from which the director derived an improper personal benefit.
The inclusion of this provision may have the effect of reducing the
likelihood of derivative litigation against directors and may discourage or
deter shareholders or management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if successful, might
otherwise have benefitted the Company and its shareholders. However, the
inclusion of this provision together with a provision which requires the
Company to indemnify its officers and directors against certain liabilities, is
intended to enable the Company to attract qualified persons to serve as
directors who might otherwise be reluctant to do so.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The discussion below is intended to be a general description of the
United States tax considerations material to an investment in the Units. It
does not take into account the individual circumstances of any particular
investor and does not purport to discuss all of the possible tax consequences
of the purchase, ownership and disposition of the Notes, Warrants, or Common
Stock, and is not intended as tax advice. Therefore, prospective investors are
urged to consult their own tax advisors with respect to the tax consequences of
an investment in the Units, including the application of state, local, foreign
and other tax laws.
GENERAL
The following is a summary of certain United States federal income tax
consequences associated with the acquisition, ownership, and disposition of the
Notes and the Warrants. The following summary does not discuss all of the
aspects of federal income taxation that may be relevant to a prospective holder
of the Notes and Warrants in light of its particular circumstances, or to
certain types of holders that are subject to special treatment under the
federal income tax laws (including persons who hold the Notes and Warrants as
part of a conversion, straddle or hedge, dealers in securities, insurance
companies, tax-exempt organizations, financial institutions, broker-dealers and
S corporations). Further, except as specifically provided, this summary
pertains only to holders that are citizens or residents of the United States,
corporations, partnerships, or other entities created in or under the laws of
the United States or any political subdivision thereof, or estates or trusts
the income of which is subject to United States federal income taxation
regardless of its source. For taxable years beginning after December 31, 1996,
a trust will be considered a U.S. holder of a Note only if the trust is subject
to the supervision of a court within the United States and the control of a
United States fiduciary as described in Section 7701(a)(30) of the Internal
Revenue Code of 1986 (the "Code"). In addition, this summary does not describe
any tax consequences under state, local, or foreign tax laws and is limited to
holders who hold Notes, Warrants and Common Stock as "Capital Assets"
(generally, property held for investment) within the meaning of Section 1221 of
the Code.
This summary is based upon the Code, Treasury Regulations (the
"Regulations."), rulings and pronouncements issued by the Internal Revenue
Service ("IRS") and judicial decisions now in effect, all of which are subject
to change at any time by legislative, judicial or administrative action. Any
such changes may be applied retroactively in a manner that could adversely
affect the holder of the Notes or Warrants. The Company has not sought and
will not seek any rulings from the IRS or opinions from counsel with respect to
the matters discussed below. There can be no assurance that the IRS will not
take positions concerning the tax consequences of the valuation, purchase,
ownership or disposition of the Units that are different from those discussed
herein.
CLASSIFICATION OF THE NOTES
Under applicable authorities, the Notes should be treated as
indebtedness of the Company for federal income tax purposes. In the unlikely
event that the Notes are treated as equity, the amount treated as a
distribution on any such instrument would be treated as (i) ordinary dividend
income to the extent of the current or accumulated earnings and profits of the
Company, (ii) a return of capital to the extent of a holder's basis in a Note,
and (iii) thereafter, capital gain.
Pursuant to Section 385(c) of the Code, a holder of a Note is required
to treat such Note as indebtedness for all United States federal income tax
purposes unless such holder discloses such inconsistent treatment on such
holder's tax return. The characterization of the Notes by the Company is not
binding on the IRS.
TAXATION OF THE NOTES
Issue Price. The issue price of the Notes will be the first price at
which a substantial amount of such Units are sold to investors. In order to
determine the issue price for the Notes and Warrants (initially sold as
"Units"), the aggregate issue price of the Notes and the Warrants must be
allocated between each of such Securities based upon their relative fair market
values on the date of issuance. If a holder purchases a Unit for the issue
price of the Unit, the holder's initial tax basis for the Note and the Warrants
constituting the Unit will equal the portion of the issue price of the Unit
allocated to each. The Company intends to
82
<PAGE> 86
allocate the issue price of the Units on a per Note and per Warrant basis. A
holder of a Unit may not adopt a different allocation unless such holder
properly discloses such different allocation on such holder's federal income
tax return for the year in which the Units were acquired.
Original Issue Discount. As noted above, because the Notes are being
offered as a part of a Unit including the Warrants, a portion of the offering
price for a Unit will be allocated to the Notes and a portion to the Warrants.
Since the portion allocable to a Note will be less than the Note's principal
amount, a Note will likely be issued at a discount from its face amount. If
the discount (generally referred to as "original issue discount" or "OID")
exceeds a statutory de minimis amount (1/4 of 1% of an obligation's stated
redemption price at maturity multiplied by the number of complete years to its
maturity), the Notes will be considered to be issued with original issue
discount. In addition to including in income the amount of stated interest
received or accrued, a holder will be required to include a portion of any such
OID as ordinary income for federal income tax purposes each year over the term
of the Notes so as to provide a constant yield to maturity.
The total amount of OID with respect to each Note will be the
difference between the issue price and the stated redemption price at maturity.
The issue price of a Unit will be the price paid by the purchasers (other than
the Underwriters) of the Units at their initial offering. This issue price
will then be allocated between the Note and the Warrant that comprise the Unit
as described above based on their relative fair market values. The stated
redemption price at maturity of a Note is the sum of all payments provided by
the Note other than "qualified stated interest" payments. Stated interest on
the Notes will constitute "qualified stated interest". Thus, the stated
redemption price at maturity of a Note will be equal to the principal amount of
such
Accept as provided in "-- Taxation of the Notes -- Subsequent
Purchasers" below, under the OID rules, in general, holders of Notes with OID
must include in gross income for federal income tax purposes the sum of the
daily portions of OID with respect to the Note for each day during the taxable
year or portion of a taxable year on which such holder holds the Note (such
sum, "Accrued OID"). The daily portion is determined by allocation to each day
of any accrual period within a taxable year a pro rata portion of an amount
equal to the adjusted issue price of the Note at the beginning of the accrual
period multiplied by the yield to maturity of the Note. For purposes of
computing OID, the Company will use six-month accrual periods that end on the
days in the calendar year corresponding to the maturity date of the Notes and
the date six months prior to such maturity date, with the possible exception of
the initial accrual period for the Notes. The adjusted issue price of a Note
at the beginning of any accrual period is the issue price of the Note increased
by the Accrued OID for all prior accrual periods (less all payments made on the
Notes other than payments of qualified stated interest). The yield to maturity
of a debt instrument is the interest rate that will produce an amount equal to
the issue price of the debt instrument used in computing the present value of
all payments to be made pursuant to the debt instrument The Company will
annually furnish to certain record holders of the Notes and to the IRS
information with respect to any OID accruing during the calendar year as may be
required by applicable Regulations.
Disposition of Notes. Generally, any sale or redemption or other
disposition of Notes (including in connection with an Asset Proceeds Offer)
will result in taxable gain or loss equal to the difference between (i) the
amount of cash and the fair market value of other property received and (ii)
the holder's adjusted tax basis in the Note. In the case of an initial holder
who purchases a Unit for the issue price of the Unit, the adjusted tax basis of
a Note will initially equal the portion of the issue price of the Unit that is
allocated to the Note and will be increased by any Accrued OID includable in
such holder's gross income, and decreased by all payments received by such
holder on such Note, other than a payment of qualified stated interest. Any
gain or loss upon a sale or other disposition of a Note will generally be
capital gain or loss, which will be long-term if the Note has been held by the
holder for more than one year.
Subsequent Purchasers. The foregoing does not discuss special rules
which may affect the treatment of purchasers that acquire Notes other than at
the time of original issuance at the issue price, including those provisions of
the Code relating to the treatment of "market discount," "acquisition premium"
and "amortizable bond premium." For example, the market discount provisions of
the Code may require a subsequent purchaser of Notes at a market discount to
treat all or a portion of any gain recognized upon sale or other disposition of
the Notes as ordinary income and to defer a portion of any interest expense
that would otherwise be deductible on any indebtedness incurred or maintained
to purchase or carry such Notes until the holder disposes of the Notes in a
taxable transaction.
AHYDO Rules. Sections 163(e)(5) and (i) of the Code affect the
treatment of interest on certain high yield OID debt instruments maturing more
than five years from the date of issuance ("AHYDOs"). The rules are complex
and ambiguous in many respects, and their full potential application to the
Notes cannot be anticipated with precision.
The Notes will constitute AHYDOs if (i) the Notes have "significant
original issue discount" within the meaning of the Code, and (ii) the yield to
maturity of the Notes is equal to or greater than the sum of the relevant
applicable federal rate (the "AFR") for the month in which the Notes are
issued, plus five percentage points. Based upon their terms, the Notes may
have "significant original issue discount." The relevant AFR for mid-term debt
instruments issued in March 1997 is 6.32% compounded semiannually. The Company
cannot yet ascertain whether the Notes will actually constitute AHYDOs under
the foregoing rules. If the Notes are AHYDOs, as described above, a portion of
the tax deductions that would otherwise be available to the Company in respect
of the Notes will be deferred or disallowed, which, in turn, might reduce the
after-tax cash
83
<PAGE> 87
flows of the Company. More particularly, if the Notes constitute AHYDOs, the
Company will not be entitled to deduct OID that accrues with respect to the
Notes until amounts attributable to OID are paid in cash or property
(excluding, however, stock of the Company or a related entity).
In addition, if the yield to maturity of the Notes exceeds the sum of
the relevant AFR plus six percentage points (the "Excess Yield"), the
"disqualified portion" of the OID accruing on the Notes will be characterized
as a nondeductible dividend with respect to the Company. The "disqualified
portion" of the OID is the lesser of (i) the amount of OID on the instrument
and (ii) the portion of the total return on such instrument that bears the same
ratio to such total return as the "Excess Yield" bears to the total yield to
maturity on the instrument. The tax treatment to holders of Notes will be
unaffected by these provisions except that corporate holders of the Notes may
be treated as receiving distributions with respect to the stock of the Company
(rather than interest on such debt instrument) eligible for the dividends
received deduction, subject to applicable limitations, to the extent of the
"disqualified portion" of the OID and to the extent that such distributions
would have been treated as dividends if actually made by the Company with
respect to its stock.
EXCHANGE OFFER
The Company believes that the offer to exchange Old Notes for Exchange
Notes pursuant to the Exchange Offer does not constitute a material
modification of the terms of the Old Notes and, therefore, such exchange will
not constitute an exchange for United States federal income tax purposes.
Accordingly, such exchange will have no United States federal income tax
consequences to holders of Notes. The basis of the Exchange Notes will be the
same as the basis of the Notes immediately before the exchange and the holding
period of the Exchange Notes will include the holding period of the Notes.
BACKUP WITHHOLDING
A noncorporate holder may be subject, under certain circumstances, to
backup withholding at a 31 percent rate with respect to payments received with
respect to the Notes and the Common Stock acquired upon exercise of a Warrant.
This withholding generally applies only if the holder (i) fails to furnish his
or her social security or other taxpayer identification number ("TIN"), (ii)
furnishes an incorrect TIN, (iii) is notified by the IRS that he or she has
failed to report properly payments of interest and dividends and the IRS has
notified the Company that he or she is subject to back-up withholding, or (iv)
fails, under certain circumstances, to provide a certified statement, signed
under penalty of perjury, that the TIN provided is his or her correct number
and that he or she is not subject to backup withholding. Any amount withheld
from a payment to a holder under the backup withholding rules is allowable as a
credit against such holder's federal income tax liability, provided that the
required information is furnished to the IRS. Certain holders (including,
among others, corporations and foreign individuals who comply with certain
certification requirements) are not subject to backup withholding. Holders
should consult their tax advisors as to their qualification for exemption from
backup withholding and the procedure for obtaining such an exemption.
These backup withholding tax and information reporting rules currently
are under review by the IRS and proposed Regulations issued on April 15, 1996,
if finalized would modify certain of such rules generally with respect to
payments made after December 31, 1997. Accordingly, the application of such
rules to the Notes and Common Stock acquired upon exercise of a Warrant could
be changed.
84
<PAGE> 88
LEGAL MATTERS
Certain legal matters regarding the Notes will be passed upon for the
Company by Akin, Gump, Strauss, Hauer & Feld, L.L.P., San Antonio, Texas.
Cecil Schenker, a shareholder of the Company, is the sole shareholder of a
professional corporation which is a partner of Akin, Gump, Strauss, Hauer &
Feld, L.L.P. Alan Schoenbaum, the son of a shareholder of the Company, is the
sole shareholder of a professional corporation which is a partner of Akin,
Gump, Strauss, Hauer & Feld, L.L.P.
EXPERTS
The (i) consolidated financial statements of Packaged Ice, Inc. as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996, (ii) the combined financial statements of Mission Party Ice,
Inc. (a S corporation) and Southwest Texas Packaged Ice, Inc. (an affiliated S
corporation) as of December 31, 1996, and for the period then ended included in
this Prospectus, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon such reports given upon the authority of that firm as experts
in accounting and auditing.
The financial statements of Southwestern Ice, Inc. as of December 31,
1996 and 1995, and for each of the two years then ended included in this
Prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
85
<PAGE> 89
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PACKAGED ICE, INC. AND SUBSIDIARIES
Independent Auditors' Report F-2
Consolidated Balance Sheets at March 31, 1997 (unaudited) and December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the Three Months Ended March 31, 1997
and 1996 (unaudited) and for the Years Ended December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Shareholders' Equity for the Three Months Ended March 31, 1997
(unaudited) and for the Years Ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the Three Months Ended March 31. 1997
and 1996 (unaudited) and for the Years Ended December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
MISSION PARTY ICE. AND SOUTHWEST TEXAS PACKAGED ICE, INC.
Independent Auditors' Report F-14
Combined Balance Sheet at March 31, 1997 (unaudited) and December 31, 1996 F-15
Combined Statements of Operations and Retained Earnings for the Three Months
Ended March 31, 1997 (unaudited ) and for the Year Ended December 31, 1996 F-16
Combined Statements of Cash Flows for the Three Months Ended March 31, 1997
(unaudited) and for the Year Ended December 31, 1996 F-17
Notes to Combined Financial Statements F-18
Independent Auditors' Report on Additional Information F-22
Combined Balance Sheet with Combining Information for the Year Ended
December 31, 1996 F-23
Combined Statement of Operations with Combining Information for the
Year Ended December 31, 1996 F-24
SOUTHWESTERN ICE, INC.
Report of Independent Public Accountants F-25
Balance Sheets at March 31, 1997 (unaudited) and at December 31, 1996 and 1995 F-26
Statements of Operations and Changes in Retained Earnings for the Three Months Ended
March 31, 1997 and 1996 (unaudited) and for the Years Ended
December 31, 1996 and 1995 F-27
Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996 (unaudited)
and for the Years Ended December 31, 1996 and 1995 F-28
Notes to Financial Statements F-29
</TABLE>
F-1
<PAGE> 90
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Packaged Ice, Inc.:
We have audited the accompanying consolidated balance sheets of
Packaged Ice, Inc. and its subsidiaries (the "Company") as of December 31, 1996
and 1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company at December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
March 21, 1997
F-2
<PAGE> 91
PACKAGED ICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS,
<TABLE>
<CAPTION>
ASSETS
MARCH 31 DECEMBER 31
1997 1996 1995
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 278,571 $ 169,535 $ 1,032,811
Accounts receivable:
Trade, net 361,250 213,811 181,752
Affiliates 223,535 119,476 169,383
Inventories 98,550 115,825 79,604
Prepaid expenses 29,877 29,309 21,493
------------ ------------ ------------
Total current assets 991,783 647,956 1,485,043
PROPERTY, Net 10,762,789 9,887,687 5,441,480
OTHER ASSETS, Net 1,167,104 987,145 1,123,263
------------ ------------ ------------
TOTAL $ 12,921,676 $ 11,522,788 $ 8,049,786
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,005,484 $ 703,077 $ 229,637
Accounts payable 439,057 324,624 238,414
Payable to affiliates 1,641,791 634,585 169,130
Accrued wages 94,952 112,622 66,570
Other accrued expenses 118,855 97,400 37,577
Notes payable 302,080 3,425 47,225
------------ ------------ ------------
Total current liabilities 3,602,219 1,875,733 788,553
LONG-TERM DEBT, Net 3,075,310 2,831,955 210,500
COMMITMENTS AND CONTINGENCIES (Note 13)
CONVERTIBLE NOTES 750,000
Preferred stock with put redemption option: ------------ ------------ ------------
Series A Convertible -- 450,000 shares issued
and outstanding at March 31, 1997,
December 31, 1996 and 1995 2,496,527 2,496,527 2,496,527
Series B Convertible -- 124,831 shares issued
and outstanding at March 31, 1997 726,226
Common Stock with put redemption option,
420,000 shares issued and outstanding
at March 31, 1997, December 31, 1996 and 1995 1,971,851 1,971,851 1,971,851
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000,000 shares authorized; shares issued
and outstanding of 2,412,371 at March 31, 1997, 2,406,371 at
December 31, 1996 and 1995 24,124 24,064 24,064
Additional paid-in capital 4,714,241 4,669,301 4,669,301
Subscription receivable (4,799)
Accumulated deficit (3,688,822) (3,096,643) (2,106,211)
------------ ------------ ------------
Total shareholders' equity 1,049,543 1,596,722 2,582,355
------------ ------------ ------------
TOTAL $ 12,921,676 $ 11,522,788 $ 8,049,786
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 92
PACKAGED ICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------- -----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $ 845,732 $ 649,673 $ 4,426,860 $ 2,830,493 $ 783,670
Cost of sales 459,780 324,722 2,034,828 1,251,527 352,126
----------- ----------- ----------- ----------- -----------
Gross profit 385,952 324,951 2,392,032 1,578,966
431,544
Selling, general and administrative
expenses 574,638 410,046 1,981,278 1,514,542
974,325
Depreciation and amortization expense 478,836 349,814 1,455,693 751,291 224,104
----------- ----------- ----------- ----------- -----------
Loss from operations (667,522) (434,909) (1,044,939) (686,867) (766,885)
Other income, net 160,645 16,602 184,982 75,314
69,494
Interest expense (85,302) (10,213) (130,475) (76,929) (24,522)
----------- ----------- ----------- ----------- -----------
Loss before income taxes (592,179) (428,520) (990,432) (688,482) (721,913)
Income taxes -- -- -- -- --
Net loss $ (592,179) $ (428,520) $ (990,432) $ (688,482) $ (721,913)
=========== =========== =========== =========== ===========
Loss per share of common stock $ (0.21) $ (0.15) $ (0.35) $ (0.26) $ (0.28)
=========== =========== =========== =========== ===========
Weighted average common shares
outstanding 2,828,085 2,826,371 2,826,371 2,682,261 2,614,681
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 93
PACKAGED ICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL
NUMBER OF PAR PAID-IN SUBSCRIPTION ACCUMULATED
SHARES VALUE CAPITAL RECEIVABLE DEFICIT TOTAL
--------- ------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT January 1, 1994 1,559,621 $15,596 $1,027,037 $ (99,999) $ (695,816) $ 246,818
Issuance of common stock 1,066,750 10,668 4,826,297 65,600 4,902,565
Net loss (721,913) (721,913)
--------- ------- ---------- --------- ----------- ----------
BALANCE AT December 31, 1994 2,626,371 26,264 5,853,334 (34,399) (1,417,729) 4,427,470
Issuance of common stock 280,000 2,800 1,311,767 29,600 1,344,167
Repurchase of common stock (500,000) (5,000) (2,495,800) (2,500,800)
Net loss (688,482) (688,482)
--------- ------- ---------- --------- ----------- ----------
BALANCE AT December 31, 1995 2,406,371 24,064 4,669,301 (4,799) (2,106,211) 2,582,355
Issuance of common stock 4,799 4,799
Net loss (990,432) (990,432)
--------- ------- ---------- --------- ----------- ----------
BALANCE AT December 31, 1996 2,406,371 24,064 4,669,301 (3,096,643) 1,596,722
Issuance of common stock
(unaudited) 6,000 60 44,940 45,000
Net loss (unaudited) (592,179) (592,179)
--------- ------- ---------- --------- ----------- ----------
Balance at March 31, 1997
(unaudited) 2,412,371 $24,124 $4,714,241 $ $(3,688,822) $1,049,543
========= ======= ========== ========= =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 94
PACKAGED ICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------------------- -----------------------------------------
1997 1996 1996 1995 1994
---------------------------- -----------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (592,179) $ (428,520) $ (990,432) $ (688,482) $ (721,913)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 478,836 349,814 1,455,693 751,291 224,104
Gain from disposal of assets (3,356) (1,956) (2,584)
Changes in assets and liabilities:
Accounts receivable (251,498) 39,785 17,848 (70,366) (270,369)
Inventories 17,276 2,175 (36,221) (37,575) (40,265)
Prepaid expenses (568) 3,227 (7,816) 1,834 15,749
Accounts payable 1,121,639 (60,866) 551,665 185,273 72,524
Accrued expenses (20,000) 58,763 105,875 5,908 73,296
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities 750,150 (37,578) 1,094,028 147,883 (646,874)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (1,350,256) (711,168) (5,744,900) (2,717,444) (2,998,950)
Increase in other assets (253,156) (171,078) (333,918) (243,621) (497,736)
Proceeds from disposition of property 72,871 41,091 153,733
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (1,530,541) (841,155) (5,925,085) (2,961,065) (3,496,686)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common and
preferred stock 45,000 5,812,545 4,902,565
Repurchase of common stock (2,500,800)
Proceeds from debt issuance 882,784 71,383 3,604,403 82,232 155,077
Proceeds from issuance of convertible
demand notes 750,000
Repayment of debt (38,357) (386,622) (359,510) (160,564)
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities 889,427 73,383 3,967,781 3,034,467 4,897,078
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS 109,036 (807,350) (863,276) 221,285 753,518
CASH AND EQUIVALENTS, BEGINNING OF
PERIOD 169,535 1,032,811 1,032,811 811,526 58,008
----------- ----------- ----------- ----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 278,571 $ 225,461 $ 169,535 $ 1,032,811 $ 811,526
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--Cash payments for interest $ 100,201 6,692 $ 114,383 $ 75,606 $ 21,572
=========== =========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES: Note
payable incurred to purchase other assets $ 188,862 $ 574,092
=========== ===========
Demand notes converted to
preferred stock $ 750,000
===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 95
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Packaged Ice, Inc. and its wholly owned subsidiaries (the "Company")
own and operate stand-alone automated merchandising ice systems ("ice systems")
installed primarily in retail grocery locations. These ice systems produce and
package bags of cubed ice at the customer's location. At December 31, 1996, the
Company's customers were located primarily in Texas, Louisiana, California,
Nevada, Arizona, Florida and New Mexico.
2. BASIS OF FINANCIAL STATEMENTS
As shown in the consolidated financial statements, the Company
incurred losses in each of the last three years ended December 31, 1996;
however, it was only in late 1992 that the Company emerged from the development
stage to commence its principal operations of owning and operating automated
merchandising ice systems.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to comply with
the terms and covenants of its financing agreements, to obtain additional
financing or refinancing as may be required and, ultimately, to attain
successful operations.
In each of the past three years, the Company has consistently
demonstrated the ability to successfully attract additional capital through
debt and equity financing to enable it to expand its operations and meet its
obligations. Management believes the Company will continue in 1997 to meet its
obligations and sustain operations through a combination of increased cash flow
from its expanded base of installed ice systems and through obtaining
additional debt financing and/or equity capital. The Company is currently in
the process of preparing a private placement offering circular to issue
$50,000,000 of senior unsecured debt which will be unconditionally guaranteed,
jointly and severally by each of the Company's wholly owned subsidiaries (see
Note 12). Proceeds from the offering are expected to be used for two pending
acquisitions, retirement of existing long-term debt, and for future capital
expenditures, acquisitions and working capital. See Note 14 for additional
information regarding the pending acquisitions and the private debt offering.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements
include the accounts of Packaged Ice, Inc. and its wholly owned subsidiaries.
All significant intercompany transactions have been eliminated upon
consolidation.
Presentation of Unaudited Interim Financial Information--The
consolidated financial statements presented herein at March 31, 1997 and for
the three-month periods ended March 31, 1996 and 1997 are unaudited; however,
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows
for the periods covered have been made and are of a normal, recurring nature.
Accounting measurements at interim dates inherently involve greater reliance on
estimates than at year end. The results of the interim periods are not
necessarily indicative of results to expect for the full year.
Inventories--Inventories consist of ice packaging polyethylene bags
and spare parts and are valued at the lower of first-in first-out cost or
market basis.
Property--Property is carried at cost and is being depreciated on a
straight-line basis over an estimated life of three to seven years. Maintenance
and repairs are charged to expense as incurred, while capital improvements
which extend the useful lives of the underlying assets are capitalized.
Other Assets--Other assets, consisting primarily of costs to acquire a
competitor's ice system location contracts, ice system patents and deferred
financing costs, are being amortized over 5, 17 and 3 years, respectively (see
Note 5).
Impairment of Long-Lived Assets--In March 1995 the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which requires that long-lived assets be
reviewed by an entity for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of SFAS No. 121 in 1996 did not result in a charge to
earnings in the accompanying financial statements.
F-7
<PAGE> 96
Income Taxes--The Company accounts for income taxes under the
liability method, which requires, among other things, recognition of deferred
income tax liabilities and assets for the expected future tax consequences of
events that have been recognized in the Company's consolidated financial
statements or tax returns. Under this method, deferred income tax liabilities
and assets are determined based on the temporary differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities and the recognition of available tax carryforwards.
Revenue Recognition -- Revenue from owned ice systems is recognized
based upon the number of ice packaging bags delivered to and accepted by
customers under contract terms. Once accepted, there is no right of return
with respect to the bags delivered. Revenue from the sale of ice systems is
recognized when the equipment is shipped. Revenues resulting from leased ice
systems is recognized as earned under contract terms.
Earnings Per Share--The computation of earnings per share is based on
the weighted average number of shares outstanding. Shares of common stock
issuable under stock options have not been included in the computation of
earnings per share as their effect is antidilutive.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 is effective for
financial statements issued for periods ending after December 15, 1997; earlier
application is not permitted. SFAS No. 128 revises the methodology to be used in
computing earnings per share such that the computations required for primary and
fully diluted earnings per share are to be replaced with "basic" and "diluted"
earnings per share. Basic earnings per share is computed by dividing net income
by the weighted average number of common shares outstanding during the year.
Diluted earnings per share is computed in the same manner as fully diluted
earnings per share, except that, among other changes, the average share price
for the period is used in all cases when applying the treasury stock method to
potentially dilutive outstanding options. The Company will adopt SFAS 128
effective December 31, 1997, and, as required, will restate earnings per share
for all periods presented. The Company anticipates that the amounts to be
reported for basic and diluted earnings per share for the three months ended
March 31, 1997 and 1996 and the years ended December 31, 1996, 1995 and 1994
will not differ significantly from the amounts reported under the current
accounting standards.
Cash Flows--The Company considers all highly liquid investments
purchased with a remaining maturity of three months or less to be cash
equivalents.
Fair Values of Financial Instruments--The Company's financial
instruments include certain current assets and liabilities where carrying value
approximates fair value. In addition, the carrying value of financial
instruments related to notes payable and long-term debt approximates fair value
as such instruments have variable rate terms.
Use of Estimates--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 these estimates.
4. PROPERTY AND EQUIPMENT
Property and equipment were as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Ice systems machinery and equipment $11,634,671 $ 6,089,241
Furniture and fixtures 32,278 29,114
Computer equipment 65,725 48,082
Autos/trucks 25,492
Leasehold improvements 16,526 14,695
----------- -----------
Total property and equipment 11,774,692 6,181,132
Less accumulated depreciation 1,887,005 739,652
----------- -----------
Total $ 9,887,687 $ 5,441,480
=========== ===========
</TABLE>
Ice systems machinery and equipment includes approximately $1.7 million and $0
of leased ice systems at December 31, 1996 and 1995, respectively (see Note 9).
Depreciation expense for the three years ended December 31, 1996 was
$1,147,540, $502,161 and $187,047, respectively.
5. ACQUISITION OF SOUTHCO, INC. CONTRACTS
On November 21, 1994, the Company entered into a purchase agreement
(the "Purchase Agreement") with Southco, Inc. ("Southco") to purchase certain
of its assets, primarily the right to operate ice systems at 133 locations and
firm orders to operate ice systems in the future at 85 additional locations.
The cost was approximately $1,072,000 and was partially financed by a $574,092
note payable (see Note 6). The purchase price and related note are subject to
reduction (as defined) for a three-year period for cancellations/ terminations
of any existing locations or in the event that any of the identified firm order
locations do not become customers.
F-8
<PAGE> 97
Since the acquisition date seven existing locations have terminated and 31 firm
orders have canceled. Such activity has reduced the value of the rights
acquired to operate ice systems and the related note by approximately $153,000
plus interest previously paid. The assigned value of the right to operate the
ice systems has been recorded within other assets and is being amortized over
five years. The accumulated amortization related to this asset was $366,492 and
$228,910, at December 31, 1996 and 1995, respectively.
6. LONG-TERM DEBT
In March 1996 the Company executed a $10 million credit facility (the
"Facility") with a bank to replace an existing $4.5 million credit facility on
which no borrowings were outstanding at December 31, 1995. Funds available for
borrowing under this Facility are limited to the lesser of the Asset Value
Borrowing Base (as defined) or the Cash Flow Borrowing Base (as defined). The
Facility is secured by all ice systems, accounts receivable, inventory and all
material assets of the Company. In addition the Facility also contains
restrictive covenants which, among other things, require the attainment of
certain financial ratios and a minimum tangible net worth. The Facility bears
interest at the Company's option at either the prime rate or the London
Interbank Offered Rate plus an applicable margin based upon the Company's
financial condition (as defined) with outstanding interest due monthly through
March 1997. The applicable interest rate was 8.75% at December 31, 1996.
Beginning in April 1997, the Facility will convert to a 36-month term loan. In
October 1996 the Company notified the bank that it was in violation of certain
of the Facility's covenants and undertook negotiations to amend the Facility.
In December 1996 the Company and the bank amended the Facility with the
principal changes being to reduce the borrowing base to $4.0 million, amend
certain financial ratio covenants, and revise the term loan payments so that
they are calculated on a 48-month amortization with a final balloon payment due
at the end of three years.
In November 1994 the Company entered into a note payable (the "Southco Note")
to finance a portion of the Southco acquisition (see Note 5). The Southco Note
bears interest at an annual rate of prime plus 2% (10.25% at December 31, 1996)
and is secured by the shares of Southco Ice, Inc., as well as by certain
contracts to operate ice systems. The Southco Note required interest-only
payments for the first six months and thereafter 36 monthly payments of $19,136
plus accrued interest. At the note holder's option, the Southco Note is
convertible into shares of the Company's common stock at a conversion price of
$8 per share.
At December 31, 1996 and 1995, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Bank credit facility $3,485,000
Southco Note 43,814 $ 440,137
Other 6,218
---------- ----------
Total debt 3,535,032 440,137
Less current maturities 703,077 229,637
---------- ----------
Long-term debt, net $2,831,955 $ 210,500
========== ==========
</TABLE>
F-9
<PAGE> 98
The annual maturities of long-term debt as of December 31, 1996 are as follows:
<TABLE>
<S> <C> <C>
1997 $ 703,077
1998 871,646
1999 871,250
2000 1,089,059
----------
$3,535,032
==========
</TABLE>
7. NOTES PAYABLE
In December 1996 the Company received $750,000 in exchange for demand
notes bearing interest at a 10% annual rate. The notes were issued in
contemplation of converting into a new class of preferred stock, subject to
appropriate shareholder approval. Such approval occurred in January 1997 and
the notes plus accrued interest thereon were converted into Series B
Convertible Preferred Stock (see Note 10) at a conversion price of $6.07 per
share. At December 31, 1996, the demand notes were reflected as noncurrent
liabilities because of the ability and the intent of the note holders and of
the Company to convert the debt into preferred stock.
In September 1995 the Company entered into a note payable with an
investment holding company for $60,000. The balance on the note was paid in
full during 1996.
8. INCOME TAXES
The Company incurred losses for each of the three years in the period
ended December 31, 1996 for both financial reporting and tax return purposes.
Due to the uncertainty of being able to utilize such losses to reduce future
taxes, a valuation allowance has been provided to reduce to zero the net
deferred tax assets resulting primarily from the loss carryforwards available.
The total provision for income taxes varied from the U.S. federal statutory
rate due to the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal income tax benefit
at statutory rate $(336,747) $(234,084) $(245,450)
Increase in valuation allowance 288,994 240,136 243,106
Non deductible expenses 5,408 4,037 2,973
Other 42,345 (10,089) (629)
--------- --------- --------
Total provision for income taxes $ 0 $ 0 $ 0
========= ========= ========
</TABLE>
Deferred tax assets and liabilities computed at the statutory rate related to
temporary differences were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
---- ----
<S> <C> <C>
Deferred tax liabilities:
Property and equipment $ (780,604) $ 295,359
----------- ----------
Deferred tax assets:
Other assets 91,841 60,585
Net operating loss carryforwards 1,694,418 951,435
----------- ----------
Total deferred tax assets 1,786,259 1,012,020
----------- ----------
Net deferred tax assets 1,005,655 716,661
Valuation allowance (1,005,655) (716,661)
----------- ----------
Total deferred taxes $ 0 $ 0
=========== ==========
</TABLE>
At December 31, 1996, the Company had approximately $4,900,000 of tax
loss carryforwards that expire between 2006 and 2011.
9. RELATED PARTIES
A customer, who is also a shareholder, represented approximately 16%,
16% and 32%, respectively, of the Company's revenues for the three years ended
December 31, 1996. At December 31, 1996 and 1995, the customer owed the Company
$56,880 and $109,000, respectively.
Certain affiliates of Company shareholders sell equipment and
inventory to the Company. Total expenditures incurred related to these entities
were $4,058,656 in 1996, $2,527,000 in 1995 and $2,205,000 in 1994. At December
31, 1996 and 1995, accrued liabilities to these entities totaled $605,336 and
$163,000, respectively.
Law firms associated with certain Company shareholders provided
services totaling $67,768 in 1996, $109,000 in 1995 and $52,000 in 1994.
A shareholder of the Company performed investment banking services in
1992 in exchange for $60,000 and a stock warrant to purchase up to 43,296
shares of the Company's common stock for $5.78 per share, subject to
antidilution adjustments. The warrant expires on April 15, 1997.
F-10
<PAGE> 99
The Company entered into a distributor agreement (the "Distributor
Agreement") to sell ice systems machinery and equipment to Southwest Texas
Packaged Ice, Inc., an entity owned by certain Company shareholders. This
entity has exclusive distributor rights in certain Texas counties for a period
of ten years effective May 19, 1994. The distributor purchases each ice system
at an agreed upon price and pays a royalty, as defined. The Company has the
right to repurchase all of the ice systems at a price defined in the
Distributor Agreement. The distributor purchased machinery and equipment for
$147,613 in 1996, $192,000 in 1995 and $176,000 in 1994. At December 31, 1996
and 1995, the distributor owed the Company $0 and $60,000, respectively.
The Company granted a stock option to a shareholder that gives the
option holder the right to purchase up to 80,358 shares of common stock at an
exercise price of $6.22 per share. The stock option expired December 31, 1996.
In September 1996, the Company and Southwestern Ice, Inc. ("SWI")
entered into equipment lease and service agreements. Under the equipment lease,
the Company leased certain of its existing retail ice system locations and
additional ice systems to be installed within SWI's market area. The term of
the agreement is for five years with a five-year option and is accounted for as
an operating lease. Monthly rentals are variable depending on the number of
locations and ice systems subject to the lease agreement. Based on the number
of ice systems under lease at December 31, 1996 the future minimum rentals to
be received on noncancelable leases are approximately $408,000 annually. For
the year ended December 31, 1996, the Company recorded $93,885 in rent revenue
of which approximately $34,000 was receivable at December 31, 1996. Under the
service agreement, SWI pays the Company a monthly management fee of $10,000 for
the Company to have primary responsibility for marketing the ice systems and
oversight responsibility for installing, operating, managing and servicing the
ice systems. In addition, SWI is required to reimburse the Company for certain
costs relating to activities under the agreement. The term of this agreement is
for ten years or the termination of the equipment lease agreement. The Company
recorded approximately $129,000 in management fees and reimbursed expenses
during 1996 of which approximately $28,000 is receivable at December 31, 1996.
Also during 1996 the Company entered into a consulting arrangement
with an individual affiliated through ownership with SWI. Under the terms of
this arrangement this individual would be paid $10,000 per month. At December
31, 1996, the Company has accrued $30,000 for these services.
10. CAPITAL STOCK
Preferred Stock--During September 1995, the Company's Board of
Directors authorized the designation of 450,000 shares of $.01 par value Series
A convertible preferred stock ("Series A"). Series A has no rights of
redemption or sinking fund provisions, but upon liquidation of the Company, the
Company must pay the Series A holders $5.56 per share (aggregate of $2,502,000)
before any amounts may be paid to the holders of common stock. Series A holders
are entitled to vote on all matters upon which the holders of common stock have
the right to vote and are generally entitled to vote as a class on any matters
adversely affecting their rights as holders of this series of preferred stock.
Each Series A holder is entitled to vote the number of equivalent common shares
that underlie their respective Series A investment. Each Series A share is
convertible into common stock without payment of additional consideration at a
conversion price of $5.56 per share, subject to antidilution adjustments.
On September 20, 1995, the Company received net proceeds of
approximately $5.8 million from a private placement offering and, in exchange,
issued 700,000 shares of common stock and 450,000 shares of Series A
convertible preferred stock. The proceeds from the offering were used (i) to
repurchase and retire 420,000 shares of common stock from an unrelated
shareholder for $2.5 million, (ii) to finance the purchase and installation of
ice systems in additional customer locations, and (iii) for working capital and
general corporate purposes. The Company also repurchased and retired 80,000
shares of common stock for $800. With respect to the above issuance of 700,000
common shares, 480,000 shares contain a "put" option that provides the
respective shareholders with the ability to require the Company to repurchase
the common shares if certain registration rights with respect to the securities
are not effected by September, 2004. The put price would be at the fair market
value, as defined, at the time the put option is exercised. The common shares
subject to this redemption feature are shown on the consolidated balance sheet
under the heading "common stock with put redemption option".
During January 1997, the Company's board of directors authorized and
the shareholders approved the designation of 200,000 shares of $.01 par value
Series B convertible preferred stock ("Series B"). The Company issued 124,831
Series B shares in full satisfaction of the 10% convertible demand notes (see
Note 7). Series B has no rights of redemption or sinking fund provisions, but
upon liquidation of the Company, the Company must pay the Series B holders
$6.07 per share (aggregate $757,724) before any amounts may be paid to the
holders of common stock. Series B holders are entitled to vote on all matters
upon which the holders of common stock have the right to vote and are generally
entitled to vote as a class on any matters adversely affecting their rights as
holders of this series of preferred stock. Each Series B holder is entitled to
vote the number of equivalent common shares that underlie their respective
Series B investment. Each Series B share is convertible into common stock
without payment of additional consideration at a conversion price of $6.07 per
share, subject to antidilution adjustments.
The Series A and Series B convertible preferred shares are also
subject to the same put redemption option described above for the 480,000
common shares. This redemption feature would be available beginning September,
2004 if the preferred stockholder has converted its holding to common shares
and if certain registration rights with respect to the common shares are not
effected by September, 2004. The Series A and Series B shares are shown on the
consolidated balance sheet under the heading "preferred stock with put
redemption option".
Common Stock--Holders of the Company's common stock are entitled to
one vote per share on all matters to be voted on by shareholders and are
entitled to receive dividends, if any, as may be declared from time to time by
the Board of Directors of the Company. Upon any liquidation or dissolution of
the Company, the holders of common stock are entitled, subject to any
preferential rights of the holders of preferred stock, to receive a pro rata
share of all of the assets remaining available for distribution to shareholders
after payment of all liabilities.
F-11
<PAGE> 100
On January 4, 1994, the Company issued 1,066,750 shares of common
stock for $4,837,000 in a private placement offering.
In 1993 the Company sold 16,077 common shares at $6.22 per share to an
entity that produces packaging components used in the Company's ice systems.
The $99,999 consideration to be received from this entity was shown as an
offset to shareholders' equity and was reduced by a sales discount on the price
charged for the packaging component of the ice system for each of the first 500
packaging components delivered. At December 31, 1996, full consideration for
the stock subscription had been received.
In connection with the Southco acquisition (see Note 5), two
individuals are eligible to receive stock options to purchase a total of 20,000
shares of common stock. The exercise price will be the fair market value as
determined by the Board of Directors on the grant date. At December 31, 1996,
no options had been granted under this agreement.
11. EMPLOYEE BENEFIT PLAN
During 1996 the Company established a 401(k) defined contribution
savings plan for the benefit of all employees who have completed one year of
service and have met the eligibility requirements to participate. Employees may
contribute up to the maximum amount allowed by the Internal Revenue Service,
while Company contributions are made at the discretion of the Board of
Directors. The Company contributed approximately $20,000 to the plan during
1996.
During 1994 the Company adopted a nonqualified stock option plan (the
"Plan"), which reserved for issuance 130,000 shares of common stock under the
terms of the Plan. At December 31, 1996, 66,500 shares were available for
future grants. Stock option activity for the three years ended December 31,
1996 is summarized below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE EXERCISE
NUMBER OF PRICE PRICE
OPTIONS SHARES PER SHARE PER SHARE
- ------- ------ --------- ---------
<S> <C> <C> <C>
Granted during 1994 35,000 $6.22 $6.22
Granted during 1995 22,500 6.75 6.75
Granted during 1996 6,000 7.50 7.50
------
Outstanding at December 31, 1996 63,500 6.53
====== =====
</TABLE>
Such options vest ratably over five years and expire ten years from
the date of grant. The weighted average remaining contractual life of stock
options outstanding under this plan was 8.2 years at December 31, 1996.
Exercisable stock options at December 31, 1996 and 1995 were 18,500 and 7,000,
respectively.
The Company measures compensation cost for this Plan using the
intrinsic value method of accounting prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, no
compensation cost has been recognized. Had compensation cost for the Plan been
determined using the fair value method of accounting as set forth in SFAS No.
123, "Accounting for Stock--Based Compensation," there would have been no
material difference in the Company's net loss for 1996 or 1995.
12. SUBSIDIARIES
The Company has two wholly owned subsidiaries, Southco Ice, Inc.
("SII") which began operations in November 1994 and Packaged Ice Leasing, Inc.
("PILI") which began operations in October 1993. SII operates ice systems at
the locations acquired from Southco (see Note 5), while PILI owns certain ice
systems that are leased to the Company. The following table sets forth the
condensed combined financial information for the Company's subsidiaries.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Operating Data:
Revenues $2,403,516 $2,123,701 $305,909
Net loss (235,960) (848,779) (122,125)
<CAPTION>
AS OF DECEMBER 31,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Balance Sheet Data:
Current assets $ 184,434 $ 356,179
Property and equipment, net 5,422,595 3,198,724
Total assets 6,099,388 4,343,677
Long-term debt 43,814 440,137
Total shareholder's equity (1,195,995) (940,035)
</TABLE>
F-12
<PAGE> 101
13. COMMITMENTS AND CONTINGENCIES
In April 1993 the Company entered into an agreement to purchase all of
the ice system packaging components from a shareholder for a period of three
years or until a minimum of 3,600 components had been purchased. Since
inception of this agreement, the Company has purchased 811 components. At
December 31, 1996 the current purchase price per component was approximately
$5,600.
The Company has agreed to purchase all of the merchandiser portions of
the ice systems from an unaffiliated company for a period of two years or until
a minimum of 2,400 merchandisers are purchased. Since inception of this
agreement, the Company has purchased 658 merchandisers. At December 31, 1996
the current purchase price per merchandiser was approximately $2,400.
Relating to the Purchase Agreement with Southco, the Company's
subsidiary leased and subleased certain ice systems from Southco for a
five-year period. Rental payments are $110 per month per ice system. Payments
will be reduced for any leased ice systems removed from Company locations.
On March 22, 1994, the Company entered into a five-year building
operating lease. Future minimum lease payments will be approximately $45,000 in
1997, $47,000 in 1998 and $16,000 in 1999. In addition, the Company has a
year-to-year building operating lease for its Dallas facility. Future minimum
lease payments will be approximately $9,000 in 1997.
The Company could be involved in various claims, lawsuits and
proceedings arising in the ordinary course of business. While there are
uncertainties inherent in the ultimate outcome of such matters and it is
impossible to presently determine the ultimate costs that may be incurred,
management believes the resolution of such uncertainties and the incurrence of
such costs should not have a material adverse effect on the Company's
consolidated financial position or results of operations.
14. SUBSEQUENT EVENTS (UNAUDITED)
On April 17, 1997 the Company completed the sale of $50,000,000 senior
unsecured debt (the "Notes") in connection with a private placement offering
which was prepared in compliance with Rule 144A and Regulation D under the
Securities Act. Concurrent with the sale of the Notes, the Company consummated
agreements with Mission Party Ice, Inc. and Southwest Texas Packaged Ice, Inc.
(the "Mission Acquisition" and "STPI Acquisition", respectively) and SWI (the
Southwestern Acquisition"). The Mission Acquisition and STPI Acquisition
companies are controlled by an existing shareholder of the Company and operate
separate and distinct ice manufacturing facilities primarily in South Texas. SWI
operates ice manufacturing facilities in Arizona, New Mexico, California, Texas
and Tennessee. Total combined consideration for the Mission and STPI
Acquisitions was $10.4 million, consisting of $3.4 million in cash, $3.4 million
in the assumption and repayment of seller debt and $3.6 million in shares of the
Company's common stock. Total consideration for the SWI Acquisition was $18.8
million, consisting of $3.5 million in cash, $9.3 million in the assumption and
repayment of seller debt and $6.0 million in shares of the Company's common
stock. Each acquisition is being accounted for under the purchase method.
Results of operations and cash flows of the acquired businesses will be included
in the consolidated financial statements for the periods subsequent to the
respective dates of acquisition. The Company has not completed an assessment of
the fair value of the net assets acquired for purposes of allocating the
purchase price. Accordingly, the approximate $14.5 million excess of the
purchase price over the net book value of the acquired businesses has been
allocated entirely to goodwill at this time. Terms of the Notes provided that
the debt obligation is guaranteed by all of the direct and indirect current and
future subsidiaries of the Company and that such guarantees are full,
unconditional and joint and several.
The Company sold the Notes at a price of 96% of the par value, or
$48,000,000, which was used to finance the cash portion of the purchase price
for the acquisitions and to pay certain related expenses, repay outstanding
indebtedness, make capital expenditures and provide additional working capital.
In June 1997, the Company was in the process of exchanging the Notes
with new debt (the "Exchange Notes"). The Exchange Notes will be identical in
all material respects to the form and terms of the Notes except that the
Exchange Notes will be registered under the 1933 Securities Act and will not
contain certain transfer restrictions.
F-13
<PAGE> 102
INDEPENDENT AUDITORS' REPORT
To the Stockholder of Mission Party Ice, Inc. and
Stockholders of Southwest Texas Packaged Ice, Inc.:
We have audited the accompanying combined balance sheet of Mission
Party Ice, Inc. (a S corporation) and Southwest Texas Packaged Ice, Inc. (an
affiliated S corporation) (collectively, the "Companies"), both of which are
under common ownership and common management, as of December 31, 1996, and the
related combined statements of operations and retained earnings and of cash
flows for the year then ended. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express
an opinion on these combined financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the combined financial position of the Companies at December
31, 1996, and the combined results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Houston, Texas
March 21, 1997
F-14
<PAGE> 103
MISSION PARTY ICE, INC. (A S CORPORATION) AND
SOUTHWEST TEXAS PACKAGED ICE, INC. (A S CORPORATION)
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
March 31, 1997 December 31, 1996
--------------- -----------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 46,094 46,468
Accounts receivable:
Trade, net 521,095 556,925
Affiliates 595,737 379,619
Inventories 142,706 164,013
Prepaid expenses 24,673 47,180
----------- -----------
Total current assets 1,330,305 1,194,205
PROPERTY, NET 4,518,417 4,547,978
OTHER ASSETS, NET 269,634 274,352
NET ASSETS FROM DISCONTINUED OPERATIONS 0 316,520
----------- -----------
TOTAL 6,118,356 $ 6,333,055
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt 1,906,633 $ 1,483,228
Accounts payable:
Trade 496,571 621,562
Payable to affiliates 162,436 155,408
Accrued expenses 118,779 82,707
----------- -----------
Total current liabilities 2,684,419 2,342,905
----------- -----------
LONG-TERM DEBT, NET 1,704,378 1,692,620
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY:
Common stock (Mission: 1,000,000 shares authorized, $.01 par
value, 1,000 shares issued and outstanding; STPI: 1,000,000
shares authorized, $1 par value; 1,250 shares issued) 1,260 1,260
Additional paid-in capital 1,538,026 1,538,026
Retained earnings 200,273 768,244
Less 25 shares of STPI treasury stock at cost (10,000) (10,000)
----------- -----------
Total shareholders' equity 1,729,559 2,297,530
----------- -----------
TOTAL $ 6,118,356 6,333,055
----------- -----------
</TABLE>
See notes to combined financial statements.
F-15
<PAGE> 104
MISSION PARTY ICE, INC. (A S CORPORATION) AND
SOUTHWEST TEXAS PACKAGED ICE, INC. (A S CORPORATION)
COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
(UNAUDITED)
<S> <C> <C>
Revenues $ 998,702 $7,704,514
Costs of sales 813,665 4,683,307
--------- ----------
Gross profit 185,037 3,021,207
Selling, general and administrative expenses 418,728 1,498,622
Depreciation and amortization expense 254,138 973,712
--------- ----------
Income (loss) from operations (487,829) 548,873
Other income, net 9,592 64,432
Interest expense (89,734) (271,535)
--------- ----------
Income (loss) from continuing operations
before income taxes (567,971) 341,770
Income taxes 0
--------- ----------
Income (loss) from continuing operations (567,971) 341,770
Income from discontinued operations 0 83,133
--------- ----------
Net income (loss) (567,971) 424,903
Retained earnings, Beginning of period 768,244 343,341
--------- ----------
Retained earnings, End of period $ 200,273 $ 768,244
========= ==========
</TABLE>
See notes to combined financial statements.
F-16
<PAGE> 105
MISSION PARTY ICE, INC. (A S CORPORATION) AND
SOUTHWEST TEXAS PACKAGED ICE, INC. (A S CORPORATION)
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations $ (567,971) $ 341,770
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by (used in) operating activities:
Depreciation and amortization 254,138 973,712
Gain from disposal of assets (29,529)
Changes in assets and liabilities:
Accounts receivable 132,706 (406,564)
Inventories 21,307 (23,559)
Prepaid expenses 22,507 37,160
Accounts payable (114,437) 175,410
Accrued expenses 36,072 1,377
Net cash flows provided by operating activities of discontinued
operations 0 447,319
----------- -----------
Net cash provided by used in operating activities (215,678) 1,517,096
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (219,859) (1,731,607)
Proceeds from disposition of property 77,023
Net cash flows used in investing activities of discontinued
operations (413,390)
----------- -----------
Net cash used in investing activities (219,859) (2,067,974)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issuance 600,000 1,647,500
Repayment of debt (164,837) (1,055,657)
Treasury stock purchases (10,000)
Net cash flows from financing activities of discontinued
operations 0 4,347
---------- -----------
Net cash provided by financing activities 435,163 586,190
---------- -----------
NET DECREASE IN CASH AND EQUIVALENTS (374 35,312
CASH AND EQUIVALENTS, DECEMBER 31, 1996 46,468 11,156
---------- -----------
CASH AND EQUIVALENTS, MARCH 31, 1997 $ 46,094 $ 46,468
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash payments for interest $ 20,641 $ 272,849
========== ===========
</TABLE>
See notes to combined financial statements.
F-17
<PAGE> 106
MISSION PARTY ICE, INC. (A S CORPORATION) AND
SOUTHWEST TEXAS PACKAGED ICE, INCC. (A S CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION
Mission Party Ice, Inc. ("Mission") and Southwest Texas Packaged Ice,
Inc. ("STPI") (collectively, the "Company" or "Companies") were incorporated to
do business in Texas in 1988 and 1991, respectively. Mission owns and operates
ice manufacturing facilities in San Antonio, Corpus Christi and Gonzales,
Texas. STPI owns and operates stand-alone automated merchandising ice systems
("ice systems") installed primarily in retail grocery locations. These ice
systems produce and package bags of cubed ice at the customer's location. The
Company operates in the South Texas region.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination--Both Mission and STPI are controlled through
ownership by the same stockholder and are under common management. As a result
the 1996 financial statements and related footnote disclosures are presented on
a combined basis. All significant intercompany accounts and transactions have
been eliminated upon combination.
Presentation of Unaudited Interim Financial Information--The combined
financial statements presented herein at March 31, 1997 and for the three-month
periods ended March 31, 1997 are unaudited; however, all adjustments which are,
in the opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the periods covered have been
made and are of a normal, recurring nature. Accounting measurements at interim
dates inherently involve greater reliance on estimates than at year end. The
results of the interim periods are not necessarily indicative of results to
expect for the full year.
Inventories--Inventories are valued at the lower of first-in first-out
cost or market basis and consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Manufactured ice $ 33,547
Ice packaging bags 75,804
Parts and supplies 54,662
--------
Total inventory $164,013
========
</TABLE>
Property--Property is carried at cost and is being depreciated on a
straight-line basis over estimated lives of five to seven years. Maintenance
and repairs are charged to expense as incurred, while capital improvements
which extend the useful lives of the underlying assets are capitalized.
Other Assets--Other assets, consisting primarily of costs associated
with the acquisition of competitors' ice manufacturing facilities and ice
system location contracts, are being amortized over three to five years (see
Note 5). Accumulated amortization was $210,398 at December 31, 1996.
Impairment of Long-Lived Assets--In 1996 the Companies adopted
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which requires that long-lived assets be reviewed for impairment whenever
events or circumstances indicate that the carrying amount of an asset may not
be recoverable. The adoption of SFAS No. 121 did not result in a charge to
earnings in the accompanying combined financial statements.
Income Taxes--Mission and STPI are not subject to income taxes as both
have elected, under applicable provisions of the Internal Revenue Code, to be
treated as a Subchapter S corporation. Accordingly, the proportionate share of
each Company's taxable income or loss is reported in the respective
stockholder's individual tax return. Therefore, no liability for federal income
taxes has been recorded in the accompanying combined financial statements.
Revenue Recognition--Mission's revenues are recognized upon the
delivery and acceptance of ice products to customer locations. Revenue is
recognized by STPI in accordance with contracted terms based upon the number of
ice packaging bags delivered to and accepted by customers. Once accepted, there
is no right of return with respect to the bags delivered.
Cash Flows--The Company considers all highly liquid investments
purchased with a remaining maturity of three months or less to be cash
equivalents.
Fair Values of Financial Instruments--The Company's financial
instruments include certain current assets and liabilities where carrying value
approximates fair value. In addition, the carrying value of financial
instruments related to long-term debt approximate fair value based on
management's opinion that stated interest rates are representative of rates
currently available to the Companies for comparable borrowings. It is not
practicable to estimate the fair value of the related party balances due to the
instruments nature.
F-18
<PAGE> 107
Use of Estimates--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 these estimates.
3. DISCONTINUED OPERATIONS
In December 1996, Mission entered into formal negotiations to sell
Mission Ice Equipment Company ("MIECO"), a division of Mission, to Southwest
Texas Equipment Distributors ("STED"). STED is affiliated with Mission through
common ownership. MIECO's business involves the sale or lease of commercial
food service equipment to retail establishments. The net assets of MIECO were
sold on January 2, 1997 for a price of $316,520, which equaled their net book
value at this date. No gain or loss was recorded on the disposal. Costs and
expenses directly associated with the disposition were paid by STED.
4. PROPERTY AND EQUIPMENT
Property and equipment were as follows at December 31, 1996:
<TABLE>
<S> <C>
Ice systems machinery and equipment $ 6,250,893
Furniture and fixtures 122,068
Auto/truck 1,480,184
Computer equipment 246,204
Leasehold improvements 12,967
Land 35,095
-----------
Total property and equipment 8,147,411
Less accumulated depreciation (3,599,433)
-----------
Total $ 4,547,978
===========
</TABLE>
Depreciation expense for the year ended December 31, 1996 was
$893,485.
5. CURRENT ACQUISITIONS
McGehee--Neutze, Inc. ("MNI")--In May 1996 Mission acquired certain
assets of MNI including ice merchandising equipment and a vehicle for $77,500.
The acquisition was funded through Mission's bank credit facility. As part of
the acquisition, MNI agreed to perform sales and customer relations work within
the MNI market area, primarily Webb County, Texas in exchange for approximately
$170,000 to be paid over a three year term. Such purchase consideration was
recorded in other assets with an offsetting amount in accounts payable. Payment
of amounts under this service agreement are guaranteed by Mission's sole
stockholder. The assigned value of this agreement is being amortized over the
agreement term with accumulated amortization of approximately $23,000 at
December 31, 1996.
Southco, Inc. ("Southco") Contracts--On November 21, 1994, STPI
entered into a purchase agreement (the "Purchase Agreement") with Southco to
purchase certain of its assets, primarily the right to operate ice systems at
33 locations and firm orders to operate ice systems in the future at seven
additional locations. The cost was approximately $188,000 and was partially
financed by a $105,620 note payable (see Note 6). The purchase price and
related note are subject to reduction (as defined) for a three year period for
cancellations/terminations of any existing locations or in the event that any
of the identified firm order locations do not become customers.
The assigned value of the right to operate ice systems and associated
costs has been recorded within other assets and is being amortized over five
years. The accumulated amortization related to this asset was approximately
$80,000 at December 31, 1996.
6. LONG-TERM DEBT AND NOTES PAYABLE
At December 31, 1996, long-term debt of the Companies consisted of the
following:
<TABLE>
<S> <C>
Frost National Bank $2,612,616
Jefferson State Bank 523,249
Southco Note 33,958
Other 6,025
----------
Total debt 3,175,848
Less current maturities 1,483,228
----------
Long-term debt, net $1,692,620
==========
</TABLE>
F-19
<PAGE> 108
Frost National Bank--The Company and Frost National Bank have entered
into a secured loan agreement (the "Bank Loan Agreement"), as last amended
January 1997, to finance capital expenditures and seasonal working capital
needs. Under the provisions of the Bank Loan Agreement, available financing
consists of a term loan (the "Term Loan"), a working capital line of credit and
an equipment purchase line of credit (collectively, the "Lines of Credit").
Borrowings under the Bank Loan Agreement are secured by Mission's machinery and
equipment, accounts receivable, the pledge of Mission's common stock and the
personal guarantee of Mission's sole shareholder as well as the guarantees of
STPI and STED. The Bank Loan Agreement contains restrictive covenants which,
among other things, requires the Company to maintain a minimum tangible net
worth (as defined) and a specific ratio of cash flow to current maturities of
long-term debt. The terms of the Bank Loan Agreement also prohibit the payment
of dividends, limit annual capital expenditures and limit the Companies'
ability to incur additional debt. The maximum combined credit under the Lines
of Credit is $1,475,000, subject to borrowing base limitations which are
generally computed as a percentage of various classes of eligible accounts
receivable, qualifying inventory and fixed assets (as defined) of Mission, STPI
and STED. The Company pays no annual facility fee related to the Lines of
Credit.
The balance of the Term Loan was $904,155 at December 31, 1996. The
Term Loan bears interest at prime plus 1% (9.25% at December 31, 1996) and is
payable in monthly installments of $21,840 through July 2000. The balance of
the Lines of Credit was $425,000 at December 31, 1996. The Lines of Credit
mature on May 31, 1997 and bear interest at prime plus 1% (9.25% at December
31, 1996).
In addition, the Companies enter into secured promissory note
agreements with Frost National Bank from time to time in order to finance the
purchase of equipment, which is in turn used as collateral for the notes. At
December 31, 1996, borrowings under such notes were $1,283,461. These notes
bear interest at prime plus 1% (9.25% at December 31, 1996) and require
principal and interest payments in equal monthly installments ranging from
three to five years.
Jefferson State Bank--The Companies enter into secured promissory note
agreements ("Promissory Notes") with Jefferson State Bank at various dates in
order to finance the purchase of ice merchandisers and/or transportation
vehicles, which are in turn used as collateral for the Promissory Notes. The
notes outstanding at December 31, 1996 bear interest at a fixed rate ranging
from 6.5% to 9.0%. The Promissory Notes require principal and interest payments
in equal monthly installments ranging from two to four years.
Southco Note--In November 1994 STPI issued a note (the "Southco Note")
to finance a portion of the Southco acquisition (see Note 5). The Southco Note
bears interest at an annual rate of prime plus 2% (10.25% at December 31, 1996)
and is secured by the contracts to operate ice systems. The Southco Note
required interest-only payments for the first six months and thereafter 36
monthly payments of $3,521 plus accrued interest.
The weighted average interest rate for the Companies was 9.27% for the
year ended December 31, 1996.
The Companies' long-term debt maturities are as follows:
<TABLE>
<C> <C>
1997 $1,483,228
1998 782,292
1999 584,820
2000 317,328
2001 8,180
----------
$3,175,848
==========
</TABLE>
7. RELATED PARTIES
STPI entered into a distributor agreement (the "Distributor
Agreement") to purchase ice systems machinery and equipment from Packaged Ice,
Inc. ("Packaged Ice"), an entity affiliated through common ownership. Under
provisions of the Distributor Agreement, STPI has exclusive purchasing rights
in certain Texas counties for a period of ten years effective May 19, 1994.
STPI purchases each ice system at an agreed upon price and pays a royalty, as
defined. Packaged Ice has the right to repurchase all of the ice systems at a
price defined in the Distributor Agreement. STPI's purchases under the
Distributor Agreement were $147,613 for the year ended December 31, 1996. No
amounts were payable related to these transactions at December 31, 1996.
Certain affiliates of the Companies' shareholders sell ice
merchandisers to Mission. During 1996, Mission incurred approximately $100,000
of capital expenditures related to these entities.
The Companies, from time to time, advance and receive funds from
affiliates in the normal course of operations for working capital purposes.
Such transactions are reflected in accounts receivable-affiliates and accounts
payable-affiliates on the combined balance sheet in the respective amounts of
$360,589 and $49,856 at December 31, 1996. In addition, Mission has $105,552 of
8.75% interest bearing demand notes due affiliates and $19,030 of employee
receivables at December 31, 1996.
F-20
<PAGE> 109
The Companies lease certain property from individuals affiliated
through ownership. Total payments under these leases were $87,600 in 1996. See
Note 9 for additional information regarding noncancellable lease commitments.
8. CAPITAL STOCK
Common Stock--Respective holders of Mission and STPI's common stock
are entitled to one vote per share on all matters to be voted on by
shareholders and are entitled to receive dividends, if any, as may be declared
from time to time by the respective Board of Directors of the Companies. Upon
any liquidation or dissolution of either Company, the holders of common stock
are entitled to receive a pro rata share of all of the assets remaining
available for distribution to shareholders after payment of all liabilities.
In 1993, STPI entered into a Stock Purchase and Restriction Agreement
(the "Agreement") with certain employees of STPI. The Agreement allowed these
employees to purchase up to a 20% interest in STPI's $1 par value common stock
for a purchase price of $50,000. The Agreement gave the new shareholders a put
option whereby STPI would repurchase the shares at a price equal to the greater
of the original purchase price or the then adjusted book value (as defined).
Upon termination of employment or death, STPI has the option to repurchase such
shares in accordance with the put option formula. The Agreement restricts such
shares from being sold, pledged, gifted or otherwise disposed of without
offering such shares to the majority stockholder. During 1996 STPI repurchased
and placed in treasury 25 shares of common stock from minority shareholders for
$10,000.
9. COMMITMENTS AND CONTINGENCIES
Relating to the Purchase Agreement with Southco, STPI leased certain
ice systems from Southco for a five year period. Rental payments are $110 per
month per ice system.
The Companies have entered into various noncancellable operating
leases for buildings and other property. The Company subleases some of the
property included under these leases. The annual future minimum lease payments
under these leases, and the related sublease amounts, are as follows:
<TABLE>
<CAPTION>
PAYMENT SUBLEASE NET
------- -------- ---------
<C> <C> <C> <C>
1997 $330,000 $12,000 $318,000
1998 74,000 2,000 72,000
1999 16,000 16,000
</TABLE>
The Companies may be involved in various claims, lawsuits and
proceedings arising in the ordinary course of business. While there are
uncertainties inherent in the ultimate outcome of such matters and it is
impossible to presently determine the ultimate costs that may be incurred,
management believes the resolution of such uncertainties and the incurrence of
such costs should not have a material adverse effect on the Companies's
combined financial position or results of operations.
10. EMPLOYEE BENEFIT PLANS
On January 1, 1994, the Company, in conjunction with affiliated
companies controlled through ownership by the same stockholder established a
401(k) defined contribution savings plan (the "Plan") covering substantially
all of the affiliates' employees. Employees may elect to contribute on a
pre-tax basis up to 15% of their eligible compensation to the Plan. For those
participants who have elected to make voluntary contributions to the Plan, the
Company's matching contributions consist of an amount of up to 2% of the
eligible compensation of the participants. An additional matching contribution
may be made by the Company at the discretion of the Board of Directors. Such
contributions vest ratably over a period of five years. The Company contributed
approximately $30,000 to the Plan for the year ended December 31, 1996.
11. SUBSEQUENT EVENTS (UNAUDITED)
On April 17, 1997, the Companies consummated an agreement with Packaged
Ice to merge into wholly owned subsidiaries of Packaged Ice. The total combined
consideration for those acquisitions was $10.4 million, consisting of $3.4
million in cash, $3.4 million in the assumption and repayment of seller debt and
$3.6 million in shares of Packaged Ice common stock payable to the Companies'
shareholders.
F-21
<PAGE> 110
INDEPENDENT AUDITORS' REPORT
ON ADDITIONAL INFORMATION
To the Stockholder of Mission Party Ice, Inc. and
Stockholders of Southwest Texas Packaged Ice, Inc.:
Our audit was conducted for the purpose of forming an opinion on the
basic combined financial statements taken as a whole. The additional combined
balance sheet with combining information as of December 31, 1996 and the
combined statement of operations with combining information for the year ended
December 31, 1996 are presented for the purpose of additional analysis of the
basic combined financial statements rather than to present the financial
position and results of operations of the individual companies and are not a
required part of the basic combined financial statements. This additional
combining information is the responsibility of the Companies' management. Such
combining information has been subjected to the auditing procedures applied in
our audit of the basic combined financial statements and, in our opinion, is
fairly stated in all material respects when considered in relation to the basic
combined financial statements taken as a whole.
DELOITTE & TOUCHE LLP
Houston, Texas
March 21, 1997
F-22
<PAGE> 111
MISSION PARTY ICE, INC. (A S CORPORATION) AND
SOUTHWEST TEXAS PACKAGED ICE, INC. (A S CORPORATION)
COMBINED BALANCE SHEET WITH COMBINING INFORMATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
SOUTHWEST
MISSION TEXAS
PARTY ICE PACKAGED COMBINING COMBINED
INC. ICE, INC. ADJUSTMENTS BALANCE
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 36,149 $ 10,319 $ 46,468
Accounts receivable:
Trade 477,480 79,445 556,925
Affiliates 491,394 4,778 $ (116,553) 379,619
Inventories 146,278 17,735 164,013
Prepaid expenses 45,468 1,712 47,180
----------- ----------- ---------- -----------
Total current assets 1,196,769 113,989 (116,553) 1,194,205
PROPERTY, NET 3,591,511 956,467 4,547,978
OTHER ASSETS, NET 161,740 112,612 274,352
NET ASSETS FROM DISCONTINUED OPERATIONS 374,282 (57,762) 316,520
----------- ----------- ---------- -----------
TOTAL $ 5,324,302 $ 1,183,068 $ (174,315) $ 6,333,055
=========== =========== ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,161,544 $ 321,684 $ 1,483,228
Accounts payable 509,689 111,873 621,562
Payable to affiliates 105,522 224,201 $ (174,315) 155,408
Accrued expenses 63,473 19,234 82,707
----------- ----------- ---------- -----------
Total current liabilities 1,840,228 676,992 (174,315) 2,342,905
----------- ----------- ---------- -----------
LONG-TERM DEBT, NET 1,178,618 514,002 1,692,620
----------- ----------- ---------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, 2,000,000 shares authorized;
(1,000,000 shares, $.01 par value,
authorized for Mission, 1,000 shares
issued and outstanding; 1,000,000
shares, $1 par value; authorized for
STPI, 1,250 shares issued) 10 1,250 1,260
Additional paid-in capital 1,514,513 23,513 1,538,026
Retained earnings 790,933 (22,689) 768,244
Less 25 shares of STPI treasury stock
at cost (10,000) (10,000)
----------- ----------- ---------- -----------
Total shareholders' equity 2,305,456 (7,926) 2,297,530
----------- ----------- ---------- -----------
TOTAL $ 5,324,302 $ 1,183,068 $ (174,315) $ 6,333,055
=========== =========== ========== ===========
</TABLE>
See notes to combined financial statements at pages F-18 through F-21.
F-23
<PAGE> 112
MISSION PARTY ICE, INC. (A S CORPORATION) AND
SOUTHWEST TEXAS PACKAGED ICE, INC. (A S CORPORATION)
COMBINED STATEMENT OF OPERATIONS WITH COMBINING INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SOUTHWEST
MISSION TEXAS
PARTY ICE PACKAGED COMBINING COMBINED
INC. ICE, INC. ADJUSTMENTS BALANCE
---------- ---------- ----------- ----------
<S> <C> <C> <C>
Revenues $6,853,645 $850,869 $7,704,514
Costs of sales 4,327,267 356,040 4,683,307
---------- -------- ------- ----------
Gross profit 2,526,378 494,829 3,021,207
Selling, general and administrative
expenses 1,387,837 110,785 1,498,622
Depreciation and amortization expense 698,136 275,576 973,712
---------- -------- ------- ----------
Income from operations 440,405 108,468 548,873
Other income, net 68,448 560 $(4,576) 64,432
Interest expense (182,179) (93,932) 4,576 (271,535)
---------- -------- ------- ----------
Income from continuing operations
before income taxes 326,674 15,096 341,770
Income taxes
---------- -------- ------- ----------
Income from continuing operations 326,674 15,096 341,770
Income from discontinued operations 83,133 83,133
---------- -------- ------- ----------
Net income $ 409,807 $ 15,096 $ $ 424,903
========== ======== ======= ==========
</TABLE>
See notes to combined financial statements at pages F-18 through F-21.
F-24
<PAGE> 113
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Southwestern Ice, Inc.:
We have audited the accompanying balance sheets of SOUTHWESTERN ICE, INC. (an
Arizona corporation) as of December 31, 1996 and 1995, and the related
statements of operations and changes in retained earnings and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Southwestern Ice, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 27, 1997.
F-25
<PAGE> 114
SOUTHWESTERN ICE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1997 1996 1995
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 32,595 $ 39,821 $ 135,289
Short-term investments 50,000 95,000 --
Accounts receivable, less allowance for doubtful
accounts of $27,000 at both December 31, 1996
and 1995 (Note 1) 1,379,319 1,204,745 1,352,607
Inventories 427,362 371,433 370,300
Prepaid expenses and other current assets 55,664 89,599 103,216
----------- ----------- -----------
Total current assets 1,944,940 1,800,598 1,961,412
PROPERTY, PLANT AND EQUIPMENT, net (Notes 2 and 3) 9,782,141 10,168,279 10,591,579
ASSETS HELD FOR SALE (Note 1) 265,655 265,655 --
OTHER ASSETS, net 170,202 173,292 199,689
----------- ----------- -----------
$12,162,938 $12,407,824 $12,752,680
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current portion of debt and obligations under
capital leases (Note 3) $ 1,043,137 $ 1,068,181 $ 1,868,159
Operating line of credit (Note 3) 600,000 600,000 --
Accounts payable 1,168,779 733,799 1,096,257
Accrued liabilities 521,669 475,513 565,430
Other liabilities (Note 4) -- -- 500,000
----------- ----------- -----------
Total current liabilities 3,333,585 2,877,493 4,029,846
----------- ----------- -----------
DEBT AND OBLIGATIONS UNDER CAPITAL LEASES, less
current portion (Note 3) 7,757,550 7,856,134 8,112,280
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)
STOCKHOLDERS' INVESTMENT:
Capital stock; no par value, 1,000,000 shares
authorized, 1,110 shares issued and outstanding
at both December 31, 1996 and 1995 1,110 1,110 1,110
Retained earnings 1,070,693 1,673,087 609,444
----------- ----------- -----------
Total stockholders' investment 1,071,803 1,674,197 610,554
----------- ----------- -----------
$12,162,938 $12,407,824 $12,752,680
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-26
<PAGE> 115
SOUTHWESTERN ICE, INC.
STATEMENTS OF OPERATIONS AND
CHANGES IN RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
1997 1996 1996 1995
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
SALES $ 2,206,840 $ 2,350,481 $ 14,050,305 $ 13,933,266
COST OF SALES 2,066,527 2,053,176 10,270,979 10,414,557
------------ ------------ ------------ ------------
Gross profit 140,313 297,305 3,779,326 3,518,709
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 688,063 579,291 2,640,271 2,464,654
------------ ------------ ------------ ------------
Income (loss) from operations (547,750) (281,986) 1,139,055 1,054,055
------------ ------------ ------------ ------------
OTHER (INCOME) EXPENSE:
Interest expense 226,730 194,952 920,136 798,316
Other (income) expense (172,086) 9,034 (14,682) (238,406)
------------ ------------ ------------ ------------
Total other expense, net 54,644 203,986 905,454 559,910
------------ ------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM (602,394) (485,972) 233,601 494,145
EXTRAORDINARY ITEM:
Gain from extinguishment of debt - - 830,042 -
------------ ------------ ------------ ------------
NET (LOSS) INCOME (602,394) (485,972) 1,063,643 494,145
RETAINED EARNINGS, beginning balance 1,673,087 609,444 609,444 115,299
------------ ------------ ------------ ------------
RETAINED EARNINGS, ending balance $ 1,070,693 $ 123,472 $ 1,673,087 $ 609,444
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 116
SOUTHWESTERN ICE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED DECEMBER 31,
------------------ ------------------------
MARCH 31,
---------
1997 1996 1996 1995
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (602,394) $ (485,972) $ 1,063,643 $ 494,145
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities--
Depreciation and amortization 298,852 269,313 1,124,380 1,020,393
Debt discount amortization 2,343 3,446 12,127 51,311
Gain on sale of property, plant and equipment (172,085) - (198,601) (207,986)
Gain on extinguishment of debt - - (830,042) -
(Increase) decrease in assets:
Accounts receivable (174,574) 71,206 147,862 (65,800)
Inventories (55,929) 35,687 (1,133) 80,332
Prepaid expenses and other current assets 33,935 21,598 13,617 (26,188)
Other assets (1,231) (8,188) (9,470) (19,607)
Increase (decrease) in liabilities:
Accounts payable 434,980 (156,480) (362,458) 184,151
Accrued liabilities 46,156 115,838 88,309 (348,244)
----------- ----------- ----------- -----------
Net cash (used in) provided by operating activities (189,947) (133,552) 1,048,234 1,162,507
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property, plant and equipment
and assets held for sale 328,495 - 525,000 1,611,285
Purchase of property, plant and equipment (64,803) (125,609) (631,526) (417,292)
Proceeds from (purchase of) short-term investments 45,000 - (95,000) -
Disposition costs of assets held for sale - - - (553,374)
----------- ----------- ----------- -----------
Net cash (used in) provided by investing
activities 308,692 (125,609) (201,526) 640,619
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - 19,441 8,041,542 -
Principal payments on long-term debt (125,971) (372,731) (9,583,718) (1,842,841)
Proceeds from line of credit - 500,000 1,311,950 200,000
Payments on line of credit - - (711,950) (200,000)
----------- ----------- ----------- -----------
Net cash used in financing activities (125,971) 146,710 (942,176) (1,842,841)
NET DECREASE IN CASH (7,226) (112,451) (95,468) (39,715)
CASH, beginning balance 39,821 135,289 135,289 175,004
----------- ----------- ----------- -----------
CASH, ending balance $ 32,595 $ 22,838 $ 39,821 $ 135,289
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 229,140 $ 179,348 $ 951,991 $ 713,853
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING ACTIVITIES:
Capital lease obligations of $803,307 and $116,312 were incurred
during 1996 and 1995, respectively
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 117
SOUTHWESTERN ICE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Operations
Southwestern Ice, Inc. (the Company) was incorporated in the State of
Arizona on February 25, 1992. The Company's primary business activity is the
production, marketing, and distribution of ice products in Arizona, southern
Texas, Memphis, Tennessee, Albuquerque, New Mexico and El Centro, California.
The Company has elected to be organized as an S corporation and therefore, is
not subject to income taxes. Accordingly, there is no provision for income
taxes reflected in the accompanying financial statements.
In 1994, the Company's program for market penetration culminated with
the acquisition of the national ice operations of Southeastern Public Service
Company (SEPSCO). During the following two years the Company disposed of
unprofitable segments of the SEPSCO operations; additionally it made three
strategic acquisitions of small operations in order to strengthen the Company's
primary markets. See specific discussion on acquisition/disposal activity
below.
During the summer of 1996, new technology was introduced into the
Company's primary market. Specifically, this technology produces and bags ice
within the ice merchandiser located at the customer site. Realizing the
opportunities for increased sales volume and market penetration while allowing
the Company to reduce its production and shipping costs, the Company entered
into a Master Equipment Lease Agreement with the owner of the technology. The
Company also believes the addition of this new technology will compliment its
traditional ice operations by increasing its production capacity during periods
of the year in which demand has typically exceeded the Company's production
capacity. Pursuant to the lease agreement, the Company granted the technology
owner an option to purchase the Company, exercisable within five years from the
date of the Master Equipment Lease Agreement at a price based on an agreed-upon
formula (see Note 4).
During 1996, the Company sold certain assets related to its Corpus
Christi, Texas ice production and distribution facility and certain mobile
refrigerated vacuum equipment. The Company recognized a gain of approximately
$145,000 on proceeds of approximately $525,000. The Company has classified the
assets still located in Corpus Christi as assets held for sale and is actively
marketing these assets. No depreciation expense has been recorded since the
date the assets were taken out of production and made available for sale. The
assets held for sale at December 31, 1996, consist of the following:
<TABLE>
<S> <C>
Land $155,506
Buildings 110,149
--------
$265,655
========
</TABLE>
F-29
<PAGE> 118
The following unaudited pro forma information has been prepared
assuming the disposal of the Corpus Christi assets and discontinuance of those
operations occurred at the beginning of 1996.
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Revenues $13,839,730
Gross profit 3,793,418
Income from operations 1,204,780
</TABLE>
The unaudited pro forma combined financial data is provided for
illustrative purposes only and is not necessarily indicative of the results of
operations that would have been reported had the disposition of these
operations occurred on January 1, 1996, nor does it represent a forecast of the
results of operations for any future period.
During 1995, the Company sold for aggregate proceeds of approximately
$1,408,000 certain assets located in Florida and certain assets related to its
Albuquerque water operations, all of which were originally acquired in the
SEPSCO acquisition discussed below. No gain or loss resulted from these sales
as the assets were recorded at their net realizable value. Also, during 1995,
the Company sold certain assets related to its Phoenix dry ice operations. The
sale of these assets resulted in a gain of approximately $208,000 on proceeds
of approximately $250,000.
During 1995, the Company acquired certain assets of three ice
distributors for a total purchase price of approximately $246,000. The excess
cost over the net assets acquired of approximately $38,000 is included in other
assets in the accompanying financial statements and is being amortized over 15
years. In accordance with APB No. 16, Accounting for Business Combinations, the
acquisitions were accounted for as purchases and, accordingly the purchase
price was allocated to the assets acquired based on their respective estimated
fair values at the date of acquisition.
Effective April 8, 1994, the Company, pursuant to a Purchase Agreement
with Southeastern Public Service Company (SEPSCO), acquired substantially all
of the assets, subject to certain liabilities (see Note 4) of an ice
manufacturing and distribution company for approximately $9,295,000. Funding
was provided by the issuance of a note payable to SEPSCO in the amount of
$4,295,000 and $5,000,000 obtained on the issuance of a note payable to a bank
(see Note 3).
The acquisition was accounted for as a purchase and, accordingly,
the purchase price was allocated to the assets and liabilities acquired based
on their respective estimated fair values at the date of acquisition. The
allocation is summarized as follows:
<TABLE>
<S> <C>
Accounts receivable $ 1,044,868
Inventories 468,478
Property, plant and equipment 9,362,494
Assets held for sale 506,226
Accounts payable (546,014)
Accrued liabilities (541,052)
Other liabilities (1,000,000)
-----------
$ 9,295,000
===========
</TABLE>
Use of Estimates
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.
F-30
<PAGE> 119
Short-Term Investments
Short-term investments consist of certificates of deposits with a
financial institution which have original maturities in excess of three months
and are carried at cost, which approximate market.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
basis) or market. The Company's inventory consists of wet ice and bags for the
transportation and storage of ice.
Other Assets
The cost of customer lists, trade name and other identifiable
intangible assets acquired in connection with business acquisitions are
amortized on a straight-line basis over 15 years. Amortization expense totaled
to $18,000 and $17,000 for the years ended December 31, 1996 and 1995.
Accumulated amortization was $47,700 and $34,200 as of December 31, 1996 and
1995, respectively.
Other Liabilities
At December 31, 1995, other liabilities consisted of the remediation
costs associated with SEPSCO acquisition (see Note 4). These remediation costs
were fully paid in conjunction with the debt refinancing discussed in Note 3.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit
risk consist principally of trade receivables. The Company earns approximately
76% of its revenues from Arizona with the remaining portion earned from Texas,
Tennessee, New Mexico and California. Also, approximately 44% of the Company's
sales are to major supermarket chains.
Recently Issued Pronouncements
During 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of. This statement requires companies
to review long-lived assets and certain identifiable intangibles for impairment
whenever events or changes in circumstances indicate that the carrying amount
of such assets may not be recoverable and provides guidance to be considered in
performing such reviews. The adoption of SFAS No. 121 did not have an impact on
the Company's financial position or results of operations.
(2) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is recorded at cost. Property and
equipment held under capital leases is stated at the present value of minimum
lease payments, net of accumulated amortization. These assets are amortized
over the lesser of the lease term or the estimated useful life of the
underlying assets using the straight-line method. Additions, improvements and
major renewals are capitalized. Maintenance, repairs and minor renewals, which
do not improve or significantly extend the life of assets, are expensed as
incurred. Depreciation is computed on a straight-line basis over the following
estimated useful lives:
F-31
<PAGE> 120
<TABLE>
<CAPTION>
ASSET DESCRIPTION ESTIMATED LIVES
- ----------------- ---------------
<S> <C>
Buildings and improvements 31 years
Machinery and equipment 7--12 years
Furniture and fixtures 7--12 years
Vehicles 5 years
</TABLE>
Property, plant and equipment at December 31 consists of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 749,361 $ 994,031
Buildings and improvements 3,010,772 3,183,380
Machinery and equipment 7,213,527 6,625,892
Furniture and fixtures 691,394 656,437
Vehicles 1,431,552 1,059,695
----------- -----------
13,096,606 12,519,435
Less- Accumulated depreciation (2,928,327) (1,927,856)
----------- -----------
$10,168,279 $10,591,579
=========== ===========
</TABLE>
(3) DEBT AND OBLIGATIONS UNDER CAPITAL LEASES:
In July 1996, the Company used $8,600,000 in proceeds from borrowings
with a bank to retire approximately $9,083,000 in debt and $500,000 in accrued
remediation liabilities (see Note 4). The new debt consists of a senior term
note, a secondary term note and a revolving line of credit. The retired debt
consisted of three loan agreements and a revolving line of credit with a bank
and a subordinated note payable to SEPSCO. The refinancing resulted in an
extraordinary gain on extinguishment of debt of $830,042.
Debt and obligations under capital leases at December 31 consists of
the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Senior note payable to bank collateralized by
personal property, real estate, capital stock
and a shareholder certificate of deposit,
payable in monthly installments of $65,775
including interest at prime (8.25% at
December 31, 1996), plus 1.5% through June 2006. $ 4,606,854 $ --
Secondary note payable to bank collateralized
by personal property, real estate, capital
stock and a shareholder certificate of
deposit, payable in monthly installments of
interest only at prime plus 1.5% through June 2006. 3,000,000 --
Note payable to bank collateralized by accounts
receivable and equipment, payable in monthly
installments of $106,060 including interest at
8.25% per annum, paid in full in July 1996. -- 4,188,471
Subordinated note payable to SEPSCO, payable
in annual installments of $120,000 plus interest
at 5% per annum, beginning April 1996 and 1995,
paid in full in July 1996, paid in full in July 1996. -- 3,880,767
Installment note payable to bank collateralized
by accounts receivable and equipment and
personally guaranteed by a shareholder,
payable in monthly installments of $13,911 plus
interest at prime plus 2%, paid in full in July 1996.
</TABLE>
F-32
<PAGE> 121
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Obligations under capital leases, net of amounts
representing interest. Interest ranging from 9%
to 13%, maturing through October 2001. 879,035 407,099
Note payable to bank, collateralized by shareholder
certificate of deposit, interest payable in
monthly installments at time deposit rate plus
2% per annum, paid in full in July 1996. -- 495,000
Note payable to shareholder, due in monthly
installments of $6,458 plus interest at 10%
through April 1999. 284,167 322,917
Other 165,804 279,221
----------- -----------
8,935,860 10,004,111
Less--Current portion (1,068,181) (1,868,159)
Unamortized discount (11,545) (23,672)
----------- -----------
$ 7,856,134 $ 8,112,280
=========== ===========
</TABLE>
Pursuant to the refinancing, the Company entered in a revolving line
of credit with a bank which is secured by personal property, real estate,
capital stock and a shareholder certificate of deposit. Interest is payable
monthly at prime plus 1.5% until maturity of the line of credit in May 1997.
The maximum borrowing base is determined by the Company's accounts receivable
balance, as defined, not to exceed $600,000. The line of credit was fully drawn
at the time of refinancing to pay in full the outstanding balance of an
existing line of credit with a bank. Interest on the retired line of credit was
payable monthly at the institution's reference rate plus 2%.
Maturities on long-term debt and obligations under capital leases are
as follows:
<TABLE>
<S> <C>
1997 $1,146,639
1998 979,496
1999 886,543
2000 819,752
2001 832,196
Thereafter 4,428,239
----------
9,092,865
Less--Interest on capital leases (168,550)
----------
$8,924,315
==========
</TABLE>
(4) COMMITMENTS AND CONTINGENCIES:
Pursuant to the Purchase Agreement with SEPSCO, the Company set forth
a remediation plan for all environmental contamination at all real properties
acquired. As a result of the Company refinancing its debt and accrued
liabilities to SEPSCO, the Company was relieved of its remaining remediation
liability by SEPSCO in July 1996. The Company's maximum liability was
$1,500,000. Costs paid by the Company in excess of $500,000 reduced
dollar-for-dollar the principal balance of the note payable to SEPSCO up to a
maximum reduction of $500,000. As of the refinancing date, the Company had paid
approximately $795,000 in remediation costs which resulted in a forgiveness of
$500,000 in accrued remediation liability which is included in the calculation
of the gain from the debt extinguishment.
In September 1996, the Company entered into an option agreement (the
Agreement) with another corporation (the Buyer) whereby the Company granted the
Buyer a five-year option to purchase its assets. The purchase price set forth
in the Agreement is calculated from the Company's earnings before interest,
taxes, depreciation and amortization (EBITDA) with a valuation premium, as
defined in the Agreement. This option may be exercised by the Buyer on or
before September, 2001 by giving written notice to the Company. Payment of the
agreed-upon price must be in the form of a combination of cash and common stock
of the Buyer issued in conjunction with an initial public offering. Certain
personal and real property are excluded from the option. No consideration was
received from the Buyer in exchange for the option.
The Company also entered into a Master Equipment Lease Agreement in
September 1996 with the Buyer to lease various ice manufacturing and
merchandising systems for retail and commercial use. The lease agreement is for
an initial term of five years with an option to renew for an additional
five-year term. The annual per unit lease rate is equal to 25% of the Buyer's
cost to manufacture and install the ice merchandising systems. The Company has
agreed to lease 157 systems as of September 1997 and an additional 100 systems
per year thereafter.
F-33
<PAGE> 122
Future minimum lease payments under the Master Equipment Lease are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- ------------
<S> <C>
1997 $ 385,314
1998 385,314
1999 385,314
2000 385,314
2001 266,509
----------
Total minimum lease payments $1,807,765
==========
</TABLE>
In connection with the lease agreement, the Company entered into a
service agreement with the Buyer whereby the Company will pay a monthly
management fee of $10,000 for the Buyer to have primary responsibility for
marketing the ice merchandising systems and oversight responsibility for
installing, operating, managing and servicing the systems. In addition, the
Company is required to reimburse the Buyer for all costs relating to activities
under the agreement including all costs associated with the operation, repair
and maintenance of the systems. The Company also must pay directly or through
reimbursement to the Buyer, all salaries, wages and other compensation and
benefits of all personnel employed by the Buyer and involved with the operation
of the Company's leased systems. The term of the agreement is for ten years or
the termination of the Master Equipment Lease Agreement.
Effective September 1994, the Company adopted a 401(k) profit sharing
plan (the "Plan") for all employees who are 21 years of age or older and have
completed one year of service. The Plan provides for a mandatory matching
contribution equal to 25% of the amount of the employee's salary deduction not
to exceed 5% of an employees annual compensation. The Company's matching
contribution was $10,580 and $15,000 for Plan years ending December 31, 1996
and 1995, respectively.
(5) RELATED PARTY TRANSACTIONS:
The Company makes monthly payments of $3,000 to a company owned by a
shareholder to rent an ice manufacturing and storage facility. The Company is
also responsible for the related property taxes on the facility. The
shareholder has an obligation to extend the current lease (which expires
February 1997) for an additional five years. Total lease and tax obligations
paid or accrued to or on behalf of the shareholder were $63,600 and $36,000 for
1996 and 1995, respectively.
The Company has entered into a management consulting agreement with a
shareholder. The management contract is renewable annually. Under the
management contract, the shareholder is entitled to receive monthly payments of
$10,000. Fees paid or accrued to the shareholder were $128,550 and $120,000
during 1996 and 1995, respectively.
(6) EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF AUDITORS' REPORT:
On March 26, 1997, the Company sold its Albuquerque, New Mexico
facility to a non-related third party and entered into a ten month lease-back
agreement for this facility.
On April 16, 1997, the Company distributed certain property and
buildings with an approximate net book value of $369,000 to SWI, Inc., a
related entity.
On April 17, 1997, the Company consummated an agreement with Packaged
Ice, Inc. to merge into a wholly-owned subsidiary of Packaged Ice, Inc. (SWI
Acquisition). The total consideration for the SWI Acquisition was $18.8
million, consisting of $3.5 million in cash, $9.3 million in repayment of the
Company's debt and $6.0 million in shares of the Company's common stock (valued
at $10.00 per share) payable to the Company's shareholders.
(7) PRESENTATION OF UNAUDITED INTERIM FINANCIAL INFORMATION
The financial statements presented herein at March 31, 1997 and for
the three-month periods ended March 31, 1997 and 1996 are unaudited; however,
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows
for the periods covered have been made and are of a normal, recurring nature.
Accounting measurements at interim dates inherently involve greater reliance on
estimates than at year end. The results of the interim periods are not
necessarily indicative of results to expect for the full year.
F-34
<PAGE> 123
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY EXCHANGE MADE HEREUNDER WILL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information 4
Prospectus Summary 5
Disclosure Regarding Forward-Looking Statements 14
Risk Factors 20
The Acquisitions 20
Private Placement 20
Use of Proceeds 21
Dividend Policy 21
Capitalization 22
Unaudited Pro Forma Combined Condensed Financial Statements 23
Selected Historical and Unaudited Pro Forma Combined Financial Data 27
Management's Discussion and Analysis of Financial Condition and
Results of Operations 28
Business 35
Management 41
Principal Shareholders 46
Certain Relationships and Related Transactions 48
The Exchange Offer 50
Description of Notes 55
Registration Rights; Additional Interest 75
Book-Entry; Delivery and Form 76
Transfer Restrictions on Old Notes 77
Plan of Distribution 79
Description of Senior Credit Facility 79
Description of Capital Stock and Warrants 80
Certain Federal Income Tax Considerations 82
Legal Matters 85
Experts 85
Index to Financial Statements F-1
</TABLE>
-------------------------
PROSPECTUS
OFFER TO EXCHANGE
$50,000,000 12% SERIES A SENIOR NOTES DUE 2004
FOR
$50,000,000 12% SERIES B SENIOR NOTES DUE 2004
PACKAGED ICE, INC.
________________, 1997
<PAGE> 124
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is empowered by Art. 2.02-1 of the Texas Business
Corporation Act, subject to the procedures and limitations stated therein, to
indemnify any person who was, is or is threatened to be made a named defendant
or respondent in a proceeding because the person is or was a director or
officer against judgments, penalties (including excise and similar taxes),
fines, settlements and reasonable expenses (including court costs and
attorneys' fees) actually incurred by the person in connection with the
proceeding. The Company is required by Art. 2.02-1 to indemnify a director or
officer against reasonable expenses (including court costs and attorneys' fees)
incurred by him in connection with a proceeding in which he is a named
defendant or respondent because he is or was a director or officer if he has
been wholly successful, on the merits or otherwise, in the defense of the
proceeding. The statute provides that indemnification pursuant to its
provisions is not exclusive of other rights of indemnification to which a
person may be entitled under any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise. The bylaws of the Company provide for
indemnification by the Company of its directors and officers to the fullest
extent permitted by the Texas Business Corporation Act. In addition, the
Company has, pursuant to Article 1302-7.06 of the Texas Miscellaneous
Corporation Laws Act, provided in its articles of incorporation that, to the
fullest extent permitted by applicable law, a director of the Company shall not
be liable to the Company or its shareholders for monetary damages for an act or
omission in a director's capacity as director of the Company.
The Company has obtained an insurance policy providing for
indemnification of officers and directors of the Company and certain other
persons against liabilities and expenses incurred by any of them in certain
stated proceedings and under certain stated conditions. The Company has entered
into separate indemnification agreements with each of its directors which may
require the Company, among other things, to indemnify such directors against
certain liabilities that may arise by reason of their status or service as
directors to the maximum extent permitted under Texas law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
The following instruments and documents are included as Exhibits to
this Registration Statement.
Exhibit No. Description
3.1* Articles of Incorporation of Packaged Ice, Inc. (the "Company")
filed with the Secretary of State of the State of Texas on August
14, 1990.
3.2* Restated Articles of Incorporation of the Company filed with the
Secretary of State of the State of Texas on February 5, 1992.
3.3* Certificate of Designation of Series A Convertible Preferred
Stock of the Company filed with the Secretary of State of the
State of Texas on September 19, 1995.
3.4* Certificate of Designation of Series B Convertible Preferred
Stock of the Company filed with the Secretary of State of the
State of Texas on January 10, 1997.
3.5* Amended and Restated Bylaws of the Company, effective as of
January 20, 1997.
3.6* Articles of Incorporation of Packaged Ice Leasing, Inc. filed
with the Secretary of State of the State of Nevada on December 1,
1992.
II-1
<PAGE> 125
3.7* Amended and Restated Bylaws of Packaged Ice Leasing, Inc.,
effective as of January 20, 1997.
3.8* Articles of Incorporation of Southco Ice, Inc. filed with the
Secretary of State of the State of Texas on November 10, 1994.
3.9* Amended and Restated Bylaws of Southco Ice, Inc., effective as of
January 20, 1997.
3.10* Articles of Incorporation of Packaged Ice Mission, Inc. filed
with the Secretary of State of the State of Texas on March 24,
1997.
3.11* Articles of Merger of Mission Party Ice, Inc., a Texas
corporation, into Packaged Ice Mission, Inc. ("Surviving
Corporation"), with attached Plan of Merger and Articles of
Amendment to the Articles of Incorporation of Surviving
Corporation evidencing name change, filed with the Secretary of
State of the State of Texas on April 17, 1997.
3.12* Bylaws of Mission Party Ice, Inc., effective as of March 24,
1997.
3.13* Articles of Incorporation of Packaged Ice STPI, Inc., Inc. filed
with the Secretary of State of the State of Texas on March 24,
1997.
3.14* Articles of Merger of Southwest Texas Packaged Ice, Inc., a Texas
corporation, into Packaged Ice STPI, Inc. ("Surviving
Corporation"), with attached Plan of Merger and Articles of
Amendment to the Articles of Incorporation of Surviving
Corporation evidencing name change, filed with the Secretary of
State of the State of Texas on April 17, 1997.
3.15* Bylaws of Southwest Texas Packaged Ice, Inc., effective as of
March 24, 1997.
3.16* Articles of Incorporation of Packaged Ice Southwestern, Inc.
filed with the Secretary of State of the State of Texas on March
24, 1997.
3.17* Articles of Merger of Southwestern Ice, Inc., an Arizona
corporation, into Packaged Ice Southwestern, Inc. ("Surviving
Corporation"), with attached Plan of Merger and Articles of
Amendment to the Articles of Incorporation of Surviving
Corporation evidencing name change, filed with the Secretary of
State of the State of Texas on April 17, 1997.
3.18* Bylaws of Southwestern Ice, Inc., effective as of March 24, 1997.
4.1* Indenture, dated April 17, 1997, among the Company, as Issuer,
the guarantors identified therein (the "Guarantors"), and U.S.
Trust Company of Texas, N.A. as Trustee.
4.2* Registration Rights Agreement, dated as of April 17, 1997, among
the Company, the Subsidiary Guarantors, and the purchasers of the
Notes.
4.3* Purchase Agreement, dated April 11, 1997, among the Company, the
Guarantors, and Jefferies & Company , Inc. (the Initial Purchaser
of the Notes).
4.4* Form of the Exchange Note [Series B security].
4.5* Form of the Old Note [Series A security].
4.6* Securityholder's and Registration Rights Agreement, dated as of
April 17, 1997, among the Company and the Initial Purchaser.
II-2
<PAGE> 126
5.1* Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P., dated June
16, 1997.
10.1* Agreement and Plan of Merger by and among the Company, Packaged
Ice Mission, Inc., Mission Party Ice, Inc. and A.J. Lewis III,
made as of March 25, 1997.
10.2* Agreement and Plan of Merger by and among the Company, Packaged
Ice STPI, Inc., Southwest Texas Packaged Ice, Inc. and the
Shareholders of Southwest Texas Packaged Ice, Inc., made as of
March 25, 1997.
10.3* Escrow Agreement by and among the Company, Packaged Ice Mission,
Inc., Packaged Ice STPI, Inc., A. J. Lewis III individually and
as a representative of Liza B. Lewis and the Minority
Shareholders, and Texas Commerce Bank National Association as
Escrow Agent, dated as of April 17, 1997.
10.4* Noncompetition Agreement by and among the Company, Packaged Ice
Mission, Inc., Packaged Ice STPI, Inc. and A.J. Lewis III, dated
as of April 17, 1997.
10.5* Registration Rights Agreement by and among the Company, A.J.
Lewis III and Liza B. Lewis, dated as of April 17, 1997.
10.6* Agreement and Plan of Merger by and among the Company, Packaged
Ice Southwestern, Inc., Southwestern Ice, Inc., and the
shareholders of Southwestern Ice, Inc, made as of March 25, 1997.
10.7* Escrow Agreement by and among the Company, Packaged Ice
Southwestern, Inc., and Dale M. Johnson, Robert G. Miller and
Alan Bernstein (collectively, the "Shareholders") and Texas
Commerce Bank National Association as Escrow Agent, dated as of
April 17, 1997.
10.8* Form of Noncompetition Agreement among the Company, Packaged Ice
Southwestern, Inc., and each of Dale Johnson, Alan Bernstein and
Robert Miller individually, dated as of April 17, 1997.
10.9* Registration Rights Agreement by and among the Company, and Dale
Johnson, Alan Bernstein and Robert Miller (collectively the
"Shareholders"), dated as of April 17, 1997.
10.10* Packaged Ice, Inc. Stock Option Plan, dated July 26, 1994
10.11* Form of Stock Option Plan Agreements issued under Stock Option
Plan.
10.12* Warrant Agreement among the Company and U.S. Trust Company of
Texas, N.A., a national banking association, as Warrant Agent,
dated as of April 17, 1997.
10.13* Stock Purchase Agreement among the Company and certain of its
investors, dated December 23, 1993.
10.14* Stock Purchase Agreement among the Company and certain of its
investors (Rosenberg, Jesselson, et al.), dated September 20,
1995.
10.15* Amendment No. 1 to Stock Purchase Agreement of September 20,
1995, and Consent and Waiver of Right to Purchase Additional
Securities, between the Company and certain of its investors
(Rosenberg, Jesselson et al.), dated as of January 10, 1997.
10.16* Amendment No. 2 to Stock Purchase Agreement of September 20,
1995, between the Company and certain of its investors
(Rosenberg, Jesselson et al.), dated as of March 14, 1997.
10.17* Stock Purchase Agreement among the Company and certain of its
investors (Norwest and Food Fund), dated September 20, 1995.
II-3
<PAGE> 127
10.18* Amendment No. 1 to Stock Purchase Agreement of September 20,
1995, and Consent and Waiver of Right to Purchase Additional
Securities, between the Company and certain of its investors
(Norwest, Food Fund), dated as of January 17, 1997.
10.19* Amendment No. 2 to Stock Purchase Agreement of September 20,
1995, between the Company and certain of its investors (Norwest,
Food Fund), dated as of March 14, 1997.
10.20* Stock Purchase Agreement among the Company and certain of its
investors (Norwest, Food Fund and Rosenberg), dated January 17,
1997.
10.21* Registration Rights Agreement between the Company and certain
investors (Norwest and Food Fund), dated September 20, 1995.
10.22* Amendment No. 1 to Registration Rights Agreement between the
Company and certain investors, adding Steven P. Rosenberg as a
party thereto, dated as of January 17, 1997.
10.23* Supplemental Registration Rights Agreement among the Company and
certain investors (Norwest, Food Fund and Rosenberg), dated as of
June 12, 1997.
10.24* Parallel Exit Agreement between the Company, James F. Stuart and
Jack Stazo, dated September 20, 1995.
10.25* Amended and Restated Shareholders Agreement between the Company
and its shareholders, dated September 20, 1995.
10.26* Amendment No. 1 to Amended and Restated Shareholders Agreement,
dated as of January 17, 1997.
10.27* Amendment No. 2 to Amended and Restated Shareholders Agreement,
dated as of March 14, 1997.
10.28* Amended and Restated Voting Agreement, dated September 20, 1995.
10.29* Amendment No. 1 to Amended and Restated Voting Agreement, dated
as of January 17, 1997.
10.30* Amendment No. 2 to Amended and Restated Voting Agreement, dated
as of March 14, 1997.
10.31* Form of Indemnification Agreement entered into by Packaged Ice,
Inc. in favor of members of the Board of Directors.
10.32* Development and Manufacturing Agreement by and between Lancer
Corporation and Packaged Ice, Inc., dated April 13, 1993.
10.33* Lease Agreement by and between Packaged Ice, Inc. and Robert S.
Wilson LLC for facility at 8572 Katy Freeway, Suite 101, Houston,
Texas, dated March 22, 1994.
10.34* Lease Agreement by and between J.K. Neal, Inc. and J. Kenneth
Neal (lessor) and Mission Party Ice, Inc. (lessee), for real
property (land and facilities) located in Bexar, Webb, Tom Green,
Gonzales and Caldwell Counties, Texas, effective March 1, 1988.
10.35* Form of Commercial Lease Agreement, by and between _________
(landlord) and Mission Party Ice, Inc. (tenant) [to be executed].
10.36* Commercial Lease Agreement by and between Robert Grant Miller
(lessor) and Southwestern Ice, Inc. (lessee), for facility at
5925 West Van Buren, Phoenix, Arizona, entered into on March 1,
1992.
II-4
<PAGE> 128
10.37* License Agreement by and among Packaged Ice, Inc., Hoshizaki
Electric Co., Ltd. and Hoshizaki America, Inc., dated May 28,
1993.
10.38** Stock Purchase Agreement, dated as of July 17, 1997, by and
between Packaged Ice, Inc. and SV Capital Partners, L.P.
10.39** Common Stock Purchase Warrant No. SV-1, dated July 17, 1997,
executed by Packaged Ice, Inc. for the benefit of SV Capital
Partners, L.P.
10.40** Voting Agreement, dated July 17, 1997, by and among Packaged Ice,
Inc., SV Capital Partners, L.P. and substantially all of the
shareholders of Packaged Ice, Inc.
10.41** Registration Rights Agreement, dated as of July 17, 1997, by and
between Packaged Ice, Inc. and SV Capital Partners, L.P.
10.42** Parallel Exit Agreement, dated July 17, 1997, by and among
Packaged Ice, Inc., SV Capital Partners, L.P., and certain of
Packaged Ice, Inc.'s shareholders (James F. Stuart, A.J. Lewis
III and Steven P. Rosenberg).
10.43** Indemnification Agreement, dated July 17, 1997, by and between
Packaged Ice, Inc. and Rod Sands, indemnifying Mr. Sands as a
director of Packaged Ice, Inc.
11.1* Statement of earnings per share.
12.1* Historical statement of ratio of earnings to fixed charges.
12.2* Proforma statement of ratio of earnings to fixed charges.
21.1* List of subsidiaries.
23.1* Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in
the opinion filed as Exhibit 5.1 above).
23.2* Consent of Deloitte & Touche, L.L.P.
23.3* Consent of Arthur Andersen, L.L.P.
24.1* Power of Attorney (included on signature page of Registration
Statement on Form S-4).
25.1* Statement of Eligibility and Qualification on Form T-1 under the
Trust Indenture Act of 1939, made by U.S. Trust Company of Texas,
N.A. as Trustee under the Indenture relating to the 12% Senior
Notes.
25.2* Report of Financial Condition of Trustee (Exhibit T-1.6 to
Statement of Eligibility filed as Exhibit 25.1 above).
27.1* Financial data schedule.
99.1* Form of Letter of Transmittal for Exchange Offer.
* Filed previously
** Filed herewith
(b) Financial Statement Schedules
None. All Schedules are omitted because the required information
is not present in amounts sufficient to require submission of the Schedule or
because the information required is included in the financial statements or
notes thereto.
II-5
<PAGE> 129
ITEM 22. UNDERTAKINGS
The undersigned registrants hereby undertake:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or event arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, present fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(d) If the registrant is a foreign private issuer, to file a post-
effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided, that the registrant includes in the prospectus, by means
of a post-effective amendment, financial statements required pursuant to this
paragraph (d) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements
and information are contained in periodic reports filed with or furnished to
the commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the Form
F-3.
(e) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
(f) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it
became effective.
(g) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of the applicable
form.
(h) that every prospectus (i) that is filed pursuant to paragraph
(g) immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being offered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act, and will be governed
by the final adjudication of such issue.
II-6
<PAGE> 130
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Houston, the State of Texas, on July 29, 1997.
PACKAGED ICE, INC.
By: /s/ James F. Stuart
-----------------------------------
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to this Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ James F. Stuart Chairman of the Board and July 29, 1997
- ----------------------------- Chief Executive Officer
James F. Stuart
/s/ A.J. Lewis III Principal Executive Officer, President and July 29, 1997
- ----------------------------- Chief Operating Officer, Director
A.J. Lewis III
/s/ Steven P. Rosenberg* Vice Chairman of the Board July 29, 1997
- -----------------------------
Steven P. Rosenberg
/s/ Stephen R. Sefton* Director July 29, 1997
- -----------------------------
Stephen R. Sefton
/s/ Richard A. Coonrod* Director July 29, 1997
- -----------------------------
Richard A. Coonrod
/s/ Robert G. Miller* Director July 29, 1997
- -----------------------------
Robert G. Miller
/s/ Diana F. Rice* Treasurer, Controller, and Secretary July 29, 1997
- -----------------------------
Diana F. Rice
</TABLE>
* By A.J. Lewis III, attorney-in-fact pursuant
to a Power of Attorney previously filed.
II-7
<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Houston, the State of Texas, on July 29, 1997.
PACKAGED ICE LEASING, INC.
By: /s/ James F. Stuart
-----------------------------------
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, to this
Amendment No. 1 to this Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ James F. Stuart Chairman of the Board and July 29, 1997
- ----------------------------- Chief Executive Officer
James F. Stuart
/s/ A.J. Lewis III Principal Executive Officer, President and July 29, 1997
- ----------------------------- Chief Operating Officer, Director
A.J. Lewis III
/s/ Steven P. Rosenberg* Vice Chairman of the Board July 29, 1997
- -----------------------------
Steven P. Rosenberg
/s/ Stephen R. Sefton* Director July 29, 1997
- -----------------------------
Stephen R. Sefton
/s/ Richard A. Coonrod* Director July 29, 1997
- -----------------------------
Richard A. Coonrod
/s/ Robert G. Miller* Director July 29, 1997
- -----------------------------
Robert G. Miller
/s/ Diana F. Rice* Treasurer, Controller, and Secretary July 29, 1997
- -----------------------------
Diana F. Rice
</TABLE>
* By A.J. Lewis III, attorney-in-fact pursuant
to a Power of Attorney previously filed.
II-8
<PAGE> 132
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Houston, the State of Texas, on July 29, 1997.
SOUTHCO ICE, INC.
By: /s/ James F. Stuart
-----------------------------------
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to this Registration Statement has been signed by the
or Amendment persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ James F. Stuart Chairman of the Board and July 29, 1997
- ----------------------------- Chief Executive Officer
James F. Stuart
/s/ A.J. Lewis III Principal Executive Officer, President and July 29, 1997
- ----------------------------- Chief Operating Officer, Director
A.J. Lewis III
/s/ Steven P. Rosenberg* Vice Chairman of the Board July 29, 1997
- -----------------------------
Steven P. Rosenberg
/s/ Stephen R. Sefton* Director July 29, 1997
- -----------------------------
Stephen R. Sefton
/s/ Richard A. Coonrod* Director July 29, 1997
- -----------------------------
Richard A. Coonrod
/s/ Robert G. Miller* Director July 29, 1997
- -----------------------------
Robert G. Miller
/s/ Diana F. Rice* Treasurer, Controller, and Secretary July 29, 1997
- -----------------------------
Diana F. Rice
</TABLE>
* By A.J. Lewis III, attorney-in-fact pursuant
to a Power of Attorney previously filed.
II-9
<PAGE> 133
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Houston, the State of Texas, on July 29, 1997.
SOUTHWESTERN ICE, INC.
By: /s/ James F. Stuart
-----------------------------------
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to this Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ James F. Stuart Chairman of the Board and July 29, 1997
- ----------------------------- Chief Executive Officer
James F. Stuart
/s/ A.J. Lewis III Principal Executive Officer, President and July 29, 1997
- ----------------------------- Chief Operating Officer, Director
A.J. Lewis III
/s/ Steven P. Rosenberg* Vice Chairman of the Board July 29, 1997
- -----------------------------
Steven P. Rosenberg
/s/ Stephen R. Sefton* Director July 29, 1997
- -----------------------------
Stephen R. Sefton
/s/ Richard A. Coonrod* Director July 29, 1997
- -----------------------------
Richard A. Coonrod
/s/ Robert G. Miller* Director July 29, 1997
- -----------------------------
Robert G. Miller
/s/ Diana F. Rice* Treasurer, Controller, and Secretary July 29, 1997
- -----------------------------
Diana F. Rice
</TABLE>
* By A.J. Lewis III, attorney-in-fact pursuant
to a Power of Attorney previously filed.
II-10
<PAGE> 134
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Houston, the State of Texas, on July 29, 1997.
MISSION PARTY ICE, INC.
By: /s/ James F. Stuart
-----------------------------------
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ James F. Stuart Chairman of the Board and July 29, 1997
- ----------------------------- Chief Executive Officer
James F. Stuart
/s/ A.J. Lewis III Principal Executive Officer, President and July 29, 1997
- ----------------------------- Chief Operating Officer, Director
A.J. Lewis III
/s/ Steven P. Rosenberg* Vice Chairman of the Board July 29, 1997
- -----------------------------
Steven P. Rosenberg
/s/ Stephen R. Sefton* Director July 29, 1997
- -----------------------------
Stephen R. Sefton
/s/ Richard A. Coonrod* Director July 29, 1997
- -----------------------------
Richard A. Coonrod
/s/ Robert G. Miller* Director July 29, 1997
- -----------------------------
Robert G. Miller
/s/ Diana F. Rice* Treasurer, Controller, and Secretary July 29, 1997
- -----------------------------
Diana F. Rice
</TABLE>
* By A.J. Lewis III, attorney-in-fact pursuant
to a Power of Attorney previously filed.
II-11
<PAGE> 135
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Houston, the State of Texas, on July 29, 1997.
SOUTHWEST TEXAS PACKAGED ICE, INC.
By: /s/ James F. Stuart
-----------------------------------
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ James F. Stuart Chairman of the Board and July 29, 1997
- ----------------------------- Chief Executive Officer
James F. Stuart
/s/ A.J. Lewis III Principal Executive Officer, President and July 29, 1997
- ----------------------------- Chief Operating Officer, Director
A.J. Lewis III
/s/ Steven P. Rosenberg* Vice Chairman of the Board July 29, 1997
- -----------------------------
Steven P. Rosenberg
/s/ Stephen R. Sefton* Director July 29, 1997
- -----------------------------
Stephen R. Sefton
/s/ Richard A. Coonrod* Director July 29, 1997
- -----------------------------
Richard A. Coonrod
/s/ Robert G. Miller* Director July 29, 1997
- -----------------------------
Robert G. Miller
/s/ Diana F. Rice* Treasurer, Controller, and Secretary July 29, 1997
- -----------------------------
Diana F. Rice
</TABLE>
* By A.J. Lewis III, attorney-in-fact pursuant
to a Power of Attorney previously filed.
II-12
<PAGE> 136
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
<S> <C>
3.1* Articles of Incorporation of Packaged Ice, Inc. (the "Company")
filed with the Secretary of State of the State of Texas on August
14, 1990.
3.2* Restated Articles of Incorporation of the Company filed with the
Secretary of State of the State of Texas on February 5, 1992.
3.3* Certificate of Designation of Series A Convertible Preferred
Stock of the Company filed with the Secretary of State of the
State of Texas on September 19, 1995.
3.4* Certificate of Designation of Series B Convertible Preferred
Stock of the Company filed with the Secretary of State of the
State of Texas on January 10, 1997.
3.5* Amended and Restated Bylaws of the Company, effective as of
January 20, 1997.
3.6* Articles of Incorporation of Packaged Ice Leasing, Inc. filed
with the Secretary of State of the State of Nevada on December 1,
1992.
3.7* Amended and Restated Bylaws of Packaged Ice Leasing, Inc.,
effective as of January 20, 1997.
3.8* Articles of Incorporation of Southco Ice, Inc. filed with the
Secretary of State of the State of Texas on November 10, 1994.
3.9* Amended and Restated Bylaws of Southco Ice, Inc., effective as of
January 20, 1997.
3.10* Articles of Incorporation of Packaged Ice Mission, Inc. filed
with the Secretary of State of the State of Texas on March 24,
1997.
3.11* Articles of Merger of Mission Party Ice, Inc., a Texas
corporation, into Packaged Ice Mission, Inc. ("Surviving
Corporation"), with attached Plan of Merger and Articles of
Amendment to the Articles of Incorporation of Surviving
Corporation evidencing name change, filed with the Secretary of
State of the State of Texas on April 17, 1997.
3.12* Bylaws of Mission Party Ice, Inc., effective as of March 24,
1997.
3.13* Articles of Incorporation of Packaged Ice STPI, Inc., Inc. filed
with the Secretary of State of the State of Texas on March 24,
1997.
3.14* Articles of Merger of Southwest Texas Packaged Ice, Inc., a Texas
corporation, into Packaged Ice STPI, Inc. ("Surviving
Corporation"), with attached Plan of Merger and Articles of
Amendment to the Articles of Incorporation of Surviving
Corporation evidencing name change, filed with the Secretary of
State of the State of Texas on April 17, 1997.
3.15* Bylaws of Southwest Texas Packaged Ice, Inc., effective as of
March 24, 1997.
3.16* Articles of Incorporation of Packaged Ice Southwestern, Inc.
filed with the Secretary of State of the State of Texas on March
24, 1997.
3.17* Articles of Merger of Southwestern Ice, Inc., an Arizona
corporation, into Packaged Ice Southwestern, Inc. ("Surviving
Corporation"), with attached Plan of Merger and Articles of
Amendment to the Articles of Incorporation of Surviving
Corporation evidencing name change, filed with the Secretary of
State of the State of Texas on April 17, 1997.
</TABLE>
<PAGE> 137
<TABLE>
<S> <C>
3.18* Bylaws of Southwestern Ice, Inc., effective as of March 24, 1997.
4.1* Indenture, dated April 17, 1997, among the Company, as Issuer,
the guarantors identified therein (the "Guarantors"), and U.S.
Trust Company of Texas, N.A. as Trustee.
4.2* Registration Rights Agreement, dated as of April 17, 1997, among
the Company, the Subsidiary Guarantors, and the purchasers of the
Notes.
4.3* Purchase Agreement, dated April 11, 1997, among the Company, the
Guarantors, and Jefferies & Company , Inc. (the Initial Purchaser
of the Notes).
4.4* Form of the Exchange Note [Series B security]
4.5* Form of the Old Note [Series A security].
4.6* Securityholder's and Registration Rights Agreement, dated as of
April 17, 1997, among the Company and the Initial Purchaser.
5.1* Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P., dated June
16, 1997.
10.1* Agreement and Plan of Merger by and among the Company, Packaged
Ice Mission, Inc., Mission Party Ice, Inc. and A.J. Lewis III,
made as of March 25, 1997.
10.2* Agreement and Plan of Merger by and among the Company, Packaged
Ice STPI, Inc., Southwest Texas Packaged Ice, Inc. and the
Shareholders of Southwest Texas Packaged Ice, Inc., made as of
March 25, 1997.
10.3* Escrow Agreement by and among the Company, Packaged Ice Mission,
Inc., Packaged Ice STPI, Inc., A. J. Lewis III individually and
as a representative of Liza B. Lewis and the Minority
Shareholders, and Texas Commerce Bank National Association as
Escrow Agent, dated as of April 17, 1997.
10.4* Noncompetition Agreement by and among the Company, Packaged Ice
Mission, Inc., Packaged Ice STPI, Inc. and A.J. Lewis III, dated
as of April 17, 1997.
10.5* Registration Rights Agreement by and among the Company, A.J.
Lewis III and Liza B. Lewis, dated as of April 17, 1997.
10.6* Agreement and Plan of Merger by and among the Company, Packaged
Ice Southwestern, Inc., Southwestern Ice, Inc., and the
shareholders of Southwestern Ice, Inc, made as of March 25, 1997.
10.7* Escrow Agreement by and among the Company, Packaged Ice
Southwestern, Inc., and Dale M. Johnson, Robert G. Miller and
Alan Bernstein (collectively, the "Shareholders") and Texas
Commerce Bank National Association as Escrow Agent, dated as of
April 17, 1997.
10.8* Form of Noncompetition Agreement among the Company, Packaged Ice
Southwestern, Inc., and each of Dale Johnson, Alan Bernstein and
Robert Miller individually, dated as of April 17, 1997.
10.9* Registration Rights Agreement by and among the Company, and Dale
Johnson, Alan Bernstein and Robert Miller (collectively the
"Shareholders"), dated as of April 17, 1997.
10.10* Packaged Ice, Inc. Stock Option Plan, dated July 26, 1994
</TABLE>
<PAGE> 138
<TABLE>
<S> <C>
10.11* Form of Stock Option Plan Agreements issued under Stock Option
Plan.
10.12* Warrant Agreement among the Company and U.S. Trust Company of
Texas, N.A., a national banking association, as Warrant Agent,
dated as of April 17, 1997.
10.13* Stock Purchase Agreement among the Company and certain of its
investors, dated December 23, 1993.
10.14* Stock Purchase Agreement among the Company and certain of its
investors (Rosenberg, Jesselson, et al.), dated September 20,
1995.
10.15* Amendment No. 1 to Stock Purchase Agreement of September 20,
1995, and Consent and Waiver of Right to Purchase Additional
Securities, between the Company and certain of its investors
(Rosenberg, Jesselson et al.), dated as of January 10, 1997.
10.16* Amendment No. 2 to Stock Purchase Agreement of September 20,
1995, between the Company and certain of its investors
(Rosenberg, Jesselson et al.), dated as of March 14, 1997.
10.17* Stock Purchase Agreement among the Company and certain of its
investors (Norwest and Food Fund), dated September 20, 1995.
10.18* Amendment No. 1 to Stock Purchase Agreement of September 20,
1995, and Consent and Waiver of Right to Purchase Additional
Securities, between the Company and certain of its investors
(Norwest, Food Fund), dated as of January 17, 1997.
10.19* Amendment No. 2 to Stock Purchase Agreement of September 20,
1995, between the Company and certain of its investors (Norwest,
Food Fund), dated as of March 14, 1997.
10.20* Stock Purchase Agreement among the Company and certain of its
investors (Norwest, Food Fund and Rosenberg), dated January 17,
1997.
10.21* Registration Rights Agreement between the Company and certain
investors (Norwest and Food Fund), dated September 20, 1995.
10.22* Amendment No. 1 to Registration Rights Agreement between the
Company and certain investors, adding Steven P. Rosenberg as a
party thereto, dated as of January 17, 1997.
10.23* Supplemental Registration Rights Agreement among the Company and
certain investors (Norwest, Food Fund and Rosenberg), dated as of
June 12, 1997.
10.24* Parallel Exit Agreement between the Company, James F. Stuart and
Jack Stazo, dated September 20, 1995.
10.25* Amended and Restated Shareholders Agreement between the Company
and its shareholders, dated September 20, 1995.
10.26* Amendment No. 1 to Amended and Restated Shareholders Agreement,
dated as of January 17, 1997.
10.27* Amendment No. 2 to Amended and Restated Shareholders Agreement,
dated as of March 14, 1997.
10.28* Amended and Restated Voting Agreement, dated September 20, 1995.
10.29* Amendment No. 1 to Amended and Restated Voting Agreement, dated
as of January 17, 1997.
</TABLE>
<PAGE> 139
<TABLE>
<S> <C>
10.30* Amendment No. 2 to Amended and Restated Voting Agreement, dated
as of March 14, 1997.
10.31* Form of Indemnification Agreement entered into by Packaged Ice,
Inc. in favor of members of the Board of Directors.
10.32* Development and Manufacturing Agreement by and between Lancer
Corporation and Packaged Ice, Inc., dated April 13, 1993.
10.33* Lease Agreement by and between Packaged Ice, Inc. and Robert S.
Wilson LLC for facility at 8572 Katy Freeway, Suite 101, Houston,
Texas, dated March 22, 1994.
10.34* Lease Agreement by and between J.K. Neal, Inc. and J. Kenneth
Neal (lessor) and Mission Party Ice, Inc. (lessee), for real
property (land and facilities) located in Bexar, Webb, Tom Green,
Gonzales and Caldwell Counties, Texas, effective March 1, 1988.
10.35* Form of Commercial Lease Agreement, by and between _________
(landlord) and Mission Party Ice, Inc. (tenant) [to be executed].
10.36* Commercial Lease Agreement by and between Robert Grant Miller
(lessor) and Southwestern Ice, Inc. (lessee), for facility at
5925 West Van Buren, Phoenix, Arizona, entered into on March 1,
1992.
10.37* License Agreement by and among Packaged Ice, Inc., Hoshizaki
Electric Co., Ltd. and Hoshizaki America, Inc., dated May 28,
1993.
10.38** Stock Purchase Agreement, dated as of July 17, 1997, by and
between Packaged Ice, Inc. and SV Capital Partners, L.P.
10.39** Common Stock Purchase Warrant No. SV-1, dated July 17, 1997,
executed by Packaged Ice, Inc. for the benefit of SV Capital
Partners, L.P.
10.40** Voting Agreement, dated July 17, 1997, by and among Packaged Ice,
Inc., SV Capital Partners, L.P. and substantially all of the
shareholders of Packaged Ice, Inc.
10.41** Registration Rights Agreement, dated as of July 17, 1997, by and
between Packaged Ice, Inc. and SV Capital Partners, L.P.
10.42** Parallel Exit Agreement, dated July 17, 1997, by and among
Packaged Ice, Inc., SV Capital Partners, L.P., and certain of
Packaged Ice, Inc.'s shareholders (James F. Stuart, A.J. Lewis
III and Steven P. Rosenberg).
10.43** Indemnification Agreement, dated July 17, 1997, by and between
Packaged Ice, Inc. and Rod Sands, indemnifying Mr. Sands as a
director of Packaged Ice, Inc.
11.1* Statement of earnings per share.
12.1* Historical statement of ratio of earnings to fixed charges.
12.2* Proforma statement of ratio of earnings to fixed charges.
21.1* List of subsidiaries.
23.1* Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in
the opinion filed as Exhibit 5.1 above).
23.2* Consent of Deloitte & Touche, L.L.P.
23.3* Consent of Arthur Andersen, L.L.P.
24.1* Power of Attorney (included on signature page of Registration
Statement on Form S-4).
25.1* Statement of Eligibility and Qualification on Form T-1 under the
Trust Indenture Act of 1939, made by U.S. Trust Company of Texas,
N.A. as Trustee under the Indenture relating to the 12% Senior
Notes.
25.2* Report of Financial Condition of Trustee (Exhibit T-1.6 to
Statement of Eligibility filed as Exhibit 25.1 above).
27.1* Financial data schedule.
99.1* Form of Letter of Transmittal for Exchange Offer.
</TABLE>
* Filed previously
** Filed herewith
<PAGE> 1
EXHIBIT 10.38
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is made and entered into as of the 17th
day of July, 1997, among PACKAGED ICE, INC., a Texas corporation (the
"Company"), and SV Capital Partners, L.P., a Texas limited partnership, (the
"Investor").
W I T N E S S E T H:
WHEREAS, to obtain additional equity financing, the Company desires to
issue and sell 300,000 shares of its $.01 par value Common Stock ("Common
Stock") and a warrant to purchase 100,000 shares of Common Stock at an exercise
price of $14 per share (the "Warrant") to the Investor, and the Investor
desires to purchase such Common Stock and Warrant, at the price, on the terms,
and subject to the conditions as set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, the
parties hereto agree as follows:
ARTICLE 1
PURCHASE AND SALE OF SECURITIES
1.1 Issuance and Sale of Securities. At the Closing, subject to
the terms and conditions of this Agreement and on the basis of the
representations and warranties set forth herein, the Company agrees to issue
and sell to the Investor, and the Investor agrees to purchase from the Company,
300,000 shares of Common Stock and the Warrant for a total purchase price of
$3,000,000. The 300,000 shares of Common Stock and the Warrant are sometimes
collectively hereinafter referred to as the "Securities."
1.2 Delivery and Payment. At the Closing, the Company will
execute and deliver to the Investor a certificate evidencing the 300,000 shares
of Common Stock purchased hereunder and the Warrant in the form of Exhibit A
attached thereto, against payment, in immediately available funds, by the
Investor to the Company of $3,000,000.
1.3 Closing. The consummation of the issuance, sale and purchase
of the Common Stock to be purchased pursuant to this Agreement shall be
effected (the "Closing") at the offices of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., 300 Convent, Suite 1500, San Antonio, Texas 78205 commencing at 10:00
a.m., on July 17, 1997 (the "Closing Date") or at such other time or place as
the Company and the Investors shall mutually agree.
<PAGE> 2
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors as follows:
2.1 Organization and Standing of the Company. The Company and
each of its subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation and has all
requisite corporate power and authority to issue the Securities and to own its
properties and assets and to carry on its business as now conducted and as
proposed to be conducted. The Company and each of its subsidiaries is duly
qualified to transact business and is in good standing in all jurisdictions in
which such qualification is required. The copies of the Articles of
Incorporation and Bylaws of the Company and each of its subsidiaries delivered
to the Investors prior to the execution of this Agreement are true and complete
copies of the duly and legally adopted Articles of Incorporation and Bylaws of
the Company and its subsidiaries in effect as of the date of this Agreement.
2.2 Capitalization of the Company. The authorized capital stock
of the Company consists of 50,000,000 shares of Common Stock, par value $.01
per share (the "Common Stock"), of which 3,815,270 shares are issued and
outstanding, and 5,000,000 shares of preferred stock, par value $.01 per share.
The Company's Board of Directors has authorized the designation of 450,000
shares of the preferred stock as the Series A Convertible Preferred Stock (the
"Series A Preferred Stock"), and all of the authorized shares of Series A
Preferred Stock are issued and outstanding. The Company's Board of Directors
has authorized the designation of 200,000 shares of the preferred stock as the
Series B Convertible Preferred Stock, of which 124,831 shares are issued and
outstanding. Except as set forth on Section 2.2 of the Disclosure Schedule,
attached hereto and incorporated herein by reference (the "Disclosure
Schedule"), at the Closing there will be no other warrants, options,
subscriptions or other rights or preferences (including conversion or
preemptive rights) outstanding to acquire capital stock of the Company or its
subsidiary, or notes, securities or other instruments convertible into or
exchangeable for capital stock of the Company, nor any commitments, agreements
or understandings by or with the Company with respect to the issuance thereof,
nor any obligation to repurchase or redeem any capital stock of the Company.
Except as set forth on Section 2.2 of the Disclosure Schedule, no shareholders
of the Company have any right to require the registration of any securities of
the Company or to participate in any such registration. All outstanding
securities of the Company have been issued in full compliance with an exemption
or exemptions from the registration and prospectus delivery requirements of the
Securities Act and from the registration and qualification requirements of all
applicable state securities laws.
2.3 Duly Issued. All of the issued and outstanding shares of
Common Stock have been duly authorized, are validly issued, fully paid and
non-assessable. Upon issuance and delivery to the Investor of the 300,000
shares of Common Stock against payment of the purchase price therefor pursuant
to this Agreement, such shares will be validly issued, fully paid and
non-assessable, and free and clear of all claims, liens, pledges, options,
charges, security interests, mortgages, deeds of trust, encumbrances or rights
of any third party of any nature whatsoever.
2
<PAGE> 3
The issuance and sale of the Common Stock pursuant hereto will not give rise to
any preemptive rights or rights of first refusal and will not violate any laws
to which the Company or any of its assets are subject. The shares of Common
Stock issuable upon exercise of the Warrant have been reserved for issuance,
and when issued upon exercise, will be duly authorized, validly issued and
outstanding, fully paid and nonassessable.
2.4 Authorization. This Agreement has, and each other agreement
required to be entered into by the Company pursuant to the terms and conditions
hereof, when executed and delivered by the Company, will have been duly
authorized, executed and delivered by and on behalf of the Company, and will
constitute the valid and binding agreements of the Company, enforceable in
accordance with their respective terms, except as enforceability may be limited
by bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally. The Company has the requisite corporate power and authority
to enter into this Agreement and to perform its obligations hereunder.
2.5 Subsidiaries. Except as set forth on Section 2.5 of the
Disclosure Schedule, the Company has no subsidiaries and does not, directly or
indirectly, own any interest in any corporation, partnership, firm or other
business entity. The Company is not a participant in any joint venture,
partnership, or similar agreement. Section 2.5 of the Disclosure Schedule
accurately sets forth the name of each corporation, partnership, firm or other
business entity in which the Company has an interest, the state of
organization, and the percentage ownership by the Company.
2.6 Financial Position.
(a) The Company has furnished to the Investor the
financial statements described in Section 2.6 of the Disclosure Schedule
(collectively referred to herein as the "Financial Statements"). The Financial
Statements present fairly the financial position of the Company and its
subsidiaries as of such dates, respectively, all in conformity with generally
accepted accounting principles, consistently applied, following in the case of
the unaudited interim financial statements the Company's normal internal
accounting practices and year end adjustments.
(b) Except as set forth on Section 2.6 of the Disclosure
Schedule, since March 31, 1997, no event or condition has occurred, and no
event or condition is to the knowledge of the Company's officers threatened,
which has had a materially adverse effect, or could reasonably be expected to
have a materially adverse effect, on the Company's or any subsidiary's
properties, assets, or financial position.
2.7 Tax Returns. Each of the Company and its subsidiaries has
timely filed all Tax Returns required by law and has paid all Taxes required to
be paid, together with any penalties and interest. The Tax Returns are true
and correct in all material respects. There is no pending dispute with any
taxing authority relating to any of the Company's or subsidiaries' Tax Returns.
There is no tax audit of any Tax Return of the Company or any subsidiaries
pending or currently in process. The Company and its subsidiaries have paid
all Taxes and assessments determined to be owing as a result of any prior
audit. The Company has not elected pursuant to the Internal Revenue Code of
1986, as amended (the "Code"), to be treated as an S corporation or a
collapsible
3
<PAGE> 4
corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor has
it made other elections that would have a material adverse effect on the
business, properties, prospects or financial condition of the Company or its
subsidiaries. The Company and its subsidiaries have withheld or collected from
each payment made to each employee, the amount of all Taxes, including, but not
limited to, federal income taxes, Federal Insurance Contribution Act taxes and
Federal Unemployment Tax Act taxes required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving offices or
authorized depositories. For purposes of this Agreement, (i) the term "Taxes"
shall mean all taxes, charges, fees, levies or other assessments, including,
without limitation, income, gross receipts, excise, property, sales,
occupation, use, service, service use, license, payroll, franchise, transfer
and recording taxes, fees and charges imposed by the United States or any
state, local or foreign government or subdivision or agency thereof, whether
computed on a separate, consolidated, unitary, combined or any other basis; and
such term shall include any interest, liabilities, additional amounts,
penalties and additions to tax; and (ii) the term "Tax Return" shall mean any
report, return, information return or other document (including related or
supporting information) filed or required to be filed by the Company or its
subsidiaries with any governmental or regulatory authority or other authority
in connection with the determination, assessment or collection of any Taxes
(whether or not such Taxes are imposed on the Company or its subsidiaries) or
the administration of any law, regulation or administrative requirements
relating to any Taxes.
2.8 Title to Properties. Except as set forth on Section 2.8 of
the Disclosure Schedule, each of the Company and its subsidiaries has good and
marketable title to, and the exclusive use of, all of its tangible properties
and assets, free and clear of all mortgages, liens, claims and encumbrances
except, with respect to all such properties and assets (a) liens for current
taxes not yet due, (b) statutory and nonstatutory landlord liens, and (c) liens
on property which do not materially affect the operation of the business of the
Company.
2.9 ERISA
(a) The Company, each subsidiary and each ERISA Affiliate
have complied in all material respects with the Employee Retirement Income
Security Act of 1974, as amended from time to time ("ERISA") and, where
applicable, the Internal Revenue Code as amended ("Code") regarding each Plan.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Company or any subsidiary would be deemed
to be a "single employer" within the meaning of Section 4001(b)(1) of ERISA or
subsections (b), (c), (m) or (o) of section 414 of the Code.
(b) Each Plan is, and has been, maintained in substantial
compliance with ERISA and, where applicable, the Code. "Plan" shall mean any
employee pension benefit plan, as defined in Section 3(2) of ERISA, which (i)
is currently or hereafter sponsored, maintained or contributed to by the
Company, any subsidiary or an ERISA Affiliate or (ii) was at any time during
the preceding six calendar years, sponsored, maintained or contributed to, by
the Company, any subsidiary or an ERISA Affiliate.
4
<PAGE> 5
(c) No act, omission or transaction has occurred which
could result in imposition on the Company, any subsidiary or any ERISA
Affiliate (whether directly or indirectly) of (i) either a civil penalty
assessed pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary
duty liability damages under section 409 of ERISA.
(d) No Plan (other than a defined contribution plan) or
any trust created under any such Plan has been terminated since September 2,
1974. No liability to the Pension Benefit Guaranty Corporation ("PBGC") (other
than for the payment of current premiums which are not past due) by the
Company, any subsidiary or any ERISA Affiliate has been or is expected by the
Company, any subsidiary or any ERISA Affiliate to be incurred with respect to
any Plan. No ERISA Event with respect to any Plan has occurred. "ERISA Event"
shall mean (i) a "Reportable Event" described in Section 4043 of ERISA and the
regulations issued thereunder, (ii) the withdrawal of the Company, any
Subsidiary or any ERISA Affiliate from a Plan during a plan year in which it
was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (iii)
the filing of a notice of intent to terminate a Plan or the treatment of a Plan
amendment as a termination under Section 4041 of ERISA, (iv) the institution of
proceedings to terminate a Plan by the PBGC or (v) any other event or condition
which might constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan.
(e) Full payment when due has been made of all amounts
which the Company, any subsidiary or any ERISA Affiliate is required under the
terms of each Plan or applicable law to have paid as contributions to such
Plan, and no accumulated funding deficiency (as defined in section 302 of ERISA
and section 412 of the Code), whether or not waived, exists with respect to any
Plan.
(f) The actuarial present value of the benefit
liabilities under each Plan which is subject to Title IV of ERISA does not, as
of the end of the Company's most recently ended fiscal year, exceed the current
value of the assets (computed on a plan termination basis in accordance with
Title IV of ERISA) of such Plan allocable to such benefit liabilities. The
term "actuarial present value of the benefit liabilities" shall have the
meaning specified in section 4041 of ERISA.
(g) None of the Company, any subsidiary or any ERISA
Affiliate sponsors, maintains, or contributes to an employee welfare benefit
plan, as defined in section 3(1) of ERISA, including, without limitation, any
such plan maintained to provide benefits to former employees of such entities,
that may not be terminated by the Borrower, a Subsidiary or any ERISA Affiliate
in its sole discretion at any time without any material liability.
(h) None of the Company, any subsidiary or any ERISA
Affiliate sponsors, maintains or contributes to, or has at any time in the
preceding six calendar years sponsored, maintained or contributed to, any
Multiemployer Plan. "Multiemployer Plan" shall mean a Plan defined as such in
Section 3(37) or 4001(a)(3) of ERISA.
5
<PAGE> 6
(i) None of the Company, any subsidiary or any ERISA
Affiliate is required to provide security under section 401(a)(29) of the Code
due to a Plan amendment that results in an increase in current liability for
the Plan.
2.10 No Breach. Except as set forth on Section 2.10 of the
Disclosure Schedule, neither the Company nor its subsidiaries is in breach or
default of any term or provision of their respective Articles of Incorporation
or bylaws, or any material term or provision of any mortgage, indenture,
instrument, lease, contract, commitment or other agreement to which the Company
or any of its subsidiaries is a party or by which it is bound, or of any
provision of any governmental statute, rule or regulation applicable to or
binding upon the Company or any of its subsidiaries. Neither the execution and
delivery of this Agreement and the other agreements required to be executed and
delivered pursuant to the terms and conditions of this Agreement nor the
consummation of the transactions contemplated thereby will (a) conflict with,
or result in a breach of the terms, conditions or provisions of, or constitute
a default under, (i) the Articles of Incorporation or bylaws of the Company or
any of its subsidiaries, (ii) any agreement or instrument to which the Company
or any of its subsidiaries is now a party or by which any of them is bound, or
(iii) any provision of any judgment, decree, order, statute, rule or regulation
applicable to or binding on the Company or any of its subsidiaries, or (b)
result in the creation of any mortgage, pledge, lien, encumbrance, or charge
upon any of the properties or assets of the Company or any of its subsidiaries.
2.11 Litigation. Except as set forth on Section 2.11 of the
Disclosure Schedule, there is no litigation or other legal, administrative or
governmental proceeding pending or, to the knowledge of the officers of the
Company, threatened against or relating to the Company, its subsidiaries, or
their respective properties or business, that if determined adversely to the
Company or its subsidiaries may reasonably be expected to have a material
adverse effect on the present or future operations or financial condition of
the Company.
2.12 Court Orders, Decrees, Etc. There is no outstanding order,
writ, injunction or decree of any court, governmental agency or arbitration
tribunal against or adversely affecting the Company, its subsidiaries, or their
respective properties or business.
2.13 Franchises, Permits, and Consents. Each of the Company and
its subsidiaries possesses all governmental franchises, licenses, permits,
consents, authorizations, exemptions and orders, required by the Company and
its subsidiaries to carry on their businesses as now being conducted. All
registrations, designations and filings with all governmental authorities
required in the conduct of the businesses of the Company or its subsidiaries or
in connection with the consummation of the transactions contemplated by this
Agreement have been made or obtained.
2.14 Insurance. The Company and its subsidiaries have been and are
insured by financially sound and reputable insurers unaffiliated with the
Company in such amounts and against such risks as are sufficient for compliance
with law and as are adequate in the judgment of the Company to protect the
properties and businesses of the Company.
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2.15 Securities Law Compliance. The offer, issuance and sale of
the Securities to be issued hereunder has been made in compliance with all
applicable federal and state securities laws. Neither the Company nor anyone
acting on its behalf has offered any of the Securities (or similar securities)
for sale to, or solicited offers to buy any of the Securities (or similar
securities) from, any prospective purchaser, so as to make the issuance and
sale of the Securities hereunder subject to the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), or applicable
state securities laws.
2.16 Finders' Fees. Except as set forth on Section 2.16 of the
Disclosure Schedule, the Company has incurred no liability for commissions or
other fees to any finder or broker in connection with the transactions
contemplated by this Agreement.
2.17 Intellectual Property. Except as set forth on Section 2.17 of
the Disclosure Schedule, to the actual knowledge of the Company's officers:
(a) The Company and its subsidiaries own or have the
right to use pursuant to license, sublicense, public domain, agreement, or
permission (i) all inventions (whether patentable or unpatentable and whether
or not reduced to practice), all improvements thereto, and all patents,
together with all reissuances, revisions, extensions, and reexaminations
thereof, (ii) all trademarks, service marks, trade dress, logos, trade names,
and corporate names, including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (iii) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection there- with, (iv) all mask works and all applications,
registrations and renewals in connection therewith, (v) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (vi) all other proprietary rights, and (vii) all copies and
tangible embodiments thereof (in whatever form or medium) (collectively,
"Intellectual Property"), currently being used or reasonably anticipated to be
used in the operation of the Company's business.
(b) None of the Company and its subsidiaries has
knowingly interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of third parties, and none
of the Company's officers has ever received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation, including any claim that any of the Company and
its subsidiary must license or refrain from using any Intellectual Property
rights of any third party. To the knowledge of any of the officers of the
Company and its subsidiaries, no third party has interfered with, infringed
upon, or misappropriated in any material respect any Intellectual Property
rights of any of the Company or its subsidiaries.
(c) The Disclosure Schedule identifies each patent or
registration which has been issued to any of the Company and its subsidiaries
with respect to any of its Intellectual Property, identifies each pending
patent application or application for registration which any of the Company and
its subsidiaries has made with respect to any of its Intellectual Property, and
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identifies each license, agreement, or other permission which any of the
Company and its subsidiaries has granted to any third party with respect to any
of its Intellectual Property (together with any exceptions). Section 2.17 of
the Disclosure Schedule also identifies each trade name or unregistered
trademark used by any of the Company and its subsidiaries. With respect to
each such item of Intellectual Property required to be identified in the
Disclosure Schedule:
i. the Company and its subsidiaries possess all
right, title, and interest in and to the item, free and clear of any security
interest, license, or other restriction;
ii. except as set forth on the Disclosure
Schedule the item is not subject to any outstanding injunction, judgment,
order, decree, ruling, or charge;
iii. except as set forth on the Disclosure
Schedule no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the knowledge of any of the
officers of the Company and its subsidiaries, is threatened which challenges
the legality, validity, enforceability, use, or ownership of the item; and
(d) Section 2.17 of the Disclosure Statement identifies
each material item of Intellectual Property that any third party owns and that
any of the Company and its subsidiaries uses pursuant to license, sublicense,
agreement, or permission. The Company has delivered or made available at its
offices to the Investors correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to date). With respect to
each such item of Intellectual Property required to be identified in the
Disclosure Schedule:
i. the license, sublicense, agreement, or
permission covering the item is legal, valid, binding, enforceable, and in full
force and effect;
ii. the license, sublicense, agreement or
permission will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby;
iii. no party to the license, sublicense,
agreement, or permission is in breach or default, and no event has occurred
which with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration thereunder;
iv. no party to the license, sublicense,
agreement, or permission has repudiated any provision thereof;
v. except as set forth on the Disclosure
Schedule none of the Company and its subsidiaries has granted any sublicense or
similar right with respect to the license, sublicense, agreement, or
permission.
2.18 Environment, Health, and Safety. To the actual knowledge of
the Company's officers, each of the Company and its subsidiaries has complied
in all material respects with all laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings,
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and charges thereunder) of federal, state, local, and foreign governments (and
all agencies thereof) which have jurisdiction over the Company and its
subsidiaries concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against any of them alleging any failure so to
comply. Without limiting the generality of the preceding sentence, each of the
Company and its subsidiaries has obtained and been in compliance with all of
the terms and conditions of all permits, licenses, and other authorizations
which are required under, and has complied, in all material respects, with all
other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are contained in
such laws.
2.19 Product Liability. To the actual knowledge of the Company's
officers, none of the Company and its subsidiaries has any liability (and to
such officers' actual knowledge there is no factual basis for any action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any liability) arising out of any injury to
individuals or property as a result of the ownership, possession, or use of any
product manufactured, sold, leased, or delivered by any of the Company and its
subsidiaries.
2.20 Conflicts of Interest. Except as disclosed in Section 2.20 of
the Disclosure Schedule, no officer, director or shareholder of the Company or
its subsidiaries or any affiliate of any such person has any direct or indirect
interest (a) in any entity which does business with the Company or its
subsidiaries, or (b) in any property, asset or right which is used by the
Company or any subsidiary in the conduct of business, or (c) in any contractual
relationship with the Company or any of its subsidiaries other than as an
employee.
2.21 Company Equipment. The Company's ice bagging equipment
manufactured by Lancer Corporation (the "Equipment") has received approval by
the National Sanitation Foundation. To the knowledge of the Company, the ice
making equipment manufactured by Hoshizaki America, Inc. has received approval
of the National Sanitation Foundation.
2.22 Disclosure. The Company has not knowingly withheld from the
Investor any material facts relating to the assets, business, operations,
financial condition or prospects of the Company or its subsidiaries. The
representations and warranties contained in this Agreement and all other
agreements being entered into in connection with this Agreement do not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements and information contained herein not
misleading.
2.23 SEC Documents. The Company has provided to Investor its
Registration Statement on Form S-4 (the "Registration Statement"), which
Registration Statement the Company has filed with the U.S. Securities and
Exchange Commission (the "Commission") but which Registration
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Statement has not been declared effective by the Commission as of the Closing
Date. The Registration Statement does not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of the Company included in the Registration Statement have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated financial
position of the Company and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (except in the case of interim period financial information
for normal year-end adjustments). The Company has included in the Registration
Statement all material agreements, contracts and other documents which it
reasonably believes are required to be filed as exhibits to the Registration
Statement. To the Company's knowledge, the Company and its subsidiaries have
in all material respects substantially performed all obligations required to be
performed by them to date and are not in default in any material respect under
any of such agreements, contracts or other documents to which any of them is a
party or by which any of them is otherwise bound. To the Company's knowledge,
all instruments referred to above are in effect and enforceable according to
their respective terms, and there is not under any of such instruments any
existing material default or event of default or event which, with notice or
lapse of time or both, would constitute an event or default thereunder. To The
Company's knowledge, all parties having material contractual arrangements with
the Company or any of its subsidiaries are in substantial compliance therewith
and none are in material default in any respect thereunder.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company, as follows:
3.1 Authorization. This Agreement has been duly executed and
delivered by the Investor and constitutes the valid and binding agreement of
the Investor enforceable in accordance with its terms, and each other agreement
required to be entered into by the Investor pursuant to the terms and
conditions hereof, when executed and delivered by the Investor will constitute
the valid and binding agreement of the Investor enforceable in accordance with
its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally. If the
Investor is not a natural person, it has all requisite power and authority to
enter into this Agreement and to perform its obligations hereunder.
3.2 Securities Not Registered. The Investor is acquiring the
Securities for investment purposes only, for his own account and not with a
view to, or for resale in connection with, any distribution thereof in
violation of applicable securities laws. The Investor has been advised that
the Securities being purchased and issued hereunder have not been registered
under the Securities Act or applicable state securities laws and that such
shares must be held indefinitely unless the offer and sale thereof are
subsequently registered under the Securities Act or an exemption from
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such registration is available. The Investor acknowledges and agrees that the
certificates evidencing the Securities will bear a restrictive legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND THEY
MAY NOT BE OFFERED FOR SALE OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT THEREUNDER OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
and that such instruments will bear such restrictive or other legends as are
required by applicable state laws.
3.3 Access to Information. The Company has made available to the
Investor the opportunity to ask questions of and to receive answers from the
Company's officers, directors and other authorized representatives concerning
the Company and its business and prospects and Investor has been permitted to
have access to all information which he has requested in order to evaluate the
merits and risks of the purchase of the Securities hereunder.
3.4 Investor Due Diligence. In making the investment in the
Company and its Securities, the Investor is not acting on the basis of, or
relying upon, any promotional materials, business plans, financial projections,
representations or warranties other than those express representations and
warranties contained in this Agreement, and the Investor has performed its own
due diligence and has independently made such studies and investigations of the
Company's business, the market for the Company's products and services, the
Company and its management, as the Investor deems necessary to formulate its
decision to purchase Securities pursuant to the terms of this Agreement.
3.5 Investment Experience. The Investor (i) has such knowledge,
skill and experience in financial, business and investment matters relating to
an investment of this type, that it is capable of evaluating the merits and
risks of the purchase of the Securities, (ii) is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act, and (iii) has the ability to bear the risk of losing his entire
investment in the Securities.
3.6 Finders' Fees. The Investor has incurred no liability for
commissions or other fees to any finder or broker in connection with the
transactions contemplated by this Agreement.
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ARTICLE 4
COVENANTS OF THE COMPANY
The Company covenants and agrees that, unless a written waiver from
the Investors in accordance with the provisions of Section 9.2 of this
Agreement is first obtained, from and after the Closing Date the Company will
fully comply with each of the following covenants of this Article 4:
4.1 Books of Account. The Company will, and will cause each of
its subsidiaries to, keep books of record and account in which full, true and
correct entries are made of all of its and their respective dealings, business
and affairs, in accordance with generally accepted accounting principles. The
Company will employ certified public accountants selected by the Board of
Directors of the Company who are "independent" within the meaning of the
accounting regulations of the Securities and Exchange Commission and who are
one of the so-called "Big Six" accounting firms, and have annual audits made by
such independent public accountants in the course of which such accountants
shall make such examinations, in accordance with generally accepted auditing
standards, as will enable them to give such reports or opinions with respect to
the financial statements of the Company and its subsidiaries as will satisfy
the requirements of the Securities and Exchange Commission in effect at such
time with respect to certificates and opinions of accountants.
4.2 Furnishing of Financial Statements and Information. The
Company will deliver to the Investor:
(a) as soon as practicable, but in any event within 30
days after the close of each month, unaudited consolidated balance sheets of
the Company and its subsidiaries as of the end of such month, together with the
related consolidated statements of operations and cash flow for such month,
setting forth the budgeted figures for such month prepared and submitted in
connection with the Company's annual plan as required under Section 4.3 hereof,
all in reasonable detail in a form consistent with prior periods and certified
by an authorized accounting officer of the Company, subject to year-end
adjustments;
(b) as soon as practicable, but in any event within 165
days after the end of each fiscal year, a consolidated balance sheet of the
Company and its subsidiaries, as of the end of such fiscal year, together with
the related consolidated statements of operations, shareholders' equity and
cash flow for such fiscal year, setting forth in comparative form figures for
the previous fiscal year, all in reasonable detail and duly certified by the
Company's independent public accountants, which accountants shall have given
the Company an opinion, unqualified as to the scope of the audit, regarding
such statements;
(c) promptly after the submission thereof to the Company,
copies of all reports and recommendations submitted by independent public
accountants in connection with any annual
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or interim audit of the accounts of the Company or any of its subsidiaries made
by such accountants;
(d) promptly after transmission thereof, copies of all
reports, proxy statements, registration statements and notifications filed by
it with the Securities and Exchange Commission pursuant to any act administered
by the Securities and Exchange Commission or furnished to shareholders of the
Company or to any national securities exchange;
(e) with reasonable promptness, such other financial data
relating to the business, affairs and financial condition of the Company and
any subsidiaries as is available to the Company and as from time to time the
Investors may reasonably request;
(f) promptly following the issuance of any additional
shares of Common Stock or of any securities convertible into Common Stock, or
any options, warrants or other rights to purchase additional shares of Common
Stock or convertible securities, written notice of the amount of securities so
issued and the total consideration received therefor; and
(g) within 10 days after the Company learns in writing of
the commencement or threatened commencement of any material suit, legal or
equitable, or of any material administrative, arbitration or other proceeding
against the Company, any of its subsidiaries or their respective businesses,
assets or properties, written notice of the nature and extent of such suit or
proceeding.
4.3 Preparation and Approval of Budgets. At least one month prior
to the beginning of each fiscal year of the Company, the Company shall prepare
and submit to its Board of Directors, for its review and approval, an annual
plan for such year, which shall include monthly capital and operating expense
budgets, cash flow statements and profit and loss projections itemized in such
detail as the Board of Directors may reasonably request. Each annual plan
shall be modified as often as is necessary in the judgment of the Board of
Directors to reflect changes required as a result of operating results and the
other events that occur, or may be reasonably expected to occur, during the
year covered by the annual plan, and copies of each such modification shall be
submitted to the Board of Directors. The Company will, simultaneously with the
submission thereof to the Board of Directors, deliver a copy of each such
annual plan and modification thereof to each Investor.
4.4 Inspection. The Company will permit the Investors, or any
designee thereof, to visit and inspect the properties of the Company or any of
its subsidiaries, including the financial books and records thereof, and the
right to take extracts therefrom, and discuss the affairs, finances and
accounts thereof with the appropriate officers, all at reasonable times upon
reasonable notice, and as often as reasonably may be requested.
4.5 Directors' and Shareholders' Meetings. The Investor shall
have the right to elect one director of the Company as set forth in the Voting
Agreement (as defined in Section 5.10).
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The Company shall reimburse the Investor for the reasonable
out-of-pocket expenses incurred by it or the director elected by it in
connection with the attending of meetings by its director designee or carrying
out any other duties by such director designee that may be specified by the
Board of Directors; shall pay such director designee the same director's fees
paid to the other non-employee directors of the Company; shall maintain as part
of its Articles of Incorporation or Bylaws a provision for the indemnification
of its directors to the full extent permitted by law; and enter into indemnity
agreements reasonably satisfactory to Investor.
In addition, the Company shall notify the Investor's board designee of
all regular meetings and special meetings of the Board of Directors of the
Company at least two business days in advance of such meetings.
The Company agrees, as a general practice, to hold a meeting of its
Board of Directors at least once every three months, and during each year to
hold its annual meeting of shareholders within 30 days of delivery of the
audited financial statements.
4.6 Use of Proceeds. The Company will use the proceeds of the
investments made by the Investor to pay expenses incurred in connection with
this Agreement, repurchase Common Stock held by Fleming Companies, Inc.,
acquire other related businesses, make capital expenditures, and for general
working capital purposes related to the Company's business.
4.7 Other Restrictions. Without the prior approval of the Board
of Directors of the Company by an affirmative vote of at least two-thirds of
its members, neither the Company nor its subsidiaries will do any of the
following:
(a) declare or pay any dividend or make any other
distribution on any shares of its capital stock other than those payable solely
in shares of Common Stock, or purchase, redeem or otherwise acquire for any
consideration, or set aside a sinking fund or other fund for the redemption or
repurchase of any shares of capital stock or any warrants, rights or options to
purchase shares of capital stock (except that any subsidiary may pay dividends
to the Company);
(b) grant to the holders of any securities issued or to
be issued by the Company a "demand" right to register such securities under the
Securities Act;
(c) guarantee, endorse or otherwise be or become
contingently liable, or permit any subsidiary to guarantee, endorse or
otherwise become contingently liable, in connection with obligations in excess
of one million dollars ($1,000,000) in the aggregate, securities or dividends
of any person, firm, association or corporation (other than the Company and any
100% owned subsidiary), except that the Company and any subsidiary may endorse
negotiable instruments for collection in the ordinary course of business;
(d) make or permit any subsidiary to make loans or
advances to any person (including without limitation to any officer, director
or shareholder of the Company or any officer or director of any subsidiary),
firm, association or corporation (other than the Company and any
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100% owned subsidiary), except advances to suppliers, customers and employees
made in the ordinary course of business;
(e) make any material change in the nature of its
business as carried on at the date of this Agreement;
(f) organize any subsidiary, joint venture, partnership,
or acquire a business (by asset purchase, stock purchase, merger or otherwise),
or acquire any assets or make any investment (all of the foregoing being
hereinafter referred to as an "Investment"), except that:
(i) in the case of an Investment which is in the same
line of business as the Company (i.e., the distribution of packaged ice systems
and the sale of bags for use in such systems or the traditional methods of
manufacturing and distributing ice) or to be used in or in connection with the
Company's business as currently conducted, the Company and its subsidiaries may
make such Investment to the extent that the total expenditure for such
Investment does not exceed $500,000; and
(ii) in the case of any other Investment, the
Company and its subsidiaries may make such Investment only to the extent
permitted by the Company's Indenture for the 12% Senior Notes issued April 17,
1997, as such agreement is in effect on the date hereof;
(g) mortgage, pledge, or create a security interest in
all or substantially all of the Company's assets as collateral except that the
Company may pledge substantially all of its assets as security for its proposed
loan from Frost National Bank and Zions First National Bank; or
(h) become a party to a merger, consolidation or
reorganization with any other Person as a result of which at least 51% of the
voting power of the Company will not be held, directly or indirectly, by
persons or entities who held at least 51% of the voting power before such
merger, consolidation or reorganization, or sell or otherwise dispose of, or
enter into any agreement to sell or otherwise dispose of, all or substantially
all of the assets of the Company to any other Person. For purposes hereof,
"Person" shall mean any individual, corporation, partnership, venture or
proprietorship or other enterprise or entity.
ARTICLE 5
CONDITIONS TO INVESTOR'S OBLIGATIONS
The obligation of Investor to purchase and pay for the Securities to
be delivered to it hereunder at the Closing Date is subject to the fulfillment,
on or before the Closing Date, of each of the following conditions:
5.1 Compliance with Representations and Warranties. The
representations and warranties contained in Article 2 hereof shall be true on
and as of the Closing Date with the same
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effect as though made on and as of that date, and the Company shall have
performed and complied with all agreements and conditions contained herein
required to be performed or complied with by the Company prior to or at the
Closing.
5.2 Compliance Certificate. The Company shall have delivered to
the Investors a certificate, dated as of the Closing Date and signed by the
Company's President, certifying that the conditions in this Article 5 required
to be fulfilled prior to the Closing Date have been fulfilled.
5.3 Reserved.
5.4 Parallel Exit Agreement. James F. Stuart, A.J. Lewis III,
Steven P. Rosenberg, and the Company shall have entered into the Parallel Exit
Agreement in the form of Exhibit 5.4 attached hereto ("Parallel Exit
Agreement").
5.5 Stock Certificates. The Company shall have delivered to the
Investor a stock certificate evidencing the 300,000 shares of Common Stock
purchased hereunder.
5.6 Registration Rights Agreement. The Company shall have
executed and delivered a Registration Rights Agreement in the form set forth as
Exhibit 5.6 hereof.
5.7 Warrant. The Company shall have executed and delivered the
Warrant.
5.8 Opinion of Counsel. The Company shall have delivered to the
Investor the opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. dated the
Closing Date, substantially in the form of Exhibit 5.8.
5.9 New Voting Agreement. The holders of at least 60% of the
outstanding shares of Common Stock and Series A Convertible Preferred Stock and
Series B Convertible Preferred Stock calculated as a single class (excluding
shares of Common Stock to be issued to Investor pursuant to this Agreement)
shall have executed and delivered the Voting Agreement in the form attached
hereto as Exhibit 5.10 (the "New Voting Agreement"), and the Company warrants
and covenants that the holders of at least 60% of such shares have executed the
New Voting Agreement. In connection therewith, the Company acknowledges that
in the event the representative designated by Investor to be elected to the
Board of Directors pursuant to the terms of the New Voting Agreement is (i) not
elected to the Board of Directors, or (ii) removed from the Board of Directors,
despite the vote of the Shareholders (as defined in the New Voting Agreement)
for such designee's election and against such designee's removal, the Company
shall, until such time as Investor's designee is reelected to the Board of
Directors, provide Investor with notice at least 10 business days in advance of
any meeting of the Board of Directors of the Company, and the Investor shall
have the right to have one representative designated by Investor attend all
meetings of the Company's Board of Directors whether such meetings are
conducted in person or telephonically, but shall not have the right to vote or
participate in any action taken at such meetings.
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ARTICLE 6
CONDITIONS TO COMPANY'S OBLIGATIONS
The obligation of the Company to issue and sell the Securities to the
Investor hereunder is subject to the fulfillment by Investor, at or before the
Closing, of the following conditions:
6.1 Compliance with Representations and Warranties. The
representations and warranties of the Investor contained in Article 3 hereof
shall be true on and as of the Closing Date with the same effect as though made
on that date (except to the extent that any representations and warranties of
the Company specifically apply to conditions existing at a particular date).
6.2 Other Agreements. The Investor shall have entered into the
Amended and Restated Shareholders Agreement among the Company and Shareholders
dated September 20, 1995, as amended, the Amended and Restated Voting Agreement
among the Company and Shareholders dated September 20, 1995, as amended, the
Parallel Exit Agreement, the Registration Rights Agreement, the Warrant
Agreement and the New Voting Agreement.
ARTICLE 7
INDEMNIFICATION
The Company shall indemnify and hold harmless the Investor, and the
Investor shall indemnify and hold harmless the Company, against all claims,
liability, damage, loss, cost and expense (including reasonable attorneys' and
accountants' fees) incurred by the indemnified party or parties as a result of
or in connection with the breach by the indemnifying party or parties of any
representation, warranty or covenant contained in this Agreement or in any
other agreement entered into pursuant to the terms and conditions of this
Agreement and any and all actions, suits, proceedings, claims, demands and
judgments incident to or alleged to be incident to any of the foregoing.
ARTICLE 8
RIGHT TO PURCHASE ADDITIONAL SECURITIES
8.1 First Refusal Rights. Subject to the terms and conditions of
this Article 8, the Company hereby grants to Investor (referred to hereinafter
in this Article 8 as the "Offeree") a right of first refusal to purchase all or
any part of any issue of New Securities (as defined hereinbelow) that the
Company (or any subsidiary whose capital stock will not be wholly owned,
directly or indirectly, by the Company upon completion of any such issuance)
may from time to time after the Closing Date propose to issue.
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8.2 New Securities. "New Securities" shall mean any capital
stock, any rights, options or warrants to purchase or subscribe for capital
stock, and any securities or other instruments of any type whatsoever that are,
or may become, convertible into or exchangeable for capital stock, which are
issued for cash; provided, however, that "New Securities" shall not include (i)
securities offered and sold by the Company pursuant to a Public Offering (as
hereinafter defined); (ii) shares of the Company's Common Stock (or related
options or rights) issued to the Company's employees and directors pursuant to
a plan adopted by the Board of Directors; (iii) Common Stock issued by the
Company upon the conversion of the Series A Preferred Stock or Series B
Preferred Stock of the Company; and (iv) shares of the Company's capital stock
issued in connection with any existing warrant, option or right listed on the
Disclosure Schedule, stock split or stock dividend by the Company.
8.3 Notice and Allocation Periods. If the Company or, when
applicable, its subsidiary, proposes to undertake a bonafide issuance of New
Securities, then it shall give the Offeree written notice of its intention,
describing the type of New Securities, the price, the number of shares to be
offered, and the general terms upon which such securities are proposed to be
offered. Offeree shall be given at least 20 days' prior written notice within
which to agree to purchase all or any part of its Pro Rata Share (as
hereinafter defined) of such issuance of New Securities for the price and upon
the general terms specified in said notice by giving written notice to the
issuer within such period and stating therein the quantity of New Securities to
be purchased by it. "Pro Rata Share" shall mean, with respect to Offeree, that
portion of the number of shares of New Securities proposed to be issued which
equals the proportion that (a) the number of shares of Common Stock held by the
Offeree immediately prior to the proposed issuance, plus the number of shares
of Common Stock which would then be issuable to the Offeree assuming that all
securities of the Company convertible into or exchangeable for Common Stock had
been converted or exchanged, bears to (b) the total number of shares of Common
Stock issued and outstanding immediately prior to the proposed issuance,
assuming that all securities of the Company convertible into or exchangeable
for Common Stock had been converted or exchanged.
8.4 Right of Company to Sell New Securities. If the Offeree fails
to exercise in full its right of first refusal within the applicable period set
forth above, then the Company or, when applicable, its subsidiary shall have
120 days thereafter to sell the New Securities respecting which the rights set
forth herein were not exercised at a price and upon general terms no more
favorable to the purchaser thereof than specified in the notice to the Offeree.
If such New Securities have not been sold within such 120-day period, then the
Company or, when applicable, its subsidiary shall not thereafter issue or sell
any New Securities without first offering them to the Offeree in the manner
provided above.
8.5 Public Offering. Reference to the term "Public Offering" in
this Agreement shall mean a bonafide firm commitment underwritten public
offering of shares of the Company's Common Stock made through a nationally
recognized underwriting firm pursuant to an effective registration statement
under the Securities Act, which results in gross proceeds to the Company of not
less than $7.5 million.
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8.6 Termination. This Article 8 shall continue in effect from the
date of this Agreement until the Company has completed a Public Offering.
ARTICLE 9
MISCELLANEOUS
9.1 Notices. All notices, requests, demands and other
communications hereunder, and each other agreement required to be entered into
pursuant to the terms and conditions of this Agreement, shall be in writing and
shall be delivered by hand, overnight courier, facsimile transmission, or by
United States Mail, and shall be deemed to have been duly given when actually
received, or when mailed, first class postage prepaid, certified mail, return
receipt requested, to the addresses set forth below, or to such other address
as may be designated hereafter by prior written notice from the recipient to
the sender:
If to the Company: Packaged Ice, Inc.
Attention: Chief Executive Officer
8572 Katy Freeway, Suite 101
Houston, Texas 77024
With a copy to: Akin, Gump, Strauss,
Hauer & Feld, L.L.P.
Attention: Alan Schoenbaum
300 Convent, Suite 1500
San Antonio, Texas 78205
Facsimile: (210) 224-2035
If to the Investor: SV Capital Partners, L.P.
Attention: Bill Wagner
SV Capital Partners, L.P.
200 Concord Plaza, Suite 620
San Antonio, Texas 78216
with a copy to: Fulbright & Jaworski, L.L.P.
Attention: Philip Renfro, Esq.
300 Convent, Suite 2200
San Antonio, Texas 78205
Facsimile No.: (210) 270-7205
9.2 Modification and Waiver.
(a) No amendment or modification to this Agreement shall
be made without the written approval of the Company and the Investor.
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<PAGE> 20
(b) Approval, waiver and consent by the Investor
hereunder shall be in writing and shall be delivered to the Company in the
manner provided for in Section 9.1 herein.
9.3 Termination. This Agreement shall continue in effect from the
date of execution until the Company has completed an initial Public Offering.
9.4 Conflicts. If there shall be any conflict between any
provision of this Agreement and any provision of the other agreements required
to be entered into pursuant to the terms and conditions of this Agreement, the
conflicting provision of such other agreements shall control.
9.5 Gender. Wherever herein, and in each other agreement required
to be entered into pursuant to the terms and conditions of this Agreement, the
singular number is used, the same shall include the plural, and the masculine
gender shall include the feminine and neuter genders, and vice versa, as the
context may require.
9.6 Headings. The headings contained in this Agreement, and in
each other agreement required to be entered into pursuant to the terms and
conditions of this Agreement, are for reference purposes only and shall not in
any way affect their meaning or interpretation.
9.7 Counterparts. This Agreement, and each other agreement
required to be entered into pursuant to the terms and conditions of this
Agreement, may be executed in any number of counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
9.8 Parties in Interest. This Agreement, and each other agreement
required to be entered into pursuant to the terms and conditions of this
Agreement, shall, except as may otherwise be specifically provided to the
contrary therein, inure to the benefit of and be binding upon each of the
parties hereto and thereto, as the case may be, and their respective heirs,
executors, legal representatives, successors and assigns.
9.9 Survival. All covenants, agreements, representations and
warranties made herein, and in each other agreement required to be entered into
pursuant to the terms and conditions of this Agreement, or otherwise in writing
in connection therewith, shall survive the execution and delivery thereof and
the consummation of the transactions contemplated thereby.
9.10 Entire Agreement. This Agreement, and each other agreement
required to be entered into pursuant to the terms and conditions of this
Agreement, embody the entire agreement and understanding between the parties
thereto, and supersede all prior agreements and understandings, written and
oral, relating to the subject matter thereof, including, without limitation,
all letters of intent and summary term sheets heretofore executed or examined
by the parties.
9.11 Governing Law. THIS AGREEMENT, AND EACH OTHER AGREEMENT
REQUIRED TO BE ENTERED INTO PURSUANT TO THE TERMS AND CONDITIONS OF THIS
AGREEMENT, SHALL, EXCEPT AS MAY OTHERWISE BE SPECIFICALLY
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<PAGE> 21
PROVIDED TO THE CONTRARY THEREIN, BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS.
9.12 Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, including, without
limitation any claim for violation of securities laws, shall be settled by
binding arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, in Houston, Texas, and judgment upon the
award rendered by the arbitrator may be entered in any court having
jurisdiction thereof, and shall not be appealable.
9.13 Expenses and Attorneys' Fees. The Company shall pay all
reasonable costs and expenses that are incurred with respect to the
negotiation, execution, closing, delivery and performance of this Agreement,
and each other agreement required to be entered into pursuant to the terms and
conditions of this Agreement including without limitation those reasonable
legal, accounting and travel costs and expenses incurred by the Investor. The
Company's obligation to pay the Investor's expenses shall not be incurred by
the Company until the Closing.
9.14 Language. The language used in this Agreement, and the other
agreements required to be entered into pursuant to the terms and conditions of
this Agreement, shall be deemed to be language chosen by the parties thereto to
express their mutual intent, and no rule of strict construction against any
party shall apply to any term or condition thereof.
9.15 Severability. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions hereof and this
Agreement shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained herein.
9.16 Waiver. No waiver by any party of the performance of any
provision, condition or requirement herein shall be deemed to be a waiver of,
or in any manner release the other party from, performance of any other
provision, condition or requirement herein; nor deemed to be a waiver of, or in
any manner release the other party from future performance of the same
provision, condition or requirement; nor shall any delay or omission by any
party to exercise any right hereunder in any manner impair the exercise of any
such right accruing to it thereafter.
9.17 No Third-Party Beneficiaries. Nothing contained in this
Agreement shall be construed to give any person other than the Company and
Investor, their successors and assigns, any legal or equitable right, remedy or
claim under or with respect to this Agreement.
(SIGNATURE PAGE FOLLOWS)
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<PAGE> 22
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first above written.
THE COMPANY: PACKAGED ICE, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
THE INVESTOR: SV CAPITAL PARTNERS, L.P.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Attachments:
Disclosure Schedule
Exhibit A Warrant
Exhibit 5.4 Parallel Exit Agreement
Exhibit 5.6 Registration Rights Agreement
Exhibit 5.8 Opinion of Counsel
Exhibit 5.10 New Voting Agreement
22
<PAGE> 1
EXHIBIT 10.39
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN ISSUED PURSUANT TO REGULATION D PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF
ANY STATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR SUCH
OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
Date: July 17, 1997 WARRANT NO. SV-1
PACKAGED ICE, INC.
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, SV CAPITAL PARTNERS, L.P.
(the "Investor"), or its registered assigns, is entitled to purchase from
PACKAGED ICE, INC., a Texas corporation (the "COMPANY"), at any time or from
time to time during the period specified in Section 2 hereof, One Hundred
Thousand (100,000) fully paid and nonassessable shares of the Company's Common
Stock, $.01 par value (the "COMMON STOCK"), at an exercise price per share (the
"EXERCISE PRICE") of $14.00 per share. The number of shares of Common Stock
purchasable hereunder (the "WARRANT SHARES") and the Exercise Price are subject
to adjustment as provided in Section 4 hereof. The term "WARRANT" means this
Warrant of the Company issued pursuant to the Stock Purchase Agreement (as
hereinafter defined). The term "WARRANT PERIOD" as used herein means the
period commencing on the date this Warrant is issued and delivered pursuant to
the terms of that certain Stock Purchase Agreement, dated as of July 17, 1997,
by and between the Company and the Investor listed on the execution page
thereof (the "STOCK PURCHASE AGREEMENT") and ending at 5:00 p.m. New York City
time on the fifth (5th) anniversary of the date of issuance.
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR
SHARES. Subject to the provisions hereof, including without limitation, the
vesting provisions contained in Section 2(a) and (b) hereof, and the
limitations contained in Section 7 hereof, this Warrant may be exercised by the
holder hereof, in whole at any time, or in part from time to time, prior to its
expiration date as set forth above, by the surrender of this Warrant, together
with a completed exercise agreement in the form attached hereto (the "EXERCISE
AGREEMENT"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of
<PAGE> 2
the Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company, of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) delivery to the Company of a
written notice of an election to effect a Cashless Exercise (as defined in
Section 11(c) below) for the Warrant Shares specified in the Exercise
Agreement. The Warrant Shares so purchased shall be deemed to be issued to the
holder hereof or such holder's designee, as the record owner of such shares, as
of the close of business on the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement shall have been delivered, and
payment shall have been made for such shares as set forth above. Certificates
for the Warrant Shares so purchased, representing the aggregate number of
shares specified in the Exercise Agreement, shall be delivered to the holder
hereof within a reasonable time, not exceeding five (5) business days, after
this Warrant shall have been so exercised. The certificates so delivered shall
be in such denominations as may be requested by the holder hereof and shall be
registered in the name of such holder or such other name as shall be designated
by such holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the time
of delivery of such certificates, deliver to the holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised.
2. PERIOD OF EXERCISE. This Warrant may be exercised at any time
on or after the date hereof (the "EFFECTIVE DATE") and prior to the close of
business on the fifth anniversary of the Effective Date.
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby
covenants and agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will,
upon issuance in accordance with the terms of this Warrant, be validly issued,
fully paid, and nonassessable and free from all taxes, liens, claims and
encumbrances.
(b) RESERVATION OF SHARES. During the Warrant Period,
the Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) LISTING. The Company shall promptly secure the
listing of the shares of Common Stock issuable upon exercise of the Warrant
upon each national securities exchange or automated quotation system, if any,
upon which shares of Common Stock are then listed or become listed (subject to
official notice of issuance upon exercise of this Warrant) and shall maintain,
so long as any other shares of Common Stock shall be so listed, such listing of
all shares of Common Stock from time to time issuable upon the exercise of this
Warrant; and the Company shall so list on each national securities exchange or
automated quotation system, as the case may be, and shall maintain such listing
of, any other shares of capital stock of the Company issuable upon the exercise
of this Warrant if and so long as any shares of the same class shall be listed
on such national securities exchange or automated quotation system.
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<PAGE> 3
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding
upon any entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all the Company's assets.
4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES ISSUABLE.
The number and kind of Warrant Shares purchasable upon the exercise of Warrant
and the Exercise Price shall be subject to adjustment from time to time as
follows:
(a) STOCK SPLITS, COMBINATIONS, ETC. In case the
Company shall hereafter (i) pay a dividend or make a distribution on its Common
Stock in shares of its capital stock (whether shares of Common Stock or of
capital stock of any other class), (ii) subdivide its outstanding shares of
Common Stock or (iii) combine its outstanding shares of Common Stock into a
smaller number of shares, the number of Warrant Shares purchasable upon
exercise of this Warrant immediately prior thereto shall be adjusted so that
the holder of this Warrant thereafter exercised shall be entitled to receive
the number of Warrant Shares which such holder would have owned immediately
following such action had such Warrant been exercised immediately prior
thereto. An adjustment made pursuant to this paragraph shall become effective
immediately after the record date in the case of a dividend and shall become
effective immediately after the effective date in the case of a subdivision,
combination or reclassification. If, as a result of an adjustment made
pursuant to this paragraph, the holder of this Warrant thereafter exercised
shall become entitled to receive shares of two or more classes of capital stock
of the Company, the Board of Directors of the Company (whose determination
shall be conclusive) shall determine the allocation of the adjusted Exercise
Price between or among shares of such classes of capital stock.
(b) RECLASSIFICATION, COMBINATIONS, MERGERS, ETC. In
case of any reclassification or change of outstanding shares of Common Stock
(other than as set forth in Section 4(a) above and other than a change in par
value, or from par value to no par value, or from no par value to par value, or
in case of any consolidation or merger of the Company with or into another
corporation (other than a merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock of
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<PAGE> 4
the Company (other than a change in par value, or from par value to no par
value, or from par value to par value or as a result of a subdivision or
combination)) or in case of any sale or conveyance to another corporation of
all or substantially all of the assets of the Company, then, as a condition of
such reclassification, change, consolidation, merger, sale or conveyance, the
Company or such a successor or purchasing corporation, as the case may be,
shall forthwith make lawful and adequate provision whereby the holder of such
Warrant then outstanding shall have the right thereafter to receive on exercise
of such Warrant the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance by a holder of the number of shares of Common Stock issuable
upon exercise of such Warrant immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance and enter into a supplemental
warrant agreement so providing. Such provisions shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 4. If the issuer of securities
deliverable upon exercise of Warrants under the supplemental warrant agreement
is an affiliate of the formed, surviving or transferee corporation, that issuer
shall join in the supplemental warrant agreement. The above provisions of this
paragraph (b) shall similarly apply to successive reclassifications and changes
of shares of Common Stock and to successive consolidations, mergers, sales or
conveyances.
In case of any such reclassification, merger, consolidation or
disposition of assets, the successor or acquiring corporation (if other than
the Company) shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all the obligations and liabilities
hereunder, subject to such modifications as may be deemed appropriate (as
determined by resolution of the Board of Directors of the Company) in order to
provide for adjustments of shares of the Common Stock for which this Warrant is
exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 4. The foregoing provisions of this
Section 4(b) shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
(c) ISSUANCE OF COMMON STOCK, OPTIONS OR CONVERTIBLE
SECURITIES. For the purposes of this Warrant, "ADDITIONAL SHARES OF COMMON
STOCK" shall mean all shares of Common Stock issued or deemed to be issued by
the Company after the Effective Date, other than Excluded Shares (as defined
below).
In the event the Company shall, at any time or from time to time after
the Effective Date, issue, sell, distribute or otherwise grant in any manner
(including by assumption) shares of Common Stock or any rights to subscribe for
or to purchase, or any warrants or options for the purchase of, Common Stock or
any stock or securities convertible into or exchangeable for Common Stock (any
such rights, warrants or options being herein called "OPTIONS" and any such
convertible or exchangeable stock or securities being herein called
"CONVERTIBLE SECURITIES") or any Convertible Securities (other than upon
exercise of any Option), whether or not such Options or the rights to convert
or exchange such Convertible Securities are immediately exercisable, then the
maximum number of shares of Common Stock (as set forth in the instrument
relating thereto without regard
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<PAGE> 5
to any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise and/or conversion of such Options or Convertible
Securities, shall be deemed to be Additional Shares of Common Stock.
For purposes of this Warrant Agreement, the term "ISSUANCE DATE" shall
mean (i) with respect to Additional Shares of Common Stock deemed to have been
issued in connection with the issuance of an Option or Convertible Security,
the date such Option or Convertible Security is issued and (ii) in all other
cases, the actual date Additional Shares of Common Stock are issued.
For the purposes of this Warrant Agreement, "EXCLUDED SHARES" shall
mean: (i) shares for which the consideration per share as determined pursuant
to paragraph (d) below would be equal to or more than the Current Market Value
determined on the day prior to the Issuance Date; (ii) shares of Common Stock
issuable upon the exercise of Options or conversion of Convertible Securities
existing as of the Effective Date; and (iii) shares of Common Stock
(appropriately adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes) issued pursuant to any
stock options granted or obtained after the Effective Date pursuant to the
Company's Stock Option Plan adopted July 26, 1994, as may be amended from time
to time by the Company's Board of Directors. The issuance of Excluded Shares
shall not be an issuance of Additional Shares of Common Stock, and shall not
give rise to a right to purchase the securities pursuant to paragraph (d)
below.
In any such case in which the Additional Shares of Common Stock are
deemed to be issued, no right to purchase securities under Section 4(d) below
will accrue upon the subsequent issue of shares of Common Stock upon the
exercise and/or conversion or exchange of such Option or Convertible Security
unless such Option or Convertible Security shall have been amended or modified
prior to exercise or conversion or exchange so as to increase the number of
Additional Shares of Common Stock deemed to have been issued thereunder or
decrease the exercise and/or conversion or exchange price payable thereunder to
an amount less than Current Market Value as of the Issuance Date thereof.
(d) If the price per share at which Common Stock is
issued or Common Stock is issuable upon the exercise of such Options or upon
the conversion or exchange of such Convertible Securities (determined by
dividing (i) the aggregate amount, if any, received or receivable by the
Company as consideration for the issuance, sale, distribution or granting of
such Common Stock or Options or any such Convertible Security, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the issuance of Common Stock or the exercise of all such Options or upon
conversion or exchange of all such Convertible Securities, plus, in the case of
Options to acquire Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the conversion or exchange of
all such Convertible Securities, by (ii) the total maximum number of shares of
Common Stock to be issued or issuable upon the exercise of all such Options or
upon the conversion or exchange of all such Convertible Securities or upon the
conversion or exchange of all Convertible Securities issuable upon the exercise
of all Options) shall be less than the Current Market Value per share of Common
Stock (determined
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<PAGE> 6
pursuant to Section 4(e)) on the record date for the issuance, sale,
distribution or granting of such Options (any such event being herein called a
"DISTRIBUTION") then, the Company shall offer to sell to each holder of
Warrants, at the same price and on the same terms offered to all other
prospective buyers (provided that the holders of Warrants shall not be required
to buy any other securities in order to buy such Common Stock or Convertible
Securities), a portion of such Common Stock or Convertible Securities that is
equal to such holder's portion of the Common Stock then outstanding if
immediately prior thereto all the Warrants had been exercised. Each such
holder may elect to buy all or any portion of the Common Stock or Convertible
Securities offered or may decline to purchase any such securities.
(e) CURRENT MARKET VALUE. As used herein, the term
"CURRENT MARKET VALUE" per share of Common Stock or any other security at any
date means, on any date of determination (a) the average of the daily closing
sale prices for each of 15 business days immediately preceding such date (or
such shorter number of days during which such security has been listed or
traded), if the security has been listed on the New York Stock Exchange, the
American Stock Exchange or other national securities exchanges or the NASDAQ
National Market for at least 10 business days prior to such date, (b) if such
security is not so listed or traded, the average of the daily closing bid
prices for each of the 15 business days immediately preceding such date (or
such shorter number of days during which such security had been quoted), if the
security has been quoted on a national over-the-counter market for at least 10
business days, and (c) otherwise, the value of the security most recently
determined as of a date within the six months preceding such day by the
Company's Board of Directors.
(f) CONSIDERATION RECEIVED. If any shares of Common
Stock, Options or Convertible Securities shall be issued, sold or distributed
for a consideration other than cash, the amount of the consideration other than
cash received by the Company in respect thereof shall be deemed to be the then
fair market value of such consideration (as determined in good faith by the
Board of Directors of the Company). If any Options shall be issued in
connection with the issuance and sale of other securities of the Company,
together comprising one integral transaction in which no specific consideration
is allocated to such Options by the parties thereto, such Options shall be
deemed to have been issued without consideration; provided, however, that if
such Options have an exercise price equal to or greater than the Current Market
Value of the Common Stock on the date of issuance of such Options, then such
Options shall be deemed to have been issued for consideration equal to such
exercise price.
(g) CHANGES IN OPTIONS AND CONVERTIBLE SECURITIES. If
the exercise price provided for in any Options referred to in Section 4(f)
above, the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in Section 4(d) above, or
the rate at which any Convertible Securities referred to in Section 4(d) above
are convertible into or exchangeable for Common Stock shall change at any time
to a price which is less than the Current Market Value thereof as of the
Issuance Date, then the Company shall make the offer to holders of the Warrants
as required by Section 4(d) above.
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<PAGE> 7
(h) OTHER ACTION AFFECTING COMMON STOCK. In case at any
time or from time to time the Company shall take any action in respect of its
Common Stock, other than any action described in this Section 4, then the
number of Shares for which this Warrant is exercisable shall be adjusted in
such manner as may be equitable in the circumstances. If the Company shall at
any time and from time to time issue or sell (i) any shares of any class of
common stock other than Common Stock, (ii) any evidences of its indebtedness,
shares of stock or other securities which are convertible into or exchangeable
for such shares of common stock, with or without the payment of additional
consideration in cash or property or (iii) any warrants or other rights to
subscribe for or purchase any such shares of common stock or any such
evidences, shares of stock or other securities, then in each such case such
issuance shall be deemed to be of, or in respect of, Common Stock for purposes
of this Section 4; provided, however, that, without limiting the generality of
the foregoing, if the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend payable in, or
other distribution of, common stock other than Common Stock, including shares
of non-voting common stock, then the number of Warrant Shares for which this
Warrant is exercisable immediately after the occurrence of any such event shall
be adjusted to equal the aggregate number of shares of such common stock and of
Common Stock which a record holder of the same number of Warrant Shares for
which this Warrant is exercisable immediately prior to the occurrence of such
event would own or be entitled to receive after the happening of such event.
(i) FRACTIONAL INTEREST. The Company shall not be
required to issue fractional shares of Common Stock on the exercise of this
Warrant. If any fraction of a share of Common Stock would, except for the
provisions of this Section, be issuable on the exercise of any Warrant (or
specified portion thereof), the Company shall direct the transfer agent for the
Common Stock to pay an amount in cash calculated by the Company to equal the
then Current Market Value per share (determined pursuant to Section 4(e))
multiplied by such fraction computed to the nearest whole cent. The Investor
hereby expressly waives any and all rights to receive any fraction of a share
of Common Stock or a stock certificate representing a fraction of a share of
Common Stock.
(j) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase rights
and shall, thereafter and before the distribution to stockholders thereof,
legally abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be
required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(k) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the
Board of Directors of the Company shall be required to make a determination in
good faith of the fair value of any item under this Section 4, such
determination may be challenged in good faith by the holder hereof, and any
dispute shall be resolved by an investment banking firm of national standing
selected by the Company. The fee of such investment banking firm shall be paid
by the Company, unless such fair market value as determined by the investment
banking firm is more than 95% of the fair market value determined by the Board
of Directors of the Company, in which case the challenging holders shall be
jointly and severally liable for such fee.
-7-
<PAGE> 8
(l) TREASURY STOCK. The sale or other disposition of any
issued shares of Common Stock owned or held by or for the account of the
Company shall be deemed an issuance thereof and a repurchase thereof and
designation of such shares as treasury stock shall be deemed to be a redemption
thereof for the purposes of this Agreement.
(m) NOTICES TO WARRANT HOLDERS. Upon the occurrence of
any event which requires any adjustment of the Exercise Price, then, and in
each such case, the Company shall give notice thereof to the holder of this
Warrant, which notice shall state the Exercise Price resulting from such
adjustment and the increase or decrease in the number of Warrant Shares
purchasable at such price upon exercise, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based. Such
calculation shall be certified by the chief financial officer of the Company.
5. ISSUE TAX. The issuance of certificates for Warrant Shares
upon the exercise of this Warrant shall be made without charge to the holder of
this Warrant or such shares for any issuance tax or other costs in respect
thereof, provided that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any certificate in a name other than the holder of this Warrant.
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the Exercise Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
7. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
(a) RESTRICTION ON TRANSFER. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Section 7(e) below, provided, however, that any transfer or assignment shall be
subject to the conditions set forth in Section 7(f) hereof and to the
applicable provisions of the Amended and Restated Shareholders Agreement (as
defined in the Stock Purchase Agreement). Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary.
Notwithstanding anything to the contrary contained herein, the registration
rights described in Section 8 are assignable only in accordance with the
provisions of that certain Registration Rights Agreement, dated as of July 17,
1997, by and among the Company and the other signatories thereto (the
"REGISTRATION RIGHTS AGREEMENT").
-8-
<PAGE> 9
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS.
This Warrant is exchangeable, upon the surrender hereof by the holder hereof at
the office or agency of the Company referred to in Section 7(e) below, for new
Warrants of like tenor of different denominations representing in the aggregate
the right to purchase the number of shares of Common Stock which may be
purchased hereunder, each of such new Warrants to represent the right to
purchase such number of shares as shall be designated by the holder hereof at
the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the
surrender of this Warrant in connection with any transfer, exchange, or
replacement as provided in this Section 7, this Warrant shall be promptly
canceled by the Company. The Company shall pay all taxes (other than
securities transfer taxes) and all other expenses (other than legal expenses,
if any, incurred by the Holder or transferees) and charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant
to this Section 7.
(e) WARRANT REGISTER. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as
it may designate by notice to the holder hereof), a register for this Warrant,
in which the Company shall record the name and address of the person in whose
name this Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at
the time of the surrender of this Warrant in connection with any exercise,
transfer, or exchange of this Warrant, this Warrant (or, in the case of any
exercise, the Warrant Shares issuable hereunder), shall not be registered under
the Securities Act and under applicable state securities or blue sky laws, the
Company may require, as a condition of allowing such exercise, transfer, or
exchange, (i) that the holder or transferee of this Warrant, as the case may
be, furnish to the Company a written opinion of counsel (which opinion and
counsel shall be reasonably acceptable to the Company, and, in the case of a
transfer to an affiliate of such holder, the cost of which shall be borne by
the Company) to the effect that such exercise, transfer, or exchange may be
made without registration under the Securities Act and under applicable state
securities or blue sky laws, (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance acceptable to
the Company and (iii) that the transferee be an "ACCREDITED INVESTOR" as
defined in Rule 501(a) promulgated under the Securities Act; provided that no
such opinion, letter, status as an "accredited investor" or minimum Market
Price shall be required in connection with a transfer pursuant to Rule 144
under the Securities Act.
-9-
<PAGE> 10
8. REGISTRATION RIGHTS. The initial holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in the Registration
Rights Agreement.
9. NOTICES. Any notices required or permitted to be given under
the terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company: Packaged Ice, Inc.
Attention: Chief Executive Officer
8572 Katy Freeway, Suite 101
Houston, Texas 77024
with copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1500 NationsBank Plaza
300 Convent Street
San Antonio, TX 78205
Attn: Alan Schoenbaum, P.C.
and if to the holder, at such address as such holder shall have provided in
writing to the Company, or at such other address as each such party furnishes
by notice given in accordance with this Section 9.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO THE BODY OF LAW CONTROLLING CONFLICTS OF LAW. THE
UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK CITY SHALL HAVE EXCLUSIVE
JURISDICTION WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS WARRANT.
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof
may only be amended by an instrument in writing signed by the Company and the
holder hereof.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of
the several Sections of this Warrant are inserted for purposes of reference
only, and shall not affect the meaning or construction of any of the provisions
hereof.
-10-
<PAGE> 11
(c) CASHLESS EXERCISE. Notwithstanding anything to the
contrary contained in this Warrant, this Warrant may be exercised at any time
by presentation and surrender of this Warrant to the Company at its principal
executive offices with a written notice of the holder's intention to effect a
cashless exercise, including a calculation of the number of shares of Common
Stock to be issued upon such exercise in accordance with the terms hereof (a
"CASHLESS EXERCISE"). In the event of a Cashless Exercise, in lieu of paying
the Exercise Price in cash, the holder shall surrender this Warrant in exchange
for that number of shares of Common Stock determined by multiplying the number
of Warrant Shares to which it would otherwise be entitled by a fraction, the
numerator of which shall be the difference between the then Current Market
Value per share of the Common Stock and the Exercise Price, and the denominator
of which shall be the then Current Market Value per share of Common Stock.
SIGNATURE PAGE FOLLOWS
-11-
<PAGE> 12
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
PACKAGED ICE, INC.
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
<PAGE> 13
FORM OF EXERCISE AGREEMENT
(TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE WARRANT)
The undersigned hereby irrevocably exercises the right to purchase
_____________ of the shares of Common Stock of Packaged Ice, Inc., a Texas
corporation (the "COMPANY"), evidenced by the attached Warrant, and herewith
makes payment of the Exercise Price with respect to such shares in full, all in
accordance with the conditions and provisions of said Warrant.
i. The undersigned agrees not to offer, sell, transfer or
otherwise dispose of any Common Stock obtained on exercise of the Warrant,
except under circumstances that will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws, and agrees
that the following legend may be affixed to the stock certificate for the
Common Stock hereby subscribed for if resale of such Common Stock is not
registered or if Rule 144(k) is unavailable:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR
AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144(K) UNDER
SAID ACT.
ii. The undersigned requests that stock certificates for such
shares be issued, and a Warrant representing any unexercised portion hereof be
issued, pursuant to the Warrant in the name of the Holder and delivered to the
undersigned at the address set forth below:
Dated:
---------------- ------------------------------------
Signature of Holder
------------------------------------
Name of Holder (Print)
Address:
------------------------------------
------------------------------------
------------------------------------
<PAGE> 14
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
<TABLE>
<CAPTION>
Name of Assignee Address No of Shares
- ---------------- ------- ------------
<S> <C> <C>
</TABLE>
, and hereby irrevocably constitutes and appoints _____________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated:
-----------------------,----------,
In the presence of
- ------------------------------
Name:
--------------------------------------
Signature:
---------------------------------
Title of Signing Officer or Agent (if any):
-------------------------------------------
Address:
---------------------------------
---------------------------------
Note: The above signature should
correspond exactly with the name
on the face of the within Warrant.
<PAGE> 1
EXHIBIT 10.40
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is entered into on July 17,
1997 by and among shareholders (the "Shareholders") of PACKAGED ICE, INC., A
TEXAS CORPORATION (the "Company"), SV CAPITAL PARTNERS, L.P., (the "Investor")
and certain shareholders of the Company listed on the last page of this
Agreement (individually, a "Shareholder," and collectively, the
"Shareholders").
W I T N E S S E T H:
WHEREAS, the Investor has acquired a total of 300,000 shares of
Common Stock (the "Shares") of the Company and a Warrant to purchase 100,000
shares of Common Stock; and
WHEREAS, there is a continuing desire on behalf of the Shareholders
to agree to elect one representative of the Investor to the Board of Directors.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained, and other good and valuable consideration, the
Shareholders hereby agree as follows:
1. OWNERSHIP OF SHARES. Each Shareholder represents and warrants
to the Investor that, on the date hereof, he beneficially owns and is the
registered holder of the number of shares of common stock, $.01 par value per
share, of the Company ("Common Stock") and Series A Convertible Preferred Stock
("Series A Preferred Stock") and Series B Convertible Preferred Stock ("Series
B Preferred Stock") set forth on the counterpart signature page executed by
such Shareholder. All of such shares of Common Stock, Series A Preferred
Stock, Series B Preferred Stock and any additional shares of Common Stock,
Series A Preferred Stock or Series B Preferred Stock hereinafter acquired by
the Shareholders (including, without limitation, any shares of stock issued in
connection with a conversion of Series A Preferred Stock, Series B Preferred
Stock, stock split, stock dividend or recapitalization of the Company) are
collectively referred to herein as the "Shares."
2. INSPECTION OF AGREEMENT. A counterpart of this Agreement
shall be deposited with the Company at its principal offices, and shall be open
to inspection by any shareholder of the Company, in person or by agent or
attorney, to the same extent as such shareholder would be entitled to examine
the books and records of the Company under Article 2.44 of the Texas Business
Corporation Act or other applicable law.
3. STOCK CERTIFICATES. Each new certificate representing the
Shares, and each certificate that may be issued and delivered upon transfer of
such Shares, shall contain the following legend:
"The shares evidenced by this certificate are subject to the
provisions of the Voting Agreement dated July 17, 1997, a counterpart
of which has been deposited with the Company at its principal office."
<PAGE> 2
4. ELECTION OF DIRECTORS. At each annual meeting of the
shareholders of the Company, or at each special meeting of the shareholders of
the Company involving the election of directors of the Company, and at any
other time at which shareholders of the Company will have the right to or will
vote for or render consent in writing regarding the election of directors of
the Company, then and in each event, the Shareholders hereby covenant and agree
to vote all shares of capital stock of the Company presently owned or hereafter
acquired by them (whether owned of record or over which any person exercises
voting control) to cause and maintain the election to the Board of Directors of
the Company one representative designated by the Investor, who shall initially
be Rod Sands.
The rights of the Investor to designate a representative to be elected
to the Board of Directors shall terminate in the event the Investor
collectively shall own less than 50% of the Shares which Investor owned as of
the date hereof, adjusted for stock dividends, stock splits, reverse stock
splits, reorganizations, recapitalizations and the like.
Each of the parties hereto shall vote or cause to be voted all shares
owned by them or over which they have voting control (i) to remove from the
Board of Directors any director designated by the Investor at the request of
the Investor (by majority vote of the shares held by the persons making up the
Investor), and (ii) to fill any vacancy in the membership of the Board of
Directors with a designee of the Investor whose designee's resignation or
removal from the Board caused such vacancy.
The Company shall provide to the Investor prior written notice of any
intended mailing of notice to shareholders for a meeting at which directors are
to be elected, the Investor shall notify the Company in writing, prior to such
mailing, of the person(s) designated by it or them as its or their nominee(s)
for election as director.
If the Investor fails to give notice to the Company as provided above,
it shall be deemed that the Investor's designee then serving as director shall
be its designee for reelection.
5. TERM. The term of this Agreement shall commence on the date
hereof and shall continue until the earlier of (i) the written agreement,
executed by the Investor and the holders of not less than eighty percent (80%)
of the Shares held by Shareholders other than the Investor, to terminate this
Agreement; (ii) the written agreement of the Investor to terminate this
Agreement, (iii) the completion by the Company of a firmly underwritten
initial public offering of the Company's Common Stock pursuant to the
Securities Act of 1933, as amended, resulting in aggregate net proceeds to the
Company and shareholders of $7,500,000 or more; or (iv) the merger or
consolidation of the Company with or into another entity which results in the
shareholders of the Company holding less than 50% of the voting securities of
the surviving entity, or the sale of all or substantially all of the Company's
assets.
6. SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, legal
representatives and assigns (including each
2
<PAGE> 3
transferee of any party's Common Stock, Series A Preferred Stock and Series B
Preferred Stock); provided, however, no transferee of Common Stock in a public
offering registered under the Securities Act of 1933 or in an unsolicited open
market sale effected through a securities broker shall be bound by or entitled
to the benefits of this Agreement. As used in this Agreement, the term
"Shareholder" shall include any transferee of such a person, as appropriate,
who is bound by and entitled to the benefits of this Agreement under the
preceding sentence.
7. ENFORCEABILITY. The Shareholders and the Investor jointly and
severally agree that upon deposit of a counterpart of this Agreement at the
principal office of the Company as provided above, this Agreement shall be
specifically enforceable by the Investor in a court of competent jurisdiction,
which remedy shall be in addition to and not exclusive of any other remedies
that may be available to them at law or in equity.
8. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
9. AMENDMENT. This Agreement may be amended, and any provision
hereof may be waived, only by a written agreement executed by the Investor and
the holders of 80% of the total Shares held by the Shareholders other than the
Investor.
10. ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement and understanding of the parties with respect to the subject matter
hereof.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
instrument. A facsimile of an executed Agreement shall be deemed to be an
original, executed counterpart.
SIGNATURE PAGE FOLLOWS
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
The Company: PACKAGED ICE, INC.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
The Investor: SV CAPITAL PARTNERS, L.P.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
SIGNATURE PAGE FOLLOWS
4
<PAGE> 5
SHAREHOLDER COUNTERPART SIGNATURE PAGE
- --------------------------------------------------------
Name of Shareholder if Entity/Signature if Individual
By
------------------------------------------------------
Title:
--------------------------------------------------
- --------------------------------------------------------
Please type or print name
Number of Shares of Common Stock:
------------
Number of Shares of Series A or Series B Convertible Preferred Stock:
----------
5
<PAGE> 1
EXHIBIT 10.41
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of July 17, 1997, among PACKAGED ICE, INC., a Texas corporation (the
"Company"), SV CAPITAL PARTNERS, L.P. (the "Investor").
This Agreement is entered into in connection with a Stock Purchase
Agreement among the parties dated July 17, 1997 (the "Stock Purchase
Agreement") pursuant to which the Company issued 300,000 shares of its Common
Stock ("Purchased Shares") and a warrant to purchase and additional 100,000
shares at an exercise price of $14 per share ("Warrants").
In consideration of the foregoing, the parties hereto agree as follows:
Section 1. Definitions. As used in this Agreement, the following
defined terms shall have the following meanings:
"Advice" has the meaning ascribed to such term in the last
paragraph of Section 3 hereof.
"Business Day" shall mean a day that is not a Legal Holiday.
"Common Stock" shall mean the shares of common stock, par value
$.01 per share, of the Company.
"Demand Registration" has the meaning ascribed to such term in
Section 2.1(a) hereof.
"Demand Right Holders" means persons with "demand" registration
rights pursuant to a contractual commitment of the Company.
"DTC" has the meaning ascribed to such term in Section 3(i)
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time and the rules and regulations of the SEC
promulgated thereunder.
"Holder" means Investor, for so long as it owns any of the
Registrable Securities, and each of its successors, assigns and direct
and indirect transferees who become registered owners of such
Registrable Securities.
"Included Securities" has the meaning ascribed to such term in
Section 2.1(a) hereof.
"Indemnified Party" has the meaning ascribed to such term in
Section 4(c) hereof.
"Indemnifying Party" has the meaning ascribed to such term in
Section 4(c) hereof.
1
<PAGE> 2
"Inspectors" has the meaning ascribed to such term in Section
3(n) hereof.
"Investor" has the meaning ascribed to that term in the preamble
of this Agreement.
"Legal Holiday" shall mean a Saturday, a Sunday or a day on which
banking institutions in New York, New York are required by law,
regulation or executive order to remain closed.
"Person" shall mean an individual, partnership, corporation,
trust or unincorporated organization, or a government or agency or
political subdivision thereof.
"Piggy-Back Registration" has the meaning ascribed to such term
in Section 2.2 hereof.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to
completion and a prospectus that includes any information previously
omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities
Act), as amended or supplemented by any prospectus supplement, and all
other amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by reference or
deemed to be incorporated by reference in such Prospectus.
"Public Equity Offering" means an underwritten offer and sale of
capital stock of the Company pursuant to a registration statement that
has been declared effective by the Commission pursuant to the Securities
Act (other than a registration statement on Form S-8 or otherwise
relating to equity securities issuable under any employee benefit plan
of the Company).
"Purchased Shares" has the meaning ascribed to such term in the
preamble of this Agreement.
"Registrable Securities" means any of (i) the Purchased Shares,
(ii) the Warrant Shares (whether or not the related Warrants have been
exercised) and (iii) any other securities issued or issuable with
respect to any Warrant Shares or Purchased Shares by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or
otherwise. As to any particular Registrable Securities, such securities
shall cease to be Registrable Securities when (i) a Registration
Statement with respect to the offering of such securities by the Holder
thereof shall have been declared effective under the Securities Act and
such securities shall have been disposed of by such Holder pursuant to
such Registration Statement, (ii) such securities are eligible for sale
to the public pursuant to Rule 144(k) (or any similar provision then in
force, but not Rule 144A) promulgated under the Securities Act, (iii)
such securities shall have been otherwise transferred by such Holder and
new certificates for such securities not bearing a legend restricting
further transfer shall have been delivered by the Company or its
transfer agent and subsequent disposition of such securities shall not
require registration or qualification under the Securities Act or any
similar state law then in force or (iv) such securities shall have
ceased to be outstanding.
2
<PAGE> 3
"Registration Expenses" shall mean all expenses incident to the
Company's performance of or compliance with its obligations, under this
Agreement, including, without limitation, all SEC and stock exchange or
National Association of Securities Dealers, Inc. registration and filing
fees and expenses, fees and expenses of compliance with securities or
blue sky laws (including, without limitation, reasonable fees and
disbursements of counsel for the underwriters in connection with blue
sky qualifications of the Registrable Securities), preparing, printing,
filing, duplicating and distributing the Registration Statement and the
related Prospectus, the cost of printing stock certificates, the cost
and charges of any transfer agent, rating agency fees, printing
expenses, messenger, telephone and delivery expenses, fees and
disbursements of counsel for the Company and all independent certified
public accountants, the fees and disbursements of underwriters
customarily paid by issuers or sellers of securities (but not including
any underwriting discounts or commissions or transfer taxes, if any,
attributable to the sale of Registrable Securities by Selling Holders),
fees and expenses of one counsel for the Holders and other reasonable
out-of-pocket expenses of the Holders.
"Registration Statement" shall mean any appropriate registration
statement of the Company filed with the SEC pursuant to the Securities
Act which covers any of the Registrable Securities pursuant to the
provisions of this Agreement and all amendments and supplements to any
such Registration Statement, including post-effective amendments, in
each case including the Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.
"Requisite Securities" shall mean a number of Registrable
Securities equal to not less than 25% of the Registrable Securities held
in the aggregate by all Holders.
"Rule 144" shall mean Rule 144 promulgated under the Securities
Act, as such Rule may be amended from time to time, or any similar rule
(other than Rule 144A) or regulation hereafter adopted by the SEC
providing for offers and sales of securities made in compliance
therewith resulting in offers and sales by subsequent holders that are
not affiliates of an issuer of such securities being free of the
registration and prospectus delivery requirements of the Securities Act.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time and the rules and regulations of the SEC
promulgated thereunder.
"Selling Holder" shall mean a Holder who is selling Registrable
Securities in accordance with the provisions of Section 2.1 or 2.2
hereof.
"Warrants" has the meaning ascribed to such term in the preamble
of this Agreement.
"Warrant Shares" means the shares of Common Stock deliverable
upon exercise of the Warrants.
3
<PAGE> 4
"Withdrawal Election" has the meaning ascribed to such term in
Section 2.2(b) hereof.
Section 2. Registration Rights.
2.1 (a) Demand Registration. From time to time, after 180
days following the completion by the Company of a Public Equity Offering,
Holders owning, individually or in the aggregate, not less than the Requisite
Securities may make a written request for registration under the Securities Act
of their Registrable Securities (a "Demand Registration"). Within 120 days of
the receipt of such written request for a Demand Registration, the Company
shall file with the SEC and use its best efforts to cause to become effective
under the Securities Act a Registration Statement with respect to such
Registrable Securities. Any such request will specify the number of
Registrable Securities proposed to be sold and will also specify the intended
method of disposition thereof. The Company shall give written notice of such
registration request to all other Holders of Registrable Securities within 15
days after the receipt thereof. Within 20 days after notice of such
registration request by the Company, any Holder may request in writing that
such Holder's Registrable Securities be included in such Registration Statement
and the Company shall include in such Registration Statement the Registrable
Securities of any such Holder requested to be so included (the "Included
Securities"). Each such request by such other Holders shall specify the number
of Included Securities proposed to be sold and the intended method of
disposition thereof. Subject to Section 2.1(b) hereof, the Company shall be
required to register Registrable Securities pursuant to this Section 2.1(a) on
a maximum of two separate occasions.
Subject to Section 2.1(f) hereof, no other securities of the
Company except securities held by any Holder, any Demand Right Holder, and any
Person entitled to exercise "piggy back" registration rights pursuant to
contractual commitments of the Company shall be included in a Demand
Registration.
(b) Effective Registration. A Registration Statement will not
be deemed to have been effected as a Demand Registration unless it has been
declared effective by the SEC and the Company has complied in a timely manner
and in all material respects with all of its obligations under this Agreement
with respect thereto; provided, however, that if, after such Registration
Statement has become effective, the offering of Registrable Securities pursuant
to such Registration Statement is or becomes the subject of any stop order,
injunction or other order or requirement of the SEC or any other governmental
or administrative agency or court that prevents, restrains or otherwise limits
the sale of Registrable Securities pursuant to such Registration Statement for
any reason not attributable to any Holder participating in such registration
and such Registration Statement has not become effective within a reasonable
time period thereafter (not to exceed 60 days), such Registration Statement
will be deemed not to have been effected. If (i) a registration requested
pursuant to this Section 2.1 is deemed not to have been effected or (ii) a
Demand Registration does not remain effective under the Securities Act until at
least the earlier of (A) an aggregate of 90 days after the effective date
thereof or (B) the consummation of the distribution by the Holders of all of
the Registrable Securities covered thereby, then the Company shall continue to
be obligated to effect an additional Demand Registration pursuant to this
Section 2.1 provided, that a Demand Registration
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shall not be counted as such unless the Selling Holders have sold at least 80%
of the Registrable Securities covered thereby. For purposes of calculating the
90-day period referred to in the preceding sentence, any period of time during
which such Registration Statement was not in effect shall be excluded. The
Holders of Registrable Securities shall be permitted to withdraw all or any
part of the Registrable Securities from a Demand Registration at any time prior
to the effective date of such Demand Registration.
(c) Restrictions on Sale by Holders. Each Holder of
Registrable Securities whose Registrable Securities are covered by a
Registration Statement filed pursuant to this Section 2.1 and are to be sold
thereunder agrees, if and to the extent reasonably requested by the managing
underwriter or underwriters in an underwritten offering, not to effect any
public sale or distribution of Registrable Securities or of securities of the
Company of the same class as any securities included in such Registration
Statement, including a sale pursuant to Rule 144 (except as part of such
underwritten offering), during the 30-day period prior to, and during the
120-day period beginning on, the closing date of each underwritten offering
made pursuant to such Registration Statement, to the extent timely notified in
writing by the Company or such managing underwriter or underwriters.
The foregoing provisions of Section 2.1(c) shall not apply to any
Holder of Registrable Securities if such Holder is prevented by applicable
statute or regulation from entering into any such agreement; provided, however,
that any such Holder shall undertake, in its request to participate in any such
underwritten offering, not to effect any such public sale or distribution of
Registrable Securities or of securities of the Company of the same class as any
securities included in such Registration Statement, including a sale pursuant
to Rule 144 (except as part of such underwritten offering) during such period,
unless it has provided 45 days' prior written notice of such sale or
distribution to the underwriter or underwriters.
(d) Underwritten Registrations. If any of the Registrable
Securities covered by a Demand Registration are to be sold in an underwritten
offering, the investment banker or investment bankers and manager or managers
that will manage the offering will be selected by the Holders of not less than
a majority of the Registrable Securities then outstanding to be sold thereunder
and will be reasonably acceptable to the Company.
No Holder of Registrable Securities may participate in any
underwritten registration pursuant to a Registration Statement filed under this
Agreement unless such Holder (a) agrees to (i) sell such Holder's Registrable
Securities on the basis provided in and in compliance with any underwriting
arrangements approved by the Holders of not less than a majority of the
Registrable Securities to be sold thereunder and (ii) comply with Rules 10b-6
and 10b-7 under the Exchange Act and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
(e) Expenses. The Company will pay all Registration Expenses
in connection with the registrations requested pursuant to Section 2.1(a)
hereof. Each Holder of Registrable Securities shall pay all underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
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<PAGE> 6
disposition of such Holder's Registrable Securities pursuant to a Registration
Statement requested pursuant to this Section 2.1.
(f) Priority in Demand Registration. In a registration
pursuant to Section 2.1 hereof involving an underwritten offering, if the
managing underwriter or underwriters of such underwritten offering have
informed, in writing, the Company and the Selling Holders who have requested
such Demand Registration or who have sought inclusion therein that in such
underwriter's or underwriters' opinion the total number of securities which the
Selling Holders and any other Person desiring to participate in such
registration intend to include in such offering is such as to adversely affect
the success of such offering, including the price at which such securities can
be sold, then the Company will be required to include in such registration only
the amount of securities which it is so advised should be included in such
registration. In such event securities shall be registered in such
registration in the following order of priority: (i) first, the securities
which have been requested to be included in such registration by the Holders of
Registrable Securities pursuant to this Agreement and the Demand Right Holders
(pro rata based on the amount of securities sought to be registered by such
Persons), (ii) second, provided that no securities sought to be included by the
Holders and the Demand Right Holders have been excluded from such registration,
the securities of other Persons entitled to exercise "piggy-back" registration
rights pursuant to contractual commitments of the Company (pro rata based on
the amount of securities sought to be registered by such Persons) and (iii)
third, securities the Company proposes to register.
2.2 (a) Piggy-Back Registration. If at any time after the
Company has completed a Public Equity Offering, the Company proposes to file a
Registration Statement under the Securities Act with respect to an offering by
the Company for its own account or for the account of any of its
securityholders of any class of its Common Stock in a firmly underwritten
Public Equity Offering (other than (i) a Registration Statement on Form S-4 or
S-8 (or any substitute form that may be adopted by the SEC) or (ii) a
Registration Statement filed in connection with an exchange offer or offering
of securities solely to the Company's existing securityholders), then the
Company shall give written notice of such proposed filing to the Holders of
Registrable Securities as soon as practicable (but in no event fewer than 20
days before the anticipated filing date), and such notice shall offer such
Holders the opportunity to register such number of shares of Registrable
Securities as each such Holder may request in writing within 30 days after
receipt of such written notice from the Company (which request shall specify
the Registrable Securities intended to be disposed of by such Selling Holder (a
"Piggy-Back Registration"). The Company shall use its best efforts to keep
such Piggy-Back Registration continuously effective under the Securities Act
until at least the earlier of (A) an aggregate of 90 days after the effective
date thereof or (B) the consummation of the distribution by the Holders of all
of the Registrable Securities covered thereby. The Company shall use its best
efforts to cause the managing Underwriter or underwriters, if any, of such
proposed offering to permit the Registrable Securities requested to be included
in a Piggy-Back Registration to be included on the same terms and conditions as
any similar securities of the Company or any other securityholder included
therein and to permit the sale or other disposition of such Registrable
Securities in accordance with the intended method of distribution thereof. Any
Selling Holder shall have the right to withdraw its request for inclusion of
its Registrable Securities in any Registration Statement pursuant to this
Section 2.2 by giving written notice to the Company of its request to withdraw.
The Company may withdraw a Piggy-Back Registration at any time prior to the
time it
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<PAGE> 7
becomes effective or the Company may elect to delay the registration; provided,
however, that the Company shall give prompt written notice thereof to
participating Selling Holders. The Company will pay all Registration Expenses
in connection with each registration of Registrable Securities requested
pursuant to this Section 2.2, and each Holder of Registrable Securities shall
pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Securities
pursuant to a Registration Statement effected pursuant to this Section 2.2.
No registration effected under this Section 2.2, and no failure
to effect a registration under this Section 2.2, shall relieve the Company of
its obligation to effect a registration upon the request of Holders of
Registrable Securities pursuant to Section 2.1 hereof, and no failure to effect
a registration under this Section 2.2 and to complete the sale of securities
registered thereunder in connection therewith shall relieve the Company of any
other obligation under this Agreement.
(b) Priority in Piggyback Registration. In a registration
pursuant to Section 2.2 hereof involving an underwritten offering, if the
managing underwriter or underwriters of such underwritten offering have
informed, in writing, the Company and the Selling Holders requesting inclusion
in such offering that in such underwriter's or underwriters' opinion the total
number of securities which the Company, the Selling Holders and any other
Persons desiring to participate in such registration intend to include in such
offering is such as to adversely affect the success of such offering, including
the price at which such securities can be sold, then the Company will be
required to include in such registration only the amount of securities which it
is so advised should be included in such registration. In such event: (x) in
cases initially involving the registration for sale of securities for the
Company's own account, securities shall be registered in such offering in the
following order of priority: (i) first, the securities which the Company
proposes to register, and (ii) second, the securities which have been
requested to be included in such registration by Persons entitled to exercise
"piggy-back" registration rights pursuant to contractual commitments of the
Company (pro rata on the amount of securities sought to be registered by such
Persons); and (y) in cases not initially involving the registration for sale of
securities for the Company's own account, securities shall be registered in
such offering in the following order of priority: (i) first, the securities of
any Person whose exercise of a "demand" registration right pursuant to a
contractual commitment of the Company is the basis for the registration
(provided that if such Person is a Holder of Registrable Securities, as among
Holders of Registrable Securities there shall be no priority and Registrable
Securities sought to be included by Holders of Registrable Securities shall be
included pro rata based on the amount of securities sought to be registered by
such Persons), (ii) second, securities of other persons entitled to exercise
"piggy-back" registration rights pursuant to contractual commitments (pro rata
based on the amount of securities sought to be registered by such persons) and
(iii) third, the securities which the Company proposes to register.
If, as a result of the provisions of this Section 2.2(b), any
Selling Holder shall not be entitled to include all Registrable Securities in a
Piggy-Back Registration that such Selling Holder has requested to be included,
such Selling Holder may elect to withdraw his request to include Registrable
Securities in such registration (a "Withdrawal Election"); provided, however,
that a Withdrawal Election shall be irrevocable and, after making a Withdrawal
Election, a Selling Holder
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<PAGE> 8
shall no longer have any right to include Registrable Securities in the
registration as to which such Withdrawal Election was made.
2.3 Limitations, Conditions and Qualifications to Obligations
Under Registration Covenants. The obligations of the Company set forth in
Sections 2.1 and 2.2 hereof are subject to each of the following limitations,
conditions and qualifications:
(i) Subject to the next sentence of this paragraph, the
Company shall be entitled to postpone, for a reasonable period of time, the
filing or effectiveness of, or suspend the rights of any Holders to make sales
pursuant to, any Registration Statement otherwise required to be prepared,
filed and made and kept effective by it hereunder; provided, however, that the
duration of such postponement or suspension may not exceed the earlier to occur
of (A) 15 days after the cessation of the circumstances described in the next
sentence of this paragraph on which such postponement or suspension is based or
(B) 120 days after the date of the determination of the Board of Directors
referred to in the next sentence, and the duration of any such postponement or
suspension shall be excluded from the calculation of the 90-day period
described in Section 2.1(b) hereof. Such postponement or suspension may only
be effected if the Board of Directors of the Company determines in good faith
that the filing or effectiveness of, or sales pursuant to, such Registration
Statement would materially impede, delay or interfere with any financing, offer
or sale of securities, acquisition, corporate reorganization or other
significant transaction involving the Company or any of its affiliates (whether
or not planned, proposed or authorized prior to an exercise of demand
registration rights hereunder or any other registration rights agreement) or
require disclosure of material information which the Company has a bonafide
business purpose for preserving as confidential. If the Company shall so
postpone the filing or effectiveness of a Registration Statement or so suspend
the rights of Holders to make sales it shall, as promptly as possible, notify
any Selling Holders of such determination, and the Selling Holders shall (y)
have the right, in the case of a postponement of the filing or effectiveness of
a Registration Statement, upon the affirmative vote of the Holders of not less
than a majority of the Registrable Securities to be included in such
Registration Statement, to withdraw the request for registration by giving
written notice to the Company within 10 days after receipt of such notice or
(z) in the case of a suspension of the right to make sales, receive an
extension of the registration period equal to the number of days of the
suspension. Any Demand Registration as to which the withdrawal election
referred to in the preceding sentence has been effected shall not be counted
for purposes of the two Demand Registrations the Company is required to effect
pursuant to Section 2.1 hereof.
(ii) The Company shall not be required by this Agreement to
include securities in a Registration Statement pursuant to Section 2.2 hereof
if (i) in the written opinion of counsel to the Company, addressed to the
Holders and delivered to them, the Holders of such securities seeking
registration would be free to sell all such securities within the current
calendar quarter, without registration, under Rule 144, which opinion may be
based in part upon the representation by such Holders, which representation
shall not be unreasonably withheld, that each such Holder is not an affiliate
of the Company within the meaning of the Securities Act and (ii) all
requirements under the Securities Act for effecting such sales are satisfied at
such time.
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<PAGE> 9
(iii) The Company's obligations shall be subject to the
obligations of the Selling Holders, which the Selling Holders acknowledge, to
furnish all information and materials and to take any and all actions as may be
required under applicable federal and state securities laws and regulations to
permit the Company to comply with all applicable requirements of the SEC and to
obtain any acceleration of the effective date of such Registration Statement.
(iv) The Company shall not be obligated to cause any special
audit to be undertaken in connection with any registration pursuant to this
Agreement unless such audit is requested by the underwriters with respect to
such registration.
2.4 Restrictions on Sale by the Company and Others. The
Company covenants and agrees that it shall not, and that it shall not cause or
permit any of its subsidiaries to, effect any public sale or distribution of
any securities of the same class as any of the Registrable Securities or any
securities convertible into or exchangeable or exercisable for such securities
(or any option or other right for such securities) during the 30-day period
prior to, and during the 90-day period beginning on, the commencement of any
underwritten offering of Registrable Securities pursuant to a Demand
Registration which has been requested pursuant to this Agreement, or a
Piggy-Back Registration.
2.5 Rule 144. The Company covenants that it will file the
reports required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations adopted by the SEC thereunder in a timely
manner and, if at any time the Company is not required to file such reports, it
will, upon the request of any Holder of Registrable Securities, make publicly
available other information so long as necessary to permit sales pursuant to
Rule 144. Upon the request of any Holder of Registrable Securities, the
Company will in a timely manner deliver to such Holder a written statement as
to whether it has complied with such information requirements.
Section 3. Registration Procedures. In connection with the
obligations of the Company with respect to any Registration Statement pursuant
to Sections 2.1 and 2.2 hereof, the Company shall:
(a) Prepare and file with the SEC as soon as practicable each
such Registration Statement (but in any event on or prior to the date of
filing thereof required under this Agreement) and cause each such
Registration Statement to become effective and remain effective as
provided herein; provided, however, that before filing any such
Registration Statement or any Prospectus or any amendments or
supplements thereto (including documents that would be incorporated or
deemed to be incorporated therein by reference, including such documents
filed under the Exchange Act that would be incorporated therein by
reference), the Company shall afford promptly to the Holders of the
Registrable Securities covered by such Registration Statement, their
counsel and the managing underwriter or underwriters, if any, an
opportunity to review copies of all such documents proposed to be filed
a reasonable time prior to the proposed filing thereof. The Company
shall not file any Registration Statement or Prospectus or any
amendments or supplements thereto if the Holders of a majority of the
Registrable Securities covered by such Registration Statement, their
counsel, or the managing underwriter or underwriters, if any, shall
reasonably object in writing unless failure
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<PAGE> 10
to file any such amendment or supplement would involve a violation of
the Securities Act or other applicable law.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to such Registration Statement as may be
necessary to keep such Registration Statement continuously effective for
the time periods prescribed hereby; cause the related Prospectus to be
supplemented by any required prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 (or any similar provisions
then in force) promulgated under the Securities Act; and comply with the
provisions of the Securities Act, the Exchange Act and the rules and
regulations of the SEC promulgated thereunder applicable to it with
respect to the disposition of all securities covered by such
Registration Statement as so amended or such Prospectus as so
supplemented.
(c) Notify the Holders of Registrable Securities, their
counsel and the managing underwriter or underwriters, if any, promptly
(but in any event within two (2) Business Days), and confirm such notice
in writing, (i) when a Prospectus or any prospectus supplement or
post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same
has become effective (including in such notice a written statement that
any Holder may, upon request, obtain, without charge, one conformed copy
of such Registration Statement or post-effective amendment including
financial statements and schedules and exhibits), (ii) of the issuance
by the SEC of any stop order suspending the effectiveness of such
Registration Statement or of any order preventing or suspending the use
of any Prospectus or the initiation or threatening of any proceedings
for that purpose, (iii) if at any time when a prospectus is required by
the Securities Act to be delivered in connection with sales of the
Registrable Securities the representations and warranties of the Company
contained in any agreement (including any underwriting agreement)
contemplated by Section 3(m) below cease to be true and correct in any
material respect, (iv) of the receipt by the Company of any notification
with respect to (A) the suspension of the qualification or exemption
from qualification of the Registration Statement or any of the
Registrable Securities covered thereby for offer or sale in any
jurisdiction, or (B) the initiation of any proceeding for such purpose,
(v) of the happening of any event, the existence of any condition or
information becoming known that requires the making of any change in any
Registration Statement or Prospectus so that, in the case of such
Registration Statement, it will conform in all material respects with
the requirements of the Securities Act and it will not 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 not misleading, and that in the case of any Prospectus, it will
conform in all material respects with the requirements of the Securities
Act and it will not 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 were made, not misleading, and (vi) of the Company's
reasonable determination that a post-effective amendment to such
Registration Statement would be appropriate.
(d) Use every reasonable effort to prevent the issuance of any
order suspending the effectiveness of the Registration Statement or of
any order preventing or suspending the use
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<PAGE> 11
of a Prospectus or suspending the qualification (or exemption from
qualification) of any of the Registrable Securities covered thereby for
sale in any jurisdiction, and, if any such order is issued, to obtain
the withdrawal of any such order at the earliest possible moment.
(e) If requested by the managing underwriter or underwriters,
if any, or the Holders of a majority of the Registrable Securities being
sold in connection with an underwriting offering, (i) promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters, if any, or such
Holders reasonably request to be included therein to comply with
applicable law, (ii) make all required filings of such prospectus
supplement or such post-effective amendment as soon as practicable after
the Company has received notification of the matters to be incorporated
in such prospectus supplement or post-effective amendment, and (iii)
supplement or make amendments to such Registration Statement.
(f) Furnish to each Holder of Registrable Securities who so
requests and to counsel for the Holders of Registrable Securities and
each managing underwriter, if any, without charge, upon request, one
conformed copy of the Registration Statement and each post-effective
amendment thereto, including financial statements and schedules, and of
all documents incorporated or deemed to be incorporated therein by
reference and all exhibits (including exhibits incorporated by
reference).
(g) Deliver to each Holder of Registrable Securities, their
counsel and each underwriter, if any, without charge, as many copies of
each Prospectus and each amendment or supplement thereto as such Persons
may reasonably request; and, subject to the last paragraph of this
Section 3, the Company hereby consents to the use of such Prospectus and
each amendment or supplement thereto by each of the Holders of
Registrable Securities and the underwriter or underwriters or agents, if
any, in connection with the offering and sale of the Registrable
Securities covered by such Prospectus and any amendment or supplement
thereto.
(h) Prior to any offering of Registrable Securities, to
register or qualify, and cooperate with the Holders of such Registrable
Securities, the managing underwriter or underwriters, if any, and their
respective counsel in connection with the registration or qualification
(or exemption from such registration or qualification) of, such
Registrable Securities for offer and sale under the securities or Blue
Sky laws of such jurisdictions within the United States as the managing
underwriter or underwriters reasonably request in writing, or, in the
event of a non-underwritten offering, as the Holders of a majority of
such Registrable Securities may request; provided, however, that where
Registrable Securities are offered other than through an underwritten
offering, the Company agrees to cause its counsel to perform Blue Sky
investigations and file registrations and qualifications required to be
filed pursuant to this Section 3(h); keep each such registration or
qualification (or exemption therefrom) effective during the period the
Registration Statement relating to such Registrable Securities is
required to be kept effective pursuant to this Agreement and do any and
all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the securities covered thereby;
provided, however, that the Company will not be required to (A) qualify
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generally to do business in any jurisdiction where it is not then so
qualified, (B) take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or
(C) become subject to taxation in any jurisdiction where it is not then
so subject.
(i) Cooperate with the Holders of Registrable Securities and
the managing underwriter or underwriters, if any, to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold, which certificates shall not bear any restrictive
legends whatsoever and shall be in a form eligible for deposit with The
Depository Trust Company ("DTC"); and enable such Registrable Securities
to be in such denominations and registered in such names as the managing
underwriter or underwriters, if any, or Holders may reasonably request
at least two business days prior to any sale of Registrable Securities
in a firm commitment underwritten public offering.
(j) Use its best efforts to cause the Registrable Securities
covered by a Registration Statement to be registered with or approved by
such other governmental agencies or authorities within the United States
as may be necessary to enable the seller or sellers thereof or the
underwriter or underwriters, if any, to consummate the disposition of
such Registrable Securities, except as may be required solely as a
consequence of the nature of such selling Holder's business, in which
case the Company will cooperate in all reasonable respects with the
filing of the Registration Statement and the granting of such approvals.
(k) Upon the occurrence of any event contemplated by Section
3(c)(v) or 3(c)(vi) above, as promptly as practicable prepare a
supplement or post-effective amendment to the Registration Statement or
a supplement to the related Prospectus or any document incorporated or
deemed to be 'incorporated therein by reference, and, subject to Section
3(a) hereof, file such with the SEC so that, as thereafter delivered to
the purchasers of Registrable Securities being sold thereunder, such
Prospectus will not contain an untrue statement of a material fact or
omit 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 and will otherwise comply with law.
(1) Prior to the effective date of a Registration Statement,
(i) provide the registrar for the Registrable Securities with
certificates for such securities in a form eligible for deposit with DTC
and (ii) provide a CUSIP number for such securities.
(m) Enter into an underwriting agreement in form, scope and
substance as is customary in underwritten offerings and take all such
other actions as are reasonably requested by the managing underwriter or
underwriters in order to expedite or facilitate the registration or
disposition of such Registrable Securities in any underwritten offering
to be made of the Registrable Securities in accordance with this
Agreement, and in such connection, (i) make such representations and
warranties to, and covenants with, the underwriter or underwriters, with
respect to the business of the Company and the subsidiaries of the
Company, and the Registration Statement, Prospectus and documents, if
any, incorporated or deemed to be incorporated by reference therein, in
each case, in form,
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substance and scope as are customarily made by issuers to underwriters
in underwritten offerings, and confirm the same if and when requested:
(ii) use reasonable efforts to obtain opinions of counsel to the Company
and updates thereof, addressed to the underwriter or underwriters
covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably
requested by underwriters; (iii) use reasonable efforts to obtain "cold
comfort letters and updates thereof from the independent certified
public accountants of the Company (and, if applicable, the subsidiaries
of the Company) and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any business
acquired by the Company for which financial statements and financial
data are, or are required to be, included in the Registration Statement,
addressed to each of the underwriters, such letters to be in customary
form and covering matters of the type customarily covered in "cold
comfort" letters in connection with underwritten offerings and such
other matters as reasonably requested by the managing underwriter or
underwriters and as permitted by the Statement of Auditing Standards No.
72; and (iv) if an underwriting agreement is entered into, the same
shall contain customary indemnification provisions and procedures no
less favorable than those set forth in Section 5 (or such other
provisions and procedures acceptable to Holders of a majority of
Registrable Securities covered by such Registration Statement and the
managing underwriter or underwriters or agents) with respect to all
parties to be indemnified pursuant to said Section. The above shall be
done at each closing under such underwriting agreement, or as and to the
extent required thereunder.
(n) Make available for inspection by a representative of the
Holders of Registrable Securities being sold, any underwriter
participating in any such disposition of Registrable Securities, if any,
and any attorney or accountant retained by such representative of the
Holders or underwriter (collectively, the "Inspectors"), at the offices
where normally kept, during reasonable business hours, all financial and
other records and pertinent corporate documents of the Company and the
subsidiaries of the Company, and cause the officers, directors and
employees of the Company and the subsidiaries of the Company to supply
all information in each case reasonably requested by any such Inspector
in connection with such Registration Statement; provided, however, that
all information shall be kept confidential by such Inspector, except to
the extent that (i) the disclosure of such information is necessary to
avoid or correct a misstatement or omission in the Registration
Statement, (ii) the release of such information is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction, (iii)
disclosure of such information is, in the opinion of counsel for any
Inspector, necessary or advisable in connection with any action, claim,
suit or proceeding, directly or indirectly, involving or potentially
involving such Inspector and arising out of, based upon, relating to or
involving this Agreement or any of the transactions contemplated hereby
or arising hereunder, or (iv) such information has been made generally
available to the public. Each Selling Holder of such Registrable
Securities agrees that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as
the basis for any market transactions in the securities of the Company
or of any of its affiliates unless and until such is generally available
to the public. Each Selling Holder of such Registrable Securities
further agrees that it will, upon learning that disclosure of such
information is sought in a court of competent jurisdiction, give
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prompt notice to the Company and allow the Company to undertake
appropriate action to prevent disclosure of the information deemed
confidential at the Company's sole expense.
(o) Comply with all applicable rules and regulations of the
SEC and make generally available to its securityholders earnings
statements satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder (or any similar rule promulgated under the
Securities Act) no later than forty-five (45) days after the end of any
12-month period (or ninety (90) days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of any
fiscal quarter in which Registrable Securities are sold to an
underwriter or to underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to an underwriter or to
underwriters in such an offering, commencing on the first day of the
first fiscal quarter of the Company after the effective date of the
relevant Registration Statement, which statements shall cover said
12-month periods.
(p) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on each securities
exchange, if any, on which similar securities issued by the Company are
then listed.
(q) Cooperate with the Selling Holders of Registrable
Securities to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not
bearing any restrictive legends and registered in such names as the
Selling Holders may reasonably request at least two business days prior
to the closing of any sale of Registrable Securities.
Each seller of Registrable Securities as to which any
registration is being effected agrees, as a condition to the registration
obligations with respect to such Holder provided herein, to furnish to the
Company such information regarding such seller and the distribution of such
Registrable Securities as the Company may, from time to time, reasonably
request in writing to comply with the Securities Act and other applicable law.
The Company may exclude from such registration the Registrable Securities of
any seller who fails to furnish such information within a reasonable time after
receiving such request. If the identity of a seller of Registrable Securities
is to be disclosed in the Registration Statement, such seller shall be
permitted to include all information regarding such seller as it shall
reasonably request.
Each Holder of Registrable Securities agrees by acquisition of
such Registrable Securities that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(c)(ii),
3(c)(iv), 3(c)(v), or 3(c)(vi) hereof, such Holder will forthwith discontinue
disposition of such Registrable Securities covered by the Registration
Statement or Prospectus until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(k) hereof), or
until it is advised in writing (the "Advice") by the Company that the use of
the applicable Prospectus may be resumed, and has received copies of any
amendments or supplements thereto, and, if so directed by the Company, such
Holder will deliver to the Company all copies, other than permanent file
copies, then in such Holder's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice. In the
event the Company shall give any such notice, the period of time for which a
Registration Statement
14
<PAGE> 15
is required hereunder to be effective shall be extended by the number of days
during such periods from and including the date of the giving of such notice to
and including the date when each seller of Registrable Securities covered by
such Registration Statement shall have received (x) the copies of the
supplemented or amended Prospectus contemplated by Section 3(k) hereof or (y)
the Advice.
Section 4. Indemnification and Contribution. (a) The Company agrees
to indemnify and hold harmless each Holder and each Person, if any, who
controls such Holder within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act, or is under common control with, or is
controlled by, such Holder, from and against any and all losses, claims,
damages and liabilities (including, without limitation, the reasonable legal
fees and other reasonable out-of-pocket expenses actually incurred in
connection with any suit, action or proceeding or any claim asserted), caused
by, arising out of or based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or caused by any omission or alleged omission to state in any such
Prospectus a material fact required to be stated or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except insofar as such losses, claims, damages or liabilities
are caused by any such untrue statement or omission or alleged untrue statement
or omission made in reliance upon and in conformity with information relating
to any Holder furnished to the Company in writing by such Holder expressly for
use therein; provided, however, that the Company will not be liable if such
untrue statement or omission or alleged untrue statement or omission was
contained or made in any preliminary prospectus and corrected in the Prospectus
or any amendment or supplement thereto and the Prospectus does not contain any
other untrue statement or omission or alleged untrue statement or omission of a
material fact that was the subject matter of the related proceeding and any
such loss, liability, claim, damage or expense suffered or incurred by the
Holders resulted from any action, claim or suit by any Person who purchased
Registrable Securities which are the subject thereof from such Holder and it is
established in the related proceeding that such Holder failed to deliver or
provide a copy of the Prospectus (as mended or supplemented) to such Person
with or prior to the confirmation of the sale of such Registrable Securities
sold to such Person if required by applicable law, unless such failure to
deliver or provide a copy of the Prospectus (as amended or supplemented was a
result of noncompliance by the Company with Section 5 of this Agreement.
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
any Registration Statement, and each Person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
to such Holder, but only with reference to information relating to such Holder
furnished to the Company in writing by such Holder expressly for use in any
Registration Statement or any Prospectus (or any amendment or supplement
thereto) or any preliminary prospectus. The liability of any Holder under this
paragraph shall in no event exceed the proceeds received by such Holder from
sales of Registrable Securities giving rise to such obligations.
15
<PAGE> 16
(c) In case any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
either paragraph (a) or (b) above, such Person (the "Indemnified Party") shall
promptly notify the Person against which such indemnity may be sought (the
"Indemnifying Party") in writing and the Indemnifying Party, upon request of
the Indemnified Party, shall retain counsel reasonably satisfactory to the
Indemnified Party to represent the Indemnified Party and any others the
Indemnifying Party may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred of such counsel relating to
such proceeding; provided, however, that the failure to so notify the
Indemnifying Party shall not relieve it of any obligation or liability which it
may have hereunder or otherwise (unless and only to the extent that such
failure directly results in the loss or compromise of any material rights or
defenses by such Indemnifying Party and such Indemnifying Party was not
otherwise aware of such action or claim). In any such proceeding, any
Indemnified Party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
unless (i) the Indemnifying Party and the Indemnified Party shall have mutually
agreed in writing to the contrary, (ii) the Indemnifying Party shall have
failed to retain within a reasonable period of time counsel reasonably
satisfactory to such Indemnified Party or parties or (iii) the named parties to
any such proceeding (including any impleaded parties) include both such
Indemnified Party or parties and the indemnifying parties or an affiliate of
the indemnifying parties or such indemnified parties and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that, unless there exists a
conflict among indemnified parties, the indemnifying parties shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed promptly after receipt of the invoice
therefore as they are incurred. Any such separate firm for the Holders and
such control Persons of the Holders shall be designated in writing by Holders
who sold a majority in interest of Registrable Securities sold by all such
Holders and any such separate firm for the Company, its directors, its officers
and such control Persons of the Company shall be designated in writing by the
Company. The Indemnifying Party shall not be liable for any settlement of any
proceeding effected without its prior written consent, but if settled with such
consent or if there is a final non-appealable judgment for the plaintiff for
which the Indemnified Party is entitled to indemnification pursuant to this
Agreement, the Indemnifying Party agrees to indemnify any Indemnified Party
from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an
Indemnified Party shall have requested an Indemnifying Party to reimburse the
Indemnified Party for reasonable fees and expenses actually incurred by counsel
as contemplated by the third sentence of this paragraph, the Indemnifying Party
agrees that it shall be liable for any settlement of any proceeding effected
without its prior written consent if (i) such settlement is entered into more
than 30 days after receipt by such Indemnifying Party of the aforesaid request
and (ii) such Indemnifying Party shall not have reimbursed the Indemnified
Party in accordance with such request prior to the date of such settlement;
provided, however, that the Indemnifying Party shall not be liable for any
settlement effected without its consent pursuant to this sentence if the
Indemnifying Party is contesting, in good faith, the request for reimbursement.
No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Party is or could have been a
party and indemnity could have been sought
16
<PAGE> 17
hereunder by such Indemnified Party, unless such settlement (1) includes an
unconditional release of such Indemnified Party in form and substance
satisfactory to such Indemnified Party from all liability on Claims that are
the subject matter of such proceeding and (2) does not include any statement as
to an admission of fault, culpability or failure to act by or on behalf of any
Indemnified Party.
(d) If the indemnification provided for in paragraph (a) or
(b) of this Section 4 is unavailable (other than by reason of the exceptions
specifically provided therein) to, or insufficient to hold harmless, an
Indemnified Party in respect of any losses, claims, damages or liabilities
referred to therein, then each Indemnifying Party under such paragraphs, in
lieu of indemnifying such Indemnified Party thereunder and in order to provide
for just and equitable contribution, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages
or liabilities in such proportion as is appropriate to reflect (i) the relative
benefits received by the Company on the one hand and the Holders on the other
hand from the offering of such Registrable Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, not only such
relative benefits but also the relative fault of the Company on the one hand
and the Holders on the other in connection with the statements or omissions (or
alleged statements or omissions) that resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of the Company on the one hand
and the Holders on the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Holders and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, and any other equitable considerations appropriate
in the circumstances.
(e) The parties agree that it would not be just and equitable
if contribution pursuant to this Section 4 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any reasonable legal or other expenses actually incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 4, in no event shall
a Holder be required to contribute any amount in excess of the amount by which
proceeds received by such Holder from sales of Registrable Securities exceeds
the amount of any damages that such Holder has otherwise been required to pay
or has paid by reason of such untrue or alleged untrue statement or omission or
alleged omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(f) The indemnity and contribution agreements contained in
this Section 4 will be in addition to any which the indemnifying parties may
otherwise have to the indemnified parties referred to above.
17
<PAGE> 18
Section 5. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not entered
into nor will the Company on or after the date of this Agreement enter into, or
cause or permit any of its subsidiaries to enter into, any agreement which is
inconsistent with the rights granted to the Holders of Registrable Securities
in this Agreement or otherwise conflicts with the provisions hereof.
(b) Adjustments Affecting Registrable Securities. The Company
shall not, directly or indirectly, take any action with respect to the
Registrable Securities as a class that would adversely affect the ability of
the Holders of Registrable Securities to include such Registrable Securities in
a registration undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given unless the Company has
obtained the prior written consent of Holders of not less than a majority of
the outstanding Registrable Securities; provided, however, that Section 4
hereof and this Section 5(c) may not be amended, modified or supplemented
without the prior written consent of each Holder (including any Person who was
a Holder of Registrable Securities disposed of pursuant to any Registration
Statement). Notwithstanding the foregoing, a waiver or consent to departure
from the provisions hereof with respect to a matter that relates exclusively to
the rights of Holders of Registrable Securities whose securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect, impair, limit or compromise the rights of other Holders of Registrable
Securities may be given by the Holders of not less than a majority of the
Registrable Securities proposed to be sold by such Holders pursuant to such
Registration Statement. In addition, each such amendment, modification,
supplement and waiver must be agreed to in writing by the Company.
(d) Notices. All notices, requests, demands and other
communications hereunder, and each other agreement required to be entered into
pursuant to the terms and conditions of this Agreement, shall be in writing and
shall be delivered by hand, overnight courier, facsimile transmission, or by
United States Mail, and shall be deemed to have been duly given when actually
received, or when mailed, first class postage prepaid, certified mail, return
receipt requested, to the addresses set forth below, or to such other address
as may be designated hereafter by prior written notice from the recipient to
the sender:
If to the Company: Packaged Ice, Inc.
Attention: Chief Executive Officer
8572 Katy Freeway, Suite 101
Houston, Texas 77024
18
<PAGE> 19
With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
Attention: Alan Schoenbaum
300 Convent, Suite 1500
San Antonio, Texas 78205
Facsimile: (210) 224-2035
If to the Investor: SV Capital Partners, L.P.
Attention: Bill Wagner
200 Concord Plaza, Suite 620
San Antonio, Texas 78216
with a copy to: Fulbright & Jaworski, L.L.P.
Attention: Philip Renfro, Esq.
300 Convent, Suite 2200
San Antonio, Texas 78205
Facsimile No.: (210) 270-7205
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties hereto and the Holders; provided, however, that this Agreement shall
not inure to the benefit of or be binding upon a successor or assign of a
Holder unless such successor or assign holds Registrable Securities.
(f) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF TEXAS WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms,
19
<PAGE> 20
provisions, covenants and restrictions without including any of such that may
be hereafter declared invalid, illegal, void or unenforceable.
(j) Third Party Beneficiary. The Holders are intended third
party beneficiaries of this Agreement and this Agreement may be enforced by
such Persons.
(k) Entire Agreement. The Stock Purchase Agreement, the
Warrant Agreement and this Agreement, collectively are intended by the parties
as a final expression of their agreement, and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. This Agreement,
the Warrant Agreement and the Stock Purchase Agreement supersede all prior
agreements and understandings between the parties with respect to such subject
matter.
(l) Securities Held by the Company or Its Affiliates.
Whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by
the Company or by any of its affiliates (as such term is defined in Rule 405
under the Securities Act) shall not be counted in determining whether such
consent or approval was given by the holders of such required percentage.
20
<PAGE> 21
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PACKAGED ICE, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
SV CAPITAL PARTNERS, L.P.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 1
EXHIBIT 10.42
PARALLEL EXIT AGREEMENT
THIS PARALLEL EXIT AGREEMENT is made and entered into effective the
17th day of July, 1997, by and among PACKAGED ICE, INC., a Texas corporation
(the "Company"), JAMES F. STUART ("Stuart"), A.J. LEWIS III ("Lewis") and
STEVEN P. ROSENBERG ("Rosenberg") and SV Capital Partners, L.P. (the
"Investor").
WHEREAS, the parties hereto are desirous of setting forth certain
matters with respect to the transfer of their common stock in the Company (the
"Common Stock").
NOW, THEREFORE, for and in consideration of the premises, and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following defined
terms shall have the meanings as set forth hereinbelow:
"Adjusted Pro Rata Share" shall mean a fraction, the numerator
of which is the number of Fully-Diluted Shares held by a shareholder
participating in a Subject Sale, and the denominator of which is the total
number of Fully- Diluted Shares held by all shareholders participating in a
Subject Sale, excluding the number of Fully-Diluted Shares held by each of the
participating shareholders who elect not to sell their entire Pro Rata Share in
a Subject Sale.
"Common Stock" shall mean the Company's $.01 par value common
stock.
"Fully-Diluted Shares" shall mean the Company's outstanding
Common Stock, after giving effect to all outstanding warrants, options, rights,
stock-splits, adjustments, convertible securities, and the like.
"Insider Shareholders" shall mean Stuart, Lewis and
Rosenberg.
"Investor" shall mean SV Capital Partners, L.P.
"Pro Rata Share" shall mean a fraction, the numerator of which
is the number of Fully-Diluted Shares held by a shareholder participating in a
Subject Sale, and the denominator of which is the total number of Fully-Diluted
Shares held by all shareholders participating in a Subject Sale.
"Subject Sale" shall mean any sale or disposition for value of
Common Stock of the Company beneficially-owned by an Insider Shareholder (other
than a sale to the general public for cash that is registered under the
Securities Act of 1933, or an unsolicited open market sale for cash effected
through a securities broker at such time as there shall exist a bona fide
public market for the Common Stock), if, immediately after giving effect to
such Subject Sale and to all other sales and dispositions of Common Stock made
by said Insider Shareholder (whether or not such sales or
<PAGE> 2
dispositions are subject to this Agreement) since and including the first day
of the calendar year in which such Subject Sale is to be made, said Insider
Shareholder's beneficial ownership of the Company's outstanding Common Stock on
a fully-diluted basis would be decreased to an amount which is less than 95% of
the amount of such ownership as of the opening of business on the first day of
the calendar year in which such Subject Sale is to be made.
2. PARALLEL EXIT. No Insider Shareholders will participate as a
seller in any Subject Sale, including, but not limited to, a sale to the
Company, without causing the purchaser in such Subject Sale to offer the
Investor the opportunity to participate in such Subject Sale on the same terms
and conditions and on a pro rata basis as Insider Shareholders with respect to
shares of Common Stock (and rights or other securities exercisable for, or
convertible or exchangeable into, Common Stock) held by such Investor. The
Investor who elects to participate in such Subject Sale shall be entitled to
sell his Pro Rata Share of the number of shares the purchaser is willing to
purchase. Provided, however, in the event a participating shareholder chooses
not to sell his entire Pro Rata Share, the other participating shareholders
shall have the right to sell their Adjusted Pro Rata Share of the shares of
Common Stock which the participating shareholder does not choose to sell. Each
Insider Shareholder shall give Investor at least ten (10) days prior written
notice of any Subject Sale. Investor should provide the Company with the
number of Fully-Diluted Shares which the Investor desires to sell as part of
the Subject Sale at least two days prior to the Subject Sale. Each Insider
Shareholder participating in such sale must then sell all shares offered by
Investor as part of the Subject Sale as a condition to complete such Subject
Sale.
3. TERMINATION. This Agreement shall continue in effect from the
date of execution until the Company has completed an initial public offering of
its Common Stock, on a firm commitment basis with a nationally recognized
underwriter, resulting in aggregate offering proceeds of $7,500,000 or more,
before deduction of underwriting discounts and expenses of sale.
4. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and benefit the parties hereto and their respective successors and assigns
(including each transferee of any party's Common Stock); provided, however, no
transferee of Common Stock in a public offering registered under the Securities
Act of 1933 or in an unsolicited open market sale effected through a securities
broker shall be bound by or entitled to the benefits of this Agreement. As
used in this Agreement, the terms "Insider Shareholders" and "Investor" shall
include any transferee of such a person, as appropriate, who is bound by and
entitled to the benefits of this Agreement under the preceding sentence.
5. LAW GOVERNING. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF TEXAS.
6. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall together constitute a single agreement, but
shall be effective only at such time as all parties have executed a counterpart
(but not necessarily the same counterpart) of this Agreement.
7. AMENDMENTS. This Agreement may be amended, and any provision
hereof may be waived, only by a written agreement executed by the Insider
Shareholders and the Investor.
2
<PAGE> 3
8. LEGENDS. The Company will cause each certificate that
evidences any securities or stock that are subject to this Agreement to bear a
legend substantially like the following legend, which shall be typed, printed,
or stamped thereon in a conspicuous manner:
"The shares evidenced by this certificate are subject
to a Parallel Exit Agreement dated July 17, 1997, among the Company
and certain of its shareholders. The Company will furnish to the
record holder of this certificate (without charge) a copy of such
Agreement upon written request therefor to the Company at its
principal place of business or registered office."
The Company agrees that a counterpart of this Agreement shall be kept at the
principal office of the Company and shall be subject to the same right of
examination by any shareholder of the Company, in person or by agent, attorney,
or other designated representative, as are the books and records of the
Company.
9. NOTICES. Any notice or other communication provided for
herein or given hereunder to a party hereto shall be in writing and shall be
deemed to have been duly given if signed by the party giving it. Notice shall
be deemed effective upon delivery by hand, or on the third (3rd) business day
after it is deposited in the United States mail, postage prepaid (registered or
certified mail), or on the business day after it is sent by Federal Express or
similar overnight service to the addresses of the parties as set forth herein,
or to such other addresses as a party shall provide to the other parties in
accordance with this Section.
10. ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement between the parties hereto relating to the subject matter herein, and
shall supersede all previous agreements between the parties hereto relating to
the subject matter herein.
(SIGNATURE PAGE FOLLOWS)
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INSIDE SHAREHOLDERS
---------------------------------
James F. Stuart
---------------------------------
A.J. Lewis III
---------------------------------
Steven P. Rosenberg
INVESTOR:
SV CAPITAL PARTNERS, L.P.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
PACKAGED ICE, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
4
<PAGE> 1
EXHIBIT 10.43
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement"), made and entered
into July 17, 1997, is by and between Packaged Ice, Inc., a Texas corporation
(the "Company") and Rod Sands ("Indemnitee").
RECITALS
A. It is anticipated that Indemnitee will serve as a director of
the Company and in such capacity will be performing a valuable service to the
Company.
B. The Company's Bylaws (the "Bylaws") provide for the
indemnification of the directors and officers of the Company.
C. The Bylaws provide that the Company shall indemnify the
directors and officers of the Company to the fullest extent permitted by
applicable law including, without limitation, Article 2.02-1 of the Texas
Business Corporation Act, as amended to date and as may be amended from time to
time (the "Corporation Act").
D. The Corporation Act specifically provides that a corporation
may maintain another arrangement on behalf of any person who is or was a
director, officer, employee or agent of the corporation against any liability
asserted against him and incurred by him in such capacity or arising out of his
status as such a person, whether or not the corporation would have the power to
indemnify him against such liability under the Corporation Act, and thereby
contemplates that agreements may be entered into between the Company and
officers and directors of the Company with respect to the indemnification of
such officers and directors.
E. The applicability, amendment and enforcement of statutory and
bylaw indemnification provisions have raised questions concerning the adequacy
and reliability of the protection afforded thereby.
F. In order to resolve such questions and to induce Indemnitee to
serve or continue to serve as a director of the Company for the remainder of
his term and for any subsequent term to which he is elected by the shareholders
of the Company, the Company has deemed it to be in the best interest of the
Company to enter into this Agreement.
NOW, THEREFORE, in consideration of Indemnitee's agreement to serve or
continue to serve as a director of the Company after the date hereof, the
parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
<PAGE> 2
(a) Change in Control. A "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended), other than persons currently holding securities representing
25% or more of the combined voting power of the outstanding securities
of the Company, becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined
voting power of the outstanding securities of the Company, or (ii)
during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the
Company and any new director whose election by the Board of Directors
or nomination for election by the shareholders of the Company was
approved by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof, or
(iii) the shareholders of the Company approve (A) a merger or
consolidation of the Company with any other entity (other than a
merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least 80% of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation), (B) a plan of complete liquidation of the Company or
(C) an agreement or agreements for the sale or disposition, in a
single transaction or series of related transactions, by the Company
of all or substantially all of the property and assets of the Company.
Notwithstanding the foregoing, events otherwise constituting a Change
in Control in accordance with the foregoing shall not constitute a
Change in Control if such events are solicited by the Company and are
approved, recommended or supported by the Board of Directors of the
Company in actions taken prior to, and with respect to, such events.
(b) Reviewing Party. A "Reviewing Party" means (i) a
quorum of the Board of Directors of the Company who, at the time of
the vote, are not named defendants or respondents in the proceeding,
(ii) if such a quorum cannot be obtained, a committee of the Board of
Directors of the Company, designated to act in the matter by majority
vote of all members of the Board of Directors, consisting solely of
two or more directors who, at the time of the vote, are not named
defendants or respondents in the proceeding, (iii) special legal
counsel selected by a majority vote of a quorum of the Board of
Directors of the Company or a committee of the Board of Directors, as
constituted in accordance with (i) and (ii) above, or, if such a
quorum cannot be obtained and such a committee cannot be established,
by a majority vote of all directors or (iv) the shareholders excluding
any shareholders who are named defendants or respondents in the
proceeding.
2. Indemnification of Indemnitee. The Company hereby agrees that
it shall hold harmless and indemnify Indemnitee to the fullest extent
authorized and permitted by the provisions of the Bylaws and the provisions of
the Corporation Act, or by any amendment thereof, but in the
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<PAGE> 3
case of any such amendment, only to the extent that such amendment permits the
Company to provide broader indemnification rights than the Bylaws or
Corporation Act permitted the Company to provide prior to such amendment, or
other statutory provisions authorizing or permitting such indemnification which
is adopted after the date hereof.
3. Liability Insurance.
(a) Maintenance of D&O Insurance. The Company hereby
covenants and agrees that, so long as Indemnitee shall continue to serve as a
director, officer or agent of the Company and thereafter so long as Indemnitee
shall be subject to any possible proceeding by reason of the fact that
Indemnitee was a director, officer or agent of the Company, the Company,
subject to Section 3(b) below, shall promptly obtain and maintain in full force
and effect directors' and officers' liability insurance ("D&O Insurance") in
reasonable amounts from established and reputable insurers.
(b) Limitation on Required Maintenance of D&O Insurance.
Notwithstanding the foregoing, the Company shall have no obligation to obtain
or maintain D&O Insurance if the Company determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company or by another person pursuant to a contractual
obligation owed to the Company or Indemnitee.
4. Letter of Credit. So long as Indemnitee may be subject to any
possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that Indemnitee is or was an officer or director, the Company agrees to
establish a letter of credit (the "Letter of Credit") against which Indemnitee
may personally draw to cover expenses for which Indemnitee is indemnified
pursuant to Section 2 or Section 5 hereof. If not established by the Company
prior to receipt of notification pursuant to Section 7 or Section 13 hereof,
the Letter of Credit shall be promptly established by the Company upon receipt
of such notification.
5. Additional Indemnification. Subject only to the exclusions
set forth in Section 6 hereof, the Company hereby agrees that it shall hold
harmless and indemnify Indemnitee:
(a) against any and all judgments, penalties (including
excise and similar taxes), fines, settlements and reasonable expenses,
including attorneys' fees and court costs, actually and reasonably
incurred by Indemnitee in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, any appeal in such an
action, suit, or proceeding, and any inquiry or investigation that
could lead to such an action, suit, or proceeding, including, without
limitation, an action by or on behalf of the shareholders of the
Company or by or in the right of the Company, to which Indemnitee is,
was or at any time becomes a party, or is
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threatened to be made a party, by reason of the fact that Indemnitee
is, was or at any time becomes a director or officer of the Company,
or is or was serving, or at any time serves, at the request of the
Company as a director, officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary of another
corporation, partnership, joint venture, sole proprietorship, trust,
nonprofit entity, employee benefit plan, or other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by the Company under the provisions of the Corporation Act
permitting such indemnification.
6. Limitations on Additional Indemnification. No indemnification
pursuant to this Agreement shall be paid by the Company:
(a) in respect to any transaction if it shall be
determined by the Reviewing Party, or by final judgment or other final
adjudication, that Indemnitee derived an improper personal benefit;
(b) on account of Indemnitee's conduct which is
determined by the Reviewing Party, or by final judgment or other final
adjudication, to have involved acts or omissions not in good faith,
intentional misconduct or a knowing violation of law; or
(c) if the Reviewing Party or a court having jurisdiction
in the matter shall determine that such indemnification is in
violation of the Company's Articles of Incorporation (the "Articles"),
the Bylaws or the law.
7. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including,
without limitation, judgments, fines, ERISA excise taxes and penalties, and
amounts paid in settlement) incurred by Indemnitee in the investigation,
defense, settlement or appeal of a proceeding, but is not entitled to
indemnification for the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion thereof to which the Indemnitee is
entitled.
8. Advancement of Expenses. In the event of any threatened or
pending action, suit or proceeding in which Indemnitee is a party or is
involved and which may give rise to a right of indemnification under this
Agreement, following written request to the Company by Indemnitee, the Company
shall pay promptly to Indemnitee amounts to cover expenses incurred by
Indemnitee in such proceeding (including, without limitation, payments of
retainers for legal services) in advance of its final disposition upon the
receipt by the Company of (i) a written affirmation by the Indemnitee of his
good faith belief that he has met the standard of conduct necessary for
indemnification and (ii) a written undertaking executed by or on behalf of
Indemnitee to repay the advance if it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Company for such expenses
as provided in this Agreement or the Bylaws and (iii) satisfactory evidence as
to the amount of such expenses.
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9. Fee to Indemnitee. If Indemnitee is not an officer or
employee of the Company at the time of any pending action, suit or proceeding
to which Indemnitee is a party, the Company agrees to pay to Indemnitee, in
addition to any other payments due to Indemnitee under any other contract or
arrangement, an amount equal to $100.00 per hour for each hour which Indemnitee
spends in connection with any such action, suit or proceeding to which
Indemnitee is a party or otherwise becomes involved as a result of Indemnitee's
position as a director of the Company, plus the amount of all reasonable
out-of-pocket expenses incurred by Indemnitee.
10. Repayment of Expenses. Indemnitee agrees that Indemnitee
shall reimburse the Company for all reasonable expenses paid by the Company in
defending any civil, criminal, administrative or investigative action, suit or
proceeding against Indemnitee in the event and only to the extent that it shall
be determined by final judgment or other final adjudication that Indemnitee is
not entitled to be indemnified by the Company for such expenses under the
provisions of the Corporation Act or any applicable law.
11. Determination of Indemnification; Burden of Proof. With
respect to all matters concerning the rights of Indemnitee to indemnification
and payment of expenses under this Agreement or under the provisions of the
Bylaws now or hereafter in effect, the Company shall appoint a Reviewing Party,
and any determination by the Reviewing Party shall be conclusive and binding on
the Company. If under applicable law, the entitlement of Indemnitee to be
indemnified under this Agreement depends on whether a standard of conduct has
been met, the burden of proof of establishing that Indemnitee did not act in
accordance with such standard of conduct shall rest with the Company.
Indemnitee shall be presumed to have acted in accordance with such standard and
entitled to indemnification or advancement of expenses hereunder, as the case
may be, unless, based upon a preponderance of the evidence, it shall be
determined by the Reviewing Party that Indemnitee did not meet such standard.
For purposes of this Agreement, unless otherwise expressly stated herein, the
termination of any action, suit or proceeding by judgment, order, settlement,
whether with or without court approval, or conviction, or upon a plea of nolo
contendere or its equivalent shall not create a presumption that Indemnitee did
not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law.
12. Effect of Change in Control. If there has not been a Change
in Control after the date of this Agreement, the determination of the (i)
rights of Indemnitee to indemnification and payment of expenses under this
Agreement or under the provisions of the Bylaws, (ii) standard of conduct, and
(iii) evaluation of the reasonableness of amounts claimed by Indemnitee, shall
be made by the Reviewing Party or such other body or persons as may be
permitted by the Corporation Act. If there has been a Change in Control after
the date of this Agreement, such determination and evaluation shall be made by
a special, independent counsel who is selected by Indemnitee and approved by
the Company, which approval shall not be unreasonably withheld, and who has not
otherwise performed services for Indemnitee or the Company.
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13. Continuation of Indemnification. All agreements and
obligations of the Company contained herein shall continue during the period
that Indemnitee is a director or officer of the Company, or is or was serving
at the request of the Company as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another
corporation, partnership, joint venture, sole proprietorship, trust, nonprofit
entity, employee benefit plan, or other enterprise, and shall continue
thereafter so long as Indemnitee shall be subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, any appeal in such an
action, suit, or proceeding, and any inquiry or investigation that could lead
to such an action, suit, or proceeding, by reason of the fact that Indemnitee
was an officer or director of the Company or served in any other capacity
referred to herein.
14. Notification and Defense of Claim. Promptly after receipt by
Indemnitee of notice of the threat or commencement of any action, suit or
proceeding, Indemnitee shall, if a claim in respect hereof is to be made
against the Company under this Agreement, notify the Company of the threat or
commencement thereof; provided, however, that delay in so notifying the Company
shall not constitute a waiver or release by Indemnitee of rights hereunder and
that omission by Indemnitee to so notify the Company shall not relieve the
Company from any liability which it may have to Indemnitee otherwise than under
this Agreement. With respect to any such action, suit or proceeding as to
which Indemnitee notifies the Company of the threat or commencement thereof:
(a) The Company shall be entitled to participate therein
at its own expense.
(b) Except as otherwise provided below, to the extent
that it may wish, the Company, jointly with any other indemnifying
party similarly notified, shall be entitled to assume the defense
thereof and to employ counsel reasonably satisfactory to Indemnitee.
After notice from the Company to Indemnitee of its election to so
assume the defense thereof, the Company shall not be liable to
Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense
thereof other than reasonable costs of investigation or as otherwise
provided below. Indemnitee shall have the right to employ counsel of
his own choosing in such action, suit or proceeding but the fees and
expenses of such counsel incurred after notice from the Company of
assumption by the Company of the defense thereof shall be at the
expense of Indemnitee unless (i) the employment of counsel by
Indemnitee has been specifically authorized by the Company, such
authorization to be conclusively established by action by
disinterested shareholders of the Company though less than a quorum;
(ii) representation by the same counsel of both Indemnitee and the
Company would, in the reasonable judgment of Indemnitee and the
Company, be inappropriate due to an actual or potential conflict of
interest between the Company and Indemnitee in the conduct of the
defense of such action, such conflict of interest to be conclusively
established by an opinion of counsel to the Company to such effect;
(iii) the counsel employed by the Company and reasonably satisfactory
to Indemnitee has advised Indemnitee in writing that such counsel's
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representation of Indemnitee would likely involve such counsel in
representing differing interests which could adversely affect the
judgment or loyalty of such counsel to Indemnitee, whether it be a
conflicting, inconsistent, diverse or other interest; or (iv) the
Company shall not in fact have employed counsel to assume the defense
of such action, in each of which cases the fees and expenses of
counsel shall be paid by the Company. The Company shall not be
entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of the Company or as to which a conflict of
interest has been established as provided in (ii) hereof.
Notwithstanding the foregoing, if an insurance company has supplied
directors' and officers' liability insurance covering an action, suit
or proceeding, then such insurance company shall employ counsel to
conduct the defense of such action, suit or proceeding unless
Indemnitee and the Company reasonably concur in writing that such
counsel is unacceptable.
(c) The Company shall not be liable to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of
any action or claim effected without their written consent. The
Company shall not settle any action or claim in any manner which would
impose any liability or penalty on Indemnitee without Indemnitee's
written consent. Neither the Company nor Indemnitee shall
unreasonably withhold consent to any proposed settlement.
15. Enforcement.
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on the
Company hereby in order to induce Indemnitee to serve as an officer
and/or director of the Company and acknowledges that Indemnitee is
relying upon this Agreement in continuing in such capacity.
(b) If a claim for indemnification or advancement of
expenses is not paid in full, or if the Letter of Credit has not been
established, by the Company within 30 days after a written claim by
Indemnitee has been received by the Company, Indemnitee may at any
time assert the claim and bring suit against the Company to recover
the unpaid amount of the claim. In the event Indemnitee is required
to bring any action to enforce rights or to collect monies due under
this Agreement and is successful in such action, the Company shall
reimburse Indemnitee for all of Indemnitee's reasonable attorneys'
fees and expenses in bringing and pursuing such action.
16. Proceedings by Indemnitee. The Company shall not be liable to
make any payment under this Agreement in connection with any action, suit or
proceeding, or any part thereof, initiated by Indemnitee unless such action,
suit or proceeding, or part thereof, was authorized by the Company, such
authorization to be conclusively established by action by disinterested
shareholders of the Company though less than a quorum.
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17. Effectiveness. This Agreement is effective for, and
shall apply to, (i) any claim which is asserted or threatened before, on or
after the date of this Agreement but for which no action, suit or proceeding
has been brought prior to the date hereof and (ii) any action, suit or
proceeding which is threatened before, on or after the date of this Agreement
but which is not pending prior to the date hereof. This Agreement shall not
apply to any action, suit or proceeding which was brought before the date of
this Agreement. So long as the foregoing is satisfied, this Agreement shall be
effective for, and be applicable to, acts or omissions occurring prior to, on
or after the date hereof.
18. Nonexclusivity. The rights of Indemnitee under this Agreement
shall not be deemed exclusive, or in limitation of, any rights to which
Indemnitee may be entitled under any applicable common or statutory law, or
pursuant to the Articles, the Bylaws, vote of shareholders or otherwise.
19. Other Payments. The Company shall not be liable to make any
payment under this Agreement in connection with any action, suit or proceeding
against Indemnitee to the extent Indemnitee has otherwise received payment of
the amounts otherwise payable by the Company hereunder.
20. Subrogation. In the event the Company makes any payment under
this Agreement, the Company shall be subrogated, to the extent of such payment,
to all rights of recovery of Indemnitee with respect thereto, and Indemnitee
shall execute all agreements, instruments, certificates or other documents and
do or cause to be done all things necessary or appropriate to secure such
recovery rights to the Company including, without limitation, executing such
documents as shall enable the Company to bring an action or suit to enforce
such recovery rights.
21. Survival; Continuation. The rights of Indemnitee under this
Agreement shall inure to the benefit of Indemnitee, his heirs, executors,
administrators, personal representatives and assigns, and this Agreement shall
be binding upon the Company, its successors and assigns. The rights of
Indemnitee under this Agreement shall continue so long as Indemnitee may be
subject to any action, suit or proceeding because of the fact that Indemnitee
is or was a director or officer of the Company or is or was serving at the
request of the Company as a director, officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary of another corporation,
partnership, joint venture, sole proprietorship, trust, nonprofit entity,
employee benefit plan, or other enterprise. If the Company, in a single
transaction or series of related transactions, sells, leases, exchanges, or
otherwise disposes of all or substantially all of its property and assets, the
Company shall, as a condition precedent to any such transaction, cause
effective provision to be made so that the persons or entities acquiring such
property and assets shall become bound by and replace the Company under this
Agreement.
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22. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless made in
writing signed by both parties hereto.
23. Headings. Section headings of the sections and paragraphs of
this Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
24. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF TEXAS WITHOUT
GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
25. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, mailed by certified mail (return receipt requested) or sent by
overnight delivery service, cable, telegram, facsimile transmission or telex to
the parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice:
(a) if to the Company: Packaged Ice, Inc.
8572 Katy Freeway, Suite 101
Houston, Texas 77024
with a copy to: Alan Schoenbaum, P.C.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1500 NationsBank Plaza
300 Convent Street
San Antonio, Texas 78205
(b) if to Indemnitee: to the address on the signature page
hereof
Notice so given shall, in the case of notice so given by mail,
be deemed to be given and received on the fourth calendar day after posting, in
the case of notice so given by overnight delivery service, on the date of
actual delivery and, in the case of notice so given by cable, telegram,
facsimile transmission, telex or personal delivery, on the date of actual
transmission or, as the case may be, personal delivery.
26. Severability. If any provision of this Agreement shall be
held to be illegal, invalid or unenforceable under any applicable law, then
such contravention or invalidity shall not invalidate the entire Agreement.
Such provision shall be deemed to be modified to the extent necessary to render
it legal, valid and enforceable, and if no such modification shall render it
legal, valid and enforceable, then this Agreement shall be construed as if not
containing the
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provision held to be invalid, and the rights and obligations of the parties
shall be construed and enforced accordingly.
27. Complete Agreement. This Agreement and those documents
expressly referred to herein embody the complete agreement and understanding
among the parties and supersede and preempt any prior understandings,
agreements or representations by or among the parties, written or oral, which
may have related to the subject matter hereof in any way.
28. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this
Indemnification Agreement to be executed on the day and year first above
written.
COMPANY:
PACKAGED ICE, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
INDEMNITEE:
--------------------------------------------
Name:
---------------------------------------
Address: SV Capital Partners, L.P.
200 Concord Plaza, Suite 620
San Antonio, Texas 78216
11
