-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KatTmx1ArnoTWxJ2LtoU5Hn0ZYlKd7iPU4NtmCfxUCH87y6M6Nvhmtt7qAp4lx9R +Y7th+AZdELjSxGGdwIHcA== 0000950157-97-000547.txt : 19971028 0000950157-97-000547.hdr.sgml : 19971028 ACCESSION NUMBER: 0000950157-97-000547 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 22 FILED AS OF DATE: 19971027 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AQUAPENN SPRING WATER COMPANY INC CENTRAL INDEX KEY: 0000823844 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 251541772 STATE OF INCORPORATION: PA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-38771 FILM NUMBER: 97700803 BUSINESS ADDRESS: STREET 1: 1 AQUAPENN DRIVE CITY: MILESBURG STATE: PA ZIP: 16853 BUSINESS PHONE: 8143555556 MAIL ADDRESS: STREET 1: 1 AQUAPENN DRIVE CITY: MILESBURG STATE: PA ZIP: 16853 S-1 1 REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on October 24, 1997 Registration No. 333-________ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------ AQUAPENN SPRING WATER COMPANY, INC. (Exact name of registrant as specified in its charter) Pennsylvania 5149 25-1541772 (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Classification Identification Number) incorporation or Code Number) organization) One AquaPenn Drive Milesburg, Pennsylvania 16853 (814) 355-5556 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Edward J. Lauth, III One AquaPenn Drive Milesburg, Pennsylvania 16853 (814) 355-5556 (Name, address, including zip code, and telephone number, including area code, of agent for service) ----------------- Copies to: Brian D. Doerner, Esq. Gregory M. Shaw, Esq. Ballard Spahr Andrews & Ingersoll Cravath, Swaine & Moore 1735 Market Street, 51st Floor Worldwide Plaza Philadelphia, PA 19103-7599 825 Eighth Avenue (215) 665-8500 New York, NY 10019-7475 (212) 474-1000 ---------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. |_| _________ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. | |----------- If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_|__________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_|__________ ---------------- CALCULATION OF REGISTRATION FEE ================================================================================ Title of Each Class Proposed Maxim Proposed Maximum Amount of of Securities Amount to Offering Price Aggregate Registration to Be Registered Be Registered Per Share (1) Offering Price Fee - -------------------------------------------------------------------------------- Common Stock 4,437,850 $16.00 $71,005,600 $21,517 (no par value) shares (2) ================================================================================ (1) Estimated solely for the purpose of calculation of the registration fee in accordance with Rule 457 under the Securities Act of 1933, as amended. (2) Includes 578,850 shares which the Underwriters have the option to purchase to cover over-allotments, if any. ----------------------------------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant 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 this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. 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 PRELIMINARY PROSPECTUS DATED , 1997 (LOGO) Shares AQUAPENN SPRING WATER COMPANY, INC. Common Stock Of the Common Stock offered hereby, 2,000,000 shares are being sold by AquaPenn Spring Water Company, Inc. ("AquaPenn" or the "Company") and 1,859,000 shares are being sold by Weis Markets, Inc. and its subsidiaries (the "Selling Shareholder"). See "Principal Shareholders and Selling Shareholder." The Company will not receive any proceeds from the sale of Common Stock by the Selling Shareholder. Prior to this offering (the "Offering"), there has been no public market for the Common Stock. It is currently estimated that the Offering price will be between $14.00 and $16.00 per share. See "Underwriting" for certain factors to be considered in determining the Offering price. The Company intends to apply for listing of the Common Stock on the New York Stock Exchange ("NYSE") under the symbol "___." The shares of Common Stock offered hereby involve a high degree of risk. See "Risk Factors" beginning on page 7 of this Prospectus for a discussion of certain factors that should be considered by prospective investors. 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. =============================================================================== Price to Underwriting Proceeds to Proceeds to Selling Public Discounts and Company(2) Shareholder(2) Commissions(1) - ------------------------------------------------------------------------------- Per Share........ $ $ $ $ - ------------------------------------------------------------------------------- Total............ $ $ $ $ - ------------------------------------------------------------------------------- Total Assuming Full Exercise of Over- Allotment Option (3)....... $ $ $ $ =============================================================================== (1) See "Underwriting." (2) Before deducting expenses estimated at an aggregate of $750,000, which are payable by the Company and the Selling Shareholder. (3) Assuming exercise in full of the 30-day option granted by the Company to the Underwriters to purchase up to 578,850 additional shares, on the same terms, solely to cover over-allotments. See "Underwriting." The shares of Common Stock are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to their right to reject any order in whole or in part. It is expected that delivery of the Common Stock will be made in New York City, on or about , 1997. PaineWebber Incorporated Lazard Freres & Co. LLC Parker/Hunter Incorporated The date of this Prospectus is , 1997 [Photographs with the following captions:] 1. (Lauth & Paterno) AquaPenn President and founder Edward J. Lauth, III with Joe Paterno, Head Coach of the football team at The Pennsylvania State University and AquaPenn spokesperson and stockholder. (Mr. Paterno makes no representation, recommendation or guarantee to investors with regard to the common stock of AquaPenn offered hereby.) 2. (Krones Bloc Equipment) The Krones Bloc rinses, fills and caps AquaPenn's PET (polyethylene terephthalate) bottles at the rate of up to 600 bottles per minute. AquaPenn's Milesburg Facility has two units installed and a third scheduled for delivery in October 1997. 3. (Pure American 20 oz. Case) Pure American(R) Spring Water is AquaPenn's leading name brand. AquaPenn's PET bottle designs in 8 oz., 20.0 oz., 24.9 oz., 1 liter and 1.5 liter sizes are proprietary. 4. (Young Child With 8 oz. Bottle) AquaPenn's innovative 8 oz. PET bottle is popular with parents of young children because of its ease of handling. Introduced in January 1997, the "single serve solution" is also served in-flight on two major United States airlines. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." PROSPECTUS SUMMARY Unless otherwise indicated, all information in this Prospectus assumes that the Underwriters' over-allotment option will not be exercised and gives effect to (a) the 0.6008-for-1 reverse stock split (the "Reverse Stock Split") of each outstanding share of Common Stock of the Company that will occur immediately prior to this Offering, (b) an Offering price of $15.00 per share of Common Stock, (c) no exercise of outstanding options to purchase 832,108 shares of Common Stock, (d) the exercise of a warrant for 135,180 shares of Common Stock held by the Selling Shareholder (the "Weis Markets Warrant") and no exercise of remaining warrants to purchase 105,140 shares of Common Stock issuable pursuant to the Company's warrant agreements, (e) no purchase of the 76,254 shares of Common Stock subscribed for under the Company's 1996 Employee Stock Purchase Plan (the "Stock Purchase Plan") and (f) no conversion of the outstanding shares of Series A Non-Voting Convertible Preferred Stock (the "Convertible Preferred Stock") into 1,022,862 shares of Common Stock. Fiscal year references are to the fiscal year ended September 30. Unless otherwise provided, references to shares outstanding and to 1997 fiscal year results do not give effect to the acquisition on October 15, 1997 of Dunsmuir Bottling Company d/b/a Castle Rock Spring Water ("Castle Rock"). All references to the "Company" or "AquaPenn" refer to AquaPenn Spring Water Company, Inc. and its subsidiaries. The Company AquaPenn produces, bottles and sells non-sparkling natural spring water products to regional and national customers under both retailers' and other customers' private labels and its proprietary brands Pure American(R), Great American(R), AquaPenn(R) and Castle Rock. The Company, founded in 1986, is one of the largest producers of private label natural spring water products in the United States; private label products accounted for approximately 50% of the Company's 1997 fiscal year net revenues. The Company's private label and branded customers include, among others, Delta Air Lines, Inc., Gerber Products Company, Sam's Club and Walgreen Co. The Company's net revenues have grown from $9.3 million in fiscal 1993 to $38.0 million in fiscal 1997, representing a compounded annual growth rate of 42.3%. Over the same time period, the Company's net income has grown from approximately $400,000 to approximately $2.8 million, representing a compounded annual growth rate of 62.4%. According to Beverage Marketing, the total U.S. market for bottled water has grown from 1.6 billion gallons sold in 1987 to over 3.1 billion gallons in 1996, and accounted for approximately $3.6 billion in wholesale sales during 1996. Non-sparkling water comprises over 87% of the U.S. bottled water market and generated $2.7 billion of wholesale sales in 1996, and is expected to continue to grow in the future. PET (an acronym for polyethylene terephthalate, a premium clear plastic) packaged products comprise approximately 39% of the domestically produced non-sparkling water market and have grown from approximately 83 million gallons in 1987 to approximately 580 million gallons in 1996, representing a compounded annual growth rate of approximately 24%. PET-packaged products accounted for approximately $921 million of wholesale sales in 1996. Approximately 81% of the Company's 1997 net revenues was generated by products packaged in PET containers. According to Beverage Marketing, PET bottled water is among the fastest growing beverage categories in the United States. Contributing to the growth in consumption of non-sparkling water are consumer trends including health and fitness awareness, municipal tap water quality concern and maturing soft drink demand, as well as consumer demand for convenience and innovative packaging. The Company has adopted a strategy of producing regionally and selling its natural spring water products to both national and regional customers. By producing both private label and branded products in a full line of sizes and packaging, the Company can offer its customers "one-stop-shopping" supply arrangements. The Company's advanced packaging capability allows it to bottle natural spring water products in a variety of innovative packages. The Company maintains state-of-the-art production facilities, allowing it to achieve cost efficiencies, produce superior quality products, create innovative packaging and rapidly respond to customer shipment and production -3- demands. The Company's sales and marketing staff aims to provide its customers with exceptional customer service and market responsiveness. AquaPenn's growth strategy includes increasing sales to existing customers, broadening its current customer base, adding new distribution channels and expanding its product line. The Company's active acquisition program includes obtaining the rights to additional spring water sites and acquiring natural spring water companies. In accordance with this strategy, the Company recently acquired the rights to natural spring water from Ginnie Springs, a spring located in north central Florida ("Ginnie Springs"), adjacent to which a new production facility is expected to be constructed and completed by the Spring of 1998. In addition, on October 15, 1997, the Company acquired Castle Rock, a bottler and distributor of natural spring water products located in northern California. The acquisition of the right to Ginnie Springs spring water and the acquisition of Castle Rock will allow the Company to serve its customers more efficiently. The Company's executive offices are located at One AquaPenn Drive, Milesburg, Pennsylvania 16853. The Company's telephone number is (814) 355-5556 and its web site is www.aquapenn.com. The Offering Common Stock Offered by: the Company..................... 2,000,000 shares (1) the Selling Shareholder......... 1,859,000 shares Common Stock to be Outstanding after 6,555,888 shares (1)(2) Use of Proceeds.................... For capital expenditures, including funding a portion of the expansion of the Company's Milesburg, Pennsylvania facility and a portion of the construction of the Ginnie Springs facility, repayment of debt associated with the acquisition of Castle Rock, repayment of outstanding balances under the Company's credit facilities and for other general corporate purposes. See "Use of Proceeds." Proposed NYSE symbol............... "___" - -------------------- (1) Excludes the Underwriters' over-allotment option to purchase 578,850 shares of Common Stock. (2) Excludes 2,036,364 shares of Common Stock reserved for issuance upon exercise of outstanding options, warrants, subscriptions under the Stock Purchase Plan and conversion of the Convertible Preferred Stock. See "Management -- Employment Agreements," "Management -- Stock Plans" and "Description of Capital Stock." -4- Summary Financial Information The following summary financial information should be read in conjunction with the Consolidated Financial Statements of the Company and the notes thereto, "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
Years Ended September 30, 1993 1994 1995 1996 1997 Statement of Operations Data: Net revenues......... $9,275,537 $13,011,744 $22,956,053 $28,240,741 $38,015,315 Gross profit......... 2,136,846 3,032,276 4,802,698 6,969,428 9,698,377 Selling, general and administrative 1,389,220 1,994,812 3,290,609 4,313,480 5,126,583 Income from operations 747,626 1,037,464 1,512,089 2,655,948 4,571,794 Net income........... $ 400,562 $ 688,995 $ 638,350 $ 1,485,228 $ 2,786,755 Net income per common share (1).... $ 0.12 $ 0.18 $ 0.16 $ 0.26 $ 0.47 Weighted average number of common shares outstanding. 3,417,391 3,785,102 3,884,708 5,620,741 5,951,844 Other Operations Data: EBITDA (2).......... $1,260,940 $ 1,606,457 $ 2,888,231 $ 4,613,823 $ 7,285,186
September 30, 1997 Actual As Adjusted (3) Consolidated Balance Sheet Data: Working capital ......... $ 3,096,318 $ 28,281,318 Total assets............. 26,580,185 51,765,185 Notes payable, including 4,817,467 1,817,467 current portion Shareholders' equity..... 18,064,347 46,249,347 - -------------------- (1) For information concerning the number of shares used in the computation of net income per common share, see Note 1 to the Consolidated Financial Statements. (2) "EBITDA" represents earnings before interest expense, income tax expense, depreciation and amortization, including amortization of leasehold improvements, acquisition and development costs, and debt expense and discount or premium relating to any indebtedness. EBITDA is not presented herein as an alternative measure of operating results (as determined in accordance with generally accepted accounting principles ("GAAP")) or cash flow (as determined in accordance with GAAP). (3) As adjusted to give effect to the sale of 2,000,000 shares of Common Stock offered by the Company hereby assuming an Offering price of $15.00 per share and the receipt of proceeds from the exercise of the Weis Markets Warrant for 135,180 shares of Common Stock and after deducting estimated underwriting discounts and commissions and Offering expenses and the application of the estimated net proceeds therefrom. See "Use of Proceeds" and "Capitalization." ---------------------------------- The preceding summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and Consolidated Financial Statements of the Company and the notes thereto appearing elsewhere in this Prospectus. This Prospectus contains forward-looking statements that involve risks and uncertainties. Discussions containing such forward-looking statements may be found in the material set forth under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Actual events or results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." -5- Unless otherwise noted, the source of statistical information relating to the bottled water industry included in this Prospectus is Beverage Marketing Corporation of New York, "Bottled Water In The United States", 1997 Edition, as updated periodically (referred to herein as "Beverage Marketing"). -------------------- Pure American(R), Great American(R) and AquaPenn(R) are registered trademarks of the Company. All other trademarks appearing in this Prospectus are the property of their respective holders. -6- RISK FACTORS An investment in the shares of Common Stock offered hereby involves a high degree of risk. Prospective investors should carefully consider the following risk factors, in addition to the other information set forth in this Prospectus, before purchasing any of the shares of Common Stock offered hereby. Competition The bottled water industry is highly competitive. Many of the Company's competitors have more experience in the U.S. bottled water market, have greater financial and management resources and have more established proprietary trademarks and distribution networks than the Company. The Company currently competes with respect to bottled water with established national companies such as The Perrier Group of America, Inc. (whose brands include Arrowhead Mountain Spring Water, Poland Spring, Ozarka Spring Water, Great Bear, Deer Park, Ice Mountain and Zephyrhills Natural Spring Water) and Great Brands of Europe (whose brands include Evian Natural Spring Water and Dannon Natural Spring Water), as well as numerous regional bottled water companies located in the United States and Canada. The Company competes not only with other bottled water producers, but also with producers of other beverages, including, but not limited to, soft drinks, coffee, juices, beer, liquor and wine. The bottled water industry also competes for the same consumer who may, when choosing to drink water, drink tap water or use a home filtration system to filter tap water for drinking. There can be no assurance that the Company can compete successfully. See "Business -- Competition." Ability to Manage Growth In order to achieve continued growth in its bottled water business, the Company must meet its strategic objectives of expanding its current capacity to produce high quality spring water products, expanding its customer base, expanding its product line and adding new distribution channels. The Company's ability to meet these objectives depends upon (a) the successful development and construction of a facility adjacent to Ginnie Springs, (b) the successful integration and operation of the Company's recent acquisition, Castle Rock, (c) the successful expansion of its Milesburg, Pennsylvania facility (the "Milesburg Facility"), (d) the securing of new sources of spring water in strategic locations and identifying and successfully acquiring and integrating existing water companies, (e) the degree to which the Company loses sales to competing water suppliers, (f) the availability of capital and (g) general economic and other factors beyond the Company's control. The Company has never operated multiple facilities in multiple states and has never completed and integrated an acquisition of a significant existing company; the Company may encounter unexpected difficulties operating multiple facilities or integrating Castle Rock or other acquisitions. No assurance can be given as to the future growth in the Company's business or as to its profitability. Further growth of the Company will require employment and training of new personnel, expansion of facilities and expansion of management information systems. If the Company is unable to manage its growth effectively, the Company's profitability and its ability to achieve its strategic objectives may likely be materially adversely affected. Fluctuations in Quarterly Operating Results The Company's revenues are subject to several factors which may result in fluctuations in the Company's operating results. The Company's business is highly seasonal, with increased sales during warmer months. In the last three fiscal years, an average of 41.5% of the Company's net revenues have occurred during June, July and August. Inclement weather may negatively impact the Company's business, particularly summers which are unusually cool or rainy. Fluctuations in retail prices and raw material prices may produce corresponding fluctuations in the Company's profits. See "Risk Factors -- Raw Material Prices." In addition, the Company expects to make significant investments from time to time in capital improvements to, among other things, increase capacity. Costs associated with such improvements may cause an immediate reduction in profit margins unless and until sales volume increases. The Company's product and packaging mix may change from time to time and, depending on certain factors, may negatively -7- impact profit margins. The Company is subject to competitive pricing pressures which may affect its financial results. Due to all the foregoing factors, it is possible that in some future quarter or quarters, the Company's operating results would likely be below the expectations of securities analysts and investors. In such event, the price of the Common Stock would likely be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Dependence on Key Personnel The continued success of the Company is largely dependent on the personal efforts and abilities of senior management, including Edward J. Lauth, III, Chairman, President and Chief Executive Officer of the Company, and Geoffrey F. Feidelberg, Executive Vice President, Chief Operating Officer and Chief Financial Officer of the Company. Although the Company has entered into employment agreements with Messrs. Lauth and Feidelberg, the employment agreements may be terminated by either party effective at the end of each one-year term upon six months prior notice. The employment agreements contain a non-compete provision which extends for two years beyond termination of the employment agreements. The loss of either executive's services could have a material adverse effect on the Company. See "Management -- Employment Agreements." Dependence upon Natural Spring Sources The Company currently obtains the natural spring water bottled at its Milesburg Facility from a spring located in Graysville, Pennsylvania (the "Graysville Spring"). A natural spring located in Dunsmuir, California (the "Castle Rock Spring") provides the natural spring water for the Company's west coast operations based in Dunsmuir and Redding, California. The loss of the Graysville Spring, which generated 83.0% of the Company's fiscal 1997 pro forma net revenues, or the Castle Rock Spring, which generated 17.0% of the Company's fiscal 1997 pro forma net revenues, would have a material adverse effect on the business of the Company. The Company expects to begin bottling water from Ginnie Springs in 1998. In addition, the Company has acquired the right to purchase natural spring water from the Bellefonte Big Spring (the "Big Spring") located in Bellefonte, Pennsylvania, in order to supplement or replace the Graysville Spring. Subject to completion by the Borough of Bellefonte of a covering over the spring and the permitting and approval process, the Company expects to begin bottling Big Spring water in 1999. Occurrences beyond the control of the Company including, but not limited to, drought, which prevents natural springs from recharging themselves, and other occurrences, such as contamination of the springs, geological changes which could interfere with operation of the springs or failure of the water supply to comply with all applicable governmental requirements for mineral and chemical concentration, could have a material adverse effect on the business of the Company. The Company believes that adequate supplemental commercial sources of spring water exist, but there is no assurance that such commercial sources will be available in sufficient amounts or if available, obtainable on commercially reasonable terms. See "Business -- Spring Water Sources." Agreements for Water Sources The Company leases the land on which the Graysville Spring is located. The Company has an agreement pursuant to which it has access to the source and purchases the natural spring water it bottles under the Castle Rock label, and has entered into similar agreements for access and purchase at Ginnie Springs and the Big Spring. See "Business -- Spring Water Sources." These arrangements result in the Company exercising less control over its operations than if the Company had ownership of these assets. If the lessor of the Graysville Spring or the owners of the Castle Rock Spring were to become bankrupt or fail to observe the terms of its lease with the Company, such event could have a material adverse effect on the business of the Company, particularly with respect to the Company's Pennsylvania operations in the period prior to the time the Big Spring becomes operational for the Company. Castle Rock has an agreement with the City of Dunsmuir, California, pursuant to which the City of Dunsmuir sells natural spring water from the Castle Rock Spring to Castle Rock. The City of Dunsmuir is not the owner of the land on which the Castle Rock Spring is located. The deed in the chain of title that enables the City of Dunsmuir to sell natural spring water to Castle Rock limits the City of Dunsmuir's water rights to certain specified uses. A third party has questioned -8- whether the sale of natural spring water by the City of Dunsmuir to Castle Rock is a proper use as defined in the deed. Castle Rock's agreement with the City of Dunsmuir provides that the City will indemnify Castle Rock for losses it sustains as a result of any claim or challenge regarding the ability of the City to sell water to Castle Rock. While the Company intends to vigorously oppose any challenge to the City of Dunsmuir's rights to sell water to Castle Rock under the agreement, there can be no assurance that such a claim would not have a material adverse effect on the Company. Dependence on Key Suppliers The majority of the Company's natural spring water products are offered in premium PET bottles. PET bottles are manufactured by a limited number of suppliers. While the Company believes that its relationships with its suppliers are good, there can be no assurance that the Company will be able to obtain PET bottles from its suppliers on commercially reasonable terms, particularly at periods of peak demand. Failure to obtain the necessary packaging materials could have a material adverse effect on the business of the Company. In order to ensure its supply of PET bottles, the Company has entered into an exclusive supply agreement with Schmalbach-Lubeca Plastic Containers USA, Inc. ("Schmalbach-Lubeca") pursuant to which the Company leases space in its Milesburg facility to Schmalbach-Lubeca for the on-site production of PET bottles. Schmalbach-Lubeca has agreed to provide 100% of the Company's PET bottle requirements, except for the bottle requirements of its Castle Rock operation. Castle Rock has entered into a requirements contract with Containers Northwest Corporation pursuant to which Castle Rock will purchase 100% of its bottle requirements from Containers Northwest Corporation. In the event that the agreements with Schmalbach-Lubeca and Containers Northwest Corporation were terminated or the Company's requirements were not met under the agreements, there may be a material adverse effect on the Company until alternative supplies of PET bottles are found. Raw Material Prices Due to the wide range of beverages available to consumers, including bottled water products, the Company has limited ability to raise prices for its products. From time to time, the Company has been affected by higher prices for raw materials including PET resin and corrugated boxes. In the past, the Company generally has not passed such higher costs on to its customers and it generally would be unlikely to do so in connection with any future price increases. As a result, the Company's future profitability may be adversely affected by future increases in raw material prices. Product Liability The bottling and distribution of bottled water products entails a risk of product liability, including liability due to the presence of contaminants in its products. The Company maintains insurance coverage against the risk of product liability and product recall. However, the amount of the insurance carried by the Company is limited, the insurance is subject to certain exclusions and may or may not be adequate. In addition to direct losses resulting from product liability and product recall, the Company may suffer adverse publicity and damage to its reputation in the event of contamination which could have a material adverse effect on sales and profitability. Dependence on Trademarks The Company owns federal registrations for many of the trademarks it uses. The Company believes that its registered and common law trademarks have significant value and goodwill and that some of these trademarks are instrumental in its ability to create demand for and to market its products. There can be no assurance that the Company's trademarks do not or will not violate the proprietary rights of others, that they would be upheld if challenged or that the Company would, in such an event, not be prevented from using the trademarks, any of which could have a material adverse effect on the Company. -9- Government Regulation The Company's operations are subject to numerous federal, state and local laws and regulations relating to its bottling operations, including the identity, quality, packaging and labeling of its bottled water. These laws and regulations and their interpretation and enforcement are subject to change. There can be no assurance that additional or more stringent requirements will not be imposed on the Company's operations in the future. Failure to comply with such laws and regulations could result in fines against the Company, a temporary shutdown of production, recalls of the product, loss of certification to market the product or, even in the absence of governmental action, loss of revenue as a result of adverse market reaction to negative publicity. Any such event could have a material adverse effect on the Company. See "Business -- Regulation." Lack of Inventory The Company maintains a limited amount of finished product inventory. An event causing the Company's Pennsylvania or California facilities to shut down, even for a short period, would result in an inability to fill customer orders and accordingly would have a material adverse effect on the Company's revenues and customer relations. Consumer Preferences The Company believes that the most important factor in the growth of natural spring water products has been a change in consumer preferences. Consumer preferences may be influenced, however, by the availability and appeal of alternative beverages or packaging as well as general economic conditions, among other things. No assurance can be given that consumer demand for natural spring water will continue to grow or will not diminish in the future. Immediate and Substantial Dilution Purchasers of the Common Stock offered hereby will experience immediate and substantial dilution in the pro forma net tangible book value per share at September 30, 1997 of $7.95 at an assumed Offering price of $15.00 per share, after deducting estimated underwriting discounts and commissions and after giving effect to the exercise of the Weis Markets Warrant. In addition, as of September 30, 1997, the Company had issued warrants to purchase 105,140 shares of Common Stock, options to purchase 832,108 shares of Common Stock, Convertible Preferred Stock convertible into 1,022,862 shares of Common Stock and 76,254 shares of Common Stock subscribed for under the Company's Stock Purchase Plan. If such warrants and options are exercised in full and such Convertible Preferred Stock is converted into Common Stock, and assuming that all shares subscribed for under the Stock Purchase Plan are purchased and all shares issued into escrow in the Castle Rock acquisition are released, purchasers of the Common Stock offered hereby would experience an immediate and substantial dilution in the pro forma net tangible book value per share of $9.43. See "Dilution." Arbitrary Determination of Offering Price; Possible Volatility of Stock Price The Offering price of the Common Stock has been determined by negotiation between the Company and the Underwriters and does not necessarily bear any relationship to the Company's assets, book value, financial condition or any other recognized criterion of value. There can be no assurance that the market price of the Common Stock will not decline below the Offering price. The market price of the Common Stock could be subject to wide fluctuations in response to actual or anticipated quarterly operating results of the Company, announcements of the Company or its competitors as well as other factors. In addition, the stock market has experienced from time to time extreme price and volume fluctuations that may be unrelated to the operating performance of particular companies. -10- No Prior Public Market Prior to this Offering, there has been no public trading market for the Common Stock. Accordingly, there can be no assurance that an active trading market in the Common Stock will develop, or if such a trading market develops, that it will be sustained. No Cash Dividends Since the Company commenced operations in 1986, the Company has not paid any cash dividends on its capital stock. The Company anticipates that its future earnings, if any, will be retained for use in the business, or for other corporate purposes, and it is not anticipated that any cash dividends on the Common Stock will be paid in the foreseeable future. See "Dividend Policy" and "Description of Capital Stock." Control by Current Shareholders; Anti-Takeover Devices Upon the consummation of this Offering, including the sale of Common Stock by the Selling Shareholder, the Company's shareholders as of September 30, 1997 will own 41.1% of the outstanding shares of Common Stock (39.3% if the Underwriters' over-allotment option is exercised in full). Accordingly, such persons, acting in concert, may be able to elect all of the Company's directors, increase the Company's authorized capital, dissolve, merge or sell the assets of the Company and generally direct the affairs of the Company. In addition, the Board of Directors and officers of the Company will own 18.4% of the outstanding shares of Common Stock (33.4% upon the exercise of currently exercisable options and warrants and conversion of the Convertible Preferred Stock owned by the Board of Directors and officers). See "Principal Shareholders and Selling Shareholder." In addition, certain provisions in the Company's Articles of Incorporation and certain provisions of applicable Pennsylvania law may, under certain circumstances, have the effect of discouraging, delaying or preventing a change in control of the Company. See "Description of Capital Stock -- Preferred Stock" and "Description of Capital Stock -- Pennsylvania Corporate Law Provisions." Shares Eligible for Future Sale After the completion of this Offering, 6,555,888 shares of Common Stock will be outstanding. Of such shares, the shares sold pursuant to this Offering will be tradable without restriction by persons other than "affiliates" of the Company. The remaining 2,696,888 shares of Common Stock to be outstanding after this Offering are "restricted securities" within the meaning of Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), and may not be publicly resold, except in compliance with the registration requirements of the Securities Act or pursuant to an exemption from registration, including that provided by Rule 144 promulgated under the Securities Act. shares of Common Stock will be available for immediate resale upon the consummation of this Offering without restriction pursuant to the exemption provided by Rule 144(k). The directors and executive officers of the Company and other shareholders of the Company, who collectively hold shares, or approximately % of the outstanding shares of Common Stock prior to this Offering, have agreed not to offer to sell, sell, contract to sell, grant any option to sell, encumber, pledge or otherwise dispose of, or exercise any demand rights with respect to, any Common Stock or securities convertible into or exercisable or exchangeable for Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of PaineWebber Incorporated. Upon expiration of the 180-day period, shares of Common Stock will be eligible for immediate resale under the Securities Act, subject, in certain cases, to certain volume, manner of sale and other requirements of Rule 144 promulgated under the Securities Act. The Company may file one or more Registration Statements on Form S-8 immediately following this Offering, registering under the Securities Act shares of Common Stock covered by the Company's stock option and stock purchase plans. No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price of the Common Stock prevailing from time to time. Sales of substantial amounts of Common Stock, or the perception that such sales could occur, could adversely affect the prevailing market -11- price of the Common Stock. See "Principal Shareholders and Selling Shareholder," "Shares Eligible for Future Sale" and "Underwriting." -12- USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,000,000 shares of Common Stock offered by the Company hereby are estimated to be approximately $27.5 million, after deducting underwriting discounts and commissions and estimated Offering expenses, and, together with $675,000 from the exercise of the Weis Markets Warrant, result in total proceeds of $28.2 million. The Company intends to use $19.1 million of such proceeds to fund a portion of the capital expenditures associated with the expansion of the Milesburg Facility (the total estimated cost of which is $17.8 million) and the construction of the Ginnie Springs bottling facility (the total estimated cost of which is $6.6 million). The Company intends to use approximately $6.0 million of the net proceeds to repay borrowings under its credit facilities used to fund a portion of the purchase price and repay certain liabilities associated with the acquisition of Castle Rock. Net proceeds of $3.1 million are expected to be used to repay certain borrowings under the Company's credit facilities which incur interest at rates between LIBOR plus 1.0% and LIBOR plus 1.7%. At September 30, 1997, the Company had approximately $3.1 million of such borrowings outstanding, $2.9 million of which will begin to amortize in February 1999 and $200,000 of which is due upon demand. In connection with the acquisition of Castle Rock, the Company made additional borrowings under its credit facilities. The balance, if any, of the net proceeds from this Offering will be used for working capital and general corporate purposes. Pending such uses, the total proceeds will be invested in short-term, interest-bearing investment grade securities or commercial paper. DIVIDEND POLICY The Company has never declared or paid cash dividends on its Common Stock. The Company currently intends to retain its earnings, if any, to provide funds for the operation and expansion of its business and, therefore, does not anticipate declaring or paying cash dividends in the foreseeable future. Any payment of future dividends will be at the discretion of the Board of Directors and will depend upon, among other things, the Company's earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions with respect to the payment of dividends and other relevant factors. Further, pursuant to the terms of its existing credit facilities, the Company is restricted in its ability to pay cash dividends on its Common Stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." -13- DILUTION The difference between the Offering price per share of Common Stock and the adjusted net tangible book value per share of Common Stock after this Offering constitutes the dilution to investors in this Offering. Net tangible book value per share on any given date is determined by dividing the net tangible book value (total tangible assets less total liabilities) of the Company on such date by the number of shares of Common Stock outstanding on such date. The net tangible book value of the Company at September 30, 1997 was approximately $18.1 million, or $4.09 per share of outstanding Common Stock, excluding net tangible book value attributable to, and shares issued in connection with, the acquisition of Castle Rock. After giving effect to the sale of the 2,000,000 shares of Common Stock being offered by the Company, the exercise of the Weis Markets Warrant and the application of the net proceeds therefrom, the pro forma net tangible book value of the Company at September 30, 1997 would have been $46.2 million, or $7.05 per share. This represents an immediate increase in net tangible book value of $2.96 per share to existing shareholders and an immediate dilution of $7.95 per share to new shareholders purchasing shares of Common Stock in this Offering. The following table illustrates this per share dilution: Assumed Offering price per share.............................. $15.00 Net tangible book value per share at September 30, 1997..... $ 4.09 Increase per share attributable to this Offering............ 2.96 ------ Net tangible book value per share after this Offering......... 7.05 ------ Dilution per share to new shareholders........................ $ 7.95 ====== The following table sets forth the number of shares of Common Stock purchased from the Company, the total consideration paid to the Company (including proceeds from the exercise of the Weis Markets Warrant) and the average price per share paid by existing shareholders, and by purchasers of the shares offered hereby, at an assumed Offering price of $15.00 per share, before deducting underwriting discounts and commissions and Offering expenses, and as if this Offering had occurred as of September 30, 1997. The following table excludes shares issued in connection with the acquisition of Castle Rock. Shares Purchased(1) Total Consideration Average Price Number Percent Amount Percent Per Share Existing shareholders... 4,555,888 69.5% $12,866,269 30.0% $ 2.82 New shareholders........ 2,000,000 30.5% 30,000,000 70.0% 15.00 --------- ----- ----------- ----- 6,555,888 100.0% $42,866,269 100.0% ========= ===== =========== ===== - --------------- (1) If the Underwriters' over-allotment option is exercised in full, the total number of shares outstanding after this Offering held by new investors would increase to 2,578,850 shares, or approximately 36.1% of the total number of shares outstanding after this Offering. The above tables exclude (i) 937,248 shares of Common Stock issuable upon exercise of outstanding options and warrants, (ii) 1,022,862 shares of Common Stock reserved for issuance upon conversion of the Convertible Preferred Stock and (iii) 76,254 shares of Common Stock currently subscribed for under the Company's Stock Purchase Plan. The exercise and purchase of the total 2,036,364 shares would result in further dilution of $1.48 per share to new shareholders. See "Management -- Employment Agreements," "Management -- Stock Plans", "Certain Transactions" and "Description of Capital Stock." -14- CAPITALIZATION The following table sets forth the capitalization of the Company as of September 30, 1997 on an actual basis and on an as adjusted basis, giving effect to the sale of 2,000,000 shares of Common Stock offered by the Company hereby at an assumed Offering price of $15.00 per share, the exercise of the Weis Markets Warrant and the application of the estimated net proceeds therefrom after deducting estimated underwriting discounts and commissions and Offering expenses. This table should be read in conjunction with the Consolidated Financial Statements of the Company and the notes thereto included elsewhere in this Prospectus. See "Description of Capital Stock." September 30, 1997 Actual As Adjusted Notes payable: Notes payable, current................. $ 298,966 $ 89,944 Notes payable, excluding current portion.............................. 4,518,501 1,727,523 --------- --------- Total notes payable.................. 4,817,467 1,817,467 Shareholders' equity: Series A Non-Voting Convertible Preferred Stock, $1 par value, 2,000,000 shares authorized, 1,713,750 shares issued; 1,713,750 shares issued, as adjusted.......................... 1,713,750 1,713,750 Common Stock, no par value, 100,000,000 shares authorized, 4,423,712 shares issued; 6,555,888 shares issued, as adjusted (1)................ -- -- Additional paid-in capital............. 12,196,269 40,381,269 Retained earnings...................... 4,242,456 4,242,456 Less 11,250 shares of preferred stock in treasury, at cost............ ( 11,250) ( 11,250) Less 3,004 shares of common stock in treasury, at cost.................. ( 5,000) ( 5,000) Subscriptions receivable............... ( 71,878) ( 71,878) Total shareholders' equity........... 18,064,347 46,249,347 ---------- ---------- Total capitalization.............. $22,881,814 $48,066,814 =========== =========== - --------------- (1) Excludes (i) 937,248 shares of Common Stock issuable upon exercise of outstanding options and warrants, (ii) 1,022,862 shares of Common Stock reserved for issuance upon conversion of the Convertible Preferred Stock and (iii) 76,254 shares of Common Stock currently subscribed for under the Stock Purchase Plan. See "Management -- Employment Agreements," "Management -- Stock Plans," "Certain Transactions" and "Description of Capital Stock." -15- SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data set forth below as of and for the years ended September 30, 1993, 1994, 1995, 1996 and 1997 have been derived from the Company's financial statements, which have been audited by KPMG Peat Marwick LLP, independent certified public accountants. The consolidated financial statements of the Company for each of the three years in the period ended September 30, 1997 and the related balance sheets at September 30, 1996 and 1997, which have been audited by KPMG Peat Marwick LLP, have been included elsewhere in this Prospectus. The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of the Company and the notes thereto included elsewhere in this Prospectus.
Years Ended September 30, ----------------------------------------------------------- 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Statement of Operations Data: Net revenues................ $9,275,537 $13,011,744 $22,956,053 $28,240,741 $38,015,315 Cost of goods sold.......... 7,138,691 9,979,468 18,153,355 21,271,313 28,316,938 --------- ----------- ----------- ----------- ----------- Gross profit................ 2,136,846 3,032,276 4,802,698 6,969,428 9,698,377 Selling, general and administrative............ 1,389,220 1,994,812 3,290,609 4,313,480 5,126,583 --------- ---------- ----------- ----------- ----------- Income from operations ..... 747,626 1,037,464 1,512,089 2,655,948 4,571,794 Non-operating income (expense), net............ (228,664) (226,469) (738,739) (180,720) 119,713 --------- ---------- ----------- ----------- ----------- Income before income taxes and cumulative effect of change in accounting principle ................ 518,962 810,995 773,350 2,475,228 4,691,507 Income tax expense. ........ 69,400 122,000 135,000 990,000 1,904,752 --------- ---------- ----------- ----------- ----------- Income before cumulative effect of change in accounting principle ..... 449,562 688,995 638,350 1,485,228 2,786,755 Cumulative effect of change in accounting for income taxes in accordance with FASB 109 49,000 -- -- -- -- --------- ---------- ----------- ----------- ---------- Net income.................. $ 400,562 $ 688,995 $ 638,350 $1,485,228 $2,786,755 ========= ========== ========== ========== ========== Net income per common share (1)................. $ 0.12 $ 0.18 $ 0.16 $ 0.26 $ 0.47 ========== ========== ========== ========== ========== Weighted average number of common shares outstanding. 3,417,391 3,785,102 3,884,708 5,620,741 5,951,844 Other Operations Data: EBITDA (2)................. $1,260,940 $1,606,457 $2,888,231 $4,613,823 $7,285,186
-16-
September 30, --------------------------------------------------------------- 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Consolidated Balance Sheet Data: Working capital............... $ 901,761 $1,498,399 $ 2,068,414 $ 2,304,684 $ 3,096,318 Total assets.................. 6,101,103 7,098,447 17,916,037 19,516,355 26,580,185 Notes payable, including current portion............. 2,220,062 2,836,604 2,830,872 1,808,464 4,817,467 Shareholders' equity.......... 2,779,804 3,507,290 12,796,169 14,649,421 18,064,347 - ---------------
(1) For information concerning the number of shares used in the computation of net income per common share, see Note 1 to the Consolidated Financial Statements. (2) "EBITDA" represents earnings before interest expense, income tax expense, depreciation and amortization, including amortization of leasehold improvements, acquisition and development costs, and debt expense and discount or premium relating to any indebtedness. EBITDA is not presented herein as an alternative measure of operating results (as determined in accordance with GAAP) or cash flow (as determined in accordance with GAAP). -17- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and the related notes thereto included elsewhere in this Prospectus. This Prospectus contains forward-looking statements regarding matters that involve risks and uncertainties. The Company's actual results may differ materially from those anticipated by the forward-looking statements as a result of certain factors, including, but not limited to, those set forth in Risk Factors and elsewhere in this Prospectus. Overview AquaPenn produces, bottles and sells non-sparkling natural spring water. The Company has adopted a strategy of producing regionally and selling its natural spring water products to national and regional customers, offering both private label and branded products to allow its customers "one-stop-shopping," creating innovative packaging, maintaining state-of-the-art production facilities which allow it to achieve cost effectiveness and producing superior quality products. Part of the Company's strategy includes acquiring the rights to additional spring water sites and acquiring natural spring water companies. History. The Company commenced operations in fiscal 1987 as a distributor of 5 gallon containers of natural spring water to the home and office market, and in fiscal 1988 the Company commenced manufacturing and selling spring water ice to supermarkets and other customers. In fiscal 1989, the Company began to refocus its product and distribution strategies by bottling natural spring water in containers for sale directly or through wholesalers to the off-premise retail market in 1 gallon and 2 1/2 gallon sizes. In fiscal 1991, the Company sold assets used in its 5 gallon home and office delivery business, and in fiscal 1994 the Company sold assets used in its ice business. In August 1990, the Company commenced shipping premium PET products, and since that time the Company has primarily focused its efforts on premium PET natural spring water products, which accounted for approximately 81% of the Company's net revenues in fiscal 1997. During fiscal 1995 and 1996, the Company completed a private placement of Common Stock, with proceeds of $8.9 million, which were used to build the Milesburg Facility. This facility was expanded in February 1997, and, as part of the use of net proceeds from this Offering, the Company expects to spend an additional $17.8 million to add additional production capacity and warehouse space. The current expansion is expected to be completed by the end of the Spring of 1998. Factors Affecting Operating Results. Because the Company has limited ability to change the price of its products, the Company's profits are based on generating sufficient sales volume to exceed its costs, including its relatively high fixed costs of production. As the Company completes its capital expenditures in the near term, its profit margins will likely be negatively impacted until sales volumes increase. The Company's largest variable cost is packaging, principally PET bottles, caps and corrugated boxes. Variations in raw materials prices may cause the Company's results to fluctuate. The Company maintains a relatively low level of raw material and finished goods inventory averaging $1.5 million in fiscal 1997. This inventory consists primarily of raw materials, which the Company finds cost effective to purchase in bulk. The Company maintains a limited product inventory because the Company tailors much of its production specifically to customer orders. The Company's PET bottle supplier, Schmalbach-Lubeca, produces PET bottles as needed for the Company on site at the Milesburg Facility. Disruptions in supplies of certain raw materials may negatively impact the Company's ability to deliver finished products to its customers. Competitive pricing pressures may also negatively impact the Company's performance. Finally, the mix of products and packaging sizes sold by the Company may change, particularly as new distribution channels are obtained. Changes in these aspects of the Company's sales profile may impact profit margins. The Company does not believe that inflation has had a material effect on the Company's operating results during the past three fiscal years. Seasonality. The Company's business is highly seasonal, with a concentration of sales in summer months. In the past, inclement weather has negatively impacted the Company's net revenues, particularly in summers which are unusually cool or rainy. In the last three fiscal years, an average of 41.5% of the Company's sales have occurred during June, July and August. -18- Results of Operations The following table sets forth for the periods indicated certain financial data as a percentage of net revenues. Years Ended September 30, ------------------------- 1995 1996 1997 ---- ---- ---- Net revenues.................... 100.0% 100.0% 100.0% Cost of goods sold.............. 79.1 75.3 74.5 ---- ---- ---- Gross profit.................... 20.9 24.7 25.5 Selling, general and administrative 14.3 15.3 13.5 ---- ---- ---- Income from operations.......... 6.6 9.4 12.0 Other income (expense).......... (3.2) (0.6) 0.3 ---- ---- ---- Income before income tax expense 3.4 8.8 12.3 Income tax expense.............. 0.6 3.5 5.0 ---- ---- ---- Net income...................... 2.8% 5.3% 7.3% ==== ==== ==== Fiscal 1997 Compared with Fiscal 1996 Net Revenues. The Company's net revenues increased from $28.2 million in fiscal 1996 to $38.0 million in fiscal 1997, an increase of $9.8 million, or 34.6%. This increase resulted principally from increased sales volume to the Company's existing customer base as well as from sales to new customers. This increase also resulted from the introduction of the Company's new 8 ounce product which accounted for 33.0% of the Company's fiscal 1997 growth. During the fourth quarter of fiscal 1997, the Company experienced a decrease in net revenues from the prior quarter which, in part, was a result of unseasonably cool weather in select markets and the loss of net revenues from two customers which were acquired by other entities. Gross Profit. Gross profit increased from $7.0 million in fiscal 1996 to $9.7 million in fiscal 1997. The gross margin increased from 24.7% in fiscal 1996 to 25.5% in fiscal 1997. Cost of goods sold includes direct materials, direct labor, overhead, depreciation, amortization and transportation. This percentage increase was largely attributable to a new bottle supply contract which went into effect on April 1, 1996. In addition, the Company's direct labor costs and overhead were spread over a greater sales volume, decreasing the cost per unit produced. Transportation expenses, which represent outbound delivery costs, remained relatively unchanged as a percentage of net revenues. Depreciation and amortization was $1.8 million in fiscal 1996 compared to $2.4 million in fiscal 1997, and decreased from 6.5% of net revenues in fiscal 1996 to 6.3% in fiscal 1997. During the fourth quarter of fiscal 1997, the Company experienced a decrease in gross margins. Factors impacting this decrease included a disproportionate increase in certain expenses in addition to a shift in product mix. In particular, higher transportation expenses reflected, in part, an increase in deliveries to the West and Southwest, direct labor expenses were higher due to more labor-intensive requirements for certain packaging and higher raw material expenses resulted from PET resin and corrugated box price increases. Product mix shifts occurred as the Company obtained new customers in different distribution channels, introduced new product sizes and sold a different mix of products to existing customers. Selling, General and Administrative. Selling, general and administrative expenses increased from $4.3 million in fiscal 1996 to $5.1 million in fiscal 1997 but decreased from 15.3% of net revenues in fiscal 1996 to 13.5% in fiscal 1997. This decrease was primarily attributable to a greater percentage increase in net revenues. Other Income (Expense). Other income increased from $116,484 in fiscal 1996 to $328,180 in fiscal 1997. Other income consists primarily of rental income from the lease of the Company's former State College location and the lease of space in the Milesburg Facility to Schmalbach-Lubeca for production of blow-molding products. -19- Interest Expense, Net. Interest expense, net decreased from $297,204 in fiscal 1996 to $208,467 in fiscal 1997. This decrease was due to a lower average outstanding revolver balance and more favorable interest rate terms. Income Tax Expense. The Company's effective tax rate was 40.0% for fiscal 1996 and 40.6% for fiscal 1997. Fiscal 1996 Compared with Fiscal 1995 Net Revenues. The Company's net revenues increased from $23.0 million in fiscal 1995 to $28.2 million in fiscal 1996, an increase of $5.2 million, or 23.0%. This increase resulted principally from increased sales volume to existing customers as well as from sales to new customers. Gross Profit. Gross profit increased from $4.8 million in fiscal 1995 to $7.0 million in fiscal 1996. The gross margin increased from 20.9% in fiscal 1995 to 24.7% in fiscal 1996. This percentage increase was largely due to a decrease in cost of direct materials attributable to the new bottle supply contract which went into effect on April 1, 1996. Depreciation and amortization increased from $1.4 million in fiscal 1995 to $1.8 million in fiscal 1996, and increased from 5.9% of net revenues in fiscal 1995 to 6.5% in fiscal 1996. Substantially all of this increase is attributable to the Milesburg Facility which opened in May 1995. Selling, General and Administrative. Selling, general and administrative expenses increased from $3.3 million in fiscal 1995 to $4.3 million in fiscal 1996, and increased from 14.3% of net revenues in fiscal 1995 to 15.3% in fiscal 1996. This increase resulted primarily from a larger percentage increase of sales volume being sold through food brokers, a greater percentage of net revenues attributable to sales rebates and accruals, and an increase in personnel expenses. Other Income (Expense). Other income increased from $7,090 in fiscal 1995 to $116,484 in fiscal 1996. This increase is the result of commencement of the lease of the Company's former State College location and rental income therefrom. Interest Expense, Net. Interest expense, net decreased from $745,829 in fiscal 1995 to $297,204 in fiscal 1996 as a result of the repayment of an $8.0 million interim loan from the proceeds of the Company's private placement of Common Stock in fiscal 1995. Income Tax Expense. The Company's effective tax rate was 17.5% in fiscal 1995 and 40.0% in fiscal 1996. The effective tax rate in fiscal 1995 differed from the statutory tax rate primarily due to the use of net operating loss carryforwards. As of September 30, 1995, substantially all of the Company's federal net operating loss carryforwards were fully utilized. Quarterly Results The following table sets forth certain quarterly information for the Company's two most recent years. This unaudited quarterly information has been prepared on the same basis as the audited Consolidated Financial Statements included elsewhere in this Prospectus, and, in the opinion of the Company, reflects a fair presentation of the financial results for the period covered. The table should be read in conjunction with the Consolidated Financial Statements of the Company and the notes thereto. The operating results for any quarter may not necessarily be indicative of results for any future periods. -20-
Quarters Ended ----------------------------------------------------------------------------------------------- Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, 1995 1996 1996 1996 1996 1997 1997 1997 --------- --------- --------- --------- --------- --------- ---------- ---------- Net revenues. $3,413,572 $5,788,242 $9,173,126 $9,865,801 $5,002,521 $7,419,815 $12,889,053 $12,703,926 Cost of goods sold 3,267,086 4,999,297 6,388,573 6,616,357 4,025,163 5,712,637 9,209,757 9,369,381 --------- --------- --------- --------- --------- --------- --------- --------- Gross profit. 146,486 788,945 2,784,553 3,249,444 977,358 1,707,178 3,679,296 3,334,545 Selling, general and administrative 832,406 876,453 1,258,246 1,346,375 943,952 1,050,679 1,504,633 1,627,319 --------- --------- --------- --------- --------- --------- --------- --------- Income (loss) from operations.. (685,920) (87,508) 1,526,307 1,903,069 33,406 656,499 2,174,663 1,707,226 Non-operating expense (income), net......... 71,361 49,211 46,163 13,985 (38,670) (21,247) (19,302) (40,494) --------- --------- --------- --------- --------- --------- --------- --------- Income (loss) before income taxes (757,281) (136,719) 1,480,144 1,889,084 72,076 677,746 2,193,965 1,747,720 Income tax expense (benefit)... (302,000) (54,000) 591,000 755,000 32,400 272,600 878,717 721,035 --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss) $(455,281) $ (82,719) $ 889,144 $1,134,084 $ 39,676 $ 405,146 $1,315,248 $1,206,685 ========= ========= ========== ========== ========== ========== ========== ========== Net income (loss) per common share $ (0.$1) $ (0.02) $ 0.16 $ 0.20 $ 0.01 $ 0.17 $ 0.22 $ 0.17 ========= ========= ========== ========== ========== ========== ========== ========== Weighted average number of common shares outstanding(1) 4,226,985 4,259,071 5,624,606 5,642,211 5,806,796 5,811,092 5,919,765 5,951,844 ========= ========= ========== ========== ========== ========== ========== ========== - ----------------------------------
(1) The weighted average number of common shares outstanding in loss periods does not include the Convertible Preferred Stock or Common Stock options or warrants under the treasury stock method as outstanding since these securities have an anti-dilutive effect on per share information. Liquidity and Capital Resources The Company's primary capital needs have been to fund its working capital requirements and capital expenditures necessitated by its growth. The Company's net cash provided by operating activities was $2.1 million, $3.6 million and $4.8 million in fiscal 1995, 1996 and 1997, respectively. The Company's capital expenditures totaled $7.9 million in fiscal 1997, primarily incurred for the expansion of the Milesburg Facility, including the purchase of and progress payments on new equipment. The Company's capital expenditures totaled $2.9 million in fiscal 1996, primarily incurred for the completion of the Milesburg Facility and for the purchase of new box-forming and shrink-wrapping equipment. The Company's capital expenditures totaled $10.4 million in fiscal 1995 for the purchase of property, plant and equipment, primarily related to the opening of the Milesburg Facility in May. -21- The Company utilized bridge debt financing as well as other debt borrowings to finance the construction of the Milesburg Facility and the procurement of new equipment. During September 1995 and the beginning of fiscal 1996, the Company privately placed 1.8 million shares of its Common Stock in exchange for an aggregate of $8.9 million (net of $171,042 of aggregate offering costs). The Company used the proceeds of the private placement, together with operating cash flow, to repay substantially all of the debt borrowings used to finance the Milesburg Facility. In addition, the Company borrowed $1.8 million from the Pennsylvania Industrial Development Authority, through which the Commonwealth of Pennsylvania provides low cost financing to job-creating enterprises. This financing bears an annual fixed rate of interest of 5%, payable monthly, and amortizes over a 15 year period. The Company's future capital requirements include $6.6 million to procure land and spring water sources and construct a new bottled water facility in Florida, $17.8 million to expand the Milesburg Facility, to build additional warehouse and blow-molding space, to purchase additional production lines and equipment, to install a pipeline from Big Spring to its facility and to purchase other equipment. In addition, the Company's future capital requirements will require the financing and growth of working capital items such as accounts receivable and inventories. The Company anticipates that the funds available from this Offering should support the Company's existing operations at least through fiscal 1998. Long-term capital expenditures are expected to be funded through additional debt borrowings and operating cash flow. The Company has $22 million in revolving credit facilities, lines of credit and demand notes which incur interest at annual rates between LIBOR plus 1.0% and LIBOR plus 1.7%. At September 30, 1997, the Company had $3.1 million of such borrowings outstanding which are expected to be repaid with the proceeds of this Offering. Lease of Spring Water Sources and Acquisitions. On July 10, 1995, the Company entered into an agreement with the Borough of Bellefonte, Pennsylvania to purchase natural spring water from the Big Spring. The term of the Company's agreement with the Borough of Bellefonte is 50 years with a five year, automatic renewal unless prior notice of termination is given. Subject to the Borough of Bellefonte obtaining certain permits, construction of a cover over the spring and all other permits and approvals being obtained, the Company expects to begin bottling Big Spring water in the Spring of 1999. On July 30, 1997, the Company entered into an agreement with Seven Springs Water Company ("Seven Springs") to purchase natural spring water from Ginnie Springs, and to purchase land adjacent to Ginnie Springs to construct a new bottling facility. The Company expects that the construction of this state-of-the-art facility will require approximately $6.6 million of capital expenditures and production will be concluded during the Spring of 1998. On October 15, 1997, the Company acquired Castle Rock, providing a West Coast production facility, natural spring water source and brand name. The purchase price for all of the outstanding common stock of Castle Rock was $3.0 million, subject to certain post-closing adjustments, consisting of approximately $1.45 million in cash and approximately $1.55 million in Common Stock to be valued at 75.0% of the Offering price. One half of the cash consideration and one half of the Common Stock consideration were paid into escrow pending adjustments based on a final determination of Castle Rock's liabilities and the determination of Offering price. As part of the acquisition of Castle Rock, the Company agreed to pay down a substantial portion of the liabilities of Castle Rock. The acquisition will be accounted for as a purchase. Recent Accounting Pronouncements 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 and SFAS No. 123, Accounting for Stock- Based Compensation during fiscal 1997. SFAS No. 121 was adopted in the beginning of fiscal 1997 and there was no impact on the consolidated statements of operations upon the adoption of this statement. The Company elected to adopt the disclosure requirements of SFAS No. 123 as allowed by the Statement. In February 1997, SFAS No. 128, Earnings Per Share, was issued and requires dual presentation of basic and diluted earnings per share for complex capital structures on the face of the consolidated statement of operations. According -22- to SFAS No. 128, basic earnings per share, which replaces primary earnings per share, is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share, which replaces fully diluted earnings per share, reflects the potential dilution for the exercise or conversion of securities into common stock. SFAS No. 128 is required to be adopted for the Company's fiscal 1998 year end financial statements and it is expected to have no significant impact on the Company's financial position or results of operations. In June 1997, SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information were issued. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components including revenues, expenses, gains and losses in a full set of general-purpose financial statements and requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 130 is required to be adopted for the Company's fiscal 1999 year end financial statements. SFAS No. 131 establishes standards for the way that public companies report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. SFAS No. 131 is required to be adopted for the Company's fiscal 1999 financial statements. The Company is currently evaluating the impact, if any, of the adoption of this pronouncement on the Company's existing disclosures. -23- BUSINESS The Company AquaPenn produces, bottles and sells non-sparkling natural spring water products to regional and national customers under both retailers' and other customers' private labels and its proprietary brands Pure American, Great American, AquaPenn and Castle Rock. The Company, founded in 1986, is one of the largest producers of private label natural spring water products in the United States; private label products accounted for over 50% of the Company's 1997 fiscal year net revenues. The Company's private label and branded customers include, among others, Delta Air Lines, Inc., Gerber Products Company, Sam's Club and Walgreen Co. The Company's net revenues have grown from $9.3 million in fiscal 1993 to $38.0 million in fiscal 1997, representing a compounded annual growth rate of 42.3%. Over the same time period, the Company's net income has grown from approximately $400,000 to approximately $2.8 million, representing a compounded annual growth rate of 62.4%. Industry Overview Market Overview. The U.S. bottled water market is comprised of three segments: domestically produced non-sparkling water, domestically produced sparkling water and imported water, which constituted approximately 65%, 21% and 14%, respectively, of 1996 U.S. bottled water wholesale sales, according to Beverage Marketing. The domestically produced non-sparkling water category includes natural spring water obtained from naturally occurring springs, well water, distilled water and purified water. Unlike other beverages, bottled water serves both as a tap water substitute and a refreshment beverage. According to Beverage Marketing, the total U.S. market for bottled water has grown from 1.6 billion gallons sold in 1987 to over 3.1 billion gallons in 1996, and accounted for approximately $3.6 billion in wholesale sales during 1996. Non-sparkling water comprises over 87% of the U.S. bottled water market and generated $2.7 billion of wholesale sales in 1996, and is expected to continue to grow in the future. PET-packaged products comprise approximately 39% of the domestically produced non-sparkling water market and have grown from approximately 83 million gallons in 1987 to approximately 580 million gallons in 1996, representing a compounded annual growth rate of approximately 24%. PET-packaged products accounted for approximately $921 million of wholesale sales in 1996. Approximately 81% of the Company's 1997 net revenues was generated by products packaged in PET containers. According to Beverage Marketing, PET bottled water is among the fastest growing beverage categories in the United States. Consumer Trends. Contributing to the growth in consumption of non-sparkling water are consumer trends including health and fitness awareness, municipal tap water quality concern and maturing soft drink demand, as well as consumer demand for convenience and innovative packaging. Bottled water, particularly when packaged in premium PET bottles with sport caps, appeals to consumers who are sports enthusiasts or whose lifestyles are oriented to health and fitness. According to Beverage Marketing, consumers' concern over the quality of municipal water supplies has contributed to an increase in bottled water consumption. Bottled water has also become an alternative to other beverages, including soft drinks. According to Information Resources, Inc. ("IRI"), total U.S. gallons sold of soft drinks through food store channels has increased approximately 10% from 1994 through 1996. Over the same time period, gallons sold of ready-to-drink juices have increased approximately 1%. In contrast, non-sparkling bottled water gallons sold have increased approximately 21% from 1994 to 1996, according to Beverage Marketing. Bottled spring water is natural and caffeine and additive free. These attributes and the increased availability of convenient packaging for natural spring water have contributed to the increase in bottled water consumption. -24- Distribution Channels. Non-sparkling bottled water is generally sold to end users through four channels. According to Beverage Marketing, the total share of the bottled water market for each channel is as follows: (i) off-premise retail, which consists of supermarket, convenience store and drug store chains and other similar retail outlets (44.9%); (ii) home and office delivery which primarily consists of 5 gallon containers (39.0%); (iii) on-premise retail, which includes restaurants, delicatessens and other similar sites (8.3%); and (iv) vending (7.8%). Non-sparkling bottled water is generally delivered to customer locations through direct-store-delivery ("DSD") or warehouse distribution systems. DSD involves delivery of the product directly to the store's location where consumers may purchase the product. Warehouse distribution systems involve the delivery of truckloads of palletized products to the warehouses of regional customers which, in turn, deliver the product directly to the customer's retail sales locations. Private Label. Private label products have become increasingly popular among retailers and other customers. For example, supermarket sales of private label products grew 8.5% in 1996 versus 1.4% growth among branded products, according to IRI. Retailers benefit from having a range of private label and branded products as well as from the customer affinity developed from the reinforcement of the retailer's own brand. Other non-retailing customers find it more efficient to source products from a private label manufacturer than to produce the products themselves. Both types of customers often choose private label bottled water producers on the basis of price, consistent product quality, packaging capability, distribution capability and customer service. Consolidation. The trend toward consolidation in the bottled water industry is evidenced by the reduction in the number of bottled water filling locations and the corresponding increase in volume produced at most locations over the past ten years. According to Beverage Marketing, in 1996 there were approximately 350 filling locations in the United States versus approximately 425 in 1986, a decrease of 17.6%. The number of filling locations with sales over $75 million doubled to eight from 1995 to 1996. Larger companies are seeking to expand their share within a market, obtain broader distribution and achieve economies of scale with larger volume production. Strategy The Company's objective is to be the leading producer and bottler of natural spring water for customers on a national basis. Aspects of the Company's strategy include the following: Focus on Premium PET Packaging. While the Company uses numerous types of packaging, it is focused on bottling its natural spring water products in premium PET plastic bottles which accounted for approximately 81% of its net revenues in fiscal 1997. According to Beverage Marketing, PET is the fastest growing segment of the bottled water market, having grown at a compounded annual rate of approximately 24% from 1987 to 1996, representing $921 million of wholesale sales in 1996. The Company currently offers eight premium PET bottle sizes to its customers, with five of those sizes offered in the Company's proprietary bottle designs. Produce Regionally and Sell to National and Regional Customers. With the acquisition of Castle Rock and the Ginnie Springs source, the Company is implementing its strategy of developing regional production capacity to provide bottled water products to national and regional customers throughout the United States. The ability to provide products to its customers from multiple sites allows the Company to service more effectively national customers such as supermarket chains, drug stores, convenience stores, hotel chains, airlines and restaurant chains, while reducing distribution costs. Invest in State-of-the-Art Production Facilities. The Company has invested in state-of-the-art production facilities which it believes are comparable or superior in sophistication to those used by its competitors. These facilities allow the Company to produce high quality natural spring water products in a cost efficient manner while also providing the flexibility to respond rapidly to the changing shipment and production demands of its customers. -25- Create Innovative Packaging. The Company incorporates innovative packaging into its natural spring water products in order to differentiate its products from those offered by its competitors and to better meet its customers' demands. The Company is a package design leader, having been one of the first to offer premium PET bottles with sport caps; tamper-evident shrink wrap bands; 20 ounce sports bottles; 8 ounce bottles designed for airlines, food service and other distribution channels; and 24.9 ounce bottles designed to compete with the 24 ounce bottle. Provide "One-Stop-Shopping" to Customers. By producing both private label and branded products in a full line of sizes and packages, the Company can offer to its customers "one-stop-shopping" supply arrangements. Customers are able to stock their shelves with a variety of branded water products, while also strengthening their own customer affinity with private label. Private label customers are able to design their own packaging to their specifications. Additionally, because the Company distributes its products throughout the continental United States, the Company's customers need not rely on multiple regional suppliers. Provide Superior Customer Service. The Company is focused on providing the highest level of service to its customers. The Company provides flexibility to its customers in terms of order size, delivery timing and method, and, in the case of private label, label design. The Company believes that, by remaining responsive to its customers' needs, it will encourage further sales penetration with existing and new customers. Growth Strategy. AquaPenn's growth strategy is to increase sales to existing customers, broaden its current customer base, add new distribution channels and expand its product line. The Company's active acquisition program includes obtaining the rights to additional spring water sites and acquiring natural spring water companies. In accordance with this strategy, the Company recently acquired the rights to natural spring water from Ginnie Springs, adjacent to which a new production facility is expected to be constructed and completed by the Spring of 1998. In addition, the Company acquired Castle Rock, a bottler and distributor of natural spring water products located in northern California. The acquisition of the right to Ginnie Springs spring water and the acquisition of Castle Rock will allow the Company to serve its customers more efficiently. Product Categories The Company offers both proprietary brands and private label products in each of the categories described below. The Company estimates that approximately 50% of fiscal 1997 net revenues were derived from its private label business and approximately 50% of net revenues were derived from its proprietary brands. Natural Spring Water. The Company's natural spring water is sodium and chlorine free. The Company estimates that natural spring water products accounted for approximately 86% of its net revenues in fiscal 1997. Distilled Water. The AquaPenn and Great American branded and private label distilled water is primarily used by consumers as a water source for batteries, humidifiers and irons, and for drinking. The Company estimates that distilled water accounted for approximately 5% of its net revenues in fiscal 1997. Fluoridated Spring Water. The Company has developed spring water products containing fluoride. AquaPenn currently packages fluoridated spring water for Beech-Nut Nutrition Corporation under the name Beech-Nut(R) Spring Water and for Gerber Products Company under the name Gerber(R) Baby Water with Fluoride, which is marketed primarily to infants and children. Fluoride-related products accounted for approximately 9% of the Company's net revenues in fiscal 1997. Distribution The Company distributes nearly all of its products from its Milesburg Facility by shipping to the regional warehouses of its customers. Unlike a DSD distribution system in which products are delivered via a company's local delivery -26- trucks to individual outlets, AquaPenn distributes to warehouses that service its customers. This approach to distribution results in reduced distribution costs compared to DSD distribution costs, while providing those companies that distribute via warehouse systems, according to Beverage Marketing, access to nearly 80% of all off-premise retail channels. The Company's Castle Rock subsidiary utilizes primarily a DSD distribution system. The Company intends to continue to distribute natural spring water products under the Castle Rock label through the DSD distribution system and private label and other proprietary brands through the warehouse distribution system. In fiscal 1997, sales to Sam's Club and Walgreen Co. accounted for approximately 15% and 11% of net revenues, respectively; no other customer accounted for more than 10% of the Company's net revenues. As of September 30, 1997, the Company believes its products were sold in all 50 states. Marketing The Company advertises at the wholesale level and participates in approximately 20 trade shows annually. The Company's products are also marketed through food wholesalers, which deliver to single and chain stores such as convenience stores and delicatessens, and through food brokers, which receive commissions based on a percentage of net revenues for products sold. When possible, the Company attempts to cross-market its private label and branded products. The Company has full Electronic Data Interchange ("EDI") capability. EDI is a system which permits customers to place orders and receive invoices electronically. EDI reduces the administrative costs of the Company's customers such as drug store chains and warehouse retailers by eliminating paperwork and reducing processing time. Certain customers and potential customers will only order products from EDI-capable suppliers. The Company currently receives 21.3% of its orders via EDI. The Company believes that its EDI capability permits it to compete better on a national level. Spring Water Sources The geographical distribution of the Company's natural spring water sources is essential to its strategy of producing regionally and selling to national and regional customers. By developing sources in the Northeast, Southeast and West, the Company will be able to distribute more efficiently to the most significant population areas in the United States. The Company believes that these sources provide high quality natural spring water. "Spring water" is defined by the FDA as water derived from an underground formation from which water flows naturally to the surface of the earth. Under FDA guidelines, bottled water must contain fewer than 500 parts per million ("ppm") in total dissolved solids. Varying amounts of solids provide different "tastes" to water. Graysville Spring. The Company's sources include the Graysville Spring with an estimated flow of over 500,000 gallons per day, well in excess of the Company's current and anticipated requirements for the Milesburg Facility. The Company has exclusive use of the leased premises and may draw the full amount of the flow for its bottling needs, except a minimal amount drawn for use by two existing residences. The total dissolved solids of the water from this spring is approximately 120 ppm. The Company leases the spring from the owner of the land on which the spring is located pursuant to a 20 year lease expiring in the year 2017. The Company also has the right of first refusal to buy or lease the land expiring in the year 2026. The land abuts state game lands which reduces the risk of contamination or pollution from external sources. The Graysville Spring is approximately 32 miles from the Milesburg Facility and water is transported from the spring to the facility in the Company's stainless steel tanker trucks. Big Spring. The Company has entered into an agreement with the Borough of Bellefonte, Pennsylvania to purchase natural spring water from the Big Spring. The estimated total flow of the Big Spring is approximately 14 million gallons per day, and the Company has rights to purchase up to one million gallons per day. The total dissolved solids of the water from this spring is approximately 140 ppm. The term of the Company's agreement with the Borough of Bellefonte is 50 years with a five year automatic renewal unless prior notice of termination is given. The Company's rights to draw water from the Big Spring are subject to the satisfaction of the water demands of the Borough of Bellefonte water system. There is no restriction on sale by the Borough of Bellefonte of Big Spring water to other -27- purchasers. The Company is working with the Borough of Bellefonte to obtain the necessary permits and approvals to carry out the agreement and enable the Company to construct an approximately five-mile pipeline to transport water from the Big Spring to the Milesburg Facility. As part of the process, the Borough of Bellefonte must obtain a new water allocation permit to reflect an increase in the draw on Big Spring for both the Borough's own needs and for the sale of spring water to the Company. In addition, subsequent to the signing of the agreement with the Company, the Borough of Bellefonte has been directed by the Pennsylvania Department of Environmental Protection to construct a permanent cover over Big Spring. Although there can be no assurance that the Borough of Bellefonte will obtain all necessary permits or approvals, or obtain them in a timely manner, the Company believes that such permits and approvals are obtainable, and if obtained, the pipeline will be built and bottling of Big Spring water will commence in the Spring of 1999. Ginnie Springs. The Company has entered into an agreement with Seven Springs to purchase natural spring water from Ginnie Springs. Pursuant to the agreement, Seven Springs will sell 40 acres of land adjacent to Ginnie Springs to the Company for the construction of a water bottling facility. The Company also has a ten year option to purchase an additional 40 acres. The estimated total daily flow of Ginnie Springs is 25 million gallons, and pursuant to state regulations Seven Springs is permitted to sell an annual average of up to 1.15 million gallons per day. The total dissolved solids of the water from Ginnie Springs is approximately 140 ppm. The term of the agreement between the Company and Seven Springs is 99 years. The Company has obtained the necessary permits from the water management district and Gilchrist County and is expected to begin construction of the new bottling facility in the near future. The Company intends to pipe natural spring water from Ginnie Springs to the new bottling facility and begin bottling water in the Spring of 1998. Castle Rock. The Company's wholly owned subsidiary, Castle Rock, has an agreement with the City of Dunsmuir, California, pursuant to which Castle Rock purchases natural spring water from the City of Dunsmuir's spring source. The estimated total daily flow from the Castle Rock Spring is approximately one million gallons per day and the total dissolved solids of the water is approximately 95 ppm. The agreement permits Castle Rock to capture water from the source, and then pipe it approximately 1,800 feet to Castle Rock's bottling facility. The term of the agreement is 25 years (until 2015) and Castle Rock has an option to renew for an additional 25 years. The Company may purchase not more than 50 million gallons per year, provided that any daily amount drawn by the Company does not interfere with the domestic use of the City's current and future residential users. The deed in the chain of title that enables the City of Dunsmuir to sell natural spring water to Castle Rock contains limiting language that may restrict the City's ability to sell water to the Company. See "Risk Factors." Production The Company has fully equipped, highly automated state-of-the-art production facilities in Pennsylvania and California and intends to construct a state-of-the-art facility in Florida which is scheduled for completion in the Spring of 1998. The Company continuously upgrades and improves its production facilities to provide high speed, flexible bottling capabilities which permit the Company to be responsive to customers' shipment and production demands, and to supply a premium quality product. Spring Water Treatment and Bottling. Upon delivery to the Company's Milesburg and Castle Rock facilities, the spring water is filtered through 0.2 micron filters and then ozonated during storage in stainless steel storage tanks. Ozone is an unbalanced form of oxygen which, unlike regular oxygen, kills bacteria and micro-organisms 3,000 times faster than chlorine. Unlike chlorine, ozone naturally breaks down to simple oxygen in a few hours and leaves no traces or residues. At the Milesburg Facility, when the spring water leaves the storage tanks it is filtered through a one micron absolute filter and then run through an ultraviolet (UV) light disinfection unit. After exposure to UV light, the water is treated with ozone again. The ozonated water is then piped to the clean room bottling area where the various products are filled and capped. The residual ozone in the bottled products sanitizes the containers as well as the water, making certain the water is pure. The clean room is filled and pressurized with air from two high-volume HEPA (High-Efficiency Particulate Air) air handlers that filter 99.97% of particulates out of the air. -28- Packaging. The Company's 160,000 square foot Milesburg bottling facility is equipped with stainless steel equipment and has several bottling lines. The large space provides the Company with the flexibility to operate existing bottling lines at high speeds. The Company has equipment for multi-packing and is adding multi-pack shrink wrap equipment. The Company's products come in a wide range of bottle sizes including PET bottles in 8 ounce, 12 ounce, .5 liter, 20 ounce, 24.9 ounce, 1 liter, 1.5 liter and 2.0 liter sizes, and .5 gallon, 1 gallon, 2.5 gallon and 5 gallon sizes. The Company believes that it is an industry leader and innovator in packaging. The manufacturing process is highly automated. Bottles are mechanically de-palletized, cleaned, rinsed, filled and capped. The bottles are automatically labeled, tamper banded, assembled and packed in cases. After palletizing and stretch wrapping, the product is either loaded directly onto a truck for immediate shipment or is stored in a warehouse for future shipment. Most products are shipped within 48 to 72 hours after production via outside carriers. Quality Control. The Company maintains exacting internal quality control standards. Each batch of bottled natural spring water is tested for at least nine chemical and physical parameters as well as five microbiological parameters. The Graysville Spring source and critical points in the Milesburg Facility bottling process are evaluated weekly. Water from the Castle Rock spring is tested daily and the spring source is inspected weekly. In addition, the Company's spring water is tested annually for over 140 contaminants by an independent testing laboratory. The Company uses stainless steel equipment in order to maximize quality control and cleanliness and maintains an in-house microbiological laboratory at both its Milesburg and Castle Rock facilities. The Company believes that its quality control standards are equal or superior to the standards of most bottled water producers. The Company's products are certified by the National Sanitation Foundation (the "NSF"), an independent agency serving industry, government and consumers in areas relating to public health and the environment. The NSF conducts annual unannounced inspections and extensive product and raw material testing. The Company was awarded the "excellence in manufacturing" award by the International Bottled Water Association, an award which recognizes the Company's commitment to quality and purity. Competition The bottled water industry is highly competitive. According to Beverage Marketing, there are approximately 350 bottled water filling locations in the United States with sales increasingly concentrated among the larger firms. According to Beverage Marketing, the ten largest bottled water companies accounted for approximately 58.4% of wholesale dollar sales in 1996. Many of the Company's competitors are more experienced, have greater financial and management resources and have more established proprietary trademarks and distribution networks than the Company. On a national basis, the Company competes with bottled water companies such as The Perrier Group of America, Inc. (which includes Arrowhead Mountain Spring Water, Poland Spring, Ozarka Spring Water, Zephyrhills Natural Spring Water, Deer Park, Great Bear and Ice Mountain) and Great Brands of Europe (which includes Evian Natural Spring Water and Dannon Natural Spring Water). The Company also competes with numerous regional bottled water companies located in the United States and Canada. AquaPenn has chosen to compete by focusing on innovative packaging, customer service and pricing. Facilities The Company's Pennsylvania bottling facility, opened in May 1995 and expanded in February 1997, is located in Milesburg, Pennsylvania, on a 30-acre parcel of land owned by the Company. The February 1997 addition expanded the Company's facility by 52,000 square feet for a total facility of 160,000 square feet. This addition has been used for the manufacture of both PET and high density polyethylene (1 gallon) bottles. The Company is currently increasing the size of the Milesburg Facility to 345,000 square feet. Two new sections measuring 115,000 square feet and 70,000 square feet will be added to each end of the existing facility. These additions are scheduled to be completed by February 1998. The Company also leases approximately 11,000 square feet of warehouse space located in Boggs Township, Pennsylvania pursuant to a lease expiring on January 15, 1998. -29- The Company's wholly owned subsidiary, Castle Rock, leases a 26,000 square foot office and warehouse in Redding, California pursuant to a lease expiring November 30, 1999. In addition, Castle Rock owns a 20,000 square foot bottling facility in Dunsmuir, California. Castle Rock also separately leases a 2,000 square foot storage space. The Company intends to construct, own and operate a 52,500 square foot expandable state-of-the-art water bottling facility on 40 acres adjacent to Ginnie Springs. The new facility will feature all stainless steel production equipment and computerized systems similar to those in place at the Milesburg Facility. The Company expects the facility to be completed in the Spring of 1998. Management Information Systems The Company utilizes a software package which runs on an IBM platform and integrates all financial, reporting, warehousing, production, and other applications including EDI ordering. The Company believes that its management information systems are adequate to handle the Company's current growth plans. Trademarks The Company has registrations in the U.S. Patent and Trademark Office for many of the trademarks that it uses, including Pure American, Great American and AquaPenn. The Company believes that its common law and registered trademarks have significant value and goodwill and that some of these trademarks are instrumental in its ability to create demand for and market its products. There can be no assurance that the Company's common law or registered trademarks do not or will not violate the proprietary rights of others, that they would be upheld if challenged or that the Company would, in such an event, not be prevented from using the trademarks, any of which could have an adverse effect on the Company. Regulation The Company's operations are subject to numerous federal, state and local laws and regulations relating to its bottling operations, including the identity, quality, packaging and labeling of its bottled water. The Company's bottled water must satisfy FDA standards, which may be periodically revised, for chemical and biological purity. The Company's bottling operations must meet FDA "good manufacturing practices," and the labels affixed to the Company's products are subject to FDA restrictions on health and nutritional claims. In addition, bottled water must originate from an "approved source" in accordance with federal and state standards. State health and environmental agencies also regulate water quality and the manufacturing practices of producers. The Pennsylvania Department of Environmental Protection ("DEP") requires the Company to submit one finished product sample and one source sample of water from the Graysville Spring each week to DEP from a certified microbiological lab for certified bacteriological analysis. In California, the Department of Health Services ("DHS") is the principal agency with regulatory authority over bottled water producers, and DHS regulations generally incorporate FDA requirements. The Company is a member of the International Bottled Water Associations ("IBWA"), a trade organization which promulgates regulations regarding the quality of water which its members may market. The Company is currently in compliance with the IBWA regulations; however, there can be no assurance that the spring water sourced by the Company will continue to meet IBWA regulations. The Company has satisfied applicable state and federal requirements and therefore is permitted to sell its bottled water in all 50 states. These laws and regulations are subject to change, however, and there can be no assurance that additional or more stringent requirements will not be imposed on the Company's operations in the future. Although the Company believes that its water supply, products and bottling facilities are in substantial compliance with all -30- applicable governmental regulations, failure to comply with such laws and regulations could have a material adverse effect on the Company. Legal Proceedings The Company is not a party to any material legal proceedings. Employees The Company currently employs approximately 225 full-time employees, including Castle Rock employees, none of whom are covered by collective bargaining agreements. During peak production periods, the Company supplements its full-time work force with part-time employees. The Company believes that its relations with its employees are good. -31- MANAGEMENT Executive Officers and Directors The officers and directors of the Company, together with their ages and business backgrounds, are as follows: Name Age Position with Company ---- --- --------------------- Edward J. Lauth, III ..... 43 Chairman, President, Chief Executive Officer and Director Geoffrey F. Feidelberg ... 42 Executive Vice President, Chief Operating Officer and Chief Financial Officer and Director Dennis B. Nisewonger ..... 49 Controller and Assistant Secretary Calvin J. Wagner, Jr.(1) . 38 Secretary and Director Walter Bruce(2)........... 58 Director Nancy Jean Davis.......... 45 Director Richard F. DeFluri(1) .... 47 Director John H. Gutfreund......... 68 Director James D. Hammond(1)....... 63 Director Robert E. Poole, Jr.(1)... 46 Director Norman S. Rich(2)......... 59 Director Henry S. Shatkin.......... 69 Director Matthew J. Suhey.......... 39 Director - --------------- (1) A member of the Compensation Committee. (2) Assuming that the Selling Shareholder sells all of its shares of Common Stock in this Offering, the Selling Shareholder shall cause Messrs. Bruce and Rich to resign from the Board effective immediately thereafter. Edward J. Lauth, III is the founder of the Company and has been Chairman, President, Chief Executive Officer and a director of the Company since the Company's founding in 1986. Prior to founding the Company, Mr. Lauth spent several years developing and selling commercial real estate, in addition to founding and selling two businesses in State College, Pennsylvania. Mr. Lauth received a B.S. from Rollins College. Mr. Lauth is also a member of the Regional Board of Directors of Mid-State Bank and Trust Company ("Mid-State Bank"), a subsidiary of Keystone Financial, Inc. Mr. Lauth is responsible for sales, marketing and strategic planning of the Company. -32- Geoffrey F. Feidelberg has been Executive Vice President and Chief Financial Officer since 1989 and Chief Operating Officer and a director of the Company since 1993. Prior thereto, Mr. Feidelberg was a Senior Manager in the Fort Lauderdale office of Price Waterhouse. Mr. Feidelberg received a B.S. in Accounting from the State University of New York at Binghamton and is a Certified Public Accountant. Mr. Feidelberg is also currently the President and a director of SPE Federal Credit Union. Mr. Feidelberg is responsible for the Company's administration, finance, manufacturing and strategic planning. Dennis B. Nisewonger has been Controller of the Company since 1993 and Assistant Secretary since 1995. Prior to joining the Company, Mr. Nisewonger was the fiscal officer for Dauphin County. From 1982 to 1989, Mr. Nisewonger was controller of Murata Electronics, Inc. Mr. Nisewonger is responsible for the Company's internal accounting and auditing function. Calvin J. Wagner, Jr. has been Secretary and a director of the Company since 1988. Mr. Wagner is a Certified Public Accountant and is currently a partner in the accounting firm of Seligman, Friedman & Co., P.C. From 1991 to 1994, Mr. Wagner was a partner in the accounting firm of Wagner, Mock and Martella. Walter Bruce has been a director of the Company since 1995. Mr. Bruce has been the Vice President-Private Label for Weis Markets, Inc., a publicly owned supermarket chain, since 1976. Nancy Jean Davis has been a director of the Company since 1987. Since 1986, Ms. Davis has been the President and Chairman of McArthur Farms, Inc., a corporation engaged in the distribution of dairy, citrus, beef and feed ingredient commodities. Richard F. DeFluri has been a director of the Company since 1987. Mr. DeFluri has been a Senior Associate of the Pennsylvania Financial Group since 1974. In addition, Mr. DeFluri is a director of The Abbey Company, Aris Corporation, Nittany Health Care, Inc., Joyner Sports Medicine, Inc. and PFG Capital. John H. Gutfreund, former Chairman and Chief Executive Officer of Salomon Brothers, Inc. from 1984 to 1991, has been a director of the Company since 1995. Since 1993, Mr. Gutfreund has been President of Gutfreund & Company, a New York-based financial consulting firm. Mr. Gutfreund is also a director of LCA Vision, Inc. James D. Hammond, Ph.D. has been a director of the Company since 1994. Since 1988, Mr. Hammond has been Dean of the Smeal College of Business Administration at Pennsylvania State University. Mr. Hammond is a director of Atlantic Mutual Insurance Company and a trustee of the Scudder Variable Life Fund, the Scudder Pathway Funds and the Scudder Institutional Fund. Robert E. Poole, Jr. has been a director of the Company since 1994. He has been the Chief Executive Officer and President of S&A Custom Built Homes, Inc., one of the 100 largest homebuilders in the United States, since 1992. Mr. Poole is also on the Advisory Board of PNC Bank of Central Pennsylvania. Norman S. Rich, a director of the Company since 1989, has been President of Weis Markets, Inc. since 1995. He has served on Weis Markets' Board of Directors since 1990. From 1980 to 1995 Mr. Rich was Vice President of Operations for Weis Markets, Inc. Henry S. Shatkin has been a director of the Company since 1995. Mr. Shatkin has been the Chief Executive Officer of Shatkin, Arbor, Karlov, a commodities firm in Chicago, since 1992. Matthew J. Suhey has been a director of the Company since 1993. Mr. Suhey has been an independent commodities trader at the Chicago Board of Trade since 1990. In addition, Mr. Suhey has been an independent food broker on behalf of the Company since 1992. -33- The directors of the Company are elected at the annual meeting of shareholders and each director so elected holds office until his or her successor is elected and shall qualify, or until his or her earlier resignation or removal. The executive officers of the Company are elected by the Board of Directors and serve at the discretion of the Board of Directors. There are no family relationships among any of the directors or executive officers of the Company. Committees of the Board of Directors; Compensation Committee Interlocks The Board of Directors will elect an Audit Committee and has a standing Compensation Committee. Among other functions, the Audit Committee will make recommendations to the Board of Directors regarding the selection of independent auditors, review the results and scope of the audit and other services provided by the Company's independent auditors, review the Company's financial statements and review and evaluate the Company's internal control functions. The Compensation Committee periodically reviews and evaluates the compensation of the Company's officers and establish guidelines for compensation and benefits for the Company's personnel. The Compensation Committee is comprised of Messrs. DeFluri, Poole, Hammond and Wagner. Mr. Wagner has a stock subscription payable to the Company in the amount of $71,878. Compensation of Directors Each director receives 901 shares of Common Stock per year plus reimbursement of reasonable expenses incurred to attend meetings of the Board of Directors. -34- Executive Compensation The following table sets forth a summary of certain information regarding the compensation paid or to be paid by the Company for services rendered to the Company during the fiscal year ended September 30, 1997 with respect to the Company's Chief Executive Officer and all other executive officers whose total annual salary and bonus exceeded $100,000 for such period (the "Named Executives"). Summary Compensation Table Long-Term Annual Compensation Compensation ------------------- ------------ Securities Underlying All Other Name and Principal Position Year Salary(1) Options(2) Compensation - --------------------------- ---- --------- ------------ ------------ Edward J. Lauth, III 1997 $201,250 30,040 $ 41,789(3) Chairman, President and Chief Executive Officer Geoffrey F. Feidelberg, 1997 $161,000 30,040 $ 27,192(4) Executive Vice President, Chief Operating Officer and Chief Financial Officer - -------------- (1) Includes deferred income of 15% of each officer's base annual salary. (2) Granted pursuant to employment agreements which provide for such grants each fiscal year in which the Company's after-tax profits exceed $1 million. (3) Includes the following amounts: $3,960 (matching 401(k) contribution); $5,753 (life insurance premiums); $1,000 (award for annual service for 10 years); $21,711 (health insurance coverage); $5,850 (value of shares received for Board membership); and $3,515 (long-term disability insurance). (4) Includes the following amounts: $3,209 (matching 401(k) contribution); $4,739 (life insurance premium); $700 (award for annual service for 7 years); $7,537 (health insurance coverage); $5,850 (value of shares received for Board membership); and $5,157 (long-term disability insurance). Option Grants in Last Fiscal Year The following table summarizes certain information with respect to Company stock options granted to the Named Executives during the fiscal year ended September 30, 1997.
Individual Grants ------------------------------------------------------ Percent of Total Potential Realizable Number of Options Value at Assumed Securities Granted to Exercise Annual Rates of Stock Underlying Employees or Base Price Price Appreciation for Options in Fiscal Per Option Term(1) Name Granted Year 1997 Share Expiration Date 5% 10% ---- ---------- ----------- ------------- --------------- ---------- ---------- Edward J. Lauth, III 30,040(2) 50% $7.07 9/30/2007 $133,757 $338,787 Geoffrey F. Feidelberg 30,040(3) 50% $7.07 9/30/2007 $133,757 $338,787 - -----------------------
-35- (1) This column shows the hypothetical gains on the options granted based on assumed annual compound stock appreciation rates of 5% and 10% over the full ten-year term of the options. The assumed rates of appreciation are mandated by the rules of the Securities and Exchange Commission (the "Commission") and do not represent the Company's estimate or projection of future Common Stock prices. (2) Granted pursuant to an Employment Agreement dated September 16, 1994 between the Company and Mr. Lauth which provides for a grant of an option to purchase 30,040 shares of Common Stock to Mr. Lauth for each fiscal year in which after-tax profits of the Company exceed $1 million. (3) Granted pursuant to an Employment Agreement dated September 16, 1994 between the Company and Mr. Feidelberg which provides for a grant of an option to purchase 30,040 shares of Common Stock to Mr. Feidelberg for each fiscal year in which after-tax profits of the Company exceed $1 million. Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values The following table sets forth information concerning the number and value of exercisable and unexercised options to purchase Common Stock held by the Named Executives as of September 30, 1997. No Named Executive exercised any options for Company Stock during fiscal 1997. Aggregated Option Exercises in the Fiscal Year ended September 30, 1997 and Option Values at September 30, 1997
Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options at September 30, 1997 Options at September 30,1997(1) ----------------------------- ------------------------------- Name Exercisable Unexercisable Exercisable Unexercisable ---- ----------- ------------- ----------- ------------- Edward J. Lauth, III 90,120 -- $ 939,300 $ -- Geoffrey F. Feidelberg 330,440 -- $4,081,100 $ -- - -----------------------
(1) Value determined based on the difference between an assumed fair market value on September 30, 1997 of $15.00 per share (equal to the assumed Offering price per share) and the option exercise price for each above-stated option. Employment Agreements Edward J. Lauth, III. In September 1994, the Company and Mr. Lauth entered into an employment agreement pursuant to which Mr. Lauth receives a salary, adjusted as of September 1996, of $175,000 per year and deferred compensation in the amount of 15.0% of his annual salary. The employment agreement also provides for Mr. Lauth to receive options to purchase 30,040 shares of Common Stock for each fiscal year in which AquaPenn's after-tax profits exceed $1 million. Such after-tax profits were attained for the fiscal years ended September 30, 1996 and 1997. Such options are immediately exercisable, have a term of ten years and an exercise price equal to the fair market value of the Common Stock on the date of grant. The initial term of the employment agreement ended December 31, 1995, but the employment agreement automatically renews for an unlimited number of successive one-year terms unless six months written notice of termination is given by either party. The employment agreement contains a non-compete provision which extends for two years beyond termination of the employment agreement. -36- The Company and Mr. Lauth also entered into a change in control agreement in September 1994, which provides that if, within one year of a "change in control" (as defined in the agreement) of AquaPenn, Mr. Lauth is terminated or resigns because his responsibilities have diminished or been significantly changed or his salary has been reduced by more than 15.0%, Mr. Lauth shall be entitled to receive one year's salary and benefits and all outstanding stock options held by Mr. Lauth shall become immediately exercisable. The change in control agreement terminates if Mr. Lauth ceases to be employed by the Company prior to a change in control. Geoffrey F. Feidelberg. In September 1994, the Company and Mr. Feidelberg entered into an employment agreement, pursuant to which Mr. Feidelberg receives a salary, adjusted as of September 1996, of $140,000 per year and deferred compensation in the amount of 15.0% of his annual salary. The employment agreement also provides for Mr. Feidelberg to receive options to purchase 30,040 shares of Common Stock for each fiscal year in which AquaPenn's after-tax profits exceed $1 million. Such after-tax profits were attained for the fiscal years ended September 30, 1996 and 1997. Such options are immediately exercisable, have a term of ten years and an exercise price equal to the fair market value of the Common Stock on the date of grant. The initial term of the employment agreement ended December 31, 1995, but the employment agreement automatically renews for an unlimited number of successive one-year terms unless six months written notice of termination is given by either party. The employment agreement contains a non-compete provision which extends for two years beyond termination of the employment agreement. The Company and Mr. Feidelberg have also entered into a change in control agreement in September 1994 on substantially the same terms as the change in control agreement entered into with Mr. Lauth. Stock Plans The Company's 1992 Stock Option Plan (the "Option Plan") was adopted by the Company's Board of Directors in November 1992 and approved by its shareholders in March 1993. Options exercisable for a total of 300,400 shares of Common Stock are issuable under the Option Plan. The Option Plan provides for the grant to employees of either "incentive stock options" within the meaning of Sections 421 and 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or nonqualified stock options. Under the Option Plan, only employees (including officers) of the Company are eligible to receive options under the Option Plan. The exercise price of incentive stock options must at least equal the fair market value for the underlying shares on the date of grant or, in the case of options granted to holders of 10.0% or more of the outstanding Common Stock, 110.0% of the fair market value on the date of grant. The exercise price of nonqualified stock options must not be less than the fair market value of the underlying shares on the date of grant. To date, no stock options have been granted under the Option Plan. The Option Plan is administered by a committee of four persons appointed by the Board of Directors of the Company which determines the terms of options granted under the Option Plan, including the exercise price and the number of shares subject to the option. The Option Plan provides the Board of Directors with the discretion to determine when options granted thereunder shall become exercisable. Generally, for options granted to employees, such options may be exercised at any time prior to expiration, so long as the optionee continues to be employed by the Company. No option granted under the Option Plan is transferable by the optionee other than by will or the laws of descent and distribution, and each option is exercisable during the life of the optionee only by the optionee. The Company's Stock Purchase Plan was adopted by the Company's Board of Directors in February 1996 and approved by its shareholders in April 1996. A total of one million shares of Common Stock are issuable under the Stock Purchase Plan. No employee will be granted an option if, immediately after the option is granted, such employee will own 5.0% or more of the total voting power or value of all classes of the Company's stock. In addition, no employee will be granted an option if such employee's rights to purchase shares exceeds $25,000 of the fair market value of such shares for such calendar year. -37- Under the terms of the Stock Purchase Plan, eligible employees may purchase shares of the Company's Common Stock at 85% of the fair market value at the offering date. Payment for the shares must be made within one year of the offering date. An employee may cancel his or her subscription any time prior to payment in full for the shares. No rights under the Stock Purchase Plan are assignable or transferrable by the employee other than by will or the laws of descent and distribution, and only the employee may exercise such rights during his or her lifetime. The employee's rights under the Stock Option Plan terminate immediately in the event the employment of the employee is terminated for any reason other than death, temporary layoff or retirement with the consent of the Company. Upon termination due to death or retirement with consent of the Company the employee or the employee's estate has one year to pay any amounts due for purchase of shares. If the employee is subjected to temporary layoff and is subsequently rehired within six months, the employee may continue to pay for shares subscribed to by such employee. At September 30, 1997, approximately 76,254 shares were subscribed for by eligible employees under the Stock Purchase Plan. -38- CERTAIN TRANSACTIONS The Company and Matthew J. Suhey, a director of the Company, have entered into an agreement pursuant to which Mr. Suhey acts as an independent food broker with the Company. Mr. Suhey received compensation of $250,000 in fiscal year 1997 for his services as an independent food broker on behalf of the Company. In addition, accrued commissions to Mr. Suhey as of September 30, 1997, were $20,833. In September 1995, the Board of Directors of the Company resolved to grant to Mr. Suhey options to purchase 30,040 shares of Common Stock of the Company for each year in which AquaPenn's after-tax profits exceed $1 million. Such after-tax profits have been achieved for fiscal years 1996 and 1997. Norman S. Rich, a Director of the Company, is the President of Weis Markets, Inc., the ultimate parent of Aqua Works, Inc., a 42.0% shareholder of the Company. Weis Markets, Inc., which owns and operates supermarkets, purchases natural spring water products from the Company at market prices. Such purchases constituted approximately 2% of the Company's total net revenues in fiscal 1997. On August 29, 1997 the Company entered into a Credit Agreement with Mid-State Bank, pursuant to which Mid-State Bank has extended a $10.0 million revolving credit line and a $6.0 million line of credit to the Company. Edward J. Lauth, III, President and a director of the Company, is on the Regional Board of Directors of Mid-State Bank. As of September 30, 1997, Calvin J. Wagner, Jr., a director of the Company, had a stock subscription payable to the Company in the amount of $71,878. -39- PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDER The table below sets forth as of October 24, 1997 certain information regarding the beneficial ownership of shares of Common Stock (i) by each director and executive officer of the Company, (ii) by all the directors and officers as a group, (iii) by each person who is known by the Company to be the owner (or beneficial owner) of 5.0% or more of the Company's outstanding shares of Common Stock and (iv) by one of the Company's current shareholders who is offering to sell shares in this Offering.
Beneficial Ownership(1) Beneficial Ownership(1) Prior to the Offering After the Offering ----------------------- Shares to ----------------------- Shares Percent be sold Shares Percent ------ ------- ------- ------ ------- Directors and Officers(2): Norman S. Rich..... 1,867,587(3)(14) 42.2% 1,859,000 8,587 * % Edward J. Lauth, III 1,249,592(4) 27.2 -- 1,249,592 18.6 Matthew J. Suhey .. 361,231(5) 7.6 -- 361,231 5.2 Geoffrey F. Feidelberg 356,876(6) 7.5 -- 356,876 5.2 Nancy Jean Davis .. 249,615(7) 5.6 -- 249,614 3.8 Calvin J. Wagner, Jr. 127,129(8) 2.9 -- 127,129 1.9 Henry S. Shatkin .. 85,013(9) 1.9 -- 85,013 1.3 Robert E. Poole ... 38,451(10) * -- 38,451 * Richard F. DeFluri 36,048(11) * -- 36,048 * James D. Hammond .. 24,107(12) * -- 24,107 * John H. Gutfreund . 23,431 * -- 23,431 * Walter Bruce ...... 1,802(13) * -- 1,802 * All Directors and Officers as a Group (13 persons) 4,426,144 79.8% -- 2,567,145 33.4 Other Principal and Selling Shareholder: Aqua Works, Inc. (14) 1,859,476(14) 42.0% 1,859,000 476 *
- --------------------- * Less than one percent. (1) A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date of this Prospectus upon the exercise of options or warrants. Each beneficial owner's percentage ownership is determined by assuming that options or warrants that are held by such person (but not those held by any other person) and that are exercisable within 60 days from the date of this Prospectus have been exercised. Unless otherwise noted, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. For purposes of the table, shares of Common Stock are considered beneficially owned by a person if such person has or shares voting or investment power with respect to such stock. As a result, the same security may be beneficially owned by more than one person and, accordingly, in some cases, the same shares are listed opposite more than one name in the table. (2) Address is c/o One AquaPenn Drive, Milesburg, Pennsylvania, 16853. (3) Mr. Rich is the President of Aqua Works, Inc. and Weis Markets, Inc., the ultimate parent of Aqua Works, Inc., the holder of 1,859,476 shares of Common Stock. Because as President of Aqua Works, Inc. and Weis -40- Markets, Inc. Mr. Rich controls the voting and investment power of such shares, for purposes of computing beneficial ownership, Mr. Rich is considered to be the beneficial owner of the 1,859,476 shares of Common Stock held by Aqua Works, Inc. Mr. Rich disclaims beneficial ownership of any shares held by Aqua Works, Inc. (4) Includes 30,653 shares held by the Lauth Family Limited Partnership, 13,067 shares in a Rabbi Trust for the benefit of Mr. Lauth, options and warrants to purchase 165,220 shares of Common Stock and 114,512 shares of Common Stock held by ASW Investors, a Pennsylvania general partnership which has granted Mr. Lauth a proxy to vote all of its shares. (5) Includes options to purchase 330,440 shares of Common Stock and 15,020 shares of Common Stock held through ASW Investors, in which Mr. Suhey has a 13.1% general partner interest. (6) Includes 10,814 shares in a Rabbi Trust for the benefit of Mr. Feidelberg, 180 shares held in trusts for which Mr. Feidelberg is trustee, 6,008 shares held by his spouse and 330,440 shares exercisable pursuant to options. (7) Includes 39,334 shares and warrants for 21,028 shares of Common Stock held by the Nancy Jean Davis Trust and 189,252 shares of Convertible Preferred Stock held by the Nancy Jean Davis Trust. (8) Includes 12,617 shares of Convertible Preferred Stock and 114,512 shares of Common Stock held through ASW Investors, in which Mr. Wagner has a 0.3% general partner interest and, as managing partner, has the power to sell all of the shares. (9) Includes 10,814 shares of Common Stock held by M-S Capital Fund and 15,020 shares of Common Stock held through ASW Investors, in which Mr. Shatkin has a 13.1% general partner interest. (10) Includes 10,814 shares of Common Stock and 24,032 shares of Convertible Preferred Stock held jointly by Mr. Poole with his spouse. (11) Includes 9,012 shares of Common Stock held by Adicus, L.P. and 27,036 shares of Convertible Preferred Stock held by Adicus, L.P. (12) Includes warrants for 9,012 shares of Common Stock, and 4,731 shares of Common Stock and 6,759 shares of Convertible Preferred Stock held jointly by Mr. Hammond with his spouse. (13) Mr. Bruce is a Vice President of Weis Markets, Inc., the ultimate parent of Aqua Works, Inc., the holder of 1,859,476 shares of Common Stock. Mr. Bruce disclaims beneficial ownership of any shares held by Aqua Works, Inc. (14) Includes warrants for 135,180 shares of Common Stock. The address of Aqua Works, Inc. is 1000 S. Second Street, Sunbury, Pennsylvania, 17801-0471. Weis Markets, Inc. is the ultimate parent of Aqua Works, Inc. -41- DESCRIPTION OF CAPITAL STOCK The following description of the Company's capital stock does not purport to be complete and is subject in all respects to applicable Pennsylvania law and to the provisions of the Company's Articles of Incorporation, as amended, and By-laws, copies of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part. The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock, no par value, and 2,000,000 shares of Convertible Preferred Stock, par value $1.00 per share. Immediately following the completion of this Offering, the Company estimates that there will be outstanding an aggregate of 6,555,888 shares of Common Stock and 1,702,500 shares of Convertible Preferred Stock which are convertible into 1,022,862 shares of Common Stock. Common Stock Holders of the Common Stock are entitled to one vote per share on all matters to be voted upon by the shareholders. Holders of Common Stock do not have cumulative voting rights, and therefore holders of a majority of the shares voting for the election of directors can elect all of the directors. In such event, the holders of the remaining shares will not be able to elect any directors. Holders of the Common Stock are entitled to receive such dividends as may be declared from time to time by the Board of Directors out of funds legally available therefor, subject to the terms of the agreements governing the Company's long-term debt. The Company does not anticipate paying cash dividends in the foreseeable future. See "Dividend Policy." In the event of the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and payments to holders of the Convertible Preferred Stock. Holders of the Common Stock have no preemptive, conversion or redemption rights and are not subject to further calls or assessments by the Company. Immediately upon consummation of this Offering, all of the then outstanding shares of Common Stock will be validly issued, fully paid and nonassessable. The Transfer Agent and Registrar for the Common Stock is ______________. Preferred Stock The Board of Directors has the authority, without any vote or action by the shareholders, to issue Preferred Stock in one or more series and to fix the designations, preferences, rights, qualifications, limitations and restrictions thereof, including the voting rights, dividend rights, dividend rate, conversion rights, terms of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences and the number of shares constituting any series. In addition, the issuance of Preferred Stock by the Board of Directors could be utilized, under certain circumstances, as a method of preventing a takeover of the Company at a premium above the then prevailing market price. Convertible Preferred Stock The Convertible Preferred Stock is convertible at the option of the holder at any time into shares of Common Stock at the rate of one share of Convertible Preferred Stock into 0.6008 shares of Common Stock. The number of shares of Common Stock into which the Convertible Preferred Stock is converted shall be adjusted to take into account increases or reductions in the number of shares of outstanding Common Stock by reason of a split, share -42- dividend, merger or consolidation. The Convertible Preferred Stock has no redemption features, but does have a preference in liquidation. Pennsylvania Corporate Law Provisions The Company's Articles of Incorporation and By-laws contain certain provisions which may have the effect of deterring or discouraging, among other things, a non-negotiated tender or exchange offer for Company stock, a proxy contest for control of the Company, the assumption of control of the Company by a holder of a large block of the Company's stock and the removal of the Company's management. These provisions empower the Board of Directors, without shareholder approval, to issue Preferred Stock the terms of which, including voting power, are set by the Board. The Pennsylvania Business Corporation law contains certain provisions applicable to the Company which may have similar effects. These provisions, among other things: (1) require that, following any acquisition by any person or group of 20% of a public corporation's voting power, the remaining shareholders have the right to receive payment for their shares, in cash, from such person or group in an amount equal to the "fair value" of the shares, including an increment representing a proportion of any value payable for control of the corporation; (2) prohibit for five years, subject to certain exceptions, a "business combination" (which includes a merger or consolidation of the corporation or a sale, lease or exchange of assets) with a shareholder or group of shareholders beneficially owning 20% or more of a public corporation's voting power; (3) suspend the voting rights of the shares acquired by a person or group acquiring 20% or more of the voting power of the corporation; (4) require that a person or group who acquired, offered to acquire or publicly disclosed the intention of acquiring at least 20% of the voting power of the corporation disgorge "greenmail" profits or profits realized from the disposition of the corporation's securities within 18 months after acquiring at least 20% of the voting power if the security had been acquired by such person or group within 24 months before or 18 months after such person or group acquired 20% of the voting power of the corporation; (5) allow the corporation to adopt shareholders' rights plans with discriminatory provisions (sometimes referred to as "poison pills") whereby options to acquire shares of corporate assets are created and issued which contain terms that limit persons owning or offering to acquire a specified percentage of outstanding shares from exercising, converting, transferring or receiving options and allow the exercise of options to be limited to shareholders or triggered based upon control transactions; (6) shareholders of a corporation would no longer have a statutory right to call special meetings of shareholders or to propose amendments to the articles of incorporation; and (7) in discharging the duties of their respective positions, the board of directors, committees of the board and individual directors may, in considering the best interests of the corporation, consider to the extent they deem appropriate, (i) the effects of any action upon shareholders, employees, suppliers, customers and creditors of the corporation and upon the communities in which offices or other establishments of the corporation are located, (ii) the short-term and long-term interests of the corporation, including benefits that may accrue to the corporation from its long-term plans and the possibility that these interests may be best served by the continued independence of the corporation, (iii) the resources, intent and conduct (past, stated and potential) of any person seeking to acquire control of the corporation, (iv) and all other pertinent factors. Further, the board of directors, committees of the board and individual directors are not required, in considering the best interests of the corporation or the effects of any action, to regard any corporate interest or the interests of any particular group affected by such action as a dominant or controlling interest or factor. The consideration of the foregoing factors shall not constitute a violation of the board's applicable standard of care. Amendment of Articles of Incorporation. The Pennsylvania Business Corporation Law provides that the Articles of Incorporation of a Pennsylvania corporation may be amended by the affirmative vote of a majority of the outstanding voting stock of such corporation, except as otherwise provided by such corporation's Articles of Incorporation. -43- General Effect of Anti-Takeover Provisions. The overall effect of these provisions and the existing change in control agreements (see "Management--Employment Agreements") may be to deter a future tender offer or other takeover attempt that some shareholders might view to be in their best interests as the offer might include a premium over the market price of the Common Stock at that time. In addition, these provisions may have the effect of assisting the Company's current management in retaining its position and place it in a better position to resist changes which some shareholders may want to make if dissatisfied with the conduct of the Company's business. -44- SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this Offering, the Company will have 6,555,888 shares of Common Stock issued and outstanding (assuming the Underwriters' over-allotment option is not exercised). Of these shares, all 3,859,000 of the shares sold in this Offering (plus any additional shares sold upon the exercise of the Underwriters' over-allotment option) will be freely tradable under the Securities Act, except for shares purchased by "affiliates" of the Company within the meaning of the rules and regulations under the Securities Act. The remaining 2,696,888 outstanding shares (the "Restricted Shares"), which were issued by the Company in reliance upon the "private placement" exemption provided by Section 4(2) of the Securities Act, will be deemed restricted securities within the meaning of Rule 144. Restricted Shares may not be sold unless they are registered under the Securities Act or are sold pursuant to an applicable exemption from registration, including an exemption under Rule 144. In general, Rule 144 permits any person who has beneficially owned shares of Common Stock for at least one year to sell without registration, within any three-month period, a number of such shares not exceeding the greater of one percent of the then outstanding shares of Common Stock or the average weekly trading volume in the Common Stock during the four calendar weeks preceding such sale. Sales under Rule 144 also are subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. After they have been paid for and held for more than two years, Restricted Shares held by persons who are not affiliates of the Company may be sold without limitation. Certain current shareholders of the Company who in the aggregate hold shares of Common Stock have agreed that they will not sell shares of Common Stock prior to the expiration of 180 days from the date of this Prospectus except with the written consent of the Representatives of the Underwriters. See "Underwriting." Commencing , 1997, shares of Common Stock held by such current shareholders will be eligible for sale in accordance with Rule 144, subject to the volume limitations thereof. Options and warrants (excluding the Weis Markets Warrant) to purchase a total of 937,248 shares of Common Stock have been granted to certain officers, directors and shareholders under pre-existing agreements. A total of 300,400 shares of Common Stock are reserved for issuance under the Option Plan, of which none will have been issued on the date of this Prospectus. A total of 600,800 shares of Common Stock has been reserved for issuance under the Stock Purchase Plan and as of , 1997, shares have been purchased by employees. See "Management -- Stock Plans." The Company may file one or more registration statements on Form S-8 immediately following this Offering, registering under the Securities Act shares issued or to be issued pursuant to these options or the Stock Purchase Plan. The holders of the options referred to in this paragraph have also agreed that they will not sell any shares of Common Stock acquired by them upon the exercise of their options during the 180 day period following the date of this Prospectus except with the written consent of the Representatives of the Underwriters. Thereafter, shares issued upon exercise of outstanding stock options generally may be sold in the open market. Prior to this Offering, there has been no market for the Common Stock, and no precise prediction can be made of the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price prevailing from time to time. Nevertheless, sales of substantial amounts of the Common Stock in the public market could adversely affect prevailing market prices and limit the Company's ability to raise additional capital. See "Risk Factors -- Arbitrary Determination of Offering Price; Possible Volatility of Stock Price" and "Risk Factors -- No Prior Public Market." -45- UNDERWRITING The Underwriters named below, acting through PaineWebber Incorporated, Lazard Freres & Co. LLC and Parker/Hunter Incorporated (the "Representatives"), have severally agreed, subject to the terms and conditions set forth in the Underwriting Agreement by and among the Company, the Selling Shareholder and the Representatives (the "Underwriting Agreement"), to purchase from the Company and the Selling Shareholder, and the Company and the Selling Shareholder have agreed to sell to the Underwriters, the number of shares of Common Stock set forth opposite the names of such Underwriters below: Number Underwriter of Shares - ------------- --------- PaineWebber Incorporated................. Lazard Freres & Co. LLC.................. Parker/Hunter Incorporated............... _________ Total............................... ========= The Underwriting Agreement provides that the obligations of the Underwriters to purchase all of the shares of Common Stock are subject to certain conditions. The Underwriters are committed to purchase, and the Company and the Selling Shareholder are obligated to sell, all shares of Common Stock offered by this Prospectus if any of the shares of Common Stock being sold pursuant to the Underwriting Agreement are purchased. The Company has been advised by the Representatives that the Underwriters propose to offer the shares of Common Stock to the public initially at the Offering price set forth on the cover page of this Prospectus and to certain securities dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a discount not in excess of $ per share. After the Offering, the Offering price and the concessions and discounts may be changed by the Representatives. The Company has granted an option to the Underwriters, exercisable during the 30-day period after the date of this Prospectus, to purchase up to 578,850 additional shares of Common Stock at the Offering price less the underwriting discount and commissions set forth on the cover page of this Prospectus. The Underwriters may exercise such option only to cover over-allotments in the sale of the shares that the Underwriters have agreed to purchase. To the extent that the Underwriters exercise such option, each of the Underwriters will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares as is approximately the percentage of shares of Common Stock that it is obligated to purchase of the total number of the shares under the Underwriting Agreement as shown in the table set forth above. The Underwriters may exercise the option only for the purposes of covering over-allotments, if any, made in connection with the distribution of the shares of Common Stock to the public. The Company and the Selling Shareholder have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act or to contribute payments that the Underwriters may be required to make in respect thereof. The Company, its directors and executive officers and certain shareholders, including the Selling Shareholder, have agreed not to offer, sell, contract to sell or grant any option to purchase or otherwise dispose of any shares of Common Stock owned by them prior to the expiration of 180 days from the date of this Prospectus, except: (i) for shares of Common Stock offered hereby; (ii) with the prior written consent of PaineWebber Incorporated; and -46- (iii) in the case of the Company, for the issuance of shares of Common Stock upon the exercise of options or the grant of options to purchase shares of Common Stock. Prior to this Offering, there has been no public market for the Common Stock of the Company. Accordingly, the Offering price will be determined by negotiations among the Company, the Selling Shareholder and the Representatives of the Underwriters. Among the factors to be considered in determining the Offering price will be the Company's record of operations, its current financial condition, its future prospects, the market for its products, the experience of its management, the economic conditions of the Company's industry in general, the general condition of the equity securities market, the demand for similar securities of companies considered comparable to the Company and other relevant factors. In order to facilitate this Offering, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Common Stock. Specifically, the Underwriters may over-allot in connection with this Offering, creating a short position in the Common Stock for their own account. In addition, to cover over-allotments or to stabilize the price of the Common Stock, the Underwriters may bid for, and purchase, shares of the Common Stock in the open market. The Underwriters may also reclaim selling concessions allowed to an underwriter or a dealer for distributing the Common Stock in transactions to cover their short positions, in stabilization transactions or otherwise. Finally, the Underwriters may bid for, and purchase, shares of the Common Stock in market-making transactions and impose penalty bids. These activities may stabilize or maintain the market price of the Common Stock above market levels that may otherwise prevail. The Underwriters are not required to engage in these activities, and may end any of these activities at any time. The Underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. LEGAL MATTERS The legality of the shares offered hereby will be passed upon for the Company by Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania. Certain legal matters will be passed upon for the Underwriters by Cravath, Swaine & Moore, New York, New York. EXPERTS The audited consolidated financial statements of AquaPenn Spring Water Company, Inc. as of September 30, 1996 and 1997, and for each of the years in the three-year period ended September 30, 1997, included in the Prospectus and in the Registration Statement have been audited by KPMG Peat Marwick LLP, independent certified public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement on Form S-1 (together with all amendments thereto, the "Registration Statement") under the Securities Act, with respect to the shares of Common Stock offered hereby. This Prospectus, filed as part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto, certain portions of which -47- have been omitted as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the Common Stock offered hereby, reference is hereby made to the Registration Statement and the exhibits and schedules thereto, which may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549, and at the regional offices of the Commission located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material may be obtained from the Public Reference Section of the Commission located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 at prescribed rates. The Commission maintains a web site (http://www.sec.gov) that contains material regarding issuers that file electronically with the Commission. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to herein or therein, are not necessarily complete, and in each such instance reference is made to the copy of such contract, agreement or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Company intends to furnish its stockholders with annual reports containing financial statements audited by independent accountants and with quarterly reports containing updated summary financial information for each of the first three quarters of each fiscal year. -48- AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- Consolidated Financial Statements of AquaPenn Spring Water Company, Inc. and Subsidiaries Independent Auditors' Report........................ F-2 Consolidated Balance Sheets......................... F-3 Consolidated Statements of Operations............... F-4 Consolidated Statements of Shareholders' Equity..... F-5 Consolidated Statements of Cash Flows............... F-6 Notes to Consolidated Financial Statements.......... F-7 F-1 Independent Auditors' Report To the Board of Directors and Shareholders of AquaPenn Spring Water Company, Inc.: We have audited the accompanying consolidated balance sheets of AquaPenn Spring Water Company, Inc. and subsidiaries as of September 30, 1996 and 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended September 30, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AquaPenn Spring Water Company, Inc. and subsidiaries as of September 30, 1996 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 1997 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP State College, Pennsylvania October 21, 1997, except for note 15 which is as of October 24, 1997 F-2 AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, ------------------------- 1996 1997 ASSETS Current Assets: Cash and cash equivalents........... $ 185,535 $ 687,035 Accounts receivable, net............ 2,794,776 3,604,524 Inventories......................... 1,331,388 1,533,617 Prepaid expenses and other current assets 278,595 425,279 Deferred income taxes............... 326,900 243,400 ----------- ----------- Total current assets.............. 4,917,194 6,493,855 Property, plant, and equipment, net.. 14,554,929 20,030,909 Other................................ 44,232 55,421 ----------- ---------- Total assets...................... $19,516,355 $26,580,185 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of notes payable.... $ 90,840 $ 298,966 Accounts payable and accrued liabilities 2,521,670 3,098,571 ----------- ---------- Total current liabilities......... 2,612,510 3,397,537 Notes payable........................ 1,717,624 4,518,501 Deferred income taxes................ 536,800 599,800 ----------- ---------- Total liabilities................. 4,866,934 8,515,838 ----------- ----------- Stockholders' Equity: Series A, non-voting convertible preferred stock, $1 par value; 2,000,000 shares authorized, 1,713,750 shares issued............ 1,713,750 1,713,750 Common stock, no par value, 100,000,000 shares authorized; 4,283,760, and 4,423,712 shares issued, respectively .............. -- -- Additional paid-in capital.......... 11,560,834 12,196,269 Retained earnings .................. 1,455,701 4,242,456 Less 11,250 shares of preferred stock in treasury, at cost............... (11,250) (11,250) Less 3,004 shares of common stock in treasury, at cost.................. (5,000) (5,000) Less stock subscriptions receivable. (64,614) (71,878) ----------- ----------- Total stockholders' equity........ 14,649,421 18,064,347 ----------- ----------- Total liabilities and stockholders' equity$ 19,516,355 $26,580,185 =========== =========== See accompanying notes to consolidated financial statements. F-3 AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years ended September 30, 1995 1996 1997 ---- ---- ---- Revenues: Product sales................. $22,617,746 $27,931,308 $37,526,028 Other sales................... 338,307 309,433 489,287 ----------- ----------- ----------- Net revenues.................... 22,956,053 28,240,741 38,015,315 Cost of goods sold.............. 18,153,355 21,271,313 28,316,938 ----------- ---------- ---------- Gross profit.................... 4,802,698 6,969,428 9,698,377 Selling, general and administrative 3,290,609 4,313,480 5,126,583 ----------- ---------- ---------- Income from operations.......... 1,512,089 2,655,948 4,571,794 Other income (expense): Other income.................. 7,090 116,484 328,180 Interest expense, net......... (745,829) (297,204) (208,467) ----------- ---------- ---------- (738,739) (180,720) 119,713 ----------- ---------- ---------- Income before income tax expense 773,350 2,475,228 4,691,507 Income tax expense.............. 135,000 990,000 1,904,752 ----------- ---------- ---------- Net income...................... $ 638,350 $1,485,228 $2,786,755 =========== ========== ========== Net income per common share..... $ .16 $ .26 $ .47 =========== ========== ========== Weighted average number of common shares outstanding..................... 3,884,708 5,620,741 5,951,844 =========== ========== ========== See accompanying notes to consolidated financial statements. F-4
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Number of Shares of Series A Common Additional Retained Preferred Stock Paid-In Earnings Treasury Subscription Stock Issued Capital (Deficit) Stock Receivable Total ---------- --------- ---------- ---------- -------- ------------ ---------- BALANCE, SEPTEMBER 30, 1994........................ $1,713,750 2,424,886 $2,529,881 $(667,877) $(16,250) $(52,214) $3,507,290 Issuance of Common Stock for services rendered by the Company's Board of Directors -- 10,814 54,000 -- -- -- 54,000 Common Stock Options Exercised....... -- 24,032 40,000 -- -- -- 40,000 Issuance of Common Stock for Private Placement -- 1,748,328 8,562,384 -- -- -- 8,562,384 Interest Accrued on Subscription Receivable -- -- -- -- -- (5,855) (5,855) Net Income........ -- -- -- 638,350 -- -- 638,350 ---------- --------- --------- ---------- ------- --------- ---------- BALANCE, SEPTEMBER 30, 1995.......... 1,713,750 4,208,060 11,186,265 (29,527) (16,250) (58,069) 12,796,169 Issuance of Common Stock for services rendered by the Company's Board of Directors -- 10,814 54,000 -- -- -- 54,000 Issuance of Common Stock in Private Placement -- 64,886 320,569 -- -- -- 320,569 Interest Accrued on Subscription Receivable -- -- -- -- -- (6,545) (6,545) Net Income........ -- -- -- 1,485,228 -- -- 1,485,228 ---------- --------- --------- ---------- ------- --------- ---------- BALANCE, SEPTEMBER 30, 1996.......... 1,713,750 4,283,760 11,560,834 1,455,701 (16,250) (64,614) 14,649,421 Issuance of Common Stock for services rendered by the Company's Board of Directors -- 10,814 70,200 -- -- -- 70,200 Issuance of Common Stock for Employee Stock Purchase Plan... -- 105,256 445,985 -- -- -- 445,985 Issuance of Common Stock for Rabbi Trust. -- 23,882 119,250 -- -- -- 119,250 Interest Accrued on Subscription Receivable -- -- -- -- -- (7,264) (7,264) Net Income........ -- -- -- 2,786,755 -- -- 2,786,755 ---------- --------- --------- ---------- ------- --------- ---------- BALANCE, SEPTEMBER 30, 1997.......... $1,713,750 4,423,712 $12,196,269 $4,242,456 $(16,250) $(71,878) $18,064,347
See accompanying notes to consolidated financial statements F-5 AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended September 30, 1995 1996 1997 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.............................. $638,350 $1,485,228 $2,786,755 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ......... 1,352,826 1,831,626 2,385,212 Provision for doubtful accounts ....... 15,000 25,000 -- Provision for deferred income taxes, net (194,500) 372,000 146,500 Issuance of common stock for services . 54,000 54,000 70,200 (Increase) in accounts receivable ..... (413,298) (663,986) (809,748) (Increase) decrease in inventories .... (959,287) 373,407 (202,229) (Increase) decrease in prepaid expenses and other current assets............. 107 (141,482) (146,684) (Increase) in other assets............. (13,520) (4,615) (11,189) Decrease in certificates of deposit - pledged.............................. 15,814 -- -- Increase in accounts payable and accrued liabilities.............. 1,566,843 232,674 576,901 --------- ---------- ---------- Net cash provided by operating activities ....................... 2,062,335 3,563,852 4,795,718 ----------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant, and equipment ........................... (10,430,942) (2,949,010) (7,861,192) ----------- ---------- ---------- Net cash used in investing activities ...................... (10,430,942) (2,949,010) (7,861,192) ----------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable............ 10,925,000 4,913,536 7,301,460 Repayments of notes payable............ (10,930,732) (5,935,944) (4,292,457) Proceeds from exercise of stock options 40,000 -- -- Proceeds from issuance of common stock -- -- 565,235 Proceeds from private stock offering, net 8,562,384 320,569 -- Interest accrued on stock subscriptions receivable .......................... (5,855) (6,545) (7,264) ----------- ---------- ---------- Net cash provided by (used in) financing activities ............ 8,590,797 (708,384) 3,566,974 ----------- ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ 222,190 (93,542) 501,500 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................................. 56,887 279,077 185,535 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $279,077 $185,535 $687,035 ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for interest, net of $101,923 in capitalized interest in 1995 ............................. $762,055 $307,720 $192,299 Cash paid during the year for income taxes 68,342 174,568 1,627,100 See accompanying notes to consolidated financial statements. F-6 AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies Background of Business AquaPenn Spring Water Company, Inc. (the Company), was formed as a Pennsylvania corporation during November 1986. The Company bottles and distributes non-sparkling natural spring water. The Company's water products are sold to both regional and national customers under retailers' and other customers' private labels and under its proprietary brand labels. Principles of Consolidation The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. Cash and Cash Equivalents For purposes of reporting cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Inventories Inventories are stated at the lower of cost or market with cost determined using the first-in first-out (FIFO) method. Property, Plant, and Equipment Property, plant, and equipment are recorded at cost. Depreciation and amortization on property, plant, and equipment are provided utilizing the straight-line method over the estimated useful lives of the related assets. Repairs and maintenance are charged to expense and betterments are capitalized; any gain or loss on dispositions is recognized currently. The Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (Statement No. 121) in the beginning of fiscal 1997. There was no impact on the consolidated statements of operations upon the adoption of Statement No. 121. Revenue Recognition Revenue is recognized when products are shipped. F-7 AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Continued Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Use of Estimates The preparation of the 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 recorded amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Net Income Per Share Net income per share is based on the weighted average number of shares of common stock outstanding during the periods increased by convertible preferred stock and dilutive common stock equivalents using the treasury stock method. Common shares issued and stock options granted within one year prior to the Offering have been included in the calculation of shares used in computing net income per common share as if they were outstanding for all periods presented. Reclassification Certain prior year amounts have been reclassified to conform with current year presentations. (2) Related Party Transactions The Company has entered into the following transactions with related parties: o The Company sold product to a corporate investor in the Company at normal sales prices in the amount of approximately $625,000, $696,000 and $738,000 in fiscal 1995, 1996, and 1997, respectively. Accounts receivable from this investor at September 30, 1996 and 1997 were approximately $75,000 and $68,000, respectively. o The Company recorded compensation expense to a director of $208,305, $214,981 and $250,000 in fiscal 1995, 1996, and 1997, respectively, for his services as an independent food broker. Accrued commissions to this director at September 30, 1996 and 1997 were $20,833 each year. o The Company had stock subscriptions receivable from a director of $64,614 and $71,878 at September 30, 1996 and 1997, respectively. In addition, the Company recorded $23,625 in fees F-8 AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (2) Continued relating to this director's services associated with the Company's private placement transaction (see note 13) during fiscal 1995. o In April 1995, the Company borrowed $8,000,000 from a corporate investor in the Company. The loan was repaid in September 1995 out of the proceeds of the private placement transaction (see note 13). In addition, interest expense of $292,000 was incurred and paid by the Company on this loan. In connection with this loan, 135,180 common stock warrants were issued to this corporate investor exercisable at $4.99 per warrant. These warrants may be exercised in part or in whole at any time. None of these warrants were exercised in fiscal 1996 or 1997. o The Company issued 105,140 common stock warrants to the President exercisable at $4.99 per warrant. These warrants may be exercised in part or in whole at any time. These warrants were issued as consideration for the President's personal guarantee given on a portion of the $8,000,000 borrowing. During fiscal 1996, 30,040 of those warrants were sold to two Directors of the Company by the President. (3) Accounts Receivable Accounts receivable consist of the following: September 30, 1996 1997 Accounts receivable - trade......... $2,868,525 $3,676,555 Other............................... 26,251 27,969 ---------- ---------- 2,894,776 3,704,524 Less allowance for doubtful accounts 100,000 100,000 ---------- ---------- $2,794,776 $3,604,524 ========== ========== (4) Inventories Inventories consist of the following: September 30, --------------------------- 1996 1997 ---- ---- Raw materials................... $ 910,988 $1,087,507 Finished goods.................. 420,400 446,110 ---------- ---------- $1,331,388 $1,533,617 ========== ========== F-9 AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) Property, Plant, and Equipment Major classifications of these assets are summarized as follows: Estimated useful lives in September 30, years ----------------------------- --------- 1996 1997 ---- ---- Land................... - $ 1,140,850 $ 1,190,850 Land improvements...... 20 129,819 154,121 Buildings.............. 30 5,565,101 7,729,748 Machinery and equipment 3-10 9,532,609 13,941,998 Transportation equipment 3-5 497,943 497,943 Construction in progress - 1,664,776 2,877,630 ----------- ----------- 18,531,098 26,392,290 Less accumulated depreciation and amortization...... 3,976,169 6,361,381 ----------- ----------- $14,554,929 $20,030,909 =========== =========== Property held for rental is classified as property, plant, and equipment. This property relates to the Company's former manufacturing facility in State College, Pennsylvania which has a net book value of approximately $1,184,000, which is net of approximately $483,000 in accumulated depreciation at September 30, 1997. Interest costs for the construction and purchase of certain long-term assets relating to the Company's new facility in Milesburg, Pennsylvania, were capitalized and are being amortized over the related assets' estimated useful lives. The Company capitalized net interest costs of $101,923 in fiscal 1995 and $0 in fiscal 1996 and 1997. Total depreciation and amortization expense was $1,352,826, $1,831,626 and $2,385,212 in fiscal 1995, 1996, and 1997, respectively. F-10 AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) Notes Payable September 30, ----------------------------- 1996 1997 ---- ---- Unsecured note payable to a bank, $10,000,000 revolving credit note - interest at London Interbank Offered Rate (LIBOR) plus 1.7% (7.325% at September 30, 1997), requires interest only through February 1999 with principal and interest due monthly thereafter with maturity in 2004 -- $2,900,000 Mortgage funding payable in monthly installments of principal and interest to the Pennsylvania Industrial Development Authority at 5%, due through May 2011................ 1,785,950 1,700,383 Note payable to a bank, $6,000,000 line of credit at LIBOR plus 1.0% (6.6875% at September 30, 1997), payable on demand and requires a negative pledge on the Company's accounts receivable and inventories -- 200,000 Various installment loan obligations at interest rates between 9% and 10%, due through September 1999, payable to various companies, secured by machinery and equipment......... 22,514 15,624 Unsecured note payable to a bank, $6,000,000 line of credit, interest at LIBOR plus 1.2% (6.825% at September 30,1997), and is due February 1998 -- 1,460 1,808,464 4,817,467 Less portion due within one year 90,840 298,966 ---------- --------- $1,717,624 $4,518,501 ========== ========== Interest expense was $762,055, $306,970 and $208,467 in 1995, 1996, and 1997, respectively, and is recorded in other income (expense) in the consolidated statements of operations. F-11 AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) Continued Based on current payment terms, the required principal reduction of the above debt is as follows: Year ending September 30, Amount ------------- ------ 1998 $ 298,966 1999 237,000 2000 313,000 2001 335,000 2002 358,000 Thereafter 3,275,501 ---------- $4,817,467 ========== (7) Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consist of the following: September 30, ------------------------------- 1996 1997 ---- ---- Accounts payable................ $ 868,436 $1,021,471 Accrued expenses................ 874,093 860,825 Accrued payroll................. 96,513 142,224 Income taxes payable............ 595,319 822,322 Other........................... 87,309 251,729 ----------- ----------- $2,521,670 $3,098,571 ========== ========== (8) Employee Benefit Plan Effective March 1, 1994, the Company adopted a deferred 401(k) Salary Savings Plan for the benefit of its employees and their beneficiaries. Generally, any employee who has completed six months of service and is over 21 years of age is eligible to participate in the Plan. Each eligible employee may elect to contribute up to 15% of his or her compensation for services rendered in any year. The Company matches employee contributions in an amount equal to 100% of the first 1%, 75% of the second 1%, and 50% of the third 1% of each participant's contributions. The Company contributed approximately $10,000, $24,000 and $52,000 in fiscal 1995, 1996, and 1997, respectively. F-12 AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) Sales to Major Customers During fiscal 1995 and 1996, sales to one customer accounted for approximately 17% and 23%, respectively, of net revenues. During fiscal 1997, sales to two customers accounted for approximately 15% and 11% of net revenues. Accounts receivable from these customers totaled approximately $665,000 and $459,000, respectively, at September 30, 1997. (10) Income Taxes The provision for income taxes attributable to income from operations consists of the following: Years ended September 30, 1995 1996 1997 ---- ---- ---- Currently payable: Federal................... $ 254,500 $ 483,900 $1,452,000 State..................... 75,000 134,100 306,252 --------- ------- --------- 329,500 618,000 1,758,252 --------- ------- --------- Deferred (benefit): Federal................... (153,700) 274,600 108,100 State..................... (40,800) 97,400 38,400 --------- ------- ---------- (194,500) 372,000 146,500 --------- ------- ---------- $ 135,000 $ 990,000 $1,904,752 ========= ======= ========== Total income tax expense was $135,000, $990,000 and $1,904,752 for the years ended September 30, 1995, 1996, and 1997, respectively, and differed from the amounts computed by applying the U.S. federal income tax rate of 35 percent to pretax income as a result of the following: Years ended September 30, 1995 1996 1997 ---- ---- ---- Computed "expected" tax expense $ 270,500 $ 866,000 $1,642,000 State income tax, net of federal benefit 60,000 153,000 227,000 Change in valuation allowance (262,500) (27,000) -- Other, net............ 67,000 (2,000) 35,752 --------- --------- ---------- $ 135,000 $ 990,000 $1,904,752 ========= ========= ========== F-13 AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (10) Continued The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at September 30, 1996 and 1997 are presented below: September 30, ----------------------- 1996 1997 ---- ---- Deferred tax assets: Accounts receivable, due to allowance for doubtful accounts .................... $ 40,600 $40,600 Inventories.................... 78,800 70,100 Deferred compensation.......... 44,000 62,500 Net operating loss carryforwards 39,000 5,300 Alternative minimum tax credit carryforwards 104,500 -- Other, principally due to accruals for financial reporting purposes..................... 72,100 131,500 ------- ------- Total gross deferred tax assets. 379,000 310,000 Less valuation allowance........ -- -- ------- ------- Total deferred tax assets....... 379,000 310,000 ------- ------- Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation.................. 580,800 662,400 Other.......................... 8,100 4,000 ------- ------- Total gross deferred tax liabilities 588,900 666,400 ------- ------- Net deferred tax liability...... $ 209,900 $356,400 ========= ======== Deferred tax assets and liabilities are reported net within deferred income taxes on the consolidated balance sheets at September 30, 1996 and 1997. Under Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (Statement 109), a valuation allowance is recognized if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax asset will not be recognized. Based on the weight of all available evidence, the Company concludes that a valuation allowance is not needed. At September 30, 1997, the Company has Pennsylvania net operating loss carryforwards for state income tax purposes of approximately $89,000 which are available to offset future Pennsylvania taxable income, if any, through the fiscal year ending September 30, 1998 subject to limitation. F-14 AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) Commitments The Company rents certain land, office equipment, and transportation equipment under noncancellable operating leases. Rent expense for these leases amounted to approximately $127,000, $152,000 and $138,000 for fiscal 1995, 1996, and 1997, respectively. The future minimum annual rent commitments under these leases are approximately as follows: Year ending September 30, Amount ------------- ------ 1998 $110,000 1999 63,000 2000 41,000 2001 15,000 2002 16,000 Thereafter 37,000 -------- $282,000 ======== At September 30, 1997, the Company has entered into a commitment to purchase land and construct a production facility in North Central Florida. The facility, which is expected to be completed in fiscal 1998, is estimated to cost approximately $6,588,000. In addition, the Company has made certain commitments to expand the Milesburg Facility. These commitments are for buildings, building improvements and equipment. As of September 30, 1997, the open commitments relating to this facility are approximately $8,250,000. (12) Shareholders' Equity Common Stock The Company maintains various stock option agreements and plans. Stock options have been granted at prices at or above the fair market value as of the date of the grant. Options vest and expire according to terms established at the grant date. In fiscal year 1997, the Company adopted the disclosure requirements of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (Statement No. 123). As allowed by Statement No. 123, the Company has chosen to continue to account for stock based compensation using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the grant date over the amount employees must pay to acquire the stock. Accordingly, no compensation cost has been recognized. Had compensation cost for the Company's Plans been determined under Statement No. 123, the Company's net income and net income per share would have been reduced to the pro forma amounts indicated below: F-15 AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (12) Continued September 30, ----------------------- 1996 1997 ---- ---- Net income as reported...... $1,485,000 $2,787,000 Pro forma............. 1,104,000 2,396,000 Net income per share as reported $0.26 $0.47 Pro forma............. 0.20 0.40 The 1996 and 1997 pro forma amounts include the effect of the common shares issued under the Stock Purchase Plan as if they were accounted for under Statement 123. The per share weighted-average fair values of stock options granted during fiscal years 1996 and 1997 were $4.54 and $4.41, respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: fiscal year 1996 expected dividend yield 0%, risk-free interest rate of 5.945%, a volatility factor of the expected market price of the Company's common stock of .4166, and a weighted-average expected life of approximately 9 years; fiscal year 1997 expected dividend yield 0%, risk-free interest rate of 5.945%, a volatility factor of the expected market price of the Company's common stock of .4166, and a weighted-average expected life of approximately 10 years. The fair market value of stock options included in the pro forma amounts for fiscal years 1996 and 1997 is not necessarily indicative of future effects on net income and net income per share. A summary of the status of the Company's stock option plans and changes during the years ended on those dates is presented below:
Fiscal years ended: September 30, 1995 September 30, 1996 September 30, 1997 ------------------ ------------------ ------------------ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding at beginning of year........ 570,760 $2.18 570,760 $1.89 696,928 $2.45 Granted......... 300,400 1.87 126,168 4.99 135,180 7.49 Exercised....... 24,032 1.66 -- -- -- -- Cancelled....... 276,368 2.50 -- -- -- -- -------- ---- ------- ----- ------- ----- Outstanding at end of year 570,760 1.89 696,928 2.45 832,108 3.26 ======== ==== ======= ==== ======= ===== Options exercisable at year-end...... 570,760 1.69 696,928 2.45 832,108 3.26 ======== ==== ======= ==== ======= =====
F-16 AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (12) Continued The following table summarizes information about the Company's stock option plans as of September 30, 1997: Options outstanding Options exercisable ------------------- ------------------- Number Weighted Weighted Number Weighted Outstanding Average Average Exercisable Average Range of on Remaining Exercise on Exercise exercise September Contractual September prices 30, 1997 Life Price 30, 1997 Price ---------- ----------- ------------ -------- ------------ ---------- $ 1.90 270,360 2 years $ 1.90 270,360 $ 1.90 4.99 36,048 3 years 4.99 36,048 4.99 1.66-1.90 300,400 7 years 1.88 300,400 1.88 4.99 90,120 9 years 4.99 90,120 4.99 7.07-8.32 135,180 10 years 7.49 135,180 $7.49 ------- ------- $1.66-8.32 832,108 832,108 ======= ======= Series A Non-Voting Convertible Preferred Stock Series A Non-Voting Convertible Preferred Stock (the Preferred Stock) is convertible at the option of the holder at any time into shares of the Company's common stock at the rate of one share of Preferred Stock for .6008 shares of common stock (See Note 15). The Preferred Stock has no redemption features but does have a preference in liquidation. (13) Private Placement In fiscal 1995, the Company sold 1,748,328 shares of its common stock in exchange for $8,562,384, net of $167,616 of offering costs as part of a private placement transaction. As part of the private placement transaction during fiscal 1996, the Company also sold 64,886 shares of its common stock in exchange for $320,569. The offering under this private placement transaction ceased during fiscal 1996. (14) Stock Purchase Plan Under the terms of the Company's Stock Purchase Plan, eligible employees may purchase shares of the Company's common stock at 85% of the estimated fair market value at the offering date. At September 30, 1997, there were 89,565 shares set aside for eligible employees under this plan of which 76,254 shares had been subscribed for at $5.41 per share and 6,409 shares were purchased by employees during fiscal September 30, 1997. The remaining 6,902 common shares were not subscribed for by the eligible employees. Payment for the subscribed shares must be made by January 1, 1998. Employees may choose to pay for their subscribed shares by using the proceeds from bank loans guaranteed by the Company. The common stock purchased with the proceeds of the loans will serve as collateral for these loans. The loans defer principal and interest payments for 5 years. F-17 AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (14) Continued Under the terms of the Company's Stock Purchase Plan, a total of 98,847 shares of common stock which were subscribed for in fiscal 1996 and were issued during fiscal 1997 at $4.16 per share for a total of $411,312. Of this amount, the Company is contingently liable for $385,015 as a result of bank loans guaranteed by the Company. (15) Reverse Stock Split On October 24, 1997, the Company's Board of Directors approved a 0.6008-for-1 reverse stock split of each outstanding share of Common Stock of the Company. All share and per share data, including stock option and stock purchase plan information, have been restated to reflect this split. (16) Subsequent Event - Acquisition of Dunsmuir Bottling Company, Inc. (Unaudited) On October 15, 1997, the Company entered into a merger agreement to purchase all of the stock of Dunsmuir Bottling Company, Inc. ("Dunsmuir", also known as Castle Rock Spring Water). Under terms of this agreement, the Company will buy Dunsmuir for approximately $3,000,000 plus the assumption of certain liabilities. This purchase price consists of a combination of cash and the Company's common stock and the assumption of up to $4,650,000 in Dunsmuir's liabilities. The following pro forma, condensed, combined balance sheet assumes the acquisition occurred at September 30, 1997 and the pro forma, condensed, combined statement of operations assumes the acquisition occurred at the beginning of fiscal 1997. This financial information does not purport to be indicative of what would have occurred had the acquisition been made at the beginning of fiscal 1997, or of the results which may occur in the future.
Proforma Condensed Combined Balance Sheet (Unaudited) September 30, 1997 Pro Forma Pro AquaPenn Dunsmuir Adjustments Forma Assets: Current assets ................... $ 6,494,000 $ 1,105,000 $(1,500,000)(a) $ 6,099,000 Property, plant and equipment .... 20,031,000 3,046,000 -- 23,077,000 Other noncurrent assets .......... 55,000 30,000 (150,000)(b) 2,935,000 ........................... -- -- 3,000,000(a) -- ----------- ----------- ----------- ----------- ........................... $26,580,000 $ 4,181,000 $ 1,350,000 $32,111,000 =========== =========== =========== =========== Liabilities and Stockholders' Equity: Current liabilities .............. $ 3,398,000 $ 2,618,000 -- $ 6,016,000 Long-term liabilities ............ 4,519,000 1,542,000 -- 6,061,000 Other noncurrent liabilities ..... 599,000 -- -- 599,000 Stockholders' equity 18,064,000 21,000 (150,000)(b) 19,435,000 ........................... -- -- 1,500,000(a) -- ----------- ----------- ----------- ----------- ........................... $26,580,000 $ 4,181,000 $ 1,350,000 $32,111,000 =========== =========== =========== ===========
F-18 AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ProForma Condensed Combined Statement of Operations (Unaudited) Year Ended September 30, 1997 Pro Forma Pro AquaPenn Dunsmuir Adjustments Forma Sales ............ $38,015,000 $7,771,000 -- $45,786,000 Gross profit...... 9,698,000 2,221,000 -- 11,919,000 Other costs and expenses 6,911,000 2,517,000 150,000 (b) 9,578,000 ----------- ---------- --------- ----------- Net income (loss). $ 2,787,000 $(296,000)(c) $(150,000)(b) $ 2,341,000 =========== ========== ========= ===========
(a)The aggregate purchase price of $3,000,000 was assumed to be paid through the issuance of shares of the Company's Common Stock and the remainder through cash resources. (b)Since the purchase price allocation will not be finalized after the Offering and the determination of the Offering price, the approximate excess of purchase price over assets acquired is recorded in other noncurrent assets. (c)The net loss of Dunsmuir has been adjusted for an income tax benefit as if its results had been consolidated with the Company's income tax provision. F-19 [Photographs to appear on inside back cover with the following captions:] 1. (Lauth With Pure American Bottles) AquaPenn President and founder Edward J. Lauth, III was named Entrepreneur of the Year for Western Pennsylvania in 1996 in a competition sponsored by Ernst & Young LLP and its co-sponsors Entrepreneur of the Year(R) Institute and the Center for Entrepreneur Leadership at the Ewing Marion Kauffman Foundation. 2. (Gerber Baby Water Bottle) AquaPenn was selected by the Gerber Products Company, in June 1996 to produce Gerber(R) Baby Water for the United States market. 3. (Steel Silos Against Sky) Four 60,000-gallon stainless steel silos store spring water at AquaPenn's Milesburg Facility until it is needed for bottling. 4. (Feidelberg With Pure American Vending Machine) Geoffrey F. Feidelberg, Chief Operating Officer and Chief Financial Officer, joined AquaPenn in 1989 following 13 years with the international accounting firm of Price Waterhouse. No person has been authorized to give any information or to make any representations in connection with this offering other than those contained in this Prospectus and, if given or made, such information and representations must not be relied upon as having been authorized by the Company or the Underwriters. Neither the delivery of this Prospectus nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to its date. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any security other than the registered securities to which it relates. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy such securities in any circumstances in which such offer or solicitation is unlawful. -------------------- TABLE OF CONTENTS Page Prospectus Summary................................................... 3 Risk Factors......................................................... 7 Use of Proceeds...................................................... 13 Dividend Policy...................................................... 13 Dilution............................................................. 14 Capitalization....................................................... 15 Selected Consolidated Financial Data................................. 16 Management's Discussion and Analysis of Financial Condition and Results of Operations................... 18 Business............................................................. 24 Management........................................................... 32 Certain Transactions................................................. 39 Principal Shareholders and Selling Shareholder....................... 40 Description of Capital Stock......................................... 42 Shares Eligible for Future Sale...................................... 45 Underwriting......................................................... 46 Legal Matters........................................................ 47 Experts.............................................................. 47 Available Information................................................ 47 Index to Consolidated Financial Statements...........................F-1 -------------------------- Until ---------------, 1997, all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. [LOGO] Shares AQUAPENN SPRING WATER COMPANY, INC. Common Stock --------------- PROSPECTUS --------------- PaineWebber Incorporated Lazard Freres & Co. LLC Parker/Hunter Incorporated -------------------- , 1997 PART II - INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. The following table sets forth the estimated amounts of various expenses payable by the Company and the Selling Shareholder in connection with the registration of the Common Stock offered hereby, other than underwriting discounts and commissions: Selling Company Stockholder Securities and Exchange Commission fee $12,504 $9,013 NASD filing fee.................. * * New York Stock Exchange listing fee * * Printing and engraving expenses.. * * Blue sky fees and expenses....... * * Legal fees and expenses.......... * * Accounting fees and expenses..... * * Transfer agent and registrar fees * * Miscellaneous.................... Total.......................... $ $ ======= ====== - -------------------- * To be provided by amendment. Item 14. Indemnification of Directors and Officers. The Pennsylvania Business Corporation Law of 1988 authorizes the Company to indemnify its directors and officers in terms sufficiently broad to permit indemnification of such persons under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933. The Company's By-Laws provide as follows: "Section 7.01. Indemnification of Directors and Officers. The Corporation shall indemnify any director or officer or employee or agent of the Corporation or any of its subsidiaries who was or is an "authorized representative" of the Corporation (which shall mean, for the purposes of this Article, a director or officer of the Corporation, or a person serving at the request of the Corporation as a director, officer, partner, fiduciary or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and who was or is a "party" (which shall include for purpose of this Article the giving of testimony or similar involvement) or is threatened to be made a party to any "proceeding" (which shall mean for purposes of this Article any threatened, pending or completed action, suit, appeal or other proceeding of any nature, whether civil, criminal, administrative or investigative, whether formal or informal, and whether brought by or in the right of the Corporation, its shareholders or otherwise) by reason of the fact that such person was or is an authorized representative of the Corporation to the fullest extent permitted by law including, without limitation, indemnification against expenses (which shall include for purposes of this Article, attorneys' fees and disbursements), damages, punitive damages, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by such person in II-1 connection with such proceeding unless the act or failure to act giving rise to the claim is finally determined by a court to have constituted willful misconduct or recklessness. If an authorized representative is not entitled to indemnification with respect to a portion of any liabilities to which such person may be subject, the Corporation shall nonetheless indemnify such person to the maximum extent for the remaining portion of the liabilities." Item 15. Recent Sales of Unregistered Securities. Within the past three years, the Company has issued and sold the securities described below in reliance upon the exemption from registration under Section 4(2) of the Securities Act of 1933, except as may otherwise be noted. In October 1994, the Company granted an option to purchase 270,360 shares at $1.90 per share to Matthew J. Suhey in consideration for the termination of an agreement under which Mr. Suhey served as a sales representative to the Company. In December 1994, the Company issued 901 shares of Common Stock to each of its nine directors for a total of 8,111 shares as compensation for serving on the Board of Directors in 1994. In December 1994, the Company granted an option to purchase 30,040 shares of Common Stock at $1.66 per share to Edward J. Lauth, III, to replace shares previously transferred by Mr. Lauth to an individual for services rendered to the Company. In April 1995, the Company issued a warrant to purchase 105,140 shares of Common Stock at $4.99 per share to Edward J. Lauth, III, in consideration for Mr. Lauth's guarantee of a portion of the Company's borrowings. Mr. Lauth subsequently assigned the rights to purchase 30,040 shares under the warrant to other individuals. To effect the assignment, the Company issued a warrant in the amount of 75,100 to Mr. Lauth and warrants in the amounts of 21,028 and 9,012 to the assigness. In April 1995, the Company issued a warrant to purchase 135,180 shares of Common Stock at an exercise price of $4.99 per share to AquaWorks, Inc. in connection with loans to the Company from AquaWorks, Inc. In June 1995, the Company issued 24,032 shares of Common Stock at $1.66 per share upon the exercise of options received by an individual as compensation for services rendered to the Company. In September 1995, the Company issued 2,704 shares of Common Stock to a former director in consideration for past services as a member of the Board of Directors. In September 1995, the Company issued 1,748,328 shares of Common Stock at $4.99 per share to purchasers in a private placement under Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D of the Securities Act of 1933 for an aggregate price of $8,730,000. In September 1995, the Company issued 901 shares of Common Stock to each of its nine directors for a total of 8,111 shares as compensation for serving on the Board of Directors in 1995. In October 1995, the Company issued 21,629 shares of Common Stock for an aggregate price of $108,000 to the Davis Trust UAD 2/5/77 in a private placement. In December 1995, the Company issued 10,814 shares of Common Stock to M-S Capital Fund for an aggregate price of $54,000 in connection with a private placement. In January 1996, the Company issued 21,629 shares of Common Stock to an individual for an aggregate price of $108,000 in connection with a private placement. II-2 In June 1996, the Company granted an option to purchase 36,048 shares of Common Stock at $4.99 per share to an individual as compensation for services rendered to the Company. In July 1996, the Company issued 901 shares of Common Stock to each of its twelve directors for a total of 10,814 shares as compensation for serving on the Board of Directors in 1996. In July 1996, the Company issued 10,814 shares to individuals for an aggregate price of $54,000 in connection with a private placement. In September 1996, the Company granted options to purchase 30,040 shares of Common Stock at $4.99 per share to Edward J. Lauth, III, Geoffrey F. Feidelberg and Matthew J. Suhey in consideration for services rendered to the Company. In October 1996, the Company issued 13,068 shares of Common Stock to the Lauth Rabbi Trust and 10,815 shares of Common Stock to the Feidelberg Rabbi Trust for an aggregate price of $119,250 in connection with deferred compensation plans. In May 1997, the Company issued 901 shares of Common Stock to each of its twelve directors for a total of 10,814 shares as compensation for serving on the Board of Directors in 1997. From March 1997 until August 1997, the Company issued 98,847 shares of Common Stock at a price of $4.16 per share and 6,409 shares of Common Stock at $5.41 per share to employees purchasing stock under the 1996 Employee Stock Purchase Plan. In September 1997, the Company granted options to purchase 30,040 shares of Common Stock at $7.07 per share to Edward J. Lauth, III, Geoffrey F. Feidelberg and Matthew J. Suhey in consideration for services rendered to the Company. In October 1997, the Company granted 186,163 shares of Common Stock to selling shareholders in connection with a merger of a wholly owned subsidiary of the Company with and into another company (the number of shares subject to adjustment after completion of the Offering, currently estimated at 137,715 shares). In October 1997, the Company issued 1,803 shares of Common Stock and options to purchase 12,016 shares of Common Stock at an exercise price of $8.32 per share in connection with a real estate transaction. Item 16. Exhibits and Financial Statement Schedules. (a) Exhibit Exhibit Number 1 Form of Underwriting Agreement* 3.1 Restated Articles of Incorporation of the Company* 3.2 Amended and Restated By-laws of the Company 4.1 Form of Certificate evidencing Common Stock of the Company* II-3 4.2 Registration and Holdback Agreement dated as of October 17, 1997 between the Company and Weis Markets, Inc., Dutch Valley Foods, Inc. and Aqua Works, Inc. 5 Opinion of Ballard Spahr Andrews & Ingersoll regarding the legality of the securities being registered* 10.1 Termination Agreement dated October 3, 1994 between Matthew J. Suhey and the Company 10.2 1996 Employee Stock Purchase Plan 10.3 Form of Warrant issued to Edward J. Lauth, III, Nancy Jean Davis and James D. Hammond and Marian I. Hammond 10.4 Employment Agreement dated September 16, 1994 between Edward J. Lauth, III, and the Company 10.5 Employment Agreement dated September 16, 1994 between Geoffrey F. Feidelberg and the Company 10.6 Change in Control Agreement dated September 16, 1994 between Edward J. Lauth, III, and the Company 10.7 Change in Control Agreement dated September 16, 1994 between Geoffrey F. Feidelberg and the Company 10.8 Amendment No. 1 to Employment Agreement dated October __, 1997 between Edward J. Lauth, III and the Company* 10.9 Amendment No. 1 to Employment Agreement dated October __, 1997 between Geoffrey F. Feidelberg and the Company* 10.10 Agreement of Lease dated July 19, 1996 between Johnson Controls, Inc. and the Company+ 10.11 Assignment of Lease dated February 28, 1997 between Johnson Controls, Inc. and Schmalbach-Lubeca Plastic Containers USA, Inc. 10.12 Letter Agreement dated September 10, 1997 between Schmalbach-Lubeca Plastic Containers USA, Inc. and the Company+ 10.13 Agreement dated July 30, 1997 between Seven Springs Water Company and the Company+ 10.14 Water Agreement dated July 10, 1995 between Bellefonte Borough and the Company 10.15 Amended and Restated Lease Agreement dated October 14, 1997 among Roy Bresler and Ida Bresler and the Company+ 10.16 Water Contract dated August 8, 1990 between City of Dunsmuir and Dunsmuir Bottling Company II-4 10.17 Agreement and Plan of Merger dated October 15, 1997 between the Company, Castle Rock Spring Water Company, Inc. and Dunsmuir Bottling Company and certain shareholders of Dunsmuir Bottling Company 10.18 1992 Stock Option Plan 21 Subsidiaries of the Company 23.1 Consent of KPMG Peat Marwick LLP 23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 5)* 24 Power of Attorney (included in signature page) 27 Financial Data Schedule - -------------------- * To be filed by amendment. + Confidential treatment requested Item 17. Undertakings. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus 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. The undersigned Registrant hereby undertakes to provide to the underwriter at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names required by the underwriter to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 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 Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such 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 registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate II-5 jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Milesburg, Pennsylvania, on October 24, 1997. AQUAPENN SPRING WATER COMPANY, INC. By:/s/ EDWARD J. LAUTH, III ------------------------- Name: Edward J. Lauth, III Title: President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Each person whose signature appears below in so signing also makes, constitutes and appoints Edward J. Lauth, III and Geoffrey F. Feidelberg and each of them, his or her true and lawful attorney-in-fact, with full power of substitution, for him or her in any and all capacities, to execute and cause to be filed with the Securities and Exchange Commission any and all amendments and post-effective amendments to this Registration Statement, with exhibits thereto and other documents in connection therewith and hereby ratifies and confirms all that said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof. /s/ EDWARD J. LAUTH, III President, Chief Executive October 24, 1997 - ------------------------ Officer and Director Edward J. Lauth, III (principal executive officer) /s/ GEOFFREY F. FEIDELBERG Executive Vice President, October 24, 1997 - -------------------------- Chief Financial Officer, Geoffrey F. Feidelberg Chief Operating Officer and Director (principal financial and accounting officer) /s/ WALTER BRUCE Director October 24, 1997 - ------------------------- Walter Bruce /s/ NANCY JEAN DAVIS Director October 24, 1997 - ------------------------- Nancy Jean Davis /s/ RICHARD F. DeFLURI Director October 24, 1997 - ------------------------- Richard F. DeFluri /s/ JOHN H. GUTFREUND Director October 24, 1997 - ------------------------- John H. Gutfreund /s/ JAMES D. HAMMOND Director October 24, 1997 - ------------------------- James D. Hammond /s/ ROBERT E. POOLE, JR. Director October 24, 1997 - ------------------------- Robert E. Poole, Jr. /s/ NORMAN S. RICH Director October 24, 1997 - ------------------------- Norman S. Rich /s/ HENRY S. SHATKIN Director October 24, 1997 - ------------------------- Henry S. Shatkin /s/ MATTHEW J. SUHEY Director October 24, 1997 - ------------------------- Matthew J. Suhey /s/ CALVIN J. WAGNER, JR. Director October 24, 1997 - ------------------------- Calvin J. Wagner, Jr. EXHIBIT INDEX Exhibit Number Page 1 Form of Underwriting Agreement* 3.1 Restated Articles of Incorporation of the Company* 3.2 Amended and Restated By-laws of the Company 4.1 Form of Certificate evidencing Common Stock of the Company* 4.2 Registration and Holdback Agreement dated as of October 17, 1997 by and between the Company and Weis Markets, Inc., Dutch Valley Foods, Inc. and Aqua Works, Inc. 5 Opinion of Ballard Spahr Andrews & Ingersoll regarding the legality of the securities being registered* 10.1 Termination Agreement dated October 3, 1994 between Matthew J. Suhey and the Company 10.2 1996 Employee Stock Purchase Plan 10.3 Form of Warrant issued to Edward J. Lauth, III, Nancy Jean Davis and James D. Hammond and Marian I. Hammond 10.4 Employment Agreement dated September 16, 1994 between Edward J. Lauth, III, and the Company 10.5 Employment Agreement dated September 16, 1994 between Geoffrey F. Feidelberg and the Company 10.6 Change in Control Agreement dated September 16, 1994 between Edward J. Lauth, III, and the Company 10.7 Change in Control Agreement dated September 16, 1994 between Geoffrey F. Feidelberg and the Company 10.8 Amendment No. 1 to Employment Agreement dated October __, 1997 between Edward J. Lauth, III and the Company* 10.9 Amendment No. 1 to Employment Agreement dated October __, 1997 between Geoffrey F. Feidelberg and the Company* 10.10 Agreement of Lease dated July 19, 1996 between Johnson Controls, Inc. and the Company+ 10.11 Assignment of Lease dated February 28, 1997 between Johnson Controls, Inc. and Schmalbach-Lubeca Plastic Containers USA, Inc. 10.12 Letter Agreement dated September 10, 1997 between Schmalbach-Lubeca Plastic Containers USA, Inc. and the Company+ 10.13 Agreement dated July 30, 1997 between Seven Springs Water Company and the Company+ 10.14 Water Agreement dated July 10, 1995 between Bellefonte Borough and the Company 10.15 Amended and Restated Lease Agreement dated October 14, 1997 among Roy Bresler and Ida Bresler and the Company+ 10.16 Water Contract dated August 8, 1990 between City of Dunsmuir and Dunsmuir Bottling Company 10.17 Agreement and Plan of Merger dated October 15, 1997 by and among the Company, Castle Rock Spring Water Company, Inc. and Dunsmuir Bottling Company and Certain Shareholders of Dunsmuir Bottling Company. 10.18 1992 Stock Option Plan 21 Subsidiaries of the Company 23.1 Consent of KPMG Peat Marwick 23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 5)* 24 Power of Attorney (included in signature page) 27 Financial Data Schedule - -------------------- * To be filed by amendment. + Confidential treatment requested EX-3.2 2 AMENDED AND RESTATED BY-LAWS OF THE COMPAN Exhibit 3.2 AMENDED AND RESTATED BY-LAWS OF AQUAPENN SPRING WATER COMPANY, INC. A Pennsylvania Business Corporation PREPARED BY: Daniel E. Bright, Esquire McQuaide, Blasko, Schwartz, Fleming & Faulkner, Inc. 811 University Drive State College, PA 16801-6699 (814)238-4926 TABLE OF CONTENTS Page ARTICLE I - OFFICES Section 1.01. Offices....................................... 1 Section 1.02. Additional Offices............................ 1 ARTICLE II - MEETINGS OF THE SHAREHOLDERS Section 2.01. Time and Place................................ 1 Section 2.02. Annual Meeting................................ 2 Section 2.03. Notice of Annual Meeting...................... 2 Section 2.04. Special Meetings.............................. 2 Section 2.05. Notice of Special Meetings.................... 3 Section 2.06. Business of Special Meetings.................. 3 Section 2.07. List of Shareholders.......................... 3 Section 2.08. Quorum and Adjournments....................... 5 Section 2.09. Voting........................................ 6 Section 2.10. Action by Consent............................. 6 ARTICLE III - DIRECTORS Section 3.01. General Powers, Number and Tenure............. 7 Section 3.02. Vacancies..................................... 7 Section 3.03. Removal or Resignation........................ 8 Section 3.04. Meetings of the Board......................... 8 Section 3.05. First Meeting of the New Board................ 8 Section 3.06. Annual Meeting................................ 9 Section 3.07. Regular Meeting............................... 9 Section 3.08. Special Meetings.............................. 9 Section 3.09. Quorum........................................ 9 Section 3.10. Compensation.................................. 10 Section 3.11. Action by Consent............................. 10 Section 3.12. Meeting by Telephone or Similar Equipment..... 10 ARTICLE IV - COMMITTEES Section 4.01. Executive Committee........................... 11 Section 4.02. Powers........................................ 11 Section 4.03. Rules Procedure and Meetings.................. 11 Section 4.04. Quorum........................................ 12 Section 4.05. Other Committees.............................. 12 Section 4.06. Committee Changes............................. 12 Section 4.07. Compensation.................................. 12 Section 4.08. Action by Consent............................. 13 Section 4.09. Meetings by Telephone or Similar Equipment.... 13 ARTICLE V - NOTICES Section 5.01. Form and Delivery............................. 13 Section 5.02. Waiver........................................ 14 -i- ARTICLE VI - OFFICERS Section 6.01. Designations.................................. 14 Section 6.02. Term of and Removal from Office............... 15 Section 6.03. Compensation.................................. 15 Section 6.04. The Chairman of the Board..................... 16 Section 6.05. The President................................. 16 Section 6.06. The Vice President............................ 16 Section 6.07. The Secretary................................. 17 Section 6.08. The Assistant Secretary....................... 17 Section 6.09. The Treasurer................................. 18 Section 6.10. The Assistant Treasurer....................... 18 ARTICLE VII - INDEMNIFICATION AND PERSONAL LIABILITY Section 7.01. Indemnification of Directors and Officers..... 19 Section 7.02. Advancement of Expenses....................... 20 Section 7.03. Employee Benefit Plans........................ 20 Section 7.04. Security of Indemnification Obligations....... 21 Section 7.05. Reliance Upon Provisions...................... 21 Section 7.06. Amendment or Repeal........................... 21 Section 7.07. Scope of Article.............................. 22 Section 7.08. Personal Liability of Directors............... 23 ARTICLE VIII - AFFILIATED TRANSACTIONS AND INTERESTED DIRECTORS Section 8.01. Affiliated Transactions....................... 23 Section 8.02. Determining Quorum............................ 24 ARTICLE IX - STOCK CERTIFICATES Section 9.01. Form and Signatures........................... 25 Section 9.02. Registration of Transfer...................... 25 Section 9.03. Registered Shareholders....................... 26 Section 9.04. Record Date................................... 26 Section 9.05. Lost, Stolen or Destroyed Certificates........ 27 ARTICLE X - GENERAL PROVISIONS Section 10.01. Dividends.................................... 28 Section 10.02. Reserves..................................... 28 Section 10.03. Fiscal Year.................................. 28 Section 10.04. Corporate Seal............................... 28 Section 10.05. Notices...................................... 28 Section 10.06. Waiver....................................... 29 ARTICLE XI - AMENDMENTS Section 11.01. Amendments................................... 30 CERTIFICATION................................................ 30 -ii- AMENDED AND RESTATED BY-LAWS OF AQUAPENN SPRING WATER COMPANY, INC. A Pennsylvania Business Corporation ARTICLE I OFFICES Section 1.01. Offices. The registered office shall be located at One AquaPenn Drive, Milesburg, Centre County, Pennsylvania, or at such other place as the Board of Directors may from time to time determine. Section 1.02. Additional Offices. The Corporation may also have offices at such other places, both within and without the Commonwealth of Pennsylvania, as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF THE SHAREHOLDERS Section 2.01. Time and Place. All meetings of the shareholders shall be held at the registered office or such other places, either within or without the Commonwealth of Pennsylvania, as the Board of Directors may from time to time determine and as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. -1- Section 2.02. Annual Meeting. A meeting of the shareholders shall be held in each calendar year for the election of directors at such time and place as the Board of Directors shall determine. If the annual meeting shall not be called and held during such calendar year, any shareholder may call such meeting at any time thereafter. Elections for directors need not be by written ballot, except upon demand by a shareholder at the election and before the voting begins. Section 2.03. Notice of Annual Meeting. Written notice of the annual meeting stating the place, date and time thereof, shall be given to each shareholder entitled to vote at such meeting not less than ten (10) days (unless a longer period is required by law) nor more than sixty (60) days prior to the meeting. Section 2.04. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, other than those regulated by statute or by the Articles of Incorporation, may be called at any time by the President, or the Chairman of the Board, if any, or the holder of not less than one-fifth (1/5) of all the shares issued and outstanding and entitled to vote at the particular meetings, upon written request delivered to the Secretary of the Corporation. Such request shall state the purpose or purposes of the proposed meeting. Upon receipt of any such request it shall be the duty of the Secretary to call a special meeting of the shareholders to be held at such time, not less than ten (10) nor more than sixty (60) days thereafter, as the Secretary may fix. If the Secretary shall neglect or refuse -2- to fix the date of the meeting and give notice thereof, the person or persons calling the meeting may do so. Section 2.05. Notice of Special Meetings. Written notice of any special meeting of the shareholders stating the place, the date and hour and the general nature of the business to be transacted thereat, shall be given personally or by sending a copy thereof through the mail, postage prepaid, to each shareholder entitled to vote thereat at such address as appears on the transfer books of the Corporation, not less than ten (10) days (unless a longer period is required by law) nor more than sixty (60) days prior to the meeting. Section 2.06. Business of Special Meetings. Business transacted at all special meetings shall be confined to the business stated in the call. Section 2.07. Presiding Officer and Order of Business. A. Meetings of the shareholders shall be presided over by the Chairman of the Board. If he is not present, or if there is none, they shall be presided over by the President, or, if he is not present or if there is none, by a Vice President, or, if he is not present or there is none, by a person chosen by the Board of Directors, or, if no such person is present or has been chosen, by a chairman to be chosen by the shareholders owning a majority of the shares of capital stock of the Corporation issued and outstanding and entitled to vote at the meeting and who are present in person or represented by proxy. The Secretary of the Corporation, or, if he is not present, an Assistant Secretary, or, if he is not present, a -3- person chosen by the Board of Directors, shall act as Secretary at meetings of the shareholders; if no such person is present or has been chosen, the shareholders owning a majority of the shares of capital stock of the Corporation issued and outstanding and entitled to vote at the meeting who are present in person or represented by proxy shall choose any person present to act as Secretary of the meeting. B. The following order of business, unless otherwise determined at the meeting, shall be observed as far as practicable and consistent with the purposes of the meeting: 1. Call of the meeting to order. 2. Presentation of proof of mailing of the notice of the meeting and, if the meeting is a special meeting, the call thereof. 3. Presentation of proxies. 4. Announcement that a quorum is present. 5. Reading and approval of the minutes of the previous meeting. 6. Reports, if any, of officers. 7. Election of Directors, if the meeting is an annual meeting or a meeting called for that purpose. 8. Consideration of the specific purpose or purposes other than the election of Directors, for which the meeting has been called, if the meeting is a special meeting. 9. Transaction of such other business as may properly come before the meeting. 10. Adjournment. -4- Section 2.08. Quorum and Adjournments. The presence in person or representation by proxy of the holders of a majority of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote shall be necessary to, and shall constitute a quorum for the transaction of business at, all meetings of the shareholders, except as otherwise provided by statute or by the Articles of Incorporation. If, however, a quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat who are present in person or represented by proxy shall have the power to adjourn the meeting from time to time until a quorum shall be present or represented. If the time and place of the adjourned meeting are announced at the meeting at which the adjournment is taken, no further notice of the adjourned meeting need be given. Even if a quorum shall be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat who are present in person or represented by proxy shall have the power to adjourn the meeting from time to time for good cause to a date that is not more than thirty (30) days after the date of the original meeting. Further notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. At any adjourned meeting at which a quorum is present in person or represented by proxy, any business may be transacted that might have been transacted at the meeting as originally called. If the adjournment is for more than thirty (30) days, or if, after the adjournment, a new record date is fixed for the adjourned -5- meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote thereat. Section 2.09. Voting. A. At any meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote in person or by proxy. Except as otherwise provided by law or the Articles of Incorporation, each shareholder of record shall be entitled to one vote for each share of capital stock registered in his name on the books of the Corporation. Shareholders shall not be entitled to cumulate said votes. B. All elections shall be determined by a plurality vote, and, except as otherwise provided by law or the Articles of Incorporation, all other matters shall be determined by a vote of a majority of the shares present in person or represented by proxy and voting on such other matters. Section 2.10. Action by Consent. Any action required or permitted by law or the Articles of Incorporation to be taken at any meeting of the shareholders may be taken without a meeting, without prior notice, and without a vote, if a written consent setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present or represented by proxy and voted. Such written consent shall be filed with the minutes of the meetings of the shareholders. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent -6- shall be given to those shareholders who have not consented in writing thereto. ARTICLE III DIRECTORS Section 3.01. General Powers, Number and Tenure. The business of the Corporation shall be managed by its Board of Directors, which may exercise all powers of the Corporation and perform all lawful acts that are not by law, the Certificate of Incorporation, or these By-laws directed or required to be exercised or performed by the shareholders. The number of directors shall be determined by the Board of Directors but in no event shall the number of directors exceed seventeen (17); if no such determination is made, the number of directors shall be five (5). The directors shall be elected at the annual meeting of the shareholders, except as provided in Section 3.02 of this Article, and each director elected shall hold office until his successor is elected and shall qualify. Directors need not be shareholders. Section 3.02. Vacancies. Vacancies in the Board of Directors, including vacancies resulting from an increase in the number of directors, shall be filled by the remaining members of the Board, although less than a quorum, or by a sole remaining director. Each person so elected shall be a director until his successor is elected by the shareholders, who may make such election at the next annual meeting of the shareholders or at any -7- special meeting duly called for that purpose and held prior thereto. Section 3.03. Removal or Resignation. A. Except as otherwise provided by law or the Articles of Incorporation, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. B. Any director may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board, if any, or the President or Secretary of the Corporation. Unless otherwise specified in such written notice, a resignation shall take effect upon delivery thereof to the Board of Directors or the designated officer. It shall not be necessary for a resignation to be accepted before it becomes effective. Section 3.04. Meetings of the Board. The meetings of the Board of Directors may be held at such place within the Commonwealth of Pennsylvania, or elsewhere, as the directors may from time to time appoint, or as may be designated in the notice calling the meeting. Section 3.05. First Meeting of the New Board. The first meeting of each newly-elected board may be held at the same place and immediately after the meeting at which such directors were elected, and no notice need be given to the newly-elected directors in order legally to constitute the meeting; or it may convene at such time and place as may be fixed by the consent or consents in writing of all the directors. -8- Section 3.06. Annual Meeting. The annual meeting of each newly-elected Board of Directors shall be held immediately following the annual meeting of the shareholders, and no notice of such meeting shall be necessary to the newly-elected directors in order to constitute the meeting legally, provided a quorum shall be present. Section 3.07. Regular Meeting. Additional regular meetings of the Board of Directors may be held without notice at such time and place as may be determined from time to time by the Board of Directors. Section 3.08. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President, or by any director on at least two (2) days' notice to each director, if such notice is delivered personally or sent by telegram, or on at least three (3) days' notice if sent by mail. Special meetings shall be called by the Chairman of the Board, the President, the Secretary or two (2) or more directors in like manner and on like notice on the written request of one-half (1/2) or more of the number of directors then in office. Any such notice need not state the purpose or purposes of such meeting except as provided in Article XI. Section 3.09. Quorum. At all meetings of the board, a majority of the directors in office shall be necessary to constitute a quorum for the transaction of business, and the act of a majority of the directors present at a meeting at which a quorum is present shall be the acts of the Board of Directors, except as may be otherwise specifically provided by statute or by -9- the Articles of Incorporation or by these Amended and Restated By-Laws. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting at which such adjournment is taken, until a quorum shall be present. Section 3.10. Compensation. Directors shall be entitled to such compensation for their services as directors and to such reimbursement for any reasonable expenses incurred in attending directors' meetings as may from time to time be fixed by the unanimous action of the Board of Directors. The compensation of directors may be on such basis as is determined by the Board of Directors. Any director may waive compensation for any meeting. Any director receiving compensation under these provisions shall not be barred from serving the Corporation in any other capacity and receiving compensation and reimbursement for reasonable expenses for such other services. Section 3.11. Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if a written consent to such action is signed by all members of the Board of Directors and such written consent is filed with the minutes of its proceedings. Section 3.12. Meeting by Telephone or Similar Communications Equipment. The Board of Directors may participate in a meeting by means of a conference telephone or similar communications equipment by means of which all directors -10- participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person by any such director at such meeting. ARTICLE IV COMMITTEES Section 4.01. Executive Committee. The Board of Directors, by resolution adopted by a majority of the whole Board, may appoint an Executive Committee consisting of one (1) or more directors, one (1) of whom shall be designated as Chairman of the Executive Committee. Each member of the Executive Committee shall continue as a member thereof until the expiration of his term as a director or his earlier resignation, unless sooner removed as a member or as a director. Section 4.02. Powers. The Executive Committee shall have and may exercise those rights, powers and authority of the Board of Directors as may from time to time be granted to it by the Board of Directors to the extent permitted by law, and may authorize the corporate seal to be affixed to all papers that may require it. Section 4.03. Rules of Procedure and Meetings. The Executive Committee shall fix its own rules of procedure and shall meet at such times and at such place or places as may be provided by such rules or as the members of the Executive Committee shall fix. The Executive Committee shall keep regular minutes of its meetings, which it shall deliver to the Board of -11- Directors from time to time. The Chairman of the Executive Committee or, in his absence, a member of the Executive Committee chosen by a majority of the members present shall preside at meetings of the Executive Committee, and another member chosen by the Executive Committee shall act as Secretary of the Executive Committee. Section 4.04. Quorum. A majority of the Executive Committee shall constitute a quorum for the transaction of business, and the affirmative vote of a majority of the members present at any meeting at which there is a quorum shall be required for any action of the Executive Committee; provided, however, that when an Executive Committee of one (1) member is authorized under the provisions of Section 4.01 of this Article, one (1) member shall constitute a quorum. Section 4.05. Other Committees. The Board of Directors, by resolutions adopted by a majority of the whole Board, may appoint such other committee or committees as it shall deem advisable and with such rights, powers and authority as it shall prescribe to the extent permitted by law. Each such committee shall consist of one (1) or more directors. Section 4.06. Committee Changes. The Board of Directors shall have the power at any time to fill vacancies in, to change the membership of, and to discharge any committee. Section 4.07. Compensation. Members of any committee shall be entitled to such compensation for their services as members of the committee and to such reimbursement for any reasonable expenses incurred in attending committee meetings as -12- may from time to time be fixed by the Board of Directors. Any member may waive compensation for any meeting. Any committee member receiving compensation and reimbursement of reasonable expenses under these provisions shall not be barred from serving the Corporation in any other capacity and receiving compensation and reimbursement for reasonable expenses for such other services. Section 4.08. Action by Consent. Any action required or permitted to be taken at any meeting of any committee of the Board of Directors may be taken without a meeting if a written consent to such action is signed by all members of the committee and such written consent is filed with the minutes of its proceedings. Section 4.09. Meetings by Telephone or Similar Communications Equipment. The members of any committee designated by the Board of Directors may participate in a meeting of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in such meeting can hear each other, and participation in such a meeting shall constitute presence in person by any such committee member at such meeting. ARTICLE V NOTICES Section 5.01. Form and Delivery. Whenever a provision of any law, the Articles of Incorporation or these Amended and -13- Restated By-Laws requires that notice be given to any director or shareholder, it shall not be construed to require personal notice unless so specifically provided, but such notice may be given in writing by mail addressed to the address of the director or shareholder as it appears on the records of the Corporation, with postage prepaid. These notices shall be deemed to be given when they are deposited in the United States mail. Notice to a director may also be given personally or by telegram sent to his address as it appears on the records of the Corporation. Section 5.02. Waiver. Whenever any notice is required to be given under the provisions of any law, the Articles of Incorporation or these Amended and Restated By-Laws, a written waiver thereof signed by the person entitled to said notice, whether before or after the time stated therein, shall be deemed to be equivalent to such notice. In addition, any shareholder who attends a meeting or is represented at such meeting by proxy, without protesting at the commencement of the meeting the lack of notice thereof to him, or any director who attends a meeting of the Board of Directors without protesting at the commencement of the meeting the lack of notice, shall be conclusively deemed to have waived notice of such meeting. ARTICLE VI OFFICERS Section 6.01. Designations. The officers of the Corporation shall be chosen by the Board of Directors and shall -14- be a President, a Vice-President or Vice-Presidents, a Secretary and a Treasurer. All officers of the Corporation shall exercise the powers and perform the duties that shall from time to time be determined by the Board of Directors. Any number of offices may be held by the same person, unless the Articles of Incorporation or these Amended and Restated By-Laws provide otherwise. Section 6.02. Term of and Removal from Office. At its first regular meeting after each annual meeting of the shareholders, the Board of Directors shall choose a President, a Vice President or Vice-Presidents, a Secretary and a Treasurer. It may also choose a Chairman of the Board, one (1) or more Assistant Secretaries and/or Assistant Treasurers, and such other officers and agents as it shall deem necessary or appropriate. Each officer of the Corporation shall hold office until his successor is chosen and shall qualify. Any officer elected or appointed by the Board of Directors may be removed, with or without cause, at any time by the affirmative vote of a majority of the directors then in office. Removal from office, however, shall not prejudice the contract rights, if any, of the person removed. Any vacancy occurring in any office of the Corporation may be filled for the unexpired portion of the term by the Board of Directors. Section 6.03. Compensation. The salaries of all officers of the Corporation shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving a salary because he is also a director of the Corporation. -15- Section 6.04. The Chairman of the Board. The Chairman of the Board, if any, shall be an officer of the Corporation and, subject to the direction of the Board of Directors, shall perform such executive, supervisory and management functions and duties as may be assigned to him from time to time by the Board of Directors. He shall, if present, preside at all meetings of the shareholders and of the Board of Directors. Section 6.05. The President. A. The President shall be the chief executive officer of the Corporation and, subject to the direction of the Board of Directors, shall have general charge of the business affairs and property of the Corporation and general supervision over its other officers and agents. In general, he shall perform all duties incident to the office of President and shall see that all orders and resolutions of the Board are carried into effect. B. Unless otherwise prescribed by the Board of Directors, the President shall have full power and authority to attend, act and vote on behalf of the Corporation at any meeting of the security holders of other corporations in which the Corporation may hold securities. At any such meeting, the President shall possess and may exercise any and all rights and powers incident to the ownership of such securities that the Corporation might have possessed and exercised if it had been present. The Board of Directors may from time to time confer like powers upon any other person or persons. Section 6.06. The Vice President. The Vice President, if any, or in the event there be more than one (1), the Vice -16- Presidents in the order of their election, shall, in the absence of the President or in the event of his disability, perform the duties and exercise the powers of the President and shall generally assist the President and perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. Section 6.07. The Secretary. The Secretary shall attend all meetings of the Board of Directors and the shareholders and record all votes and the proceedings of the meetings in a book to be kept for that purpose. He shall perform like duties for the Executive Committee or other committees, if required. He shall give or cause to be given, notice of all meetings of the shareholders and special meetings of the Board of Directors, and shall perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board or the President, under whose supervision he shall act. He shall have custody of the corporate seal, and he, or an Assistant Secretary, shall have authority to affix it to any instrument requiring it and, when so affixed, the corporate seal may be attested by his signature or by the signature of the Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the corporate seal and to attest the affixing thereof by his signature. Section 6.08. The Assistant Secretary. The Assistant Secretary, if any, or in the event there be more than one (1), the Assistant Secretaries in the order designated, or in the absence of any designation, in the order of their election, -17- shall, in the absence of the Secretary or in the event of his disability, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. Section 6.09. The Treasurer. The Treasurer shall have the custody of the corporate funds and other valuable effects, including securities, and shall keep full and accurate account of receipts and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may from time to time be designated by the Board of Directors. He shall disburse the funds of the Corporation in accordance with the order of the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board if any, the President and the Board of Directors, whenever they may require it or at regular meetings of the Board of Directors, an account of all his transactions as Treasurer and of the financial condition of the Corporation. Section 6.10. The Assistant Treasurer. The Assistant Treasurer, if any, or in the event there shall be more than one (1), the Assistant Treasurers in the order designated, or in the absence of any designation, in the order of their election, shall, in the absence of the Treasurer or in the event of his disability, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other -18- powers as may from time to time be prescribed by the Board of Directors. ARTICLE VII INDEMNIFICATION AND PERSONAL LIABILITY Section 7.01. Indemnification of Directors and Officers. The Corporation shall indemnify any director or officer or employee or agent of the Corporation or any of its subsidiaries who was or is an "authorized representative" of the Corporation (which shall mean, for the purposes of this Article, a director or officer of the Corporation, or a person serving at the request of the Corporation as a director, officer, partner, fiduciary or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and who was or is a "party" (which shall include for purpose of this Article the giving of testimony or similar involvement) or is threatened to be made a party to any "proceeding" (which shall mean for purposes of this Article any threatened, pending or completed action, suit, appeal or other proceeding of any nature, whether civil, criminal, administrative or investigative, whether formal or informal, and whether brought by or in the right of the Corporation, its shareholders or otherwise) by reason of the fact that such person was or is an authorized representative of the Corporation to the fullest extent permitted by law including, without limitation, indemnification against expenses (which shall include for purposes of this Article, attorneys' fees and -19- disbursements), damages, punitive damages, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such proceeding unless the act or failure to act giving rise to the claim is finally determined by a court to have constituted willful misconduct or recklessness. If an authorized representative is not entitled to indemnification with respect to a portion of any liabilities to which such person may be subject, the Corporation shall nonetheless indemnify such person to the maximum extent for the remaining portion of the liabilities. Section 7.02. Advancement of Expenses. The Corporation shall pay the expenses (including attorneys' fees and disbursements) actually and reasonably incurred in defending a proceeding on behalf of any person entitled to indemnification under Section 7.01 of this Article in advance of the final disposition of such proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article and may pay such expenses in advance on behalf of any employee or agent on receipt of a similar undertaking. The financial ability of such authorized representative to make such repayment shall not be prerequisite to the making of an advance. Section 7.03. Employee Benefit Plans. For purposes of this Article, the Corporation shall be deemed to have requested an officer, director, employee or agent to serve as a fiduciary with respect to an employee benefit plan where the performance by -20- such person of duties to the Corporation also imposes duties on, or otherwise involves services by, such person as a fiduciary with respect to the plan; excise taxes assessed on an authorized representative with respect to any transaction with an employee benefit plan shall be deemed "fines"; and action taken or omitted by such person with respect to an employee benefit plan in the performance of duties for a purpose reasonably believed to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Corporation. Section 7.04. Security of Indemnification Obligations. To further effect, satisfy or secure the indemnification obligations provided herein or otherwise, the Corporation may maintain insurance, obtain a letter of credit, act as self-insurer, create a reserve, trust, escrow, cash collateral or other fund or account, enter into indemnification agreements, pledge or grant a security interest in any assets or properties of the Corporation, or use any other mechanism or arrangement whatsoever in such amounts, at such costs, and upon such other terms and conditions as the Board of Directors shall deem appropriate. Section 7.05. Reliance Upon Provisions. Each person who shall act as an authorized representative of the Corporation shall be deemed to be doing so in reliance upon the rights of indemnification provided by this Article. Section 7.06. Amendment or Repeal. Notwithstanding anything contained in Article XI of these Amended and Restated By-Laws, upon approval by the shareholders of the Corporation, -21- this Article shall not be repealed or amended or modified to limit the indemnification rights provided hereunder except by action of the shareholders. All rights to indemnification under this Article shall be deemed a contract between the Corporation and the person entitled to indemnification under this Article pursuant to which the Corporation and each such person intend to be legally bound. Any repeal, amendment or modification hereof shall be prospective only and shall not limit, but may expand, any rights or obligations in respect of any proceeding whether commenced prior to or after such change to the extent such proceeding pertains to actions or failures to act occurring prior to such change. Section 7.07. Scope of Article. The indemnification, as authorized by this Article, shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in any other capacity while holding such office. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall continue as to a person who has ceased to be an officer, director, employee or agent in respect of matters arising prior to such time, and shall inure to the benefit of the heirs, executors and administrators of such person. Section 7.08. Personal Liability of Directors. To the fullest extent that the laws of the Commonwealth of Pennsylvania, -22- as in effect on January 27, 1987, or as thereafter amended, permit elimination or limitation on the liability of directors, a director shall not be personally liable as a director for monetary damages, as such, for any action taken, or any failure to take any action, unless: A. The director has breached or failed to perform the duties of his office as defined under Section 8363 of Title 42 of the Pennsylvania Consolidated Statutes (relating to standard of care and justifiable reliance); and B. The breach or failure to perform constitutes self-dealing, willful misconduct or recklessness. Provided however, that the provisions of this section shall not apply to the responsibility or liability of a director pursuant to any criminal statute, or the liability of a director for the payment of taxes pursuant to a local, state or federal law. No amendment to or repeal of this section shall apply to or have any effect on the liability or alleged liability of any director for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. ARTICLE VIII AFFILIATED TRANSACTIONS AND INTERESTED DIRECTORS Section 8.01. Affiliated Transactions. No contract or transaction between the Corporation and one (1) or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in -23- which one (1) or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors thereof that authorizes the contract or transaction or solely because his or their votes are counted for such purpose, if: A. The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors and the Board of Directors in good faith authorizes the contract or transaction by the affirmative vote of the disinterested directors, even though the disinterested directors be less than a quorum; or B. The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by the vote of the shareholders; or C. The contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors or the shareholders. Section 8.02. Determining Quorum. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee thereof which authorizes the contract or transaction. -24- ARTICLE IX STOCK CERTIFICATES Section 9.01. Form and Signatures. A. Every holder of shares of stock of the Corporation shall be entitled to a certificate stating the number and class, and series, if any, of shares owned by him, signed by the Chairman of the Board, if any, or the President and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, and bearing the corporate seal. The signatures and the corporate seal may be facsimile. A certificate may be signed, manually or by facsimile, by a transfer agent or registrar other than the Corporation or its employee. In case any officer who has signed a certificate, or whose facsimile signature was placed on a certificate, shall have ceased to be such officer before the certificate is issued, it may nevertheless be issued by the Corporation with the same effect as if he were such officer at the date of its issue. B. All stock certificates representing shares of capital stock that are subject to restrictions on transfer or to other restrictions may have imprinted thereon any notation to that effect determined by the Board of Directors. Section 9.02. Registration of Transfer. Upon surrender to the corporation and/or transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Corporation or its transfer agent shall issue a new -25- certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 9.03. Registered Shareholders. A. Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person who is registered on its books as the owner of shares of its capital stock to receive dividends or other distributions and to vote or consent as such owner, and to hold liable for calls and assessments any person who is registered on its books as the owner of shares of its capital stock. The Corporation shall not be bound to recognize any equitable or legal claim to, or interest in, such shares on the part of any other person. B. If a shareholder desires that notices and/or dividends shall be sent to a name or address other than the name or address appearing on the stock ledger maintained by the Corporation, or its transfer agent or registrar, if any, the shareholder shall have the duty to notify the Corporation, or its transfer agent or registrar, if any, in writing of his desire and specify the alternate name or address to be used. Section 9.04. Record Date. In order that the Corporation may determine the shareholders of record who are entitled to receive notice of, or to vote at, any meeting of the shareholders or any adjournment thereof or to express consent to corporate action in writing without a meeting, to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any lawful action, the -26- Board of Directors may, in advance, fix a date as the record date for any such determination. Such date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to the date of any other action. A determination of shareholders of record entitled to notice of, or to vote at, a meeting of the shareholders shall apply to any adjournment of the meeting taken pursuant to Section 2.09 of Article II; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 9.05. Lost, Stolen or Destroyed Certificates. The Board of Directors may direct that a new certificate be issued to replace any certificate theretofore issued by the Corporation that is claimed to have been lost, stolen or destroyed, upon the making of an affidavit of the fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing the issuance of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of the lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such a manner as it shall require, and/or to give the Corporation a bond in such sum, or other security in such form, as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate claimed to have been lost, stolen or destroyed. -27- ARTICLE X GENERAL PROVISIONS Section 10.01. Dividends. Subject to the provisions of law and the Articles of Incorporation, dividends upon the outstanding capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property or in shares of the Corporation's capital stock. Section 10.02. Reserves. The Board of Directors shall have full power, subject to the provisions of law and the Articles of Incorporation, to determine whether any, and, if so, what part, of the funds legally available for the payment of dividends shall be declared as dividends and paid to the shareholders of the Corporation. The Board of Directors, in its sole discretion, may fix a sum that may be set aside or reserved for any proper purpose, and may, from time to time, increase, diminish or vary such amount. Section 10.03. Fiscal Year. The fiscal year of the Corporation shall be determined from time to time by the Board of Directors. Section 10.04. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its incorporation and the words "corporate seal" and "Pennsylvania." Section 10.05. Notices. Whenever, under the provisions of the statutes or of the Articles of Incorporation or -28- of these Amended and Restated By-Laws, notice is required to be given to any person, it may be given to such person either personally or by sending a copy thereof through the mail or by telegram, charges prepaid, to his address appearing on the books of the Corporation or supplied by him to the Corporation for the purpose of notice. If the notice is sent by mail or by telegram, it shall be deemed to have been given to the person entitled thereto when deposited in the United States mail or with a telegraph office for transmission to such person. Section 10.06. Waiver. Whenever any written notice is required to be given by statute or by the Articles of Incorporation or by these Amended and Restated By-Laws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed the equivalent to the giving of such notice. Except in the case of a special meeting of the shareholders, neither the business to be transacted nor the purpose of the meeting need be specified in the waiver of notice of such meeting. Attendance of any person entitled to notice, either in person or by proxy, at any meeting shall constitute a waiver of notice of such meeting, except where any person attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened. -29- ARTICLE XI AMENDMENTS Section 11.01. Amendments. The By-Laws may be altered, amended or repealed by a majority vote of the shareholders entitled to vote thereon at any regular or special meeting duly convened after notice to the shareholders of that purpose, or by a majority vote of the members of the Board of Directors at any regular or special meeting duly convened (excepting those matters which are by statute reserved exclusively to the shareholders) subject always to the power of the shareholders to change such action by the directors. Effective: October 2, 1995 -30- EX-4.2 3 REGISTRATION AND HOLDBACK AGREEMENT EXHIBIT 4.2 REGISTRATION AND HOLDBACK AGREEMENT This Registration and Holdback Agreement (the "Agreement") is made and entered into as of October 17, 1997, by and between AquaPenn Spring Water Company, Inc., a Pennsylvania corporation (the "Company") and Weis Markets, Inc., Dutch Valley Foods, Inc. and Aqua Works, Inc. (collectively, the "Shareholder"). BACKGROUND WHEREAS, the Company has advised the Shareholder that the Company is contemplating an initial public offering (the "Offering") of shares of Common Stock ("Shares") of the Company; WHEREAS, the Shareholder desires to offer and sell in the Offering Shares it owns or which it may acquire; and [WHEREAS, the Company desires to limit the number of Shares the Shareholder may sell subsequent to the completion of the Offering;] NOW THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Definition. The term "Registrable Securities" means: (1) all Shares owned beneficially and of record by the Shareholder on the date hereof, (2) all Shares which Shareholder may acquire pursuant to exercise of any warrant to purchase Common Stock of the Company, and (3) any other securities issued as dividends on, or by way of a split of, the Shares. 2. Registration. If the Company elects to proceed with the Offering, the Company shall use reasonable efforts to cause the managing underwriter of the Offering to permit the Shareholder to include, and if so included, the Shareholder shall sell 100% of the Registrable Securities in the Offering on the same terms and conditions as Shares of the Company included therein, less up to 1,500 Registrable Securities which shall continue to be held by the Shareholder if requested by the managing underwriter (the "Odd Lot Shares") (such number to be equitably adjusted for any stock split or stock dividend). Notwithstanding the foregoing, if the managing underwriter of the Offering delivers a written opinion to the Shareholder to the effect that the total amount of securities which the Shareholder and the Company propose to offer and sell would materially and adversely affect the success of the Offering, then the amount of Registrable Securities to be offered for the account of the Shareholder shall be reduced to the extent necessary to reduce the total amount of securities to be included in the Offering to the amount recommended by such managing underwriter. 3. Restrictions on Sale of Registrable Securities. The Shareholder agrees not to effect any sale or distribution of Registrable Securities (other than the Odd Lot Shares) or any similar security of the Company, or any securities convertible into or exchangeable or exercisable for such securities, during the period beginning on the date hereof and ending 180 days after the effective date of the registration statement filed in connection with the Offering (the "Effective Date") except as part of the Offering or to the Company. Notwithstanding anything else herein, in the event that the Offering is not consummated by March 31, 1998 or is terminated by the Company, this paragraph 3 shall be null and void, provided that a temporary postponement of the Offering shall not be deemed to be a termination of the Offering. 4. Shareholder Obligations. (a) The Shareholder shall furnish to the Company such information regarding the distribution of the Registrable Securities in the Offering as the Company may from time to time reasonably request. (b) The Shareholder agrees that, upon receipt of any notice from the Company of the happening of any event requiring discontinuance of distribution of Registrable Securities in the Offering, the Shareholder will forthwith discontinue disposition of Registrable Securities until such time as Shareholder receives copies of any supplemented or amended prospectus necessary to continue the Offering, and, if so directed by the Company, the Shareholder will deliver to the Company all copies of the prospectus covering such Registrable Securities current at the time of receipt of such notice. (c) The Shareholder agrees to (i) sell its Registrable Securities at the price and on the basis provided in any underwriting arrangements approved by the Board of Directors of the Company or its Pricing Committee, provided that such price is at least $7 per Share (calculated on a pre-stock split basis), (ii) complete and execute all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (iii) execute a Custody Agreement and Power of Attorney, in customary form, in favor of Edward J. Lauth, III and Geoffrey F. Feidelberg, or such other custodian or attorney-in-fact as may be selected by the Company. (d) Shareholder shall pay a portion of all the Company's reasonable expenses related to the Offering equal to the number of Registrable Securities sold by the Shareholder in the Offering divided by all Shares sold in the Offering. The Company's reasonable expenses related to the Offering shall include without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, 2 printing expenses, messenger and delivery expenses, internal out-of-pocket expenses, the fees and expenses incurred in connection with the listing of the Shares on any securities exchange, fees and disbursements of counsel for the Company and its independent certified public accountants, securities liability insurance (if the Company elects to obtain such insurance), and the reasonable fees and expenses of any other persons retained by the Company in connection with the Offering. The Shareholder shall pay the fees and expenses of its own counsel and underwriting discounts and commissions attributable to the sale of the Registrable Securities, and its other out-of-pocket expenses. (e) Shareholder agrees that in the event that (i) Shareholder sells less than 99% of the total amount of Registrable Securities held by Shareholder on the date hereof (including Shares issuable upon exercise of any warrants held by Shareholder), on or before the date of the sale of the Registrable Securities, Shareholder shall cause Mr. Bruce to resign from the Company's Board of Directors and (ii) in the event that Shareholder sells 99% or more of the total amount of Registrable Securities held by Shareholder on the date hereof (including Shares issuable upon exercise of any warrants held by Shareholder), Shareholder shall cause both Mr. Rich and Mr. Bruce to resign from the Board of Directors of the Company. (f) Shareholder agrees that any warrant held by Shareholder for the purchase of Shares shall be exercised by Shareholder prior to sale of the Registrable Securities and Shareholder hereby waives any rights it has had or will have to consent to issuances of securities by the Company. Shareholder agrees that the Custody Agreement and Power of Attorney will authorize the parties thereto to exercise all of Shareholder's warrants concurrently with the Offering and deduct the exercise price therefor from the proceeds of the Offering. Company and Shareholder agree that any and all other agreements (other than this Agreement) between Shareholder or any affiliate thereof and the Company shall terminate and be null and void upon execution of this Agreement and no party thereto shall have any further rights or obligations under such agreements, provided that any agreements related to sale of the Company's bottled water products shall remain in effect pursuant to the terms thereof. (g) Shareholder agrees that promptly after execution of this Agreement, it shall deliver all Registrable Securities to be sold in the Offering as set forth in Section 2 hereof (including warrants, if applicable) to McQuaide, Blasko, Schwartz, Fleming & Faulkner, Inc., to be held in escrow by such firm until the earlier of consummation of the Offering or execution of the Custody Agreement and Power of Attorney referred to in Section 4(c) above, at which time such firm shall deliver such Registered Securities in accordance with such Custody Agreement and Power of Attorney. In the event the Offering is 3 not consummated by March 31, 1998, the Company shall instruct escrow agent to return all Shareholder's Registrable Securities and warrants to Shareholder. 5. Miscellaneous. (a) Agreements and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents hereof may not be given without the written consent of the Company and the Shareholder. (b) Notices. Any notice or other communications required or permitted hereunder shall be deemed validly given when delivered personally or by telecopier (except for legal process), or upon receipt when sent by registered or certified mail or overnight delivery service, addressed as follows or to such other address or addresses or telecopier number as may hereafter be furnished in writing: To the Company: AquaPenn Spring Water Company One AquaPenn Drive P.O. Box 938 Milesburg, Pennsylvania 16853 Telecopier Number: (814) 353-9108 Attention: President To the Shareholder: At the address set forth in the books and records of the Company Notice given by telecopier shall be deemed delivered on the day the sender receives telecopier confirmation that such notice was received at the telecopier number of the addressee. Notice given by mail as set out above shall be deemed received three days after the date the same is postmarked. (c) Successors and Assigns. This Agreement shall be binding upon the successors and assigns of each of the parties hereto and shall inure to the benefit of their respective successors and permitted assigns. This Agreement shall not be assignable by the Shareholder, by operation of law or otherwise, without the prior written consent of the Company. (d) Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Pennsylvania applicable to contracts made and to be performed wholly therein without regard to principles of conflict of laws. 4 (e) Entire Agreement. This Agreement is intended by the Company and the Shareholder to be a complete and exclusive statement of their agreement and understanding in respect of the subject matter contained herein and supersedes all prior agreements and understandings between the parties with respect to such subject matter. 5 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. AQUAPENN SPRING WATER COMPANY, INC. By:/s/ Geoffrey F. Feidelberg -------------------------------- WEIS MARKETS, INC. By:/s/ William R. Miller -------------------------------- DUTCH VALLEY FOODS, INC. By:/s/ William R. Miller -------------------------------- AQUA WORKS, INC. By:/s/ William R. Miller -------------------------------- 6 EX-10.1 4 TERMINATION AGREEMENT EXHIBIT 10.1 3/08/94 TERMINATION AGREEMENT This Termination Agreement, made this 3rd day of October, 1994, by and between AQUAPENN SPRING WATER COMPANY, INC., a Pennsylvania Business Corporation, having its principal place of business at 3035 Research Drive, State College, Pennsylvania (the "Company") and MATTHEW J. SUHEY, an individual having a principal office at 1942 Dale Avenue, Highland Park, Illinois, (the "Broker"). RECITALS A. On February 1, 1992, the parties hereto entered into a Sales Representative Agreement whereby Broker agreed to act as a sales representative of Company from the date of the agreement until January 31, 1999. B. The parties wish to herein terminate said Sales Representative Agreement in accordance with the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual promises herein set forth, the parties hereto, with the intent to be legally bound hereby, agree as follows: 1. Termination of Agreement. Broker and Company hereby agree that the Sales Representative Agreement between the parties dated February 1, 1992 shall terminate upon the mutual agreement of the parties effective October 3, 1994. 2. Effect of Termination. By execution of this Agreement, the Sales Representative Agreement shall become null and void and of no further force and effect provided, however, that a) Paragraph 5 prohibiting Broker from disclosing any trade secrets directly or indirectly or using them in any way, shall continue in full force and effect, and is hereby restated in its entirety and incorporated herein by this reference; and b) Paragraph 12 of the Agreement shall continue to be in full force and effect with regard to the effect of termination and is hereby restated in its entirety. 3. Consideration. In consideration of the agreement to terminate the contract, the Company does hereby provide to Broker the option to purchase 450,000 shares of common stock of Company at a price of $1.14 per share. Broker shall be entitled to exercise this option to purchase some or all of the shares to which he is entitled for a period of ten (10) years from the execution of this Agreement (the "Option Period"). In the event that Broker has not exercised his option prior to the expiration of the Option Period, this option shall have no further force or effect. In the event of a stock split or reverse stock split, Broker will be eligible to an equitable adjustment in the class and number of shares and the purchase price to take into consideration such additional issuance. In addition, if the Company is a party to a merger and is not the survivor, the Company shall provide that the Broker shall be eligible to purchase such number and types of shares as may be equitable under the circumstances. In consideration of the option granted hereunder, Broker shall not during the Option Period, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, own, operate, control, assist, or participate in any business that is in competition in any manner whatsoever with the business of the Company. The foregoing prohibitions shall not apply to ownership by Broker of less than five percent (5%) of the issued or outstanding stock of any company whose shares are listed for trading over any public exchange or the over-the-counter market provided that Broker does not control any such company. IN WITNESS WHEREOF, the parties hereto have executed this Agreement with the intent to be legally bound hereby on the day and year first above-written. ATTEST: AQUAPENN SPRING WATER COMPANY, INC. By: /s/ C.J. Wagner By: /s/ Edward J. Lauth --------------------- --------------------- Secretary President WITNESS: /s/ C.J. Wagner /s/ Matthew J. Suhey [SEAL] --------------------- -------------------- Matthew J. Suhey EX-10.2 5 1996 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.2 AQUAPENN SPRING WATER COMPANY 1996 EMPLOYEE STOCK PURCHASE PLAN (As amended through December 17, 1996) 1. Purpose. The purpose of the 1996 Employee Stock Purchase Plan (the "Plan"), is to provide eligible employees of AquaPenn Spring Water Company (the "Company"), and its subsidiaries, who wish to become shareholders of the Company, an opportunity to purchase shares of the common stock of the Company (the "Shares"). The Board of Directors of the Company believes that employee participation in the ownership of the Company will be to the mutual benefit of the employees and the Company. The Plan is intended to qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code (the "Code"). 2. Eligible Employees. Subject to the provisions of Section 3 below, any individual who has been continuously in the employment of the Company (or of any of its subsidiaries (as defined in Section 424(f) of the Code) since January 2 of the year before the year of any Offering Date (as defined in Section 4 below), is eligible to participate in the offering of Shares on that Offering Date, except: (a) employees whose customary employment is 20 hours or less per week; or (b) employees whose customary employment is for not more than five months in the calendar year of the Offering Date or in the calendar year preceding that year. All employees granted options under the Plan shall have the same rights and privileges, except as set forth herein. 3. Limitations on Grants. (a) No more than 1,000,000 Shares may be sold pursuant to options granted under the Plan. If the Company engages in any mergers, consolidations, acquisitions, stock splits, stock dividends, or other changes in its capitalization after the effective date of the Plan, it will make appropriate adjustments in the number of Shares in the Plan, the number of Shares covered by outstanding options, the subscription rate, and the maximum number of Shares an employee may purchase. (If the change results in an option being for fractional Shares, the number of shares subject to the option will be adjusted downward to the nearest full Share.) Any agreement of merger or consolidation will include provisions for protection of the then-existing rights of participating employees under the Plan. Either authorized and unissued Shares or issued Shares reacquired by the Company may be made subject to options under the Plan. If for any reason any option under the Plan terminates in whole or in part, Shares subject to the terminated option may be again subjected to an option under the Plan. (b) No employee shall be granted an option hereunder if such employee, immediately after the option is granted, owns stock possessing 5 percent or more of the total combined voting power or value of all classes of stock of the Company, computed in accordance with Section 423(b)(3) of the Code. (c) No employee shall be granted an option which permits his rights to purchase Shares under all employee stock purchase plans of the Company to accrue at a rate which exceeds $25,000 (or such other maximum as may be prescribed from time to time by the Code) of fair market value of such Shares (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time in accordance with the provisions of Section 423(b)(8) of the Code. 4. Offering Date. From time to time the Board of Directors may fix a date (the "Offering Date"), on which the Company will make an offer (an "Offering"), to all employees then eligible to participate, of options to purchase Shares. In order to participate in an Offering, an eligible employee must complete and deliver to Company a Subscription Agreement within 120 days following the Offering Date. All Subscription Agreements will be dated and will be effective as of the Subscription Date. For purposes of this Plan, the "Subscription Date" will be the 30th day following any Offering Date (or if the 30th day is a Saturday, Sunday or legal holiday, then the next succeeding business day). 5. Price. The option price per Share for each Offering shall be 85 percent of the fair market value (adjusted to the nearest $.25) of the Shares as determined by the Board of Directors of the Company on each Offering Date. 6. Limits of Participation. Each employee who is eligible for the first time to participate in an Offering of Shares under the Plan shall be permitted to subscribe under the Plan on the applicable Offering Date for a maximum total amount of Shares such that the aggregate price paid for such Shares is no more than 20% of the employee's Cumulative Annual Compensation from the beginning date of the employee's employment. For each employee who has been eligible to participate in a previous Offering of Shares under the Plan, for each Offering after such initial Offering such eligible employee will be permitted to subscribe under the Plan on the applicable Offering Date for a maximum total amount of Shares such that the aggregate price paid for such Shares in such Offering is no more than 20% of the employee's Annual Compensation for the twelve month period immediately preceding the Offering Date for any such Offering. For purposes of the Plan, "Annual Compensation" means the aggregate of basic regular salary (and sales commissions where applicable) plus payments for overtime work as determined by the Company's payroll records from the date which is one year prior to the Offering Date through the Offering Date, but shall not include bonuses, profit sharing, or any other forms of additional compensation. For purposes of the Plan "Cumulative Annual Compensation" means the aggregate of basic regular salary (and sales commissions where applicable) plus payments for overtime work as determined by the Company's payroll records from the beginning of the date of employment but shall not include bonuses, profit-sharing or any other forms of additional compensation. If at any time during the term of the Plan the number of Shares subscribed for exceeds the number of shares allocated to the Plan pursuant to Section 3 or permitted by any applicable laws, or regulations then in effect, then the subscription rate shall be reduced to such lower whole number percentage of Cumulative Annual Compensation as may be necessary to eliminate such oversubscription on a pro rata basis. 7. Method of Payment. The employee will pay for all Shares subscribed for either in cash, by check, or by payroll deduction (if a payroll deduction option is made available to employees). Payment must be made within one year of the Offering Date. Share certificates for Shares purchased under the Plan will be issued by the Company as soon as practicable after the full purchase price has been paid. 8. Termination of Participation in Plan. A participating employee may cancel his or her subscription under any Offering, in whole but not in part, at any time prior to payment of the full purchase price by giving the Company written notice thereof. Failure to pay for Shares as provided in Section 7 shall constitute a cancellation of the subscription. 9. Employees' Rights as Shareholders. No employee shall have any rights as a shareholder in Shares subscribed for until full payment has been made for the Shares. 10. Rights not Transferable. An employee may not assign or transfer rights under the Plan other than by will or the laws of descent and distribution, and only the employee may exercise the rights during his or her lifetime. 11. Termination of Employee. In the event that the employment of a participating employee is terminated for any reason other than death, temporary layoff or retirement with the consent of the Company, the employee's rights to purchase Shares under any Subscription Agreement shall terminate immediately. For purposes of the Plan, the employee's employment will terminate on the date he leaves the Company or any subsidiary or on the date notice of termination of employment is given, whichever is the earlier. Upon the termination of employment due to death, or retirement with the consent of the Company, the employee or his or her estate may, within one year of the Offering Date, pay the entire amount due from the employee under the Plan and receive the Shares so purchased. The failure to make such payment of the entire amount due within such period shall constitute cancellation of all subscriptions of the employee under the Plan. If an employee is subjected to temporary layoff, and is subsequently rehired within six months, the employee may continue to pay for the Shares subscribed for by such employee, provided that such payment must be made in accordance with Section 7. 12. Amendments or Discontinuance of Plan. The Board of Directors of the Company shall have the right to amend, modify or terminate this Plan at any time without notice; provided, however, that the then existing rights of participating employees shall not be adversely affected thereby, except that in the case of a participating employee of a foreign subsidiary or branch of the Company the Plan may be varied to conform with local laws, and provided further that, subject to the provisions of Section 3(a) above, without the consent of the shareholders of the Company possessing a majority of the voting power, no such amendment to the Plan shall: (a) Increase the total number of Shares which may be offered under the Plan; (b) Change the method, provided in Section 5, by which the price at which the Shares shall be sold is determined; and (c) Increase the maximum number of Shares which an eligible employee may purchase. 13. Effective Date and Approvals. The Plan shall become effective at a time when: (a) The Plan has been adopted by the Board of Directors of the Company and has been approved by the shareholders of the Company at an annual or special meeting within 12 months before or after the date that the Plan is adopted by the Board of Directors; and (b) The Board of Directors shall have set the initial Offering Date. The Company's obligation to offer, sell and deliver Shares under the Plan is subject to the approval of any governmental authority required in connection with the authorized issuance or sale of such Shares and is further subject to the Company's receiving the opinion of its counsel that all applicable securities laws have been complied with. 14. Miscellaneous Provisions. The Company shall administer, interpret, and apply all provisions of the Plan. The Company may waive such provisions of the Plan as it deems necessary to meet special circumstances not anticipated or covered expressly by the Plan. Nothing contained in this Section shall be deemed to authorize the Company to alter or administer the provisions of the Plan in a manner inconsistent with the provisions of Section 423 of the Code. EX-10.3 6 FORM OF WARRANT EXHIBIT 10.3 11/16/95 RIGHT TO PURCHASE 125,000 SHARES WARRANT For the Purchase of Shares of Common Stock of AquaPenn Spring Water Company, Inc. Incorporated Under the Laws of the Commonwealth of Pennsylvania This Warrant is to certify that, for value received, Edward J. Lauth, III (the "Holder") is entitled, subject to the terms and conditions set forth in this Warrant, to purchase, One Hundred Twenty-five Thousand and NO/100 (125,000) shares of the Common Stock (the "Common Stock") of AquaPenn Spring Water Company, Inc. (the "Corporation") from the Corporation at a purchase price per share equal to $3.00; provided, however, that if the offering price per share of the next completed private placement or public offering of Common Stock by the Company after the date hereof whereby the aggregate price of the Common Stock sold in such private placement or public offering exceeds $2,500,000 (a "Qualifying Issuance") is less than $3.00, then the purchase price per share hereunder shall be such lesser price (such purchase price is hereinafter referred to as the "Exercise Price"). In the event of a Qualifying Issuance, the Exercise Price shall be determined pursuant to the immediately preceding sentence, then adjusted pursuant to the provisions set forth below. Following the exercise of this Warrant, the Holder shall be entitled to receive a certificate or certificates for the shares of Common Stock purchased, upon presentation and surrender to the Corporation of this Warrant with the exercise form duly completed and executed, and accompanied by payment of the Exercise Price of each share purchased either in cash or immediately collectible funds payable to the order of the Corporation. This Warrant may be exercised in full or in part. The Corporation covenants and agrees that all shares that may be issued upon exercise of this Warrant shall, upon issuance, be duly and validly issued, fully paid and nonassessable, and free of all taxes, liens and charges with respect to the purchase and issuance of the shares. 1 The number of shares of Common Stock for which this Warrant is exercisable, and the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time. The Corporation shall give the Holder notice of any event described below which requires an adjustment pursuant to this Section at the time of such event. It is the intent of the parties hereto that after giving effect to any exercise of this Warrant, that the Holder, his successors or assigns or any transferee thereof would be the owner of (or have the right to acquire pursuant hereto) a minimum of 2.5% of the Common Stock outstanding on a fully diluted basis. The Exercise Price and number of shares of Common Stock for which this Warrant shall be exercisable shall be subject to adjustment from time to time as follows: (a) Dividends, Subdivisions, Combinations and Issuances. In the event that the Corporation subsequent to the date of issuance hereof shall: (i) declare a dividend upon, or make any distribution in respect of, any of its stock, payable in Common Stock, securities convertible or exchangeable into Common Stock ("Convertible Securities") or rights to purchase Common Stock ("Stock Purchase Rights"), or (ii) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue or sell any shares of Common Stock, Convertible Securities or Stock Purchase Rights after the date of issuance of this Warrant, then (i) the number of Shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock 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 (assuming the conversion of all Convertible Securities or exercise in full of Stock Purchase Rights, as the case may be, at the time of issuance of such Convertible Securities or Stock Purchase Rights by the record holder thereof) and (ii) the Exercise Price shall be adjusted to equal the Exercise Price multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment and the denominator of which shall be the number of shares for which this Warrant is exercisable immediately after such adjustment. 2 (b) Reorganization, Reclassification or Recapitalization of Corporation. In case of any capital reorganization or reclassification or recapitalization of the capital stock of the Corporation (other than in the cases referred to in Subsection (a) above, or in case of the consolidation or merger of the Corporation with or into another corporation, or in case of the sale, transfer or other disposition of all or substantially all of the business, assets or property of the Corporation, there shall thereafter be deliverable upon the exercise of this Warrant or any portion thereof (in lieu of or in addition to the number of shares of Common Stock theretofore deliverable, as appropriate) the number of shares of stock or other securities or property to which the holder of the number of shares of Common Stock which would otherwise have been deliverable upon the exercise of this Warrant or any portion thereof at the time would have been entitled upon such capital reorganization or reclassification of capital stock, consolidation, merger or sale, and at the same aggregate Exercise Price. Prior to and as a condition of the consummation of any transaction described in the preceding sentence, the Corporation shall make equitable, written adjustments in the application of the provisions herein set forth satisfactory to the holders of this Warrant with respect to the rights and interests of holders of this Warrant so that the provisions set forth herein shall thereafter be applicable, as nearly as possible, in relation to any shares of stock or other securities or other property thereafter deliverable upon exercise of this Warrant. Any such adjustment shall be made by and set forth in a supplemental agreement between the Corporation and/or the successor entity, as applicable, which agreement shall bind each such entity, shall be accompanied by any Opinion of Counsel as to the enforceability of such agreement satisfactory to the Holder. (c) Readjustment of Exercise Price. In the event the rate at which any Convertible Securities issued by the Corporation are convertible into or exchangeable for additional shares of Common Stock shall change, the Exercise Price and the number of shares of Common Stock for which this Warrant may be exercised in effect at the time of such event shall forthwith be readjusted to the Exercise Price and the number of shares of Common Stock which would have been in effect at such time had such Convertible Securities provided for such conversion rate at the time initially granted, issued or sold. On the expiration of any such Stock Purchase Rights not exercised or of any such right to convert or exchange under any such Convertible Securities not exercised, (i) the Exercise Price then in effect hereunder shall forthwith be increased to the Exercise Price which would have been in effect at the time of such expiration or termination had such Stock Purchase Rights or Convertible Securities never been issued, and (ii) the number of shares of Common Stock for which this Warrant may be exercised then in effect hereunder shall forthwith be decreased to the number of shares of Common Stock which would have been in effect at the time of such expiration or termination had such Stock Purchase Rights or Convertible Securities never been issued. No readjustment of the Exercise Price pursuant to this Subsection (c) shall have the effect of increasing the Exercise Price by an amount in excess of the adjustment 3 originally made to the Exercise Price in respect of the issue, sale, or grant of the applicable Stock Purchase Rights or Convertible Securities. (d) No Adjustments under Certain Circumstances. Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Exercise Price in the case of: (i) the issuance of shares of Common Stock upon the exercise in whole or part of the Warrant; or (ii) the issuance of shares of Common Stock pursuant to a rights offering in which all of the holders of the Warrant are given the right to participate and elect to participate in such offering. The Corporation agrees at all times to reserve and hold available a sufficient number of shares of Common Stock to cover the number of shares issuable upon exercise of this Warrant. This Warrant is exchangeable, upon the surrender hereof by the new registered Holder at the principal office of the Corporation, for new Warrants of like tenor and date representing the right to purchase the number of shares purchasable hereunder, each of such new Warrants to represent the right to purchase such number of shares as shall be designated by said registered Holder at the time of such surrender. Upon receipt by the Corporation of evidence reasonably satisfactory to it of the loss, theft or mutilation of this Warrant, and, in the case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Corporation of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Warrant, if mutilated, the Corporation will make and deliver a new Warrant of like tenor, in lieu of this Warrant. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been made when delivered or mailed by certified or registered mail first-class postage prepaid, or delivered, to a telegraph office for transmission: (a) if to the registered Holder of this Warrant, at 1346 Sandpiper Drive, State College, Pennsylvania or at such other address as may be furnished in writing by the Holder to the Corporation; or 4 (b) if to the Corporation, at P. O. Box 938, One AquaPenn Drive, Milesburg, Pennsylvania or at such other address as may have been furnished to the Holder of the Warrants in writing by the Corporation. This Warrant shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, personal representatives, successors and assigns and shall be binding upon any person, firm, corporation or other entity to whom this Warrant and the heirs, executors, personal representatives, successors and assigns or such person, firm, corporation or other entity. IN WITNESS WHEREOF, the Corporation has executed this Warrant this 21st day of November 1995. ATTEST: AQUAPENN SPRING WATER COMPANY, INC. /s/ C. J. Wagner By: /s/ Edward J. Lauth, III - -------------------------- ------------------------------- C. J. Wagner, Secretary Edward J. Lauth, III, President 5 Exercise Form Edward J. Lauth, III hereby: (1) irrevocably subscribes for and offers to purchase shares of Common Stock of AquaPenn Spring Water Company, Inc. pursuant to the Warrant to which this exhibit is attached; (2) encloses payment of for these shares of Common Stock at a price of $ per share; and (3) requests that a certificate for the shares be issued in the name of Edward J. Lauth, III. _____________________________[SEAL] Edward J. Lauth, III 6 08/27/96 RIGHT TO PURCHASE 35,000 SHARES WARRANT For the Purchase of Shares of Common Stock of AquaPenn Spring Water Company, Inc. Incorporated Under the Laws of the Commonwealth of Pennsylvania This Warrant is to certify that, for value received, NANCY JEAN DAVIS (the "Holder") is entitled, subject to the terms and conditions set forth in this Warrant, to purchase, Thirty-Five Thousand and 00/100 (35,000) shares of the Common Stock (the "Common Stock") of AquaPenn Spring Water Company, Inc. (the "Corporation") from the Corporation at a purchase price per share equal to $3.00; provided, however, that if the offering price per share of the next completed private placement or public offering of Common Stock by the Company after the date hereof whereby the aggregate price of the Common Stock sold in such private placement or public offering exceeds $2,500,000 (a "Qualifying Issuance") is less than $3.00, then the purchase price per share hereunder shall be such lesser price (such purchase price is hereinafter referred to as the "Exercise Price"). In the event of a Qualifying Issuance, the Exercise Price shall be determined pursuant to the immediately preceding sentence, then adjusted pursuant to the provisions set forth below. Following the exercise of this Warrant, the Holder shall be entitled to receive a certificate or certificates for the shares of Common Stock purchased, upon presentation and surrender to the Corporation of this Warrant with the exercise form duly completed and executed, and accompanied by payment of the Exercise Price of each share purchased either in cash or immediately collectible funds payable to the order of the Corporation. This Warrant may be exercised in full or in part. The Corporation covenants and agrees that all shares that may be issued upon exercise of this Warrant shall, upon issuance, be duly and validly issued, fully paid and nonassessable, and free of all taxes, liens and charges with respect to the purchase and issuance of the shares. The number of shares of Common Stock for which this Warrant is exercisable, and the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time. The Corporation shall give the Holder notice of any 1 event described below which requires an adjustment pursuant to this Section at the time of such event. It is the intent of the parties hereto that after giving effect to any exercise of this Warrant, that the Holder, his successors or assigns or any transferee thereof would be the owner of (or have the right to acquire pursuant hereto) a minimum of 2.5% of the Common Stock outstanding on a fully diluted basis. The Exercise Price and number of shares of Common Stock for which this Warrant shall be exercisable shall be subject to adjustment from time to time as follows: a. Dividends, Subdivisions, Combinations and Issuances. In the event that the Corporation subsequent to the date of issuance hereof shall: i. declare a dividend upon, or make any distribution in respect of, any of its stock, payable in Common Stock, securities convertible or exchangeable into Common Stock ("Convertible Securities") or rights to purchase Common Stock ("Stock Purchase Rights"), or ii. subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or iii.combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or iv. issue or sell any shares of Common Stock, Convertible Securities or Stock Purchase Rights after the date of issuance of this Warrant, then (i) the number of Shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock 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 (assuming the conversion of all Convertible Securities or exercise in full of Stock Purchase Rights, as the case may be, at the time of issuance of such Convertible Securities or Stock Purchase Rights by the record holder thereof) and (ii) the Exercise Price shall be adjusted to equal the Exercise Price multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment and the denominator of which shall be the number of shares for which this Warrant is exercisable immediately after such adjustment. b. Reorganization, Reclassification or Recapitalization of Corporation. In case of any capital reorganization or reclassification or recapitalization of the capital stock of the Corporation (other than in the cases referred to in Subsection (a) above, or in case of the 2 consolidation or merger of the Corporation with or into another corporation, or in case of the sale, transfer or other disposition of all or substantially all of the business, assets or property of the Corporation, there shall thereafter be deliverable upon the exercise of this Warrant or any portion thereof (in lieu of or in addition to the number of shares of Common Stock theretofore deliverable, as appropriate) the number of shares of stock or other securities or property to which the holder of the number of shares of Common Stock which would otherwise have been deliverable upon the exercise of this Warrant or any portion thereof at the time would have been entitled upon such capital reorganization or reclassification of capital stock, consolidation, merger or sale, and at the same aggregate Exercise Price. Prior to and as a condition of the consummation of any transaction described in the preceding sentence, the Corporation shall make equitable, written adjustments in the application of the provisions herein set forth satisfactory to the holders of this Warrant with respect to the rights and interests of holders of this Warrant so that the provisions set forth herein shall thereafter be applicable, as nearly as possible, in relation to any shares of stock or other securities or other property thereafter deliverable upon exercise of this Warrant. Any such adjustment shall be made by and set forth in a supplemental agreement between the Corporation and/or the successor entity, as applicable, which agreement shall bind each such entry, shall be accompanied by any Opinion of Counsel as to the enforceability of such agreement satisfactory to the Holder. c. Readjustment of Exercise Price. In the event the rate at which any Convertible Securities issued by the Corporation are convertible into or exchangeable for additional shares of Common Stock shall change, the Exercise Price and the number of shares of Common Stock for which this Warrant may be exercised in effect at the time of such event shall forthwith be readjusted to the Exercise Price and the number of shares of Common Stock which would have been in effect at such item had such Convertible Securities provided for such conversion rate at the time initially granted, issued or sold. On the expiration of any such Stock Purchase Rights not exercised or of any such right to convert or exchange under any such Convertible Securities not exercised, (i) the Exercise Price then i effect hereunder shall forthwith be increased to the Exercise Price which would have been in effect at the time of such expiration or termination had such Stock Purchase Rights or Convertible Securities never been issued, and (ii) the number of shares of Common Stock for which this Warrant may be exercised then in effect hereunder shall forthwith be decreased to the number of shares of Common Stock which would have been in effect at the time of such expiration or termination had such Stock Purchase Rights or Convertible Securities never been issued. No readjustment of the Exercise Price pursuant to this Subsection (c) shall have the effect of increasing the Exercise Price by an amount in excess of the adjustment originally made to the Exercise Price in respect of the issue, sale, or grant of the applicable Stock Purchase Rights or Convertible Securities. 3 d. No Adjustments under Certain Circumstances. Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Exercise Price in the case of: i. the issuance of shares of Common Stock upon the exercise in whole or part of the Warrant; or ii. the issuance of shares of Common Stock pursuant to a rights offering in which all of the holders of the Warrant are given the right to participate and elect to participate in such offering. The Corporation agrees at all times to reserve and hold available a sufficient number of shares of Common Stock to cover the number of shares issuable upon exercise of this Warrant. This Warrant is exchangeable, upon the surrender hereof by the new registered Holder at the principal office of the Corporation, for new Warrants of like tenor and date representing the right to purchase the number of shares purchasable hereunder, each of such new Warrants to represent the right to purchase such number of shares as shall be designated by said registered Holder at the time of such surrender. Upon receipt by the Corporation of evidence reasonably satisfactory to it of the loss, theft or mutilation of this Warrant, and, in the case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Corporation of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Warrant, if mutilated, the Corporation will make and deliver a new Warrant of like tenor, in lieu of this Warrant. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been made when delivered or mailed by certified or registered mail first-class postage prepaid, or delivered, to a telegraph office for transmission: a. if to the registered Holder of this Warrant, at 80 Southwest Eighth Street, Suite 2110, Miami, Florida 33130-3047, or at such other address as may be furnished in writing by the Holder to the Corporation; or b. if to the Corporation, at P. O. Box 938, One AquaPenn Drive, Milesburg, Pennsylvania 16853 or at such other address as may have been furnished to the Holder of the Warrants in writing by the Corporation. 4 This Warrant shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, personal representatives, successors and assigns and shall be binding upon any person, firm, corporation or other entity to whom this Warrant and the heirs, executors, personal representatives, successors and assigns or such person, firm, corporation or other entity. IN WITNESS WHEREOF, the Corporation has executed this Warrant this 28 day of August, 1996. ATTEST: AQUAPENN SPRING WATER COMPANY, INC. /s/ C.J. Wagner, Jr. By: /s/ Edward J. Lauth, III - ------------------------- --------------------------------- Calvin J. Wagner, Jr., Secretary Edward J. Lauth, III, President 5 Exercise Form NANCY JEAN DAVIS hereby: (1) irrevocably subscribes for and offers to purchase __________ shares of Common Stock of AquaPenn Spring Water Company, Inc. pursuant to the Warrant to which this exhibit is attached; (2) enclosed payment of __________ for these shares of Common Stock at a price of $__________ per share; and (3) requests that a certificate for the shares be issued in the name of NANCY JEAN DAVIS. __________________________[SEAL] NANCY JEAN DAVIS 11/16/95 RIGHT TO PURCHASE 15,000 SHARES WARRANT For the Purchase of Shares of Common Stock of AquaPenn Spring Water Company, Inc. Incorporated Under the Laws of the Commonwealth of Pennsylvania This Warrant is to certify that, for value received, James D. Hammond and Marian I. Hammond (jointly referred to as the "Holder") is entitled, subject to the terms and conditions set forth in this Warrant, to purchase, Fifteen Thousand and NO/100 (15,000) shares of the Common Stock (the "Common Stock") of AquaPenn Spring Water Company, Inc. (the "Corporation") from the Corporation at a purchase price per share equal to $3.00; provided, however, that if the offering price per share of the next completed private placement or public offering of Common Stock by the Company after the date hereof whereby the aggregate price of the Common Stock sold in such private placement or public offering exceeds $2,500,000 (a "Qualifying Issuance") is less than $3.00, then the purchase price per share hereunder shall be such lesser price (such purchase price is hereinafter referred to as the "Exercise Price"). In the event of a Qualifying Issuance, the Exercise Price shall be determined pursuant to the immediately preceding sentence, then adjusted pursuant to the provisions set forth below. Following the exercise of this Warrant, the Holder shall be entitled to receive a certificate or certificates for the shares of Common Stock purchased, upon presentation and surrender to the Corporation of this Warrant with the exercise form duly completed and executed, and accompanied by payment of the Exercise Price of each share purchased either in cash or immediately collectible funds payable to the order of the Corporation. This Warrant may be exercised in full or in part. The Corporation covenants and agrees that all shares that may be issued upon exercise of this Warrant shall, upon issuance, be duly and validly issued, fully paid and nonassessable, and free of all taxes, liens and charges with respect to the purchase and issuance of the shares. The number of shares of Common Stock for which this Warrant is exercisable, and the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to 1 adjustment from time to time. The Corporation shall give the Holder notice of any event described below which requires an adjustment pursuant to this Section at the time of such event. It is the intent of the parties hereto that after giving effect to any exercise of this Warrant, that the Holder, his successors or assigns or any transferee thereof would be the owner of (or have the right to acquire pursuant hereto) a minimum of 2.5% of the Common Stock outstanding on a fully diluted basis. The Exercise Price and number of shares of Common Stock for which this Warrant shall be exercisable shall be subject to adjustment from time to time as follows: (a) Dividends, Subdivisions, Combinations and Issuances. In the event that the Corporation subsequent to the date of issuance hereof shall: (i) declare a dividend upon, or make any distribution in respect of, any of its stock, payable in Common Stock, securities convertible or exchangeable into Common Stock ("Convertible Securities") or rights to purchase Common Stock ("Stock Purchase Rights"), or (ii) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue or sell any shares of Common Stock, Convertible Securities or Stock Purchase Rights after the date of issuance of this Warrant, then (i) the number of Shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock 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 (assuming the conversion of all Convertible Securities or exercise in full of Stock Purchase Rights, as the case may be, at the time of issuance of such Convertible Securities or Stock Purchase Rights by the record holder thereof) and (ii) the Exercise Price shall be adjusted to equal the Exercise Price multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment and the denominator of which shall be the number of shares for which this Warrant is exercisable immediately after such adjustment. (b) Reorganization, Reclassification or Recapitalization of Corporation. In case of any capital reorganization or reclassification or recapitalization of the capital stock of the 2 Corporation (other than in the cases referred to in Subsection (a) above, or in case of the consolidation or merger of the Corporation with or into another corporation, or in case of the sale, transfer or other disposition of all or substantially all of the business, assets or property of the Corporation, there shall thereafter be deliverable upon the exercise of this Warrant or any portion thereof (in lieu of or in addition to the number of shares of Common Stock theretofore deliverable, as appropriate) the number of shares of stock or other securities or property to which the holder of the number of shares of Common Stock which would otherwise have been deliverable upon the exercise of this Warrant or any portion thereof at the time would have been entitled upon such capital reorganization or reclassification of capital stock, consolidation, merger or sale, and at the same aggregate Exercise Price. Prior to and as a condition of the consummation of any transaction described in the preceding sentence, the Corporation shall make equitable, written adjustments in the application of the provisions herein set forth satisfactory to the holders of this Warrant with respect to the rights and interests of holders of this Warrant so that the provisions set forth herein shall thereafter be applicable, as nearly as possible, in relation to any shares of stock or other securities or other property thereafter deliverable upon exercise of this Warrant. Any such adjustment shall be made by and set forth in a supplemental agreement between the Corporation and/or the successor entity, as applicable, which agreement shall bind each such entity, shall be accompanied by any Opinion of Counsel as to the enforceability of such agreement satisfactory to the Holder. (c) Readjustment of Exercise Price. In the event the rate at which any Convertible Securities issued by the Corporation are convertible into or exchangeable for additional shares of Common Stock shall change, the Exercise Price and the number of shares of Common Stock for which this Warrant may be exercised in effect at the time of such event shall forthwith be readjusted to the Exercise Price and the number of shares of Common Stock which would have been in effect at such time had such Convertible Securities provided for such conversion rate at the time initially granted, issued or sold. On the expiration of any such Stock Purchase Rights not exercised or of any such right to convert or exchange under any such Convertible Securities not exercised, (i) the Exercise Price then in effect hereunder shall forthwith be increased to the Exercise Price which would have been in effect at the time of such expiration or termination had such Stock Purchase Rights or Convertible Securities never been issued, and (ii) the number of shares of Common Stock for which this Warrant may be exercised then in effect hereunder shall forthwith be decreased to the number of shares of Common Stock which would have been in effect at the time of such expiration or termination had such Stock Purchase Rights or Convertible Securities never been issued. No readjustment of the Exercise Price pursuant to this Subsection (c) shall have the effect of increasing the Exercise Price by an amount in excess of the adjustment originally made to the Exercise Price in respect of the issue, sale, or grant of the applicable Stock Purchase Rights or Convertible Securities. 3 (d) No Adjustments under Certain Circumstances. Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Exercise Price in the case of: (i) the issuance of shares of Common Stock upon the exercise in whole or part of the Warrant; or (ii) the issuance of shares of Common Stock pursuant to a rights offering in which all of the holders of the Warrant are given the right to participate and elect to participate in such offering. The Corporation agrees at all times to reserve and hold available a sufficient number of shares of Common Stock to cover the number of shares issuable upon exercise of this Warrant. This Warrant is exchangeable, upon the surrender hereof by the new registered Holder at the principal office of the Corporation, for new Warrants of like tenor and date representing the right to purchase the number of shares purchasable hereunder, each of such new Warrants to represent the right to purchase such number of shares as shall be designated by said registered Holder at the time of such surrender. Upon receipt by the Corporation of evidence reasonably satisfactory to it of the loss, theft or mutilation of this Warrant, and, in the case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Corporation of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Warrant, if mutilated, the Corporation will make and deliver a new Warrant of like tenor, in lieu of this Warrant. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been made when delivered or mailed by certified or registered mail first-class postage prepaid, or delivered, to a telegraph office for transmission: (a) if to the registered Holder of this Warrant, at 1009 Greenbriar Drive, State College, Pennsylvania or at such other address as may be furnished in writing by the Holder to the Corporation; or (b) if to the Corporation, at P. O. Box 938, One AquaPenn Drive, Milesburg, Pennsylvania or at such other address as may have been furnished to the Holder of the Warrants in writing by the Corporation. This Warrant shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, personal representatives, successors and assigns and shall be binding upon any person, firm, corporation or other entity to whom this Warrant and the heirs, 4 executors, personal representatives, successors and assigns or such person, firm, corporation or other entity. IN WITNESS WHEREOF, the Corporation has executed this Warrant this 21st day of November 1995. ATTEST: AQUAPENN SPRING WATER COMPANY, INC. /s/ C. J. Wagner By: /s/ Edward J. Lauth, III - ------------------------- --------------------------------- C. J. Wagner, Secretary Edward J. Lauth, III, President 5 Exercise Form James D. Hammond and Marian I. Hammond hereby: (1) irrevocably subscribes for and offers to purchase shares of Common Stock of AquaPenn Spring Water Company, Inc. pursuant to the Warrant to which this exhibit is attached; (2) encloses payment of for these shares of Common Stock at a price of $ per share; and (3) requests that a certificate for the shares be issued in the name of James D. Hammond and Marian I. Hammond, joint owners _____________________________[SEAL] James D. Hammond _____________________________[SEAL] Marian I. Hammond EX-10.4 7 EMPLOYMENT AGREEMENT EXHIBIT 10.4 EMPLOYMENT AGREEMENT This Agreement, made as of this 16th day of September, 1994, by and between, AQUAPENN SPRING WATER COMPANY, a Pennsylvania business corporation, hereinafter called the "Employer", and EDWARD J. LAUTH, III, an individual, hereinafter called "Employee". Intending to be legally bound, and in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1. Employment. The Employer shall employ Employee for a one (1) year term beginning on January 1, 1994 and ending on December 31, 1995. Thereafter, unless this Agreement is terminated in the manner hereinafter provided, it shall automatically renew for an unlimited number of successive additional terms of one (1) year duration. This Agreement may be terminated at the end of a term, upon six (6) months written notice from one party to the other party. 2. Employee's Duties. During the term of this Agreement, Employee shall devote all necessary time and his best efforts to the faithful performance of his duties as President of the Employer as directed by the Board of Directors and appropriate officers of the Employer. It is understood between the parties that said duties shall concentrate in the areas of 1 sales and marketing, administration and strategic planning. Employee shall devote his entire professional time to the affairs of the Employer. Notwithstanding anything contained herein, Employee may render reasonable amounts of services as an independent consultant to other organizations during the term of this Agreement as long as the activities of such other organizations are not in competition with or adverse to the activities of the Employer and as long as such consulting activities do not materially interfere with Employee's performance of his duties hereunder. 3. Salary. Employee's base salary shall be ONE HUNDRED THIRTY THOUSAND and NO/100 ($130,000.00) DOLLARS per year, payable in equal bi-weekly installments. On each anniversary date of this Agreement, Employee's base salary shall be reviewed and may be increased by an amount determined by the Employer in its sole discretion. 4. Benefits and Vacation. a. Benefits. Employee and his dependents (if applicable) shall be eligible to participate in the Employer's fringe benefit plans -- both presently existing plans and those plans that may be adopted in the future in accordance with the terms and provisions of such plans. The Employer presently has the following fringe benefit plans in effect: i. Dental insurance; and 2 ii. Disability insurance. b. Vacation and Personal Days. Employee shall be entitled to reasonable amounts of vacation and personal time. c. Automobile. Employee shall be entitled to an automobile of reasonable value, of Employee's selection, for business and/or personal use, furnished at the Employer's expense. Such automobile shall be replaced every three (3) years or at the expiration of a lease of appropriate term. d. Health Insurance. Employee shall be entitled to an Employer paid policy of health and hospital insurance including major medical insurance coverage for Employee and his dependents. 5. Stock Options. a. The Employer shall grant to Employee options to purchase the common stock of the Employer under the terms set forth in this paragraph. b. Beginning with the fiscal year of the Employer commencing after the date of this Employment Agreement, the Employer shall grant Employee an option to purchase fifty thousand (50,000) shares of the common stock of the Employer for each fiscal year of the Employer during which the Employer's after-tax profits exceed One Million and NO/100 ($1,000,000.00) Dollars. 3 c. Options shall be issued, within thirty (30) days of the end of each fiscal year of the Employer, if the condition of subparagraph 5(b) is met. d. The option price shall be the fair market value of the Employer's stock on the date of the option grant and the term during which the option may be exercised shall commence on the date of the grant and extend for a period of ten (10) years thereafter. e. The terms of any option granted to Employee under this paragraph shall be as set forth in this paragraph and as set forth in an Option Agreement to be entered into between the Employer and Employee as soon as is practicable following the execution of this Agreement. 6. Retirement/Nonqualified Deferred Compensation Plan. a. The Employer shall create a bookkeeping reserve account (the "Nonqualified Deferred Compensation Account") for Employee which shall be credited for each fiscal year of Employer with an amount equal to fifteen (15%) percent of the Employee's salary for such fiscal year. b. The terms of the Nonqualified Deferred Compensation Account shall be as set forth in a Nonqualified Deferred Compensation Plan to be entered into between the Employer and Employee as soon as is practicable following the execution of this Agreement. 4 c. Nothing contained in this paragraph 6 and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Employer and Employee. Any funds which may be reserved by the Employer to pay for the retirement payment provided for hereunder shall continue for all purposes to be a part of the general funds of the Employer and no person other than the Employer shall by virtue of this Agreement have any right to any interest in such funds. Any bookkeeping reserve accounts for such payment will be maintained by the Employer solely as a convenience in the administration of this Agreement. To the extent that any person acquires a right to receive payments from the Employer under this paragraph, such right shall be no greater than the rights of any unsecured general creditor of the Employer. Neither Employee nor his representative shall have any right to commute, sell, assign, transfer, encumber or otherwise dispose of the right to receive the deferred compensation benefit provided for hereunder, which payments and the right thereto are expressly declared to be nonassignable and nontransferable and any attempted assignment or transfer by Employee shall be void and of no effect. Title to and beneficial ownership of any assets, whether cash, investments, life insurance policies or other assets which the Employer may use to fund its obligation hereunder shall at all times remain in the Employer. 5 7. Arbitration. Any disputes relating to the interpretation or application of this Agreement shall be promptly resolved by an impartial arbitrator pursuant to the rules of the American Arbitration Association. The parties shall share equally all costs and expenses of arbitration including the arbitrator's fees; and excluding only their own attorney's fees, unless the arbitrator shall order either party to pay any or all of the other's attorneys fees. The award of the arbitrator shall be final and binding, and immediately enforceable by either party in any court of competent jurisdiction. 8. Law Applicable. This Agreement shall be interpreted and enforced in all circumstances according to the laws of the Commonwealth of Pennsylvania. 9. Notices. Notices to the Employer shall be delivered to: AquaPenn Spring Water Company 3035 Research Drive State College, PA 16801 Notices to Employee shall be delivered to: Edward J. Lauth, III 1346 Sandpiper Drive State College, PA 16801 In either case the notice address above may be changed by written notice of the addressee. 10. Entire Agreement. This Agreement fully integrates all understandings and agreements between the parties and shall 6 constitute the entire agreement between them and supersede any prior written employment agreement between the parties or any oral representations of any kind. This Agreement may only be modified in writing by the voluntary signed consent of both parties. Provided, however, that if Employee has stock options pursuant to prior agreements with the Employer, such stock options shall continue in effect in accordance with the terms of such prior agreement and shall not be affected by this Agreement. 11. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors in interest. Neither party hereto may assign its interest without the prior written consent of the other party. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first written above. ATTEST: AQUAPENN SPRING WATER COMPANY /s/ C. J. Wagner, Jr. By: /s/ Edward J. Lauth, III - ------------------------------ --------------------------- , Secretary Edward J. Lauth, III President (SEAL) WITNESS: EMPLOYEE: Geoff F. Feidelberg /s/ Edward J Lauth, III(SEAL) - ---------------------------- ------------------------------ Edward J. Lauth, III 7 EX-10.5 8 CHANGE IN CONTROL AGREEMENT EXHIBIT 10.5 EMPLOYMENT AGREEMENT This Agreement, made as of this 16th day of September, 1994, by and between, AQUAPENN SPRING WATER COMPANY, a Pennsylvania business corporation, hereinafter called the "Employer", and GEOFFREY F. FEIDELBERG, an individual, hereinafter called "Employee". Intending to be legally bound, and in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1. Employment. The Employer shall employ Employee for a one (1) year term beginning on January 1, 1994 and ending on December 31, 1995. Thereafter, unless this Agreement is terminated in the manner hereinafter provided, it shall automatically renew for an unlimited number of successive additional terms of one (1) year duration. This Agreement may be terminated at the end of a term, upon six (6) months written notice from one party to the other party. 2. Employee's Duties. During the term of this Agreement, Employee shall devote all necessary time and his best efforts to the faithful performance of his duties as Executive Vice President and Chief Operating Officer of the Employer as directed by the Board of Directors and appropriate officers of the Employer. It is understood between the parties that said duties shall concentrate in the areas of administration, finance, 1 manufacturing and strategic planning. Employee shall devote his entire professional time to the affairs of the Employer. Notwithstanding anything contained herein, Employee may render reasonable amounts of services as an independent consultant to other organizations during the term of this Agreement as long as the activities of such other organizations are not in competition with or adverse to the activities of the Employer and as long as such consulting activities do not materially interfere with Employee's performance of his duties hereunder. 3. Salary. Employee's base salary shall be ONE HUNDRED TEN THOUSAND and NO/100 ($110,000.00) DOLLARS per year, payable in equal bi-weekly installments. On each anniversary date of this Agreement, Employee's base salary shall be reviewed and may be increased by an amount determined by the Employer in its sole discretion. 4. Benefits and Vacation. a. Benefits. Employee and his dependents (if applicable) shall be eligible to participate in the Employer's fringe benefit plans -- both presently existing plans and those plans that may be adopted in the future in accordance with the terms and provisions of such plans. The Employer presently has the following fringe benefit plans in effect: i. Dental insurance; and 2 ii. Disability insurance. b. Vacation and Personal Days. Employee shall be entitled to reasonable amounts of vacation and personal time. c. Automobile. Employee shall be entitled to an automobile of reasonable value, of Employee's selection, for business and/or personal use, furnished at the Employer's expense. Such automobile shall be replaced every three (3) years or at the expiration of a lease of appropriate term. d. Health Insurance. Employee shall be entitled to an Employer paid policy of health and hospital insurance including major medical insurance coverage for Employee and his dependents. 5. Stock Options. a. The Employer shall grant to Employee options to purchase the common stock of the Employer under the terms set forth in this paragraph. b. Beginning with the fiscal year of the Employer commencing after the date of this Employment Agreement, the Employer shall grant Employee an option to purchase fifty thousand (50,000) shares of the common stock of the Employer for each fiscal year of the Employer during which the Employer's after-tax profits exceed One Million and NO/100 ($1,000,000.00) Dollars. c. Options shall be issued, within thirty (30) days of the end of each fiscal year of the Employer, if the condition of subparagraph 5(b) is met. 3 d. The option price shall be the fair market value of the Employer's stock on the date of the option grant and the term during which the option may be exercised shall commence on the date of the grant and extend for a period of ten (10) years thereafter. e. The terms of any option granted to Employee under this paragraph shall be as set forth in this paragraph and as set forth in an Option Agreement to be entered into between the Employer and Employee as soon as is practicable following the execution of this Agreement. 6. Retirement/Nonqualified Deferred Compensation Plan. a. The Employer shall create a bookkeeping reserve account (the "Nonqualified Deferred Compensation Account") for Employee which shall be credited for each fiscal year of Employer with an amount equal to fifteen (15%) percent of the Employee's salary for such fiscal year. b. The terms of the Nonqualified Deferred Compensation Account shall be as set forth in a Nonqualified Deferred Compensation Plan to be entered into between the Employer and Employee as soon as is practicable following the execution of this Agreement. c. Nothing contained in this paragraph 6 and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Employer and Employee. 4 Any funds which may be reserved by the Employer to pay for the retirement payment provided for hereunder shall continue for all purposes to be a part of the general funds of the Employer and no person other than the Employer shall by virtue of this Agreement have any right to any interest in such funds. Any bookkeeping reserve accounts for such payment will be maintained by the Employer solely as a convenience in the administration of this Agreement. To the extent that any person acquires a right to receive payments from the Employer under this paragraph, such right shall be no greater than the rights of any unsecured general creditor of the Employer. Neither Employee nor his representative shall have any right to commute, sell, assign, transfer, encumber or otherwise dispose of the right to receive the deferred compensation benefit provided for hereunder, which payments and the right thereto are expressly declared to be nonassignable and nontransferable and any attempted assignment or transfer by Employee shall be void and of no effect. Title to and beneficial ownership of any assets, whether cash, investments, life insurance policies or other assets which the Employer may use to fund its obligation hereunder shall at all times remain in the Employer. 7. Arbitration. Any disputes relating to the interpretation or application of this Agreement shall be promptly resolved by an impartial arbitrator pursuant to the rules of the American Arbitration Association. The parties shall share equally all costs and expenses of arbitration including the arbitrator's fees; and excluding only their own attorney's fees, 5 unless the arbitrator shall order either party to pay any or all of the other's attorneys fees. The award of the arbitrator shall be final and binding, and immediately enforceable by either party in any court of competent jurisdiction. 8. Law Applicable. This Agreement shall be interpreted and enforced in all circumstances according to the laws of the Commonwealth of Pennsylvania. 9. Notices. Notices to the Employer shall be delivered to: AquaPenn Spring Water Company 3035 Research Drive State College, PA 16801 Notices to Employee shall be delivered to: Geoffrey F. Feidelberg 1115 Woodberry Circle State College, PA 16803 In either case the notice address above may be changed by written notice of the addressee. 10. Entire Agreement. This Agreement fully integrates all understandings and agreements between the parties and shall constitute the entire agreement between them and supersede any prior written employment agreement between the parties or any oral representations of any kind. This Agreement may only be modified in writing by the voluntary signed consent of both parties. Provided, however, that if Employee has stock options pursuant to prior agreements with the Employer, such stock options shall continue in 6 effect in accordance with the terms of such prior agreement and shall not be affected by this Agreement. 11. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors in interest. Neither party hereto may assign its interest without the prior written consent of the other party. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first written above. ATTEST: AQUAPENN SPRING WATER COMPANY (Illegible Signature) By: /s/ Edward J. Lauth, III - -------------------------- ------------------------------- , Secretary Edward J. Lauth, III President (SEAL) WITNESS: EMPLOYEE: /s/ Deborah C. Britt /s/ Geoffrey F. Feidelberg (SEAL) - ------------------------- -------------------------- Geoffrey F. Feidelberg 7 EX-10.6 9 CHANGE IN CONTROL AGREEMENT EXHIBIT 10.6 CHANGE IN CONTROL AGREEMENT THIS AGREEMENT, dated September 16, 1994, by and between: AQUAPENN SPRING WATER COMPANY, a Pennsylvania Business Corporation (the "Company"), -AND- EDWARD J. LAUTH, III (the "Employee"). Recitals A. Employee is an executive of the Company with significant policy-making and operational responsibilities in the conduct of its business. B. The Company recognizes that Employee is a valuable resource for the Company and the Company desires to be assured of the continued service of Employee. C. The Company is concerned that upon a possible or threatened change in control, Employee may have concerns about the continuation of his employment and/or his status and responsibilities and may be approached by others with employment opportunities, and desires to provide Employee some assurance as to the continuation of his employment status and responsibilities on a basis consistent with that which he has earned in the event of such possible or threatened change in control. D. The Company desires to assure that if a possible change of control situation should arise and Employee should be involved in deliberations or negotiations in connection therewith that Employee will be in a secure position to consider and/or negotiate such transaction as objectively as possible and without implied threat to his financial well-being. E. The Company is concerned about the possible effect on Employee of the uncertainties created by any proposed change in control of the Company. F. Employee is willing to continue to serve the Company but desires that in the event of such a change in control he will continue to have the responsibility, status, income, benefits and perquisites that he received immediately prior to that event. NOW THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. Change in Control. The provisions of Section 2 and 3 of this Agreement shall become operative upon a "change in control" of the Company, as hereinafter defined. For purposes of this Agreement, a "change in control" shall be deemed to have occurred if and when: (a) Any person or group of persons acting in concert shall, subsequent to the date of this Agreement, have acquired ownership of or the right to -2- vote or to direct the voting of shares of capital stock of the Company representing thirty (30%) percent or more of the total voting power of the Company, or (b) The Company shall have merged into or consolidated with another corporation, or merged another corporation into the Company, on a basis whereby less than fifty (50%) percent of the total voting power of the surviving corporation is represented by shares held by former shareholders of the Company prior to such merger or consolidation, or (c) The Company shall have sold more than fifty (50%) percent of its assets to another corporation or other entity or person, or (d) As the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, the persons who were Directors of the Company before such transaction cease to constitute a majority of Directors of the Company. 2. Termination Within One (1) Year. In the event that the employment of Employee with the Company is terminated involuntarily within one (1) after a change in control occurs: (a) Employee shall be entitled to receive an amount of cash equal to the sum of the following amounts: (i) one (1) times his annual salary at his rate on the date of termination of employment; and (ii) one (1) times the Company's annual retirement plan contribution at the Employee's contribution rate on the termination of his employment (subject to applicable limitations of the Internal Revenue Code, which may dictate that such amount shall not be added to the retirement plan but shall be paid in cash). The sum of these amounts shall be paid in equal monthly installments over a period of twelve (12) months, the first such installment to be paid within ten (10) days after Employee's termination of employment. (b) Employee shall continue for a period of twelve (12) months from the date of his termination to be covered at the expense of the Company by the same or equivalent hospital, medical, accident, and disability insurance coverages as he was enrolled in immediately prior to termination of his employment; provided, however, that the Employee may elect to be paid in cash within thirty (30) days after termination of his employment, an amount equal to the Company's cost of providing such coverages during such period. (c) All outstanding stock options held by Employee, both exercisable and nonexercisable, shall be immediately exercisable regardless of the time such option has been held by Employee and shall remain exercisable until the original expiration date of such option, subject to applicable requirements of the Internal Revenue Code. 3. Resignation Within One (1) Year. In the event the Employee should determine in good faith that his status or responsibilities with the Company has or have diminished subsequent to a change in control, and shall for that reason resign from his employment with the Company within one year after such change in control, Employee shall be entitled to receive all payments and enjoy all of the benefits specified in Section 2 hereof. 4. Other Events. If Employee resigns from the Company within one (1) year of a change of control, Employee shall be entitled to receive all payments and enjoy all of the benefits specified in Section 2 hereof should one or more of the following events occur within one (1) year following a change in control: (a) If Employee determines that there has been a significant change in his responsibilities or duties with the Company and, for that reason, Employee resigns from the Company; or (b) If the base salary paid by the Company to Employee is reduced by more than fifteen (15%) percent from his salary immediately prior to the change in control. 5. Agreements Not Exclusive. The specific agreements referred to herein are not intended to exclude Employee's participation in other benefits available to executive personnel generally or to preclude other compensation benefits as may be authorized by the Board of Directors of the Company at any time, and shall be in addition to the provisions of any other employment or similar agreements. 6. Enforcement Costs. The Company is aware that upon the occurrence of a change in control, the Board of Directors or a shareholder of the Company may then cause or attempt to cause the Company to refuse to comply with its obligations under this Agreement, or may cause or attempt to cause the Company to institute, or may institute, litigation seeking to have this Agreement declared unenforceable, or may take, or attempt to take, other action to deny Employee the benefits intended under this Agreement. In these circumstances, the purpose of this Agreement could be frustrated. It is the intent of the company that Employee not be required to incur the expenses associated with the enforcement of his rights under this agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits extended to Employee hereunder, nor be bound to negotiate any settlement of his rights hereunder under threat of incurring such expenses. Accordingly, if following a change in control, it should appear to Employee that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation or other legal action designed to deny, diminish or to recover from Employee the benefits intended to be provided to Employee hereunder and that Employee has complied with all of his obligations under this Agreement, the Company irrevocably authorizes Employee from time to time to retain counsel of his choice at the expense of the Company as provided in this Section 5, to represent Employee in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any director, officer, shareholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to Employee entering into an attorney-client relationship with such counsel, and in that connection the Company and Employee agree that a confidential relationship shall exist between Employee and such counsel. The reasonable fees and expenses of counsel selected from time to time by Employee as hereinabove provided shall be paid or reimbursed to Employee by the Company on a regular, periodic basis upon presentation by Employee of a statement or statements prepared by such counsel in accordance with its customary practices. 7. No Set-Off. The Company shall not be entitled to set-off against the amount payable to Employee any amounts earned by Employee in other employment after termination of his employment with the Company, or any amounts which might have been earned by Employee in other employment had he sought other employment. The amounts payable to Employee under this Agreement shall not be treated as damages but as severance compensation to which Employee is entitled by reason of termination of his employment in the circumstances contemplated by this Agreement. However, a set-off may be taken by the Company against the amounts payable to Employee for expenses covering the same or equivalent hospital, medical, accident, and disability insurance coverages as set forth in Section 2(c) of this Agreement if such benefit is paid for the Employee by the employer employing such Employee after termination by the Company or after Employee's resignation as under the circumstances set forth in Section 3 of this Agreement. 8. Termination. This Agreement has no specific term, but shall terminate if, prior to a change in control of the Company, the employment of Employee with the Company shall terminate. 9. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns, and shall be binding upon and inure to the benefit of Employee and his legal representatives, heirs, and assigns. 10. Severability. In the event that any Section, paragraph, clause or other provision of this Agreement shall be determined to be invalid or unenforceable in any jurisdiction for any reason, such Section, paragraph, clause or other provision shall be enforceable in any other jurisdiction in which it is valid and enforceable and, in any event, the remaining Sections, paragraphs, clauses and other provisions of this Agreement shall be unaffected and shall remain in full force and effect to the fullest extent permitted by law. 11. Governing Law. This Agreement shall be interpreted, construed and governed by the laws of the Commonwealth of Pennsylvania. 12. Headings. The headings used in this Agreement are for ease of reference only and are not intended to affect the meaning or interpretation of any of the terms hereof. 13. Gender and Number. Whenever the context shall require, all words in this Agreement in the male gender shall be deemed to include the female or neuter gender, all singular words shall include the plural, and all plural words shall include the singular. IN WITNESS WHEREOF, this Agreement has been executed the date and year first above written. ATTEST: AQUAPENN SPRING WATER COMPANY /s/ C.J. Wagner By: /s/ Edward J. Lauth - -------------------------- --------------------------------- Secretary Edward J. Lauth President /s/ Geoffrey F. Feidelberg /s/ Edward J. Lauth, III - -------------------------------- ---------------------------------- Witness Edward J. Lauth, III EX-10.7 10 CHANGE IN CONTROL AGREEMENT EXHIBIT 10.7 CHANGE IN CONTROL AGREEMENT THIS AGREEMENT, dated September 16, 1994, by and between: AQUAPENN SPRING WATER COMPANY, a Pennsylvania Business Corporation (the "Company"), -AND- GEOFFREY F. FEIDELBERG (the "Employee"). Recitals A. Employee is an executive of the Company with significant policy-making and operational responsibilities in the conduct of its business. B. The Company recognizes that Employee is a valuable resource for the Company and the Company desires to be assured of the continued service of Employee. C. The Company is concerned that upon a possible or threatened change in control, Employee may have concerns about the continuation of his employment and/or his status and responsibilities and may be approached by others with employment opportunities, and desires to provide Employee some assurance as to the continuation of his employment status and responsibilities on a basis consistent with that which he has earned in the event of such possible or threatened change in control. D. The Company desires to assure that if a possible change of control situation should arise and Employee should be involved in deliberations or negotiations in connection therewith that Employee will be in a secure position to consider and/or negotiate such transaction as objectively as possible and without implied threat to his financial well-being. E. The Company is concerned about the possible effect on Employee of the uncertainties created by any proposed change in control of the Company. F. Employee is willing to continue to serve the Company but desires that in the event of such a change in control he will continue to have the responsibility, status, income, benefits and perquisites that he received immediately prior to that event. NOW THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. Change in Control. The provisions of Section 2 and 3 of this Agreement shall become operative upon a "change in control" of the Company, as hereinafter defined. For purposes of this Agreement, a "change in control" shall be deemed to have occurred if and when: (a) Any person or group of persons acting in concert shall, subsequent to the date of this Agreement, have acquired ownership of or the right to vote or to direct the voting of shares of capital stock of the Company representing thirty (30%) percent or more of the total voting power of the Company, or (b) The Company shall have merged into or consolidated with another corporation, or merged another corporation into the Company, on a basis whereby less than fifty (50%) percent of the total voting power of the surviving corporation is represented by shares held by former shareholders of the Company prior to such merger or consolidation, or (c) The Company shall have sold more than fifty (50%) percent of its assets to another corporation or other entity or person, or (d) As the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, the persons who were Directors of the Company before such transaction cease to constitute a majority of Directors of the Company. 2. Termination Within One (1) Year. In the event that the employment of Employee with the Company is terminated involuntarily within one (1) year after a change in control occurs: (a) Employee shall be entitled to receive an amount of cash equal to the sum of the following amounts: (i) one (1) times his annual salary at his rate on the date of termination of employment; and (ii) one (1) times the Company's annual retirement plan contribution at the Employee's contribution rate on the termination of his employment (subject to applicable limitations of the Internal Revenue Code, which may dictate that such amount shall not be added to the retirement plan but shall be paid in cash). The sum of these amounts shall be paid in equal monthly installments over a period of twelve (12) months, the first such installment to be paid within ten (10) days after Employee's termination of employment. (b) Employee shall continue for a period of twelve (12) months from the date of his termination to be covered at the expense of the Company by the same or equivalent hospital, medical, accident, and disability insurance coverages as he was enrolled in immediately prior to termination of his employment; provided, however, that the Employee may elect to be paid in cash within thirty (30) days after termination of his employment, an amount equal to the Company's cost of providing such coverages during such period. (c) All outstanding stock options held by Employee, both exercisable and nonexercisable, shall be immediately exercisable regardless of the time such option has been held by Employee and shall remain exercisable until the original expiration date of such option, subject to applicable requirements of the Internal Revenue Code. 3. Resignation Within One Year. In the event the Employee should determine in good faith that his status or responsibilities with the Company has or have diminished subsequent to a change in control, and shall for that reason resign from his employment with the Company within one year after such change in control, Employee shall be entitled to receive all payments and enjoy all of the benefits specified in Section 2 hereof. 4. Other Events. If Employee resigns from the Company within one (1) year of a change of control, Employee shall be entitled to receive all payments and enjoy all of the benefits specified in Section 2 hereof should one or more of the following events occur within two (2) years following a change in control: (a) If Employee determines that there has been a significant change in his responsibilities or duties with the Company and, for that reason, Employee resigns from the Company; or (b) If the base salary paid by the Company to Employee is reduced by more than fifteen (15%) percent from his salary immediately prior to the change in control. 5. Agreements Not Exclusive. The specific agreements referred to herein are not intended to exclude Employee's participation in other benefits available to executive personnel generally or to preclude other compensation benefits as may be authorized by the Board of Directors of the Company at any time, and shall be in addition to the provisions of any other employment or similar agreements. 6. Enforcement Costs. The Company is aware that upon the occurrence of a change in control, the Board of Directors or a shareholder of the Company may then cause or attempt to cause the Company to refuse to comply with its obligations under this Agreement, or may cause or attempt to cause the Company to institute, or may institute, litigation seeking to have this Agreement declared unenforceable, or may take, or attempt to take, other action to deny Employee the benefits intended under this Agreement. In these circumstances, the purpose of this Agreement could be frustrated. It is the intent of the company that Employee not be required to incur the expenses associated with the enforcement of his rights under this agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits extended to Employee hereunder, nor be bound to negotiate any settlement of his rights hereunder under threat of incurring such expenses. Accordingly, if following a change in control, it should appear to Employee that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation or other legal action designed to deny, diminish or to recover from Employee the benefits intended to be provided to Employee hereunder and that Employee has complied with all of his obligations under this Agreement, the Company irrevocably authorizes Employee from time to time to retain counsel of his choice at the expense of the Company as provided in this Section 5, to represent Employee in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any director, officer, shareholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to Employee entering into an attorney-client relationship with such counsel, and in that connection the Company and Employee agree that a confidential relationship shall exist between Employee and such counsel. The reasonable fees and expenses of counsel selected from time to time by Employee as hereinabove provided shall be paid or reimbursed to Employee by the Company on a regular, periodic basis upon presentation by Employee of a statement or statements prepared by such counsel in accordance with its customary practices. 7. No Set-Off. The Company shall not be entitled to set-off against the amount payable to Employee any amounts earned by Employee in other employment after termination of his employment with the Company, or any amounts which might have been earned by Employee in other employment had he sought other employment. The amounts payable to Employee under this Agreement shall not be treated as damages but as severance compensation to which Employee is entitled by reason of termination of his employment in the circumstances contemplated by this Agreement. However, a set-off may be taken by the Company against the amounts payable to Employee for expenses covering the same or equivalent hospital, medical, accident, and disability insurance coverages as set forth in Section 2(c) of this Agreement if such benefit is paid for the Employee by the employer employing such Employee after termination by the Company or after Employee's resignation as under the circumstances set forth in Section 3 of this Agreement. 8. Termination. This Agreement has no specific term, but shall terminate if, prior to a change in control of the Company, the employment of Employee with the Company shall terminate. 9. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns, and shall be binding upon and inure to the benefit of Employee and his legal representatives, heirs, and assigns. 10. Severability. In the event that any Section, paragraph, clause or other provision of this Agreement shall be determined to be invalid or unenforceable in any jurisdiction for any reason, such Section, paragraph, clause or other provision shall be enforceable in any other jurisdiction in which it is valid and enforceable and, in any event, the remaining Sections, paragraphs, clauses and other provisions of this Agreement shall be unaffected and shall remain in full force and effect to the fullest extent permitted by law. 11. Governing Law. This Agreement shall be interpreted, construed and governed by the laws of the Commonwealth of Pennsylvania. 12. Headings. The headings used in this Agreement are for ease of reference only and are not intended to affect the meaning or interpretation of any of the terms hereof. 13. Gender and Number. Whenever the context shall require, all words in this Agreement in the male gender shall be deemed to include the female or neuter gender, all singular words shall include the plural, and all plural words shall include the singular. IN WITNESS WHEREOF, this Agreement has been executed the date and year first above written. ATTEST: AQUAPENN SPRING WATER COMPANY /s/ C.J. Wagner By: /s/ Edward J. Lauth - ------------------------ -------------------------- Secretary Edward J. Lauth President (Illegible Signature) /s/ Geoffrey F. Feidelberg - ------------------------ -------------------------- Geoffrey F. Feidelberg EX-10.10 11 AGREEMENT OF LEASE THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. EXHIBIT 10.10 08/12/96 AGREEMENT OF LEASE THIS AGREEMENT made and effective as of the 19th day of July, 1996, by and between AQUAPENN SPRING WATER COMPANY, a Pennsylvania corporation, with an address of P. O. Box 938, Milesburg, Pennsylvania, hereinafter referred to as "Lessor", - A N D - JOHNSON CONTROLS, INC., a corporation, with an address of 912 City Road, Manchester, Michigan, hereinafter referred to as "Lessee" or "Tenant". WITNESSETH: 1. Premises. The Lessor, for and in consideration of the payment of the rent and the performance of the covenants and agreements of this Lease as hereinafter set forth, does hereby demise, lease, and let unto the Lessee and Lessee leases from Lessor, 30,000 square feet of floor space located in the Lessor's Milesburg plant as more fully shown on the Plan attached hereto marked Exhibit "A", which is hereinafter referred to as the Demised Premises. 2. Term. The Lease term shall commence on December 1, 1996 or two (2) weeks after Lessor notifies Lessee the building is ready for occupancy (the "Commencement Date"), and shall continue until March 31, 2001 (the "Initial Term"). 1 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 3. Rent. The rent for the Demised Premises during the Initial Term of this Lease shall be [ ] on an annual basis equaling a minimum annual amount of [ ] Dollars payable in equal installments of [ ] Dollars per month. All rents to be paid pursuant to this Lease shall be paid in monthly installments, in advance, on or before the fifth (5th) day of each calendar month. If the Commencement Date is not the first day of a calendar month, the first and last months' rent shall be prorated on a daily basis. 4. Use. The Demised Premises shall be utilized for Lessee to establish an on-site blowing operation for the production of Lessor's water bottle requirements, including the procurement and set up of tooling for such production, in accordance with the letter of understanding between Lessor and Lessee attached hereto marked Exhibit "B". It is understood that Lessee may blow bottles for Lessee's other customers, provided Lessee has met Lessor's production requirements set forth in Exhibit "B". Lessee shall at its own cost and expense obtain any and all licenses and permits for any such use. Lessee shall comply with all valid governmental laws, ordinances and regulations applicable to such use of the Demised Premises and shall promptly comply with valid governmental orders and directives for the correction, prevention and abatement of any nuisances in or upon or connected with the Demised Premises. Lessee shall not perform any acts or carry on or permit to exist any practices that may unreasonably injure the building or its contents or be an unlawful nuisance or menace to the occupants of adjacent areas or render the insurance on the building in which the Demised Premises is located void or the insurance risk more hazardous than the risk for the permitted usage. 2 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 5. Taxes and Assessments. In addition to the rents provided for herein, Lessee, for the term of this Lease, shall reimburse Lessor for all real estate taxes and Lessee's percentage share of the cost of any special assessment or similar charge levied against the Demised Premises by any taxing authority (an "Imposition"). Any such costs shall be amortized over their useful lives, as determined by Lessor in accordance with generally accepted accounting principles and only the annual amortization amount shall be payable by Lessee in any calendar year. If, by law, any Imposition is payable, or may at the option of the taxpayer be paid in installments, Lessee may pay the same, together with any accrued interest on the unpaid balance of the Imposition, in installments, as the same respectively become due and payable, before a fine, penalty, interest or cost may be added thereto for nonpayment thereof. Lessee shall reimburse Lessor for such payments subject to amortization provisions herein. Further, if any Imposition relating to a fiscal period of a taxing authority, a part of which period is included within the term hereof, any part of which is included in the period of time either prior to the Commencement Date or the end of the term hereof, then such Imposition shall be adjusted between Lessor and Lessee as of the Commencement Date or the end of the term hereof, as the case may be. Lessee shall not be required to pay any taxes imposed upon the income, receipts or profits of Lessor. Lessee shall have the right to contest the amount or validity of any Imposition by appropriate legal proceedings; provided, however, that this right shall not relieve, modify or extend the 3 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Lessee's obligation to pay such Imposition at the time and in the manner provided in the preceding paragraph. 6. Alterations. Lessee shall have the right to make alterations, additions or improvements to the Demised Premises which do not adversely affect the structural soundness or integrity of the building and without being obligated for the payment of any additional rent, provided that Lessee shall obtain Lessor's prior written approval of such alterations, additions and improvements which approval shall not be unreasonably withheld. The cost of all leasehold improvements will be the responsibility of the Lessee. If requested by Lessee, Lessor agrees to execute any and all documents necessary to enable Lessee to apply for building permits, zoning approvals and any other approval required of any municipality or governmental unit having jurisdiction over the Demised Premises or the building or improvements to be erected thereon, provided that Lessee pays all expenses in connection therewith. Upon termination of this Lease, all alterations, additions or improvements to the Demised Premises which are not removed by the Lessee pursuant to Section 14 hereof, upon such termination will become the property of Lessor unless otherwise specified in writing by Lessee and Lessor. 7. Utilities. Lessee shall be responsible for and shall pay, when the same is due and payable, all utilities desired by Lessee in the use of the Demised Premises or in the construction of any improvements on the Demised Premises and the subsequent utilization thereof including, but not limited to, gas, water, electricity, heat, telephone, sewage and trash removal utilized in the Demised Premises. 4 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 8. Insurance. During the term of this Lease, Lessee shall, at its own cost and expense, maintain comprehensive general public liability insurance with respect to the Demised Premises and Lessee's use thereof in at least the following amounts: a. With respect to personal injuries (including death) [ ] for any one occurrence. b. With respect to property damage [ ] in any one occurrence. With respect to the foregoing policies of insurance, Lessor shall be designated as an additional insured with respect to liability arising out of the operations performed by Lessee, but only to the extent of damages directly caused by the negligence of Lessee. All insurance required to be provided by Lessee under this Lease shall be issued by insurance companies authorized to do business in the Commonwealth of Pennsylvania with a financial rating of at least A- or better as rated in the most recent edition of Best's Insurance Reports. All policies of insurance required under this Section 8 shall provide that notice shall be given by the insurance company to Lessor and Lessee at least ten (10) days prior to any termination or cancellation of such policy. Lessee shall provide Lessor with copies of certificates of insurance, or other written evidence of insurance reasonably satisfactory to Lessor, for the initial insured period and each renewal period for the entire term of this Lease. In addition, Lessee shall provide or cause to be provided workers compensation coverage for all employees of Lessee on the Demised Premises and obtain certificates of insurance from all agents or subcontractors of Lessee indicating workers' compensation coverage. During the term of this Lease, the Lessee shall carry insurance coverage on its personal property and 5 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. improvements located on the Demised Premises, in amounts as shall be satisfactory to Lessee. 9. Maintenance, Repairs and Replacement. Lessor shall be responsible and obligated only for replacement of the roof and structural parts of the buildings on the Demised Premises, including, but not limited to, foundation, load-bearing and exterior walls. Lessee shall keep the Demised Premises and fixtures therein in good order and condition and perform all maintenance, repairs and replacements necessary to maintain the good condition of the Premises, including, but not limited to, maintenance, repair and replacement, if needed, of the HVAC system servicing the Demised Premises. However, Lessee's expenses for repair and replacement shall not exceed Five Hundred and 00/100 ($500.00) Dollars per year, except if such repairs and replacements are necessitated by Lessee's negligence, whereupon such repairs and replacements shall be Lessee's sole responsibility. 10. Assignment. Lessee shall not sublease or assign its rights and obligations under this Lease or any part of the Demised Premises without first obtaining Lessor's written consent. Lessor shall have the right to assign any or all of its interest under this Lease, whether incident to a sale of the real estate or otherwise; provided that any such assignment or sale shall bind the assignee or purchaser to the terms of this Lease. 11. Personal Property. Lessee understands and agrees that all personal property of every kind or description which may at any time be in the Demised Premises shall be there at Lessee's sole risk or at the risk of those claiming under the Lessee and the Lessor shall not be liable for any damage to said property except as may result from and be caused by the 6 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. gross negligence or wilful misconduct of Lessor, its agents or employees. It shall be Lessee's responsibility to take whatever measures it deems necessary and appropriate to secure and protect its personal property situate in the Demised Property. 12. Condition of Premises. Lessee covenants and agrees to deliver up and surrender to lessor possession of the Demised Premises upon the expiration of this Lease or its termination as herein provided in as good condition and repair as the same shall be at the commencement of said term or may have been put by the Lessor during the continuance thereof, ordinary wear and tear and condemnation or casualty excepted. It is agreed by the parties that acceptance of delivery of the Demised Premises shall be deemed conclusive evidence that Demised Premises were in good order and conditions at the commencement of the term of this Lease; provided, however, that Lessee and Lessor shall before the execution of this Lease, jointly inspect the Demised Premises to be leased and shall list and, at Lessee's option and expense, photograph any defects in the Demised Premises which have been agreed shall not be Lessee's responsibility upon the expiration or sooner termination of this Lease. Said list of defects, if any, shall be attached hereto marked Exhibit "C". 13. Inspection. Lessee further agrees to permit the Lessor or Lessor's agents to inspect or examine the Demised Premises at any reasonable time during ordinary business hours and upon one (1) business day's prior notice to Lessee and to permit the Lessor to make such repairs to the building of which the Demised Premises are a part as the lessor may determine desirable or necessary to comply with its obligations hereunder. Lessee further agrees to cooperate with Lessor in making appropriate arrangements to provide for a means of immediate emergency entrance into 7 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. the Demised Premises in the event of fire, mechanical or electrical breakdown or similar events. 14. Removal of Lessee's Property. Lessee shall have the right, at its sole cost and expense, to erect, install, maintain and operate on the Demised Premises such equipment as Lessee may require in its sole discretion and such shall remain the property of Lessee. All such installations shall be effected in compliance with applicable governmental laws, ordinances and regulations. At any time during the term of this Lease and at the time of the expiration or sooner termination hereof, provided all rents and other charges are paid in full, Lessee shall have the right to remove, at its expense, any improvements, fixtures, machinery or equipment upon the expiration or termination of this Lease, if such removal shall not create substantial structural injury and all damage to the Demised Premises occasioned by such removal is promptly repaired. Lessor shall have the right to require the removal of any or all fixtures, equipment or personal property of Lessee upon the expiration or sooner termination of this Lease. 15. Lessor's Waiver. Lessor agrees to execute upon request, an acceptable form of Lessor's waiver subordinating any claim by Lessor against any equipment or personal or other property of Lessee to the claim of any secured creditor of Lessee. Lessor hereby waives any right to proceed in distraint or distress against any equipment or personal or other property of Lessee for claims arising hereunder, whether under common law or the provisions of the Landlord and Tenant Act of 1951, as the same may be amended or replaced (the "Landlord and Tenant Act"), and further waives the benefit of any statutory or common 8 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. law Lessor's lien against Lessee's equipment or personal or other property, including, without limitation, any lien that otherwise may arise under the Landlord and Tenant Act. 16. Signs. Lessee may, at its own risk and in accordance with local zoning ordinances and any applicable private restrictions on the Demised Premises, erect such signs concerning the business of Lessee at the Demised Premises. Lessee agrees to maintain any such signs in a good state of repair, and save Lessor harmless from any loss, cost or damage resulting from the erection, maintenance, existence or removal of the same and shall repair any damage caused by the erection, existence, maintenance or removal of such signs. 17. Quiet Enjoyment. Lessor covenants and agrees that if the Lessee shall perform all of the covenants and agreements herein stipulated to be performed on the Lessee's part, the Lessee shall at all times during the term of this Lease, have the peaceable and quiet enjoyment and possession of the Demised Premises without any manner of interference or hindrance from the Lessor or any persons lawfully claiming through the Lessor. 18. Default. If the Lessee shall fail to keep and perform any of the covenants, agreements or conditions of this Lease on its part to be kept or performed (including the covenant to pay rent in the manner specified herein); or if the Lessee shall abandon or vacate the Demised Premises during the term hereof; or if Lessee shall make assignment for the benefit of creditors; or if the interest of the Lessee in the Demised Premises shall be sold under execution or other legal process; or if the Lessee shall be adjudged a bankrupt or the leasehold seized by the trustee in bankruptcy; or if a receiver shall be appointed for the Lessee by the Court, then the Lessor may at Lessor's election, any time thereafter, while 9 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. such conditions exist, give thirty (30) days' notice to the Lessee of such default, and if such default and condition is not corrected or remedied within said thirty (30) days, then Lessor may, without prejudice to any remedies which might otherwise be used for arrears of rent or proceedings for breach of covenants, exercise those remedies set forth in Section 19 hereof. 19. Lessor's Remedies. If and in the event the Lessee shall be in default of any of its obligations hereunder as more fully defined in Section 18 hereof, the Lessor shall have the option to do one or all of the following to the extent that they are not inconsistent: a. declare such occurrence as a breach of the Lease and thereupon at its option declare the Lease terminated and retake possession of the Demised Premises; b. terminate any right to renew or extend the Lease as may otherwise have been herein agreed; c. immediately re-enter and remove all persons and property from the Demised Premises, storing said property in a public warehouse or elsewhere at Lessee's expense without liability on the part of Lessor; d. collect by suit or otherwise the balance of the rent due during the residue of the term specified herein, or any other sum that has become due; or enforce by suit or otherwise any covenant or condition or term of the Lease required to be performed by Lessee; e. terminate the Lease in which event Lessee agrees to immediately surrender possession of the Demised Premises and to pay Lessor all damages Lessor may incur 10 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. by reason of Lessee's default including the cost of recovering possession of the Demised Premises; f. should Lessor elect to re-enter as herein provided, or should it take possession pursuant to legal proceedings or pursuant to any notice provided for by law, it may either terminate the Lease, re-let the Demised Premises, or any part thereof, for the account of Lessee either in Lessee's name or otherwise, after using its best efforts to mitigate its damages, upon terms and conditions and for such period (whether longer than the balance of the term hereof or not) as Lessor may deem advisable, with or without any equipment or fixtures that may be situated thereon or therein, in which event, the rents received on any such reletting during the balance of the term of the Lease or any part thereof shall be applied first to the expenses of re-letting and collecting, including necessary renovation and alteration of the Demised Premises and a reasonable attorney's fee and any real estate commission actually paid, and, thereafter, toward payment of all sums due or to become due to Lessor hereunder, and if a sufficient sum shall not be thus realized to pay such rent and other charges, Lessee shall pay to Lessor monthly any deficiency; such monthly deficiencies shall be paid punctually when due, as herein provided, but allowing credit for rental that Lessor may have received in excess of the monthly rental herein stipulated in previous months. No re-entry or taking possession of the Demised Premises shall terminate the Lease unless written notice of such intention is given to Lessee. 11 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 20. Damage. If the Demised Premises should be damaged or destroyed by fire, flood or other casualty, Lessee shall give immediate written notice thereof to Lessor. a. Total Destruction. If the Demised Premises should be totally destroyed by fire, flood or other casualty, or if it should be so damaged that rebuilding or repairs cannot reasonably be completed within one hundred twenty (120) days from the date of written notification by Lessee to Lessor of the occurrence of the damage, this Lease will terminate and rent will abate for the unexpired portion of the Lease. b. Partial Damage. If the Demised Premises should be damaged by fire, flood or other casualty, but not to such an extent that rebuilding or repairs cannot reasonably be completed within one hundred twenty (120) days, Lessor, at Lessor's expense, shall cause the damage to be repaired to a condition as nearly as practicable to that existing prior to the damage, with reasonable speed and diligence. Lessor shall not be obligated to restore or rebuild the Demised Premises to a condition in excess of that in existence on the commencement date of the term hereof, nor in any event to repair, restore or rebuild any of the additions or alterations made by Lessee. If any Mortgagee of the Demised Premises shall not permit the application of adequate insurance proceeds for repair or restoration of the Demised Premises, or if the casualty shall not be a type insured against under the standard fire policy with extended coverage, then this Lease, at the option of the Lessor, shall be terminated with the rent to be adjusted to a mutually acceptable date, and Lessee shall thereupon promptly vacate the Demised Premises. 12 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 21. Mortgage of Premises. Lessee hereby agrees that this Lease shall be subordinate and inferior to any valid mortgage lien that may now or hereafter be placed upon the Demised Premises, and Lessee shall execute such instrument as may be reasonably necessary to evidence such subordination and that this Lease is in full force and effect, provided that such subordination shall be on the express condition that this Lease shall be recognized by the mortgagee, any purchaser at the foreclosure sale (or by deed in lieu thereof) and the rights of Lessee shall remain in full force and effect during the term of this Lease and shall not be disturbed or extinguished by any such foreclosure purchaser or mortgagee as long as Lessee shall continue to perform all the covenants and conditions of this Lease to be performed by Lessee. This paragraph shall be self-operative and no further instrument or subordination shall be required by any mortgagee. 22. Lessor's Title. Lessor represents and warrants that, as of the Commence Date, it has good legal title to the premises subject to only such reservations, restrictions, liens, encumbrances, easements and/or outstanding interests, if any, as will not restrict or interfere with Lessee's proposed use of the Demised Premises and that Lessor is not to obtain the consent of any third party in order to enter into and execute and deliver this Lease. 23. Hazardous or Toxic Substances. Lessor represents and warrants that any handling, transportation, storage, treatment or usage of hazardous or toxic substances that has occurred or will occur on the Demised Premises has been and will continue to be in compliance with all applicable federal, state and local laws, regulations and ordinances. Lessor further represents and warrants that no leak, spill, release, threatened release, 13 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. discharge, emission or disposal of hazardous or toxic substances exists or has occurred on the Demised Premises to date and that the soil, groundwater and soil vapor on or under the Demised Premises is free of toxic or hazardous substances and free of underground storage tanks as of the date that the term of this Lease commences. Lessee shall not (either with or without negligence) cause or permit the escape, disposal or release of any hazardous or toxic substances in, on or under the Demised Premises, except in compliance with all applicable federal, state and local laws, regulations and ordinances. Lessee covenants and agrees that the Demised Premises, at all times during its use or occupancy thereof, be kept and maintained so as to comply with all now existing or hereafter enacted or issued statutes, laws, rules, ordinances, orders, permits and regulations of all state, federal, local or other governmental and regulatory authorities, agencies and bodies applicable to the Demised Premises, pertaining to the use, storage and disposal of all hazardous or toxic substances. Lessee shall immediately notify Lessor in writing of any spill or discharge of hazardous or toxic substances or of the receipt by Lessee of any notice, citation or other communication from any agency concerning any investigation or alleged violation of any environmental laws or regulations on the Demised Premises. 24. Indemnification Related to Toxic or Hazardous Substances. Lessor and Lessee mutually agree to indemnify, defend and hold harmless the other, including its officers, employees and agents from any claims, judgments, damages, penalties, fines, costs, liabilities (including sums paid in settlement of claims) or loss including attorneys' fees, consultant fees and expert fees (consultants and experts to be selected by Lessor) which arise during or after 14 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. the term of this Lease from or in connection with the presence or suspected presence of toxic or hazardous substances in the soil, groundwater or soil vapor on or under the Demised Premises, to the extent the toxic or hazardous substances are present as a result of the actions of the indemnifying party, its officers, employees or agents. Without limiting the generality of the foregoing, the indemnification provided by this Section 24 shall specifically cover costs incurred in connection with any investigation of site conditions or any clean-up, remedial, removal or restoration work required by any federal, state or local governmental agency or political subdivision because of the presence in the soil, groundwater or soil vapor on or under the Demised Premises, to the extent the toxic or hazardous substances are present as a result of the actions of the indemnifying party, its officers, employees or agents. Without limiting the generality of any of the foregoing, the indemnification provided by this Section 24 shall also specifically cover costs incurred in connection with: a. toxic or hazardous substances present or suspected to be present in the soil, groundwater or soil vapor on or under the Demised Premises during the term of this Lease; or b. toxic or hazardous substances that migrate, flow, percolate, diffuse or in any way move onto or under the Demised Premises after the term of this Lease commenced; or c. toxic or hazardous substances present on or under the Demised Premises as a result of any discharge, dumping, spilling (accidental or otherwise) onto the 15 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Demised Premises during the term of this Lease by any person, corporation, partnership or entity other than Lessor. The foregoing indemnity shall survive the expiration or earlier termination of this Lease. 25. Rental for Renewal Term. Landlord hereby gives Tenant two (2) option(s) to extend its Lease for an additional period of five (5) years each, provided Tenant gives Landlord six (6) months' written notice of its intention to extend before the expiration of the present or succeeding lease term. Such extension of the lease shall be upon all of the terms and conditions herein contained, except that the rental for the extended term shall be based on the then prevailing rental rate for this property. 26. Choice of Law. The validity, interpretation and performance of this Lease and any dispute connected herewith shall be governed and construed in accordance with the laws of the Commonwealth of Pennsylvania. 27. Notices. All notices herein provided for shall be considered as having been given if sent by United States post-paid, certified mail, addressed to the respective parties at their addresses herein set forth, or such other addresses designated in writing for receipt of notices. AquaPenn Spring Water Company P. O. Box 938 Milesburg, Pennsylvania 16853 Johnson Controls, Inc. 912 City Road Manchester, Michigan 48158 16 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 28. Entire Agreement. This Lease contains all of the agreements and understandings of the parties hereto concerning the Lease of the Demised Premises. 29. Time of the Essence. Time shall be of the essence with respect to the performance of the obligations set forth in this Lease. 30. Amendment. This Lease shall be altered or amended only by a written document executed subsequent to the date of the Agreement of each of the parties. IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have hereunto set their hands and respective seals as of the day and year first above written. WITNESS/ATTEST: AQUAPENN SPRING WATER COMPANY /s/ Traci Watson By: /s/ Geoffrey F. Feidelberg - ----------------------------- ----------------------------------- JOHNSON CONTROLS, INC. 1/13/97 By: (Illegible Signature) - ----------------------------- ----------------------------------- 17 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. EXHIBIT "A" PLAN OF DEMISED PREMISES [Exhibit A is a diagram setting forth the floor space to be occupied by the Lessee.] 18 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. EXHIBIT "B" FEBRUARY 13, 1996 LETTER FROM JOHNSON CONTROLS, INC. 19 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Johnson Controls, Inc. Plastic Container Division 912 City Road Manchester, MI 48158 Tel. 313/428 9741 [Letterhead of Johnson Controls] February 13, 1996 Mr. Edward J. Lauth, III AquaPenn Spring Water Company 3035 Research Drive State College, PA 16801 Dear Ed: This letter sets forth the basic terms of agreement between AquaPenn and Johnson Controls, Inc. Details of the on-site operation and responsibilities of the parties will be agreed within the body of a separate agreement once the facilitization details have been finalized. (See On-Site Attachment) o TERM The agreement is for 100% of AquaPenn's bottle requirements at State College, Pennsylvania for five years, effective April 1, 1996 through March 31, 2001. For the first two years of the agreement, Johnson Controls will be the exclusive supplier to AquaPenn and AquaPenn will not consider competitive offers. The 100% bottle requirements are based on the sizes listed below. o PRICING Base bare bottle, per 1000, delivered 12-ounce 24 grams [ ] 0.5-liter 24 grams [ ] 20-ounce 27 grams [ ] 1-liter 37 grams [ ] 1.5-liter 42 grams [ ] 20 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. o PAYMENT TERMS Net 30 days o RESIN 30-day notice for the purpose of establishing adjustments to base bare bottle pricing, either increases or decreases, due to a change in the price of resin. The resin escalator/de-escalator used will be: 2.2 x gram weight of the bottle x cents per pound change in resin pricing. o VOLUME - YEAR 1 12-ounce [ ] 0.5-liter [ ] 20-ounce [ ] 1-liter [ ] 1.5-liter [ ] o MANUFACTURING Johnson Controls will manufacture bottles on-site and off-line in space supplied by AquaPenn. Bottles will be palletized for delivery to the filling line. Details will be finalized when on-site proposal is finalized. o CONTAINERS Johnson Controls will develop 1-liter and 1.5-liter bottle designs for the State College, Pennsylvania facility to match AquaPenn's 20-ounce bottle design. Blowmolds for these containers will be paid for by Johnson Controls providing standard existing preforms can be utilized. Timing will be discussed. 21 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. o LIGHTWEIGHTING Efforts will be made to reduce the gram weight of the containers. The resulting cost savings will be distributed as follows: If AquaPenn chooses to pay for [ ] will be passed through to AquaPenn, OR Resin savings will be shared [ ] after Johnson Controls recoups the cost of the tooling. o [ ]. o PARTNERSHIP TEAMS A formalized process will be developed to establish partnership teams at both the executive level and the plant level of our respective companies. These teams will meet regularly to identify mutual areas where attention should be focused. They will discuss, among other things, improving communication, quality, operation enhancements, and system-wide cost reductions. [ ]. o QUALITY AND SERVICE Johnson Controls agrees that it will provide PET containers to AquaPenn that will be merchantable and fit for the purpose for which they are intended and will be free from defects in materials and workmanship. o FORCE MAJEURE Neither party shall be liable for failure or delay in performance under this agreement due in whole or part to causes such as an act of God, strike, lockout or other labor dispute, civil commotion, sabotage, fire, flood, explosion, acts of government, unforeseen shortages or unavailability of 22 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. fuel, power, transportation, raw materials or supplies, inability to obtain or delay in obtaining necessary equipment or governmental approval, permits, licenses or allocations, and an other causes which are not within the reasonable control of the party affected, whether or not of the kind specifically enumerated above. Either party affected by such circumstances shall give written notice thereof to the other part. During any such period, Johnson Controls shall allocate its available supply among its customers in the same proportion as existed before the occurrence of any such circumstances. Performance of this agreement shall be resumes as quickly as reasonably possible after the party affected by any such circumstances has notified the other party that the condition(s) is/are remedied. Please indicate your agreement to the above terms and conditions by signing in the space provided below and return an originally signed copy. Sincerely, JOHNSON CONTROLS, INC. /s/ James R. King - ---------------------- James R. King Vice President, Sales AQUAPENN SPRING WATER CO. JOHNSON CONTROLS, INC. BY:/s/ Edward J. Lauth, III BY:/s/ James R. King ------------------------ ----------------------------- NAME: Edward J. Lauth, III NAME: James R. King -------------------- ----------------------------- TITLE: President TITLE: Vice President -------------------- ----------------------------- DATE: 2/14/96 DATE: 2/14/96 -------------------- ----------------------------- cc: J. Pell R. Johnson 23 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ON-SITE CONCEPT It is expected that JCI will establish an on-site blowing operation at the AquaPenn facility in State College. AquaPenn will construct a physical location to house the blowing operation. When JCI is prepared to establish the operation, it will notify AquaPenn, and AquaPenn will then commence construction and facilitization. The parties will develop a time-line for completion of construction, facilitization and equipment installation, and start-up with a target of commencement of initial production within 6 months after construction begins. The parties will also agree upon payment and other terms for AquaPenn's lease to JCI, supply of utilities, management systems to be provided by AquaPenn at a cost to JCI, if needed by JCI, responsibilities for employees and other matters relating to an on-site blowing operation. This agreement shall be reached by the parties no later than the commencement of construction. JCI agrees to add capacity at State College, Pennsylvania if requirements at said location exceed rated capacity. 24 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. EXHIBIT "C" LIST OF DEFECTS [NONE OR TO BE PROVIDED] 25 EX-10.11 12 AGREEMENT OF LEASE EXHIBIT 10.11 ASSIGNMENT OF LEASE This Assignment of Lease dated as of February 28, 1997 (the "Effective Date") by and between Johnson Controls, Inc., a Wisconsin corporation ("Assignor"), and Schmalbach-Lubeca Plastic Containers USA, Inc., a Delaware corporation ("Assignee"). WHEREAS; pursuant to a Lease Agreement, by and between Assignor and AquaPenn Spring Water Company dated July 19, 1996 (the "Lease"), Assignor currently leases certain premises in Milesburg, Pennsylvania, as more particularly described in the Lease (the "Leased Premises"). WHEREAS; Assignor and Schmalbach-Lubeca AG, the parent company of Assignee, have entered into an Acquisition Agreement (the "Agreement") pursuant to which Assignor has agreed to sell to Assignee and Assignee has agreed to buy from Assignor the Purchased Assets (as defined in the Agreement) of Assignor's Plastic Container Division, which include, among other things, the leasehold interest in the Leased Premises. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, Assignor and Assignee hereby agree as follows: As of the Effective Date, Assignor hereby assigns to Assignee all of Assignor's right, title and interest in and to the Lease and the Leased Premises. As of the Effective Date, Assignee accepts this assignment and assumes and agrees to make all payments required by said Lease from and after the Effective Date, and to perform all covenants and conditions of the Lease by said Assignor to be made and performed. It is expressly agreed that Assignee shall succeed to all rights and benefits of Assignor in said lease. This Assignment of Lease may be executed in counterparts. "ASSIGNOR" "ASSIGNEE" JOHNSON CONTROLS, INC. SCHMALBACH-LUBECA PLASTIC CONTAINERS USA, INC. By: (Illegible Signature) By: (Illegible Signature) --------------------- --------------------- Title: Attorney in Fact Title: Secretary ------------------ ------------------ EX-10.12 13 LETTER AGREEMENT THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. [Letterhead of Schmalbach-Lubeca] September 10, 1997 Mr. Edward J. Lauth, III AquaPenn Spring Water Company One AquaPenn Drive Milesburg, Pennsylvania 16853 Re: J. King 2/13/96 Terms of Agreement Letter Dear Ed, This letter sets forth the basic terms of agreement between AquaPenn and Schmalbach-Lubeca (formerly Johnson Controls). Details of the on-site operation and responsibilities of the parties have been agreed to within Agreement of Lease. o TERM The agreement is for 100% of AquaPenn's bottle requirements at Milesburg, Pennsylvania for five years, effective April 1, 1996 through March 31, 2001. For the first two years of the agreement, Schmalbach-Lubeca will be the exclusive supplier to AquaPenn and AquaPenn will not consider competitive offers. The 100% bottle requirements are based on the sizes listed below. 1 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. o PRICING Base bare bottle, per 1,000, delivered as of 9/1/97: Item Gram Weight Price ---- ----------- ----- 8 ounce 16 gram [ ] 12 ounce 24 gram [ ] 0.5 liter 24 gram [ ] 20/24.9 liter 27 gram [ ] 1 liter/ 40 ounce 37.8 gram [ ] 1.5 liter 41.7 gram [ ] o PAYMENT TERMS Net 30 days. o RESIN 30-day notice for the purpose of establishing adjustments to base bare bottle pricing, either increases or decreases, due to a change in the price of resin. The resin escalator/de-escalator used will be: 2.2 x gram weight of the bottle x cents per pound change in resin pricing. o VOLUME - YEAR 1 12 ounce [ ] 0.5 liter [ ] 20 ounce [ ] 1 liter [ ] 1.5 liter [ ] o MANUFACTURING Schmalbach-Lubeca will manufacture bottles on-site and off-line in space supplied by AquaPenn. Bottles will be palletized for delivery to the filling line. Details will be finalized when on-site proposal is finalized. o CONTAINERS Schmalbach-Lubeca will develop 1 liter and 1.5 liter bottle designs for the Milesburg, Pennsylvania facility to match AquaPenn's 20 ounce bottle design. Blow molds for these containers will be paid for by Schmalbach-Lubeca providing standard existing preforms can be utilized. Timing will be discussed. 2 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. o LIGHTWEIGHTING Efforts will be made to reduce the gram weight of the containers. The resulting cost savings will be distributed as follows: If AquaPenn chooses to pay for [ ] savings will be passed through to AquaPenn. OR Resin savings will be shared [ ] after Schmalbach-Lubeca recoups the cost of the tooling. o [ ]. o PARTNERSHIP TEAMS A formalized process will be developed to establish partnership teams at both the executive level and the plant level of our respective companies. These teams will meet regularly to identify mutual areas where attention should be focused. They will discuss, among other things, improving communications, quality, operation enhancements, and system-wide cost reductions. Cost reductions will be [ ]. o QUALITY AND SERVICE Schmalbach-Lubeca agrees that it will provide PET containers to AquaPenn that will be merchantable and fit for the purchase for which they are intended and will be free from defects in materials and workmanship. o FORCE MAJEURE Neither party shall be liable for failure or delay in performance under this agreement due in whole or part to causes such as an act of God, strike, lockout or other labor dispute, civil commotion, sabotage, fire, flood, explosion, acts of government, unforeseen shortages or unavailability of fuel, power, transportation, raw materials or supplies, inability to obtain or delay in obtaining necessary equipment or governmental approval, permits, licenses or allocations, and any other causes which are not within the reasonable control of the party affected, whether or not of the kind specifically enumerated above. 3 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Either party affected by such circumstances shall give written notice thereof to the other party. During any such period, Schmalbach-Lubeca shall allocate its available supply among its customers in the same proportion as existed before the occurrence of any such circumstances. Performance of this agreement shall be resumed as quickly as reasonably possible after the party affected by such circumstances has notified the other party that the condition(s) is/are remedied. Please indicate your agreement to the above terms and conditions by signing in the space provided below and return an originally signed copy. Sincerely, SCHMALBACH-LUBECA PLASTIC CONTAINERS USA, INC. /s/ W.J. O'Connell William J. O'Connell Eastern Regional Sales Manager Schmalbach-Lubeca Plastic AquaPenn Spring Water Company Containers USA, Inc. By: /s/Geoffrey F. Feidelberg By: /s/ Thomas C. Hansen ------------------------- -------------------------- Name: Geoffrey F. Feidelberg Name: Thomas C. Hansen ----------------------- ------------------------ Title: Chief Operating Officer Title: Vice President Sales & ---------------------- ----------------------- Marketing --------- Date: 10/7/97 Date: 9/12/97 ----------------------- ------------------------ TH/sc cc: J. Pell R. Johnson 4 EX-10.13 14 AGREEMENT THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. EXHIBIT 10.13 AGREEMENT THIS AGREEMENT entered into this 30th day of July 1997, by and between AQUAPENN Spring Water Company, hereinafter referred to as "AQUAPENN", and Seven Springs Water Company, hereinafter referred to as "Seven Springs", WITNESSETH: WHEREAS, Seven Springs is the owner and holder of a Suwannee River Water Management District Water Use Permit No. 2-93-00093 (and any subsequent modifications and renewals of the above referenced "Permit"); and WHEREAS, AQUAPENN and Seven Springs are desirous of entering into this Agreement whereby Seven Springs agrees to deliver and sell spring water under the above referenced Permit to AQUAPENN. NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants contained herein, the sum of Ten Dollars, each to the other paid, and other good and valuable considerations, the parties agree as follows: 1. TERM: The term of this Agreement shall be Ninety-Nine (99) years from the effective date. 2. NATURE AND SCOPE OF REAL ESTATE SALE: Seven Springs shall sell to AQUAPENN the front 40 acres which are presently zoned and permitted for a spring water bottling plant, said property depicted in Exhibit "A", attached hereto and made a part hereof by reference. The standards, terms and conditions shall be in accordance with the Florida Bar-Florida Board of Realtors contract, where applicable. The sales price shall be $7,500 per acre for a total purchase price of $300,000.00 and shall be paid in cash, adjusted by prorations. The Seller, in addition, grants to AQUAPENN, its successors or assigns, such ingress, egress and public utility and such other easements as are necessary to carry out the terms and conditions of this Agreement. 3. OPTION TO PURCHASE ADDITIONAL REAL ESTATE: Seven Springs shall deliver to AQUAPENN in recordable form an option to purchase the adjacent Northerly 40 acres for $7,500 per acre, said purchase price to be paid in cash, adjusted by prorations. Said option to be delivered simultaneously with the closing of the initial forty acres and shall run for a period of ten years. This option shall be THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. assignable but shall be required to be for a use of the land which is a part of or associated with the spring water operation contained in the initial 40 acres. 4. AGREEMENT FOR CONSTRUCTION OF SPRING WATER BOTTLING PLANT: Within sixty (60) days of the closing of the purchase of the front 40 acres described in paragraph 2 AQUAPENN will begin construction of a spring water bottling plant having a construction cost of plant, improvements and equipment of not less than [----------] and an operational capacity of bottling no less than [-----] gallons a day. Said construction will be completed and the plant operational within [----------] of the date of closing. In the event AQUAPENN does not begin such construction within sixty (60) days from the date of closing or fails to pursue said construction with reasonable diligence once begun, Seven Springs [-------------------------------------------------------------------------- - --------------------------------------------------------------------------- - --------]. In addition to the spring water bottling facility, AQUAPENN will, at its sole cost and expense, provide all pumps, pipes, valves, meters, etc. necessary for the spring water extraction and for any other monitoring required by Suwannee River Water Management or other agency and all operational and maintenance costs associated with said equipment. 5. MINIMUM GUARANTEE PAYMENTS: AQUAPENN agrees to purchase from Seven Springs at a cost of [-------------] per gallon, payable on a monthly basis in arrears, all water pumped, extracted, processed or sold by AQUAPENN. Said water shall be extracted from the spring sources currently covered by the Suwannee River Water Management water use permit more specifically described in paragraph 7 and be subject to the minimum and maximum amounts set forth below. In the second year AQUAPENN shall pay a minimum annual payment of [------], in the third year and all subsequent years a minimum annual payment of [------]. There will be no minimum payment in the first year. For this purpose the first year shall begin 12 months from the date of closing or when the plant first becomes operational, whichever first occurs. Beginning the fifth year and continuing each subsequent year, should any monthly payment by AQUAPENN be less than [-----] [----------------------] Seven Springs Water Company will have the right to sell spring water to others on a nonexclusive basis for the ensuing sixty (60) day period and in addition will have the right to the use of and access to AQUAPENN's bulk spring water loading facilities on a 24-hour basis. AQUAPENN will construct and maintain its bulk water loading facility in such a manner that personnel from AQUAPENN or Seven Springs will not be required and the bulk spring water customer's driver can reasonably operate the facility by himself. So long as AQUAPENN's bulk loading facility functions in such a manner AQUAPENN will have no staffing responsibilities for users of the bulk loading facility. In no event shall Seven Springs sell 2 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. water in quantities which would prohibit AQUAPENN from meeting its monthly minimum. In exchange for said use, AQUAPENN will be paid the sum of [--------------------------] per gallon for spring water not consumed by AQUAPENN and sold to others by Seven Springs. AQUAPENN will not be responsible for the [-------------] fee for spring water acquired by users of the bulk facility for which AQUAPENN receives the [-------------------] fee. The parties acknowledge that AQUAPENN will have a domestic water well for purposes of rinsing bottles or other containers, cleaning floors, sprinkler systems and any other domestic use associated with the operation of the facility. AQUAPENN will be under no obligation to pay a fee to Seven Springs for this usage but AQUAPENN specifically agrees that only water purchased from Seven Springs will be used for bottling, distribution or sale. 6. PRICE PER GALLON ADJUSTMENT: The per gallon price will be adjusted by [-----------------] of the change in the Consumer Price Index (CPI) or the equivalent every [------] years. The parties acknowledge that in the opinion of some the CPI as it is currently constituted overstates the true overall rate of inflation and it has been proposed that either the current method of calculating the CPI be changed or it be discontinued and replaced with a new index. Should either occur, the adjustments referred to will be made so as to conform as nearly as possible to [-----------------] of the change in the CPI as currently constituted. An identical CPI increase shall be applicable to the [--------------------] provided in Paragraph 5 and 11. 7. REPRESENTATION AND WARRANTIES: Seven Springs hereby represents that it is the owner and holder of an unencumbered Suwannee River Water Management District Water Use Permit No. 2-93-00093, which permit allows extraction of 1,152,000.00 gallons per day annual average subject to a maximum daily amount of 1,728,000.00 gallons. Seven Springs shall make all necessary applications for renewals of the permit and shall diligently pursue said renewal applications. Seven Springs shall not jeopardize any existing or renewed permit. One of the measures used in determining the amount of gallons available under a water use permit is the number of acres covered by the application. To this end AQUAPENN agrees that any acreage it owns or controls in the area may be included in any application for a water use permit should the applicable regulations allow it an be subject to the minimum/maximum amount set forth below. 8. RIGHT OF FIRST REFUSAL: AQUAPENN will be granted a reasonable right of first refusal in the event Seven Springs elects to sell its rights under this Agreement, or the spring water rights or spring water permits. 3 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 9. COVENANT NOT TO ADVERSELY AFFECT SPRING WATER QUALITY: Seven Springs shall obtain a written agreement from Barbara Wray Suggs that any future development of her lands shall not adversely affect the quality of spring water to be purchased by AQUAPENN to the extent that it does not meet the quality guidelines established by the EPA or Food and Drug Administration or the International Bottled Water Association. This covenant shall not be interpreted to prohibit the construction of commercial or residential facilities provided same does not impact the spring water quality to the extent that it does not meet the before mentioned quality guidelines. 10. QUALITY OF SPRING WATER SUPPLY: All obligations of AQUAPENN shall be suspended during any period or periods that the spring water quality at the source does not meet guidelines for drinking spring water established by the EPA or Food and Drug Administration or International Bottled Water Association. AQUAPENN will have the right but not the obligation to attempt to cure quality defects and Seven Springs agrees to assist AQUAPENN in its efforts to cure such defects. In the event said period of non-compliance exceeds 15 successive days or 60 cumulative days in a given calendar year then AQUAPENN may elect to bring or acquire bulk spring water off-site to supply the plant so long as such condition exists and for 30 days thereafter or terminate this Agreement and have no further liability hereunder. 11. GOVERNMENTAL IMPOSITIONS: AQUAPENN will pay to the proper governmental authority all taxes, if any, due and owing upon any sums payable to Seven Springs, except income, estate or gift taxes. AQUAPENN will pay to or on behalf of Seven Springs to the proper governmental authority all taxes, if any, imposed upon water extracted and delivered to AQUAPENN or processed by AQUAPENN, such as a severance or consumptive use tax. In the event said taxes exceed the sum of [-------------------] per gallon, then and in that event AQUAPENN may terminate this Agreement and shall have no further liability hereunder. 12. CONTINGENCIES: AQUAPENN will have six months from the date of this agreement to obtain approval of the Board of Directors of AQUAPENN for this transaction; to complete all testing and analysis to determine the necessary quality of the spring water; the suitability of the plant site; and to obtain all necessary permits for the construction of the spring water bottling plant and related approvals for removal of the spring water. On or before the six-month period, AQUAPENN shall satisfy or notify Seven Springs in writing that it has waived all contingencies, at which time the closing referenced in Paragraph 2 above shall occur. 13. DESTRUCTION OF SPRING WATER BOTTLING PLANT: In the event the bottling plant is destroyed in whole or in part by a casualty 4 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. to the extent that operation of the bottling plant must be suspended, then, and in that event, AQUAPENN may elect to terminate this Agreement or to repair or restore the plant and shall notify Seven Springs of its election within 30 days of the casualty. In the event AQUAPENN elects to rebuild the plant, the minimum payments will be suspended during the reconstruction period. If AQUAPENN elects to rebuild, it shall begin the rebuilding within 30 days of notifying Seven Springs of its election to do so and diligently pursue said construction. In the event AQUAPENN elects not to rebuild, it will grant a right of first refusal to Seven Springs and will agree not to build another bottling facility nor purchase water from any source within 100 miles of Ginnie Springs within the next seven (7) years. 14. ELECTION TO TERMINATE: Notwithstanding anything contained herein to the contrary, AQUAPENN may elect to terminate this Agreement at any time, for any reason, and shall be liable to Seven Springs for payment of a sum equal to 6 months minimum guarantee from the date of termination. 15. RIGHT OF ENTRY: Seven Springs hereby grants to AQUAPENN and its authorized agents the right to freely enter upon the lands herein described for the purpose of inspection and testing the lands and the spring water. 16. OTHER AGREEMENTS: This Agreement constitutes the entire agreement between the parties, and any changes, amendments or modifications hereof shall be null and void unless same are reduced to writing and signed by the parties hereto. 17. PERSONS BOUND: The covenants herein contained shall bind, and the benefits and advantages shall inure to, the respective heirs, executors, administrators, successors and assigns of the parties hereto. Whenever used, the singular number shall include the plural, the singular, and the use of any gender shall include all genders. Other party may assign their rights in the Agreement. 18. ATTORNEYS' FEES, COSTS: In the event of any litigation arising out of this Agreement, the prevailing party shall be entitled to recover from the non-prevailing party all expenses incurred by the prevailing party in connection with said litigation including a reasonable attorney's fee. 19. SURVIVAL OF COVENANTS: Any of the representations, warranties, covenants, and agreements of the parties, as well as any rights and benefits of the parties pertaining to a period of time following the closing of the transactions contemplated hereby, shall survive the closing and shall not be merged therein. 5 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 20. NOTICES: Any notice required or permitted to be delivered hereunder shall be deemed received when sent by United States mail, postage prepaid, certified mail, return receipt requested, or by express courier, addressed to Seller or Buyer, as the case may be, at the address set forth below: 6 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Seven Springs Water Company c/o Ginnie Springs, Inc. with copy to W. Langston Holland, Attorney at Law 7300 N.E. Ginnie Springs Road 125 28th Street N., St. Petersburg, FL 33713 High Springs, FL 32643 AQUAPENN Spring Water Company One AquaPenn Drive P.O. Box 938 Milesburg, PA 16853 With copy to: McQuaide, Blasko, Schwartz 811 University Drive State College, PA 16801 Attn: Thomas Schwartz, Esquire Daniel E. Bright, Esquire (814) 238-4926 21. DESCRIPTIVE HEADINGS: The descriptive headings used herein are for convenience only and are not intended to necessarily refer to the matter in sections which precede or follow them, and have no effect whatsoever in determining the rights or obligations of the parties. 22. STOCK OPTION: Simultaneously with the closing AQUAPENN shall grant to Seven Springs Water Company the option during a [------] period commencing with the date of closing to purchase [----] shares of AQUAPENN's common stock as it currently exists at [----------------------------]. 23. COVENANTS RUNNING WITH THE LAND: The deed to the property described in paragraphs 2 and 3 shall contain covenants running with the land as set forth in the attached Exhibit B. 24. RIGHT OF FIRST REFUSAL: Anything to the contrary in this agreement notwithstanding, should AQUAPENN terminate this agreement for any reason, Seven Springs will have the right of first refusal to purchase any real estate described in paragraphs 2 and 3 which was purchased by AQUAPENN together with the improvements and fixtures and easements attached to or used in relation to the transporting, processing or bottling of water. The terms of such right of first refusal are set forth in attached Exhibit "C". This right of first refusal will not apply unless and until this agreement is terminated and will expire five (5) years after the date of termination. 25. SURVIVAL OF OBLIGATIONS: Anything to the contrary in this agreement notwithstanding, should AQUAPENN terminate this agreement for any reason, all obligations incurred by AQUAPENN prior to such termination, including but not limited to water charges (including minimums), and governmental impositions shall survive such termination. 7 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 26. [--------------------------------------------]: Anything to the contrary in this agreement notwithstanding, AQUAPENN agrees that any and all water purchased, processed or sold at its water bottling plant to be constructed pursuant to paragraph 4 or [-------------------------------------------------------------------------- - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- - ---------------]. This provision shall survive the termination of this agreement. 27. INSPECTION MEASUREMENT AND CONFIRMATION: AQUAPENN will provide copies of its records certified as correct by a company officer covering all water sales and shipments no less than twice monthly, allow Seven Springs full access to its pumping facilities and the right to install measurement devices so that Seven Springs can independently measure the volume of water extracted. Seven Springs will also have reasonable access to AQUAPENN's water distribution facilities for the purpose of independently measuring the volume of water sold or distributed. 28. ADJUSTMENTS TO DESCRIPTIONS AND PURCHASE PRICE OF PROPERTIES COVERED IN PARAGRAPHS 2 AND 3: The conveyances covered by paragraphs 2 and 3 will exclude the east sixty (60) feet of the described property and should such exclusion cause the total area of either parcel conveyed to be less than forty (40) acres, AQUAPENN will receive a credit at closing equal to $7500 times the number of acres conveyed which is less than forty (40). For example, should the total area of one parcel conveyed equal 39-1/2 acres, the credit will equal $3750. Seven Springs Water Company AQUAPENN Spring Water Company By:/s/ Barbara Wray Suggs By:/s/ Edward J. Lauth, III ------------------------- ---------------------------- As President As President Attest:/s/ Mark D. Wray Attest:/s/ Dennis B. Nisewonger --------------------- ------------------------ As Secretary As Secretary 8 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. EXHIBIT "A" THIS QUIT-CLAIM DEED, executed this 31st day of March, 1995, by MARK D. WRAY, RHONDA WRAY JOHNSON, and RISA WRAY KLEMANS c/o 101 N.E. Ginnie Springs Blvd., High Springs, FL 32643 First Party, to SEVEN SPRINGS WATER COMPANY whose address is 125 28th Street, North, St. Petersburg, FL 33713 and whose Tax I.D. Number is 59-3243964 (Wherever used herein the terms "First Party" and "Second Party" shall include singular and plural, heirs, legal representatives, and assigns of individuals, and the successors and assigns of corporations, wherever the context so admits or requires.) WITNESSETH, That the said First Party, for and in consideration of the sum of Ten and No/100 Dollars ($10.00), in hand paid by the said Second Party, the receipt (illegible text) hereby acknowledged, does hereby remise, release and quit claim to the said Second Party forever, all the right, title, interest,claim and demand which the said first party has in and to the following described lot, piece or parcel of land, situate, lying and being in the County of Gilchrist, State of Florida, to wit: Commence at the SW corner of the NW 1/4 of SW 1/4 of Section 2, TBE, R16E for a point of reference. Thence run along the South line of said NW 1/4 of SW 1/4, M88^43'51"E, 18.00 feet to the point of beginning. Thence run 801^06'24"E, 158.86 feet to the North R/W line of County Road No. C-340, said point being on a curve; thence run along said R/W line on curve being concave Northerly (having a central angle of 11^09'22" and a radius of 5679.58 feet) Northeasterly an arc distance of 1105.88 feet to point of tangency; thence continue along said R/W line N71^22'11"E, 239.93 feet to the East line of said NW 1/4 of SW 1/4; thence run along said East line, N01^00'16"W, 1155.86 feet; thence run SSE^43'54"W, 1310.47 feet; thence run 801^06'24"E, 1296.17 feet to the point of beginning, all lying and being in Gilchrist County, Florida. THIS IS NOT HOMESTEAD PROPERTY Tax Parcel # 02-08-16-0000-0003-0010 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. TO HAVE AND TO HOLD the same together with all and singular the appurtenances thereunto belonging or in anywise appertaining, and all the estate, right, title, interest, lien, equity and claim whatsoever of the said First Party, either in law or equity and claim whatsoever of the said First Party, either in law or equity, to the only proper use, benefit and behalf of the said Second Party forever. IN WITNESS WHEREOF, the said First Party has signed and sealed these presents the day and year first above written. Signed, sealed and delivered in our presence as witnesses: /s/ Lynn R. Holyfield /s/ Mark D. Wray L.S. - -------------------------- -------------------------- Lynn R. Holyfield MARK D. WRAY /s/ Stephen A. Rappenecker /s/ Rhonda W. Johnson L.S. - -------------------------- -------------------------- Stephen A. Rappenecker RHONDA WRAY JOHNSON /s/ Risa Wray Klemens L.S. -------------------------- RISA WRAY KLEMANS THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. EXHIBIT "B" COVENANT RUNNING WITH THE LAND: Grantee agrees and covenants that the land and any improvements to it shall be used solely for the bottling, processing and distribution of potable water and incidental uses associated with same. THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. EXHIBIT "C" RIGHT OF FIRST REFUSAL: Before AQUAPENN may sell or transfer the property described in either paragraphs 2 or 3 of this agreement or the improvements on it, it must first offer it to Seven Springs by giving Seven Springs written notice of the price, terms and conditions upon which AQUAPENN proposes to sell or transfer the property. Seven Springs will have 30 days from receipt of such written notice within in which to notify AQUAPENN that Seven Springs agrees to purchase the property on the same terms and conditions stated in the notice and if it does the sale shall be closed 30 days after of such notification. If Seven Springs does not accept the offer in writing within 30 days after receipt of it AQUAPENN may sell the property to any other purchaser at and only at the same price, terms and conditions stated in the notice to Seven Springs provided that such sale shall be closed within 160 days after the date of the first notice to Seven Springs. If AQUAPENN has not completed the sale or transfer within said 160-day period, the right of AQUAPENN to sell or transfer the property free from the right of first refusal held by Seven Springs will terminate and the provisions of this agreement will apply to any subsequent proposed sale or transfer of the property by AQUAPENN. The term "transfer" includes but is not limited to a lease agreement. EX-10.14 15 WATER AGREEMENT EXHIBIT 10.14 WATER AGREEMENT BETWEEN AQUAPENN SPRING WATER CO. AND BELLEFONTE BOROUGH TABLE OF CONTENTS RECITALS................................................. 1 ARTICLE I - SALE OF WATER................................ 1 ARTICLE II - COMMENCEMENT DATE........................... 2 ARTICLE III - RATES AND PAYMENTS......................... 3 ARTICLE IV - TERMS OF AGREEMENT.......................... 5 ARTICLE V - WATER FACILITIES............................. 6 ARTICLE VI - INSURANCE AND INDEMNIFICATION............... 8 ARTICLE VII - RESTRICTION ON USE OF WATER................ 9 ARTICLE VIII - EXCUSES FOR NON-PERFORMANCE............... 11 ARTICLE IX - RELATIONSHIP OF THE PARTIES................. 12 ARTICLE X - PROHIBITION ON ASSIGNMENT.................... 12 ARTICLE XI - SOURCE IDENTIFICATION....................... 13 ARTICLE XII - NOTICES.................................... 13 ARTICLE XIII - MISCELLANEOUS............................. 14 WATER AGREEMENT THIS WATER AGREEMENT, made and entered this 10th day of July, 1995, by and between the AQUAPENN SPRING WATER CO., with its office address at 3035 Research Drive, State College, Centre County, Pennsylvania, (herein called "AquaPenn") AND THE BOROUGH OF BELLEFONTE, with its office address at 236 West Lamb Street, Bellefonte, Centre County, Pennsylvania (herein called "Bellefonte"). RECITALS (a) AquaPenn is interested in securing a source of potable drinking water for use in its bottled water company, within a reasonable distance of the production facilities of AquaPenn. (B) Bellefonte presently has an excess of potable drinking water which, subject to the terms and conditions of this Agreement, will be made available to AquaPenn. NOW, THEREFORE, in consideration of the foregoing recitals and intending to be legally bound hereby the parties agree as follows: ARTICLE I SALE OF WATER SECTION 1.01. Bellefonte agrees to sell AquaPenn excess gravity-pressured potable water not to exceed 1,000,000 (1.00 mgd) per day from a pipe which is a sixteen (16) inch pipe originating 1 from a spot in the immediate area of the Big Spring, Bellefonte, Pennsylvania, subject to and expressly conditioned to the following: (a) To all the terms and conditions of the Bellefonte's Water Allocation Permit as issued by the Commonwealth of Pennsylvania, Department of Environmental Resources, Permit No. WA-23A, as amended, and, all the Ordinances, Resolutions, Rules, Regulations and Laws of any Local, State or Federal Governmental Authority having jurisdiction over the subject and the performance of this Agreement; (b) That the source of the water, known as the Big Spring, continues to produce water at a rate which allows all of the water use demands of the Borough of Bellefonte to be met before there is water available to AquaPenn; and, (c) Fulfillment of the needs and requirements of Bellefonte's inhabitants, existing contracts and agreements for supply of water, and, the present customers of Bellefonte's water system located within and beyond the political boundaries of Bellefonte. (d) That the Big Spring is determined to be a "spring," and not influenced by surface water, as to be determined by the Surface Water Influence Testing being currently conducted. SECTION 1.02. It is expressly understood that Bellefonte makes no representations, warranties or guarantees as to the source of the water, its availability or quantity. ARTICLE II COMMENCEMENT DATE SECTION 2.01. Commencement date means the date on which AquaPenn notifies the Borough of Bellefonte when all applicable permits, licenses and approvals, with respect to the subject of 2 this Agreement, have been obtained, and, that all construction has been completed to receive the water from the point located in the immediate area of the Big Spring, Bellefonte, Pennsylvania. SECTION 2.02. If all the permits, licenses and approvals are not obtained by AquaPenn or all construction necessary to transfer the water is not completed prior to the 1st day of May, 1997, this Agreement shall terminate forthwith and be deemed null and void. ARTICLE III RATES AND PAYMENTS SECTION 3.01 AquaPenn shall pay for the potable water as follows: (a) During the first five (5) years from the commencement date of this Agreement as provided in Article II and IV, the amount of forty ($.40) cents per thousand gallons transferred each day. (b) On commencement of the second five (5) years from the commencement date of this Agreement as provided in Article II and IV, the amount of fifty ($.50) cents per thousand gallons transferred each day. (c) After the tenth (10th) year of the commencement date of this Agreement as provided in Articles II and IV, and upon sixty (60) days written notice by Bellefonte to AquaPenn, Bellefonte may increase the costs of the water by applying the fluctuations in the Consumer Price Index to the costs per thousand gallons as set forth in subparagraph (b) as follows: (i) The Consumer Price Index for the purpose of this Agreement shall be the Consumer Price Index for "All 3 Items for All Urban Customer" published by the Bureau of Labor Statistics of the United States Department of Labor, Pittsburgh-Beaver Valley. For All Items 1982-84 equals 100. If the Consumer Price Index ceases to be published by the United States Department of Labor, Bureau Statistics, then the calculations shall be based on the closest Successor Index as identified by the United States Department of Labor. If no such Successor exists, the calculations shall be based on an Index prepared by Bellefonte and submitted to AquaPenn. (ii) The base date shall be the first day of the calendar month preceding the date of this Agreement. (iii) The adjusted increase for payments for the water shall be determined by multiplying the cost of the water per thousand gallons paid during the second five (5) year term by a fraction, the numerator of which shall be the Consumer Price Index for the last calendar month at the conclusion of the second five (5) year term of this Agreement, and, the denominator which shall be the Consumer Price Index for the base date. The resulting sum, if greater than the amount set forth in subparagraph (b) above may be adjusted by Bellefonte, commencing with the month following the expiration of ten (10) years from the commencement date of this Agreement. SECTION 3.02. Beginning on the commencement date of this Agreement, and, thereafter, Bellefonte shall monthly invoice AquaPenn for payment of the water transferred the preceding month. 4 AquaPenn shall pay Bellefonte the amount due, and any other amount due, within ten (10) days of the date of the invoice. SECTION 3.03. In the event AquaPenn shall fail to pay for the water as required hereunder for a period of thirty (30) days after receipt of written notice, then AquaPenn agrees that Bellefonte shall have the right, at its option, to proceed against AquaPenn in any manner permitted by law. SECTION 3.04. If AquaPenn and Bellefonte are unable to resolve any dispute with respect to any amount owed by AquaPenn hereunder, AquaPenn shall be obligated to pay all undisputed amounts with respect to such dispute. ARTICLE IV TERMS OF AGREEMENT SECTION 4.01. Upon receipt of the notice provided in Article II, this Agreement shall commence for a term of fifty (50) years from the date of the notice. After the expiration of the term of fifty (50) years, the Agreement shall automatically renew itself for a term of five (5) years unless written notice is delivered by either party to the other six (6) months prior to the expiration of the initial fifty (50) year term of this Agreement indicating an intent not to renew. Any renewal shall be on the terms and conditions then mutually agreed upon between AquaPenn and Bellefonte. 5 ARTICLE V WATER FACILITIES SECTION 5.01. AquaPenn, at its sole cost and expense, shall acquire, construct, install, repair and maintain all facilities, pipes, pipelines, pumps and equipment or other apparatus necessary to transmit the water from the pipe in the immediate area of the Big Spring to AquaPenn. All such construction, installation, repairs and maintenance of wells, pipes and equipment shall be in accordance with engineering standards acceptable to Bellefonte. Bellefonte, upon reasonable notice, shall provide AquaPenn with access to the transmission point in the immediate area of the Big Spring for the purpose of transmitting water to AquaPenn. AquaPenn, at its sole cost and expense, shall acquire all rights-of-way from AquaPenn to the Big Spring, and, upon termination of this Agreement, Bellefonte shall have the right but not the responsibility to have ownership of the rights-of-way transferred to Bellefonte. SECTION 5.02. The AquaPenn pipeline shall not intrude into, or in any other way invade the pond of the Big Spring, but shall terminate at a point near the Big Spring. A separate and distinct pipeline, being very short in length, from the AquaPenn pipeline, to the pond of the Big Spring, shall be constructed by Bellefonte, with all costs of construction to be paid by AquaPenn. This portion of pipe shall then be immediately turned over to, and surrendered to, Bellefonte, who shall have sole control of it. 6 SECTION 5.03. AquaPenn shall, at its sole cost and expense, provide a meter at the Big Spring at the point where the water is delivered to AquaPenn. AquaPenn, at its sole cost and expense, shall cause the meter to be calibrated every three (3) years after the commencement date of this Agreement, and, AquaPenn shall be solely responsible for its maintenance and repair. Should the accuracy of the meter at any time during the term of this Agreement be challenged, the costs of calibration shall be paid by the party whose position was changed (plus or minus five percent deviation) as a result of the re-calibration. Should the meter be inaccurate for a specified period of time or inoperable for any reason, the usage for such period will be based on the average daily use for the ten (10) days following the repair or replacement of the meter or its accurate re-calibration. SECTION 5.04. All facilities, pipes, pipeline pumps, equipment and/or other apparatus installed or constructed by AquaPenn to receive and distribute the water pursuant to this Agreement shall be and remain the sole property of AquaPenn, other than that pipeline described in Paragraph 5.02. above. Such facilities may at the termination or expiration of this Agreement be removed by AquaPenn. SECTION 5.05. AquaPenn, at its sole cost and expense, shall comply with all acts, rules, regulations, orders and directives of any legislative, executive, administrative or judicial body applicable to the performance of this Agreement, and, 7 to the operation, repair and maintenance of the transmission facilities from Bellefonte to AquaPenn. Without limiting the foregoing, AquaPenn or Bellefonte may contest, in good faith, any such laws, ordinances, rules, regulations, permits, licenses, orders, or directives of any executive, administrative or judicial body. ARTICLE VI INSURANCE AND INDEMNIFICATION SECTION 6.01. AquaPenn shall insure and keep insured all the distribution and transmission facilities of its water system which are of a character usually insured by persons operating properties of a similar nature by a responsible insurance company or companies authorized and qualified under the laws of the Commonwealth of Pennsylvania to assume the risks thereof against loss or damage by fire and any hazards to the extent that such properties are usually insured by persons operating properties of similar nature in the same or similar localities. The amount of said insurance in each case and the provisions of these insurance policies shall be subject to the approval of Bellefonte. SECTION 6.02. AquaPenn will maintain public liability insurance, property damage and worker's compensation insurance in such amounts and containing such terms and provisions as shall be approved by Bellefonte. SECTION 6.03. All insurance policies provided herein shall be for the benefit of Bellefonte, and, Bellefonte shall be 8 named as an additional insured on all the insurance policies. All insurance policies shall be filed with Bellefonte, and, no changes shall be made to the policies of insurance without the prior consent of Bellefonte. SECTION 6.04. AquaPenn agrees that it shall protect, indemnify and hold Bellefonte and their respective officers, employees and agents from and against all liabilities, actions, damages, claims, demands, judgments, losses, costs, expenses, suits, or actions and reasonable attorney's fees and shall defend Bellefonte in any suit, including appeals, for personal injury to, or death of, any person or persons, or for loss of or damage to, property resulting from the acts or omissions of AquaPenn in the performance (or non-performance) of AquaPenn's obligations under this Agreement and for any loss or claim resulting from the performance (or non-performance) of Bellefonte's obligation under this Agreement, or, the execution and performance of this Agreement or any other suit filed against Bellefonte as a result of this Agreement. ARTICLE VII RESTRICTION ON USE OF WATER SECTION 7.01. AquaPenn shall use the water obtained from Bellefonte for sale in its bottled water business, and is specifically prohibited from providing, at any price or cost, water from the Big Spring to any other customer, corporation, or entity without prior written approval from Bellefonte. 9 SECTION 7.02. AquaPenn shall not contest or appeal or otherwise oppose, directly or indirectly, the application for any permit or the issuance of any permit to Bellefonte concerning its water source or its transmission or distribution system, and, the delivery of water to any of Bellefonte's customers. SECTION 7.03. AquaPenn shall continually operate its water distribution and transmission system in a sufficient and economic manner and will keep its system in a state of good repair and will replace all equipment necessary from time to time so as not to waste any water provided hereunder. SECTION 7.04. Should Bellefonte be required to install new procedures or improve its water system as a result of this Agreement with AquaPenn, all costs of the same shall be paid by AquaPenn. If the improvements or new procedures are required as a result of a combination of this Agreement and the supplying water to Bellefonte customers, then Bellefonte shall pro-rate the costs thereof based on the number of gallons of water used within the geographic boundaries of Bellefonte and those transferred to AquaPenn. The proration shall be based on the highest average of any amount of water furnished to AquaPenn during the previous year prior to the necessity for installing such new procedures or making the improvements. SECTION 7.05. AquaPenn shall execute any and all documents which may be required by Bellefonte to modify, alter or amend this Agreement in order to accommodate any financing which 10 Bellefonte may undertake to improve or which effects its water system. ARTICLE VIII EXCUSES FOR NON-PERFORMANCE SECTION 8.01. The failure of either party to perform any obligation under this Agreement due to an uncontrollable circumstance shall operate as an excuse to performance and will not constitute a breach of any obligation. Uncontrollable circumstance means by act, event or condition, that has had, or may reasonably be expected to have, a direct material adverse effect on the rights or obligations of a party under this Agreement or a direct material adverse effect on the furnishing of water under this Agreement, if such act, event or condition is beyond the reasonable control or the party relying thereon has justification for not performing an obligation or complying with any condition required of such party under this Agreement. Such acts or events shall include, but shall not be limited to the following: (a) An Act of God, hurricanes, tornadoes, epidemic, landslides, lightening, earthquake, flood, fire or explosion or similar occurrence; or an act of the public enemy, war, blockade, insurrection, riot, general unrest, or restraint of government and people, civil disturbance of similar occurrence; (b) The order, final actions, injunction and/or judgment of any federal, commonwealth or local court, administrative agency or governmental body which has jurisdiction over the performance of the parties' obligation to this Agreement; 11 (c) A change in the law which includes the enactment, adoption, promulgation, modification or repeal after the date of this Agreement, of any Federal, commonwealth, county or other local law, ordinance, code rule, or regulation or other similar regulation or other similar legislation which establishes obligation on responsibility affecting the performance under this Agreement which are more burdensome than those in effect on the date of this Agreement. SECTION 8.02. Notwithstanding the foregoing, Bellefonte may terminate this contract at any time, in its discretion, and at its option, after written notice from Bellefonte, if AquaPenn shall ever be more than 60 days in default or in delinquency to Bellefonte. ARTICLE IX RELATIONSHIP OF THE PARTIES SECTION 9.01. Neither AquaPenn nor Bellefonte shall have the responsibility to perform services for or to assume contractual obligations which are the obligations of the other. SECTION 9.02. Nothing herein shall constitute either party as a partner, agent or representative of the other, or be deemed to create any fiduciary relationship between them. ARTICLE X PROHIBITION ON ASSIGNMENT SECTION 10.01. This Agreement may not be assigned by AquaPenn without the prior written consent of Bellefonte duly approved by Resolution of Bellefonte's governing bodies, and, shall 12 not be assigned by AquaPenn in connection with the obtaining of financing for any purpose. SECTION 10.02. Bellefonte and AquaPenn agree to work for the assignment of all rights and privileges provided to the Borough of Milesburg, in Commonwealth of Pennsylvania, Department of Environmental Resources, Permit No. WA-23A, to AquaPenn. ARTICLE XI SOURCE IDENTIFICATION SECTION 11.01. AquaPenn confirms that all bottled water from the Big Spring packaged for sale to the public shall prominently display on its label information which identifies the source of the water as the Big Spring, Bellefonte, PA. Current regulations from the Pennsylvania Department of Environmental Resources require such identification. Even absent that requirement, however, AquaPenn shall continue to list the Big Spring, Bellefonte, PA, as the source of the water. ARTICLE XII NOTICES SECTION 12.01. All notices, demands, requests and other communications hereunder shall be deemed sufficient and property given if in writing and delivered to the following addresses by certified or registered mail, postage prepaid: (a) TO: AquaPenn Spring Water Co. 3035 Research Drive State College, PA 16801 13 (b) TO: Bellefonte and Bellefonte Borough Borough Manager 236 West Lamb Street Bellefonte, PA 16823 ARTICLE XIII MISCELLANEOUS SECTION 13.01. This Agreement shall be authorized and approved by duly authorized ordinances adopted by Bellefonte, and by corporate action/resolution by AquaPenn. SECTION 13.02. Time shall be the essence of the performance of this Agreement. SECTION 13.03. This Agreement shall be construed under the laws of the Commonwealth of Pennsylvania. SECTION 13.04. This Agreement reflects the understanding and agreement among the parties and there are no other covenants or agreements that are not herein contained. SECTION 13.05. In the event that any provision of this Agreement shall, for any reason, be determined to be invalid, illegal or unenforceable in any respect, all other provisions of this Agreement shall be binding on the parties, and shall remain in full force and effect. If the provisions on payment are found to be invalid, illegal or unenforceable, then, in such an event, 14 Bellefonte may upon written notice terminate this Agreement forthwith, and, this Agreement shall be null and void. IN WITNESS WHEREOF, the parties have signed this Agreement the day and year first above written. ATTEST AQUAPENN SPRING WATER CO. /s/ Tammy S. Hahn By: /s/ Edward J. Lauth, III - ------------------------- -------------------------------- EDWARD J. LAUTH, III President ATTEST BOROUGH OF BELLEFONTE (Illegible Signature) By: /s/ William C. Schultz ------------------------------------ 15 EX-10.15 16 AMENDED AND RESTATED LEASE AGREEMENT THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. EXHIBIT 10.15 AMENDED AND RESTATED LEASE AGREEMENT THIS AMENDED AND RESTATED LEASE AGREEMENT is made and executed this 14 day of October, 1997 by and between ROY BRESLER and IDA BRESLER, husband and wife, of Franklin Township, Huntingdon County, Pennsylvania (referred to in the singular as "Lessor") -AND- AQUAPENN SPRING WATER COMPANY, INC., a Pennsylvania Business Corporation, with offices at One AquaPenn Drive, Milesburg, Pennsylvania (referred to as "Lessee"). BACKGROUND A. Lessor and Edward J. Lauth, III, entered into a Lease Agreement dated October 28, 1986 (the "Lease Agreement"), whereby Lessor leased to Lauth certain real estate in Franklin Township, Huntingdon County, Pennsylvania, as more fully described on Exhibit "A" attached hereto and made a part hereof by this reference (the "Leased Premises"). B. On May 27, 1988, Lessor and Edward J. Lauth, III entered into a Memorandum of Lease and Right of First Refusal which was recorded in the Office of the THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Recorder of Deeds of Huntingdon County, Pennsylvania on June 20, 1988 at record book 218, page 274. C. On December 22, 1988, Edward J. Lauth, III, assigned his rights under the Lease Agreement to Lessee by a certain Assignment and Assumption Agreement which was recorded in the Office of the Recorder of Deeds of Huntingdon County, Pennsylvania on March 10, 1989 at record book 232, page 497. D. Lessor and Lessee mutually desire to amend and restate the Lease Agreement in the manner set forth herein. NOW THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. LEASED PREMISES. Lessor for an in consideration of the rents, covenants and conditions contained in this Lease, does hereby lease to Lessee, and Lessee leases and accepts from Lessor, the real property consisting of approximately seventy four (74) acres, upon which are located three (3) springs, which is more fully described in Exhibit "A" attached hereto and by this reference made a part hereof, together with the right of ingress, egress and regress (the "Leased Premises"). 2. LESSOR'S WARRANTY OF TITLE. Lessor hereby represents and warrants that Lessor is the owner in fee simple absolute of the Leased Premises, subject to 2 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. the covenants, conditions, restrictions and easements of record, if any, which matters of record will not unreasonably interfere with Lessee's use of the Leased Premises. Lessee is aware of water rights previously granted by predecessors in title to Lessor herein as set forth in Huntingdon County Deed Book Vol. 64, Page 685, attached hereto as Exhibit "B". 3. LESSOR'S WARRANTY OF QUIET ENJOYMENT. Lessor covenants and agrees that Lessee, and Lessee exclusively, in paying the rent and other charges herein provided for the observing and keeping the covenants, conditions and terms of this Lease on Lessee's part to be kept or performed, shall lawfully and quietly hold, occupy, use and enjoy the Leased Premises during the term of this Lease without hindrance or molestation by Lessor or any person claiming under Lessor, except as set forth herein relating to rights retained by Lessor. 4. LEASE TERM. The term of this Lease shall end on December 31, 2017, subject to the terms and conditions set forth herein. Provided, however, Lesser may, at any time during the term of this Lease Agreement, upon five (5) year's written notice to Lessor, terminate this Lease Agreement for any reason whatsoever, provided that any rental due for the last year shall be prorated to the date of termination of the Lease. The commencement of the least term is expressly contingent upon Lessee obtaining from the Pennsylvania Department of Environmental Protection, or any other such regulatory agency, a permit for the bottling of water from the Leased Premises or such other premises as Lessee shall pipe, haul or otherwise transport the water to. If this Lease is terminated by Lessee prior to 3 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. December 31, 2017 by exercising its five (5) year termination rights herein, the Lease shall terminate in its entirety on the date of termination and Lessee shall have no rights under this Lease Agreement and in particular shall not retain any options set forth in paragraph 18 hereinafter, subsequent to the date of termination. 5. RENT. Lessee shall pay Lessor rent for the use and occupancy of the Leased Premises in the amounts set forth on Exhibit "C" attached hereto and made a part hereof by this reference. All rent shall be payable in advance on or before the first day of each year during the term of this Lease Agreement. [ ]. 6. REAL ESTATE TAXES. Lessee shall pay any real estate taxes levied and assessed against the Leased Premises during the term hereof. Such taxes shall be paid either to Lessor or to the appropriate taxing authorities, at the election of Lessee, prior to such time as such taxes shall become delinquent. 7. USE OF LEASED PREMISES. Lessor and Lessee hereby acknowledge it is their intention that the Leased Premises be used by Lessee as a source of potable water which will be collected by Lessee into a tank or tanks to be constructed by Lessee on the Leased Premises which tank or tanks will be in the vicinity of the springs used as a water source by the Lessor. Lessee agrees that unless otherwise permitted by Lessor he will construct not more than one (1) tank for each spring on the Leased Premises. The parties further intend that this Lease specifically includes the right to take, draw and otherwise use 4 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. for sale or other commercial purposes water which flows from any and all springs located on the Leased Premises. Neither party shall do any act that would disrupt, pollute, impair or otherwise harm the spring water, keeping in mind that the water is intended to be a source of potable drinking water for use by Lessors and sale by Lessee. Lessee at its sole discretion, may drill wells at the spring site, in order to manage the flow of water from the springs. 8. CONSTRUCTION AND OPERATION BY LESSEE. Lessee shall at its own expense construct such tank or tanks, spring covers and enclosures, water lines and non-chemical filtration or purification systems as shall be necessary or expedient for the operation of Lessee's contemplated business on the Leased Premises. Prior to commencing any construction (including any alteration or improvements), Lessee shall submit to Lessor for approval the plans for the projected construction project. Lessor shall have ten (10) days from the day the plans are submitted to them to approve or disapprove the projected construction project, provided that the approval for any projected construction project shall not be unreasonably withheld. All construction and operations done by Lessee, its agents or subcontractors shall be performed in a careful and prudent manner. All operations of Lessee shall be conducted in conformance with applicable federal, state or municipal regulations, and Lessee shall be solely responsible for the manner in which said operations are conducted. Lessee shall be responsible for obtaining any and all permits which are required for its use, operation or construction of the Leased Premises. Upon termination of this Lease any improvements built upon the Leased Property shall become the property of the Lessor unless Lessor gives Lessee notice to remove any such improvements, provided that any tank or 5 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. tanks and any purification or filtration equipment used by Lessee shall remain the property of Lessee and shall be removed at the termination of this Lease. In the event Lessee receives notice to remove improvements upon the termination of this Lease, Lessee shall remove those improvements at its sole expense within sixty (60) days of such notice. 9. LESSOR'S WATER SUPPLY. The parties acknowledge that drinking water for Lessor's use is being provided by the springs where Lessee will be conducting its operations. Lessee shall use its best efforts to ensure that the Lessor shall have a sufficient supply of water to Lessor's farmhouse for personal domestic purposes. In the event that Lessor's drinking water is materially disturbed through the fault of the operations of Lessee, upon written notice thereof given by Lessor to Lessee, Lessee shall halt construction or operations on the Leased Premises until such time as Lessor shall be provided a sufficient supply of water as aforesaid. 10. OTHER USE OF WATER AND LEASED PREMISES. In addition to the Lessor's supply of water referred to in Paragraph 9 hereof, Lessee agrees that it shall use its best efforts to ensure that the home formerly owned by Derwood Behrer shall have a sufficient supply of water as required by the agreement recorded in Huntingdon County Deed Book Vol. 64 at page 685. In addition, Lessor shall be entitled to provide a sufficient supply of water for personal domestic purposes to two (2) additional homes, which may be hereinafter constructed for members of Lessor's immediate family. The water right for those two (2) homes, which hereinafter may be constructed, shall be perpetual enabling them to use water from the spring serving the Lessor's home for domestic purposes in perpetuity. 6 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Lessee shall have the right to approve and supervise the installation of the water line from the spring to the two (2) new houses which Lessor is permitted to build during the term of this agreement. Lessor shall be entitled to use the cabin by the large spring so long as its use does not pollute the springs to any extent nor interfere with Lessee's operations. 11. FISHING AND HUNTING RIGHTS. Lessor retains the fishing rights to Spruce Creek on the Leased Premises and further retains the right to hunt on the Leased Premises. Lessee acknowledges that Lessor intends to continue to exercise fishing rights on behalf of members of his family and retains the right to lease his fishing rights to the Tyrone Fishing Club in accordance with previous practice over decades. The parties have hereto agreed that such fishing rights and lease of fishing rights shall continue subject to such reasonable restrictions as may be necessary so that the Lessor, Lessor's heirs and assigns and/or the members of the Tyrone Fishing Club do not interfere with the operations of the Lessee or pollute the water source on the Leased Premises. Any payments for such leases are the property of the Lessor. 12. RIGHT-OF-WAY. The parties acknowledge that a roadway or right-of-way currently exists over the Leased Premises. Lessor for Lessor, Lessor's heirs, and assigns and for Lessor's fishing and hunting licensees and/or lessee, retains an easement over the said roadway for purposes of ingress, egress and regress to exercise all rights consistent with and permitted under this agreement. Lessee shall be responsible for the cost of maintenance and improvement to said roadway, however no maintenance or improvements shall be 7 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. conducted on the said roadway without the prior consent of Lessor, which consent shall not be unreasonably withheld. 13. TREE OPERATIONS. Lessor shall have the right to conduct timbering operations on the Leased Property which shall be limited to the cutting of individual dead trees and individual live saw grade trees. Provided, however, Lessor shall not have the right to perform any clear cutting nor shall Lessor's timbering operations interfere in any way with Lessee's use of the Leased Premises. Lessor shall provide prior notice to Lessee of any proposed timbering on the Leased Premises, which notice shall describe the number and location of any trees to be cut. Lessor shall be permitted to grow Christmas trees on two fields that are currently planted and to harvest such trees at maturity provided that Lessor's Christmas Tree growing activity shall not make use of fertilizers, pesticides or other chemicals and shall not unreasonably interfere with Lessee's use and occupancy of the Leased Premises. 14. ASSIGNMENT OF LEASE. Lessee may, at any time or from time to time during the term hereof, encumber by mortgage or other security instrument, by way of collateral assignment or otherwise, Lessee's interest under this Lease and the leasehold estate hereby created for any purpose, without the consent of Lessor. Lessee shall have the right to assign its estate and interest in this lease to any entity to which the Lessee owns an interest, subject, however, to the understanding that the obligations of Lessee hereunder shall not be released as to Lessee individually unless Lessor herein, Lessor's heirs, administrators, successors or assigns agree to release Lessee from Lessee's obligations hereunder; otherwise, 8 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. this Lease shall not be assignable or the Leased Premises sublet without the express written consent of the Lessor. 15. LIABILITY INSURANCE. Lessee shall acquire and keep in effect during the term hereof a policy or policies of liability insurance in an amount of not less than [ ] which shall name Lessor as insured parties thereon. 16. INDEMNITY OF LESSEE. The Lessee shall indemnify and save harmless the Lessors from any and all loss and of and from any and all causes of action, claims, reckonings or accounts whatsoever relating to the work and business of the Lessee as set forth in this Lease, whether such claims be made by or caused by an governmental agency, Lessee, invitees of Lessee, Lessee's agents, servants or workmen, or any other person acting by or through Lessee. 17. INDEMNITY OF LESSOR. Lessor hereby agrees to indemnify and to hold Lessee harmless against any loss, cost, damage or expense, including reasonable attorney's fees, which Lessee should sustain by virtue of Lessor's violation of any term hereof. 18. RIGHT OF FIRST REFUSAL. Lessor hereby grants to Lessee a right of first refusal to purchase or lease the Leased Premises, (herein called "the property") to be exercised in the following manner. If the Lessor shall receive a bona fide offer from another person or entity to purchase or lease the property, or any portion thereof, the Lessor shall send to the Lessee a copy of the proposed contract, and shall further notify the Lessee of the 9 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. intention of the Lessor to accept the same. The Lessee shall then have the right within thirty (30) days to accept the terms of the said contract in its own name for the gross purchase price or rental and on the terms specified in the same contract, and shall enter into a contract with Lessor setting forth those same terms and conditions. If the Lessee shall not so elect within the same period, the Lessor may then sell or lease the property to the said buyer or lessee, provided that such sale or lease is on the same terms and conditions and for the price set forth in the same contract submitted to the Lessee. This right of first refusal shall continue during the term of this lease agreement and for ten (10) years thereafter. This right of first refusal shall not prohibit any transfer of the property between the current owners, nor shall it prohibit the gift or devise of the property by a current owner to spouse or issue, provided that the terms of this right of first refusal shall be binding upon said spouse or issue. 19. SURVEY: TITLE SEARCH. Lessee shall arrange for and obtain, at its sole cost and expense, a survey and title search of the Leased Premises for the purpose of establishing agreement on the correct boundary between the upper twelve (12) acre field on the Leased Premises and adjacent land owned by R. Wayne Harpster. 20. DEMOLITION OF COTTAGES. Lessee shall, at its sole cost and expense, demolish the two (2) cottages on the Leased Premises known as the "Sills" and "McAllister" cottages following january 1, 1998. Prior to the demolition, Lessor shall be permitted to remove any salvageable items from these cottages. 10 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 21. RESTORATION OF FOOTBRIDGES; PEIFFER COTTAGE. If appropriate regulatory approvals are received (including, without limitation, the Commonwealth of Pennsylvania, Department of Environmental Protection), Lessee shall, at its sole cost and expense, restore the two footbridges that cross the creek to the lower cabin by the big spring. In the event such footbridges are restored by Lessee, Lessee shall, during the lease term, keep the approaches to such footbridges clear of brush and weeds. Lessee shall also evaluate the feasibility and expense of restoring and providing electrical service to the Peiffer cottage. Lessee shall, within a reasonable time, inform Lessor of its findings on this subject. Provided, however, that notwithstanding any restoration of the Peiffer cottage, Lessee shall continue to be permitted to obtain water from the Peiffer spring. 22. REPAIR OF RESIDENTIAL WATER LINE. Lessee shall, within sixty (60) days of the full execution of this Lease, at its sole cost and expense, repair and/or replace the water line to Lessor's residence. 23. ISSUANCE OF STOCK; OPTION. Lessee shall, within thirty (30) days of the execution of this Lease Agreement, [ ]. Further, within thirty (30) days of the execution of this Lease Agreement, Lessee [ ]. 11 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 24. PARTIAL INVALIDITY. If any term, covenant, condition or provision of this Lease is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the provisions shall remain in full force and effect and shall in no way be affected, impaired, or invalidated. 25. AGENCY. Nothing contained in this Lease shall be deemed or construed by the parties or by any third person to create the relationship of principal and agent or of partnership or of joint venture or of any association between Lessor and Lessee, and neither the method of computation of rent nor any other provisions contained in this Lease nor any acts of the parties shall be deemed to create any relationship between Lessor and Lessee, other than the relationship of Lessor and Lessee. 26. NUMBER AND GENDER. In this Lease the neuter gender includes the feminine and masculine, and the singular number includes the plural, and the word "Person" includes corporation, partnership, firm, or association wherever the context so requires. 27. CAPTIONS. Captions of the articles, sections, and paragraphs of this Lease are for convenience and reference only, and the words contained therein shall in no way be held to explain, modify, amplify, or aid in the interpretation, construction, or meaning of the provisions of this Lease. 28. RECORDING. A Memorandum of this Lease and Right of First Refusal contained therein may be recorded at the option and expense of Lessee. Lessor shall execute and acknowledge any such Memorandum upon request of Lessee. 12 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 29. NOTICES. All notices to be sent shall be addressed as follows: If to Lessor: Mr. and Mrs. Roy Bresler HC-01 Box 16 Pennsylvania Furnace, PA 16865 with a copy to: John R. Gates, Esquire Henry, Corcelius, Gates, Gill & Ody, P.C. 200 Penn Street, P.O. Box 383 Huntingdon, PA 16652 if to Lessee: AquaPenn Spring Water Company, Inc. One AquaPenn Drive P.O. Box 938 Milesburg, PA 16853 with a copy to: Daniel E. Bright, Esquire McQuaide Blasko 811 University Drive State College, PA 16801-6699 30. BINDING EFFECT. The agreement shall be binding upon and inure to the benefit of the heirs, personal representatives, successors and assigns of the parties hereto. 31. ENTIRE AGREEMENT. This Lease contains the entire agreement of the parties with respect to the matters covered by or related to this Lease, and no other agreement, statement, or promise made by any party, or to any employee, officer, or agent of any party, which is not contained in this Lease shall be binding or valid. IN WITNESS WHEREOF, the undersigned Lessor and Lessee hereto execute this Agreement as of the day and year first above written. WITNESSES: LESSOR: (Illegible signature) /s/ Roy Bresler - --------------------------- ------------------------------- 13 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Roy Bresler (Illegible signature) /s/ Ida Bresler - --------------------------- ------------------------------ Ida Bresler ATTEST: LESSEE: AQUAPENN SPRING WATER COMPANY, INC. /s/ Scott E. Bresler By: /s/ Edward J. Lauth, III - --------------------------- ----------------------------- Edward J. Lauth By: President ----------------------------- 14 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. COMMONWEALTH OF PENNSYLVANIA : : SS. COUNTY OF CENTRE : On this 14 day of October , 1997, before me a notary public, the undersigned officer, personally appeared ROY BRESLER, known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument, and acknowledged that he executed the same for the purpose therein contained. IN WITNESS THEREOF, I have hereunto set my hand and notarial seal. My commission expires: /S/ Michael L. Schmoke (SEAL) ------------------------------- Notary Public COMMONWEALTH OF PENNSYLVANIA : : SS. COUNTY OF CENTRE : On this 14 day of October , 1997, before me a notary public, the undersigned officer, personally appeared IDA BRESLER, known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument, and acknowledged that she executed the same for the purpose therein contained. IN WITNESS THEREOF, I have hereunto set my hand and notarial seal. My commission expires: /S/ Michael L. Schmoke (SEAL) ----------------------------- Notary Public COMMONWEALTH OF PENNSYLVANIA : 15 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. : SS. COUNTY OF CENTRE : On this 14 day of October , 1997, before me a notary public, the undersigned officer, personally appeared EDWARD J. LAUTH III, the PRESIDENT of AQUAPENN SPRING WATER COMPANY, INC., known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument, and acknowledged that he executed the same for the purpose therein contained. IN WITNESS THEREOF, I have hereunto set my hand and notarial seal. My commission expires: /S/ Michael L. Schmoke (SEAL) ----------------------------- Notary Public 16 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. EXHIBIT "A" (See Attached) 17 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Page 685 THIS DEED, Made (illegible text) Between George I. Rodgers (illegible text) the City of Williamsport, County of Lycoming and Commonwealth of Pennsylvania Grantor and Sheldon D. Behrer and Janet A. Behrer, his wife, both of Franklin Township, Huntingdon County, Pennsylvania, as tenants by the entireties, Grantees Witnesseth, that in consideration of - ---------------Twenty-six Hundred ($2600.00)------------Dollars in hand paid, the receipt whereof is hereby acknowledged, the said grantor does hereby grant and convey to the said grantees, survivor of them, their heirs and assigns All that certain parcel or lot of ground with buildings erected thereon situate in the Village of Graysville, Franklin Township, Huntingdon County, Pennsylvania, described as follows: Beginning at a point at a walled spring marked by an iron axle at lands of E. K. Woomer near the left bank of the Spruce Creek, thence by lands of said E. K. Woomer North one (1) degree fifty-six (56) minutes West three hundred-four and ninety-four hundredths (304.94) feet to a point marked by an iron axle in an abandoned road at lands of John F. Johnston, thence by said lands and abandoned road North seventy-nine (79) degrees East two hundred twenty-three (223) feet to a point marked by an iron pin at the edge of a private lane; thence along the boundary of the private lane and crossing Fowler's Run South six (6) degrees thirty-one (31) minutes East three hundred thirty-three and seventy-nine hundredths (333.79) feet to a point in the center line of State Highway Route No. 45 marked by a nail; thence South eleven (11) degrees thirty-four and one-half (34 1/2) minutes East one hundred seventy-nine and eighty-two hundredths (179.82) feet along Lands of Chester W. Behrer to a point marked by a stake near a white pine witness at lands of Edna P. Ellenberger; thence by lands of Ellenberger North sixty (60) degrees twenty-four and one 18 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. - -half (24 1/2) minutes West and crossing State Highway Route No. 45 a distance of three hundred twenty-four and ninety-five hundredths (324.95) feet to a point marked by an iron axle in the place of beginning. Containing two and twenty-six hundredths (2.26) acres according to the survey by Heine and Simpson dated April 21, 1965, a copy of which is attached hereto. Being the same parcel of ground title to which vested in the Grantor by deed of George I. Rodgers and Margeurite J. Rodgers dated January 21, 1964 and recorded in Deed Book No. 61 page 664 and by deed of Edmund K. Woomer to George I. Rodgers and Margeurite J. Rodgers, his wife, dated May 29, 1961 and recorded in Deed Book 49, page 27. And the said Rodgers were divorced March 18, 1963 by Decree of the Common Pleas Court of Lycoming County to No. 304- November Term, 1962. Also a certain right to use water from a spring located on lands of E. K. Woomer and to enter upon the grounds of E. K. Woomer for the purposes of maintaining water lines to use the said water for domestic use of the house which water right is created in the deed last above recited, which deed was given to correct the mistake of failing to include the rights to the spring described above made by E. K. Woomer to George Rodgers, et ux, dated September 11, 1956 and recorded in Deed Book 34 page 136 in this that by mistake the parties to the said deed did not include the rights to agreement for the use of water from the said spring. 19 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. EXHIBIT "B" (See Attached) 20 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. [LETTERHEAD OF SWEETLAND ENGINEERING & ASSOCIATES, INC.] 900 West College Avenue State College, Pennsylvania 16801 (814) 237-6518 December 4, 1997 JOB NO. 01273 ENGINEER'S DESCRIPTION OF LAND TO BE LEASED FROM ROY M. BRESSLER TO EDWARD LAUTH ALL THAT CERTAIN PARCEL OF LAND situated in Franklin Township, Buntingdon County, PA, being shown as Total Lease Area on plans entitled "Survey of Lands of Roy M. Bressler and a Portion of Lands of Jeffery B. Herr for Edward Lauth Franklin Township Huntingdon County, PA, prepared by Sweetland Engineering & Associates, Inc., drawing numbers D-1019, D-1020 and D-1021, dated June 12, 1987 and is not intended to be recorded at the Huntingdon County Courthouse, bounded and described as follows: BEGINNING at an existing 36" Pine at the common southeastern corner of Land N/F of Donald R. & Lorenali M. Greenland and a northeastern corner of Land N/F of Roy M. & Ida W. Bressler: Thence along said Land N/F of Donald R. & Lorenah M. Greenland N 24" 09" 57" W. 1243.95 feet to an existing 3/4" re-bar at the common northeastern corner of said Land N/F of Donald R. & Lorenah M. Greenland and the northwestern corner of the herein described Lease Area and along Land N/F of Robert W. Harpster Tract No. 2 the following six (6) courses and distances: (1) N 81" 44" 08" E, 357.14 feet to a 3/4" re-bar set; Thence (2) N 61" 20" 17" E, 307.70 feet to an existing 3/4" re-bar; Thence (3) S 89" 56' 59" E. 600.38 feet to an existing 3/4 re-bar; Thence (4) N 80' 13' 09" E, 504.59 feet to an existing 3/4 re-bar; Thence (5), passing through an existing 3/4" re-bar, 88'54 39" E, 207.82 feet to a 3/4" re-bar set; Thence (6) N 81' 44" 08" E, 1166.64 feet to a 3/4" re-bar set at the common northwestern corner of land N/F of R. Wayne Harpster and at the northeastern corner of the herein described Lease area and along said Land N/F of Robert W. Harpster Tract No. 2; Thence along said Land N/F of R. Wayne Harpster S 48" 51' 48" E, 446 06 feet to a 3/4" re-bar set along Land N/F of Robert W. harpster Tract no. 5 Second Parcel; Thence along said Land N/F of Robert W. Harpster Tract No. 5 Second Parcel S 22" 22" 39" E, 238.17 feet to a 3/4" re-bar set al, the southwestern corner of said Land N/F of Robert W. Harpster Tract No. 5 Second Parcel and a northwestern corner of Land N/F of Robert W. Harpster, Tract No. 5 First Parcel; Thence along said land N/F of Robert W. Harpster Tract No. 5 First Parcel the following two (2) courses and distances: (1) S 21' 11" 41" E, 491.46 feet to an existing 3/4" re-bar at the 21 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. southeastern corner of the herein described Lease Area; Thence (2) S 62(degree) 03' 49" W. 574.79 feet to a 3/4" re-bar set along Land N/F of Robert W. Harpster Parcel No. 2 the following fourteen (14) courses and distances: (1) N 26(degree) 54' 41" W. 237.34 feet to an existing stone at a fence corner; Thence (2) S 88(degree) 12' 57" W, 37.16 feet to a 3/4" re-bar set; Thence (3) S 84(degree) 24' 31" W, 273.90 feet to a 3/4/" re-bar set; Thence (4) N 73(degree) 50' 29" W, 364.65 feet to a 3/4" re-bar set; Thence (5) N 68(degree) 35' 29" W. 178.20 feet to a 3/4" re-bar set; Thence (6) N 59(degree) 26' 07" W. 143.55 feet to a 3/4" re-bar set; Thence (7) N 69(degree) 09' 20" W. 211.20 feet to a 3/4" re-bar set; Thence (8) N 82(degree) 23' 14" W. 271.46 feet to a 3/4" re- bar set; in stones; Thence (9) N 84(degree) 14' 21" W. 66.42 feet to a 3/4" re-bar set; Thence (10) S 88(degree) 42' 17" W. 313.50 feet to a 3/4" re-bar set; Thence (11) S 0(degree) 47' 43" E. 36.30 feet to a 3/4" re-bar set; Thence (12) S 80(degree) 57' 17" W. 148.85 feet to a 3/4" re-bar set; Thence (13) S 11(degree) 32' 43" E. 204.60 feet to an existing 3" axle; Thence (14) along Parcel No. 3 S 15(degree) 36' 34" E. 74.15 feet to an existing 1" iron pin along Land N/F of R. Wayne Harpster - Parcel No. 1 S 66(degree) 36' 21" W. 322.61 feet to an existing 1" iron pin at the northwestern corner of said Land N/F of R. Wayne Harpster - Parcel No. ( ) and along Land N/F of John F. Johnston the following eight (8) courses and distances: (1) N 14(degree) 35' 11" W. 188.56 feet to an existing 1" iron pin; Thence (2) S 80(degree) 53' 39" W. 215.54 feet to an existing 1" iron pin; Thence (3) S 36(degree) 55' 31" E. 207.70 feet to an existing 1 iron pin; Thence (4) S 5(degree) 29' 04" E, 260.29 feet to an existing 1" iron pin; Thence (5) N 76(degree) 16' 37" E. 33.00 feet to a 3/4" re-bar set; Thence (6) S 18(degree) 09' 06" E. 234.30 feet an existing 1" iron pin; Thence (7) S 53(degree) 31' 03" W. 57.67 feet to an existing 1" iron pin; Thence (8) S 9(degree) 55' 05" E. 81.18 feet to a 3/4" re-bar set at northeastern corner of Land N/F of Roy M. & Ida W. Bressler; Thence crossing through said Land N/F of Roy M. & Ida W. Bressler the following two (2) courses and distances: (1) S 68(degree) 35' 28" W. 299.93 feet to a 3/4" re-bar set; Thence (2) N 13(degree) 19" 37" W. 307.34 feet to the point of beginning. BEING A PORTION OF Deed Book 147, Page 114 - N/F of Roy M. & Ida W. Bressler. UNDER AND SUBJECT, NEVERTHELESS, to all existing easements, conditions, restrictions and covenants of record. 22 THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS BRACKETED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. EXHIBIT "C" Spring Site Lease Payment Schedule Lease Calendar Amount Per Year Contract -------- ---------- 1998 [ 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 ] 23 EX-10.16 17 WATER CONTRACT EXHIBIT 10.16 WATER CONTRACT THIS AGREEMENT, made and entered the 8th day of Aug., 1990, by and between CITY OF DUNSMUIR, a California municipality (hereinafter called "City"), and DUNSMUIR BOTTLING COMPANY, a California corporation (hereinafter called "Company"). WITNESSETH: WHEREAS, City is the owner of certain water rights and entitled to the use and disposition of water pursuant to such rights; and WHEREAS, Company desires to purchase water from the City for bottling and sale; NOW, THEREFORE, the parties agree: 1. Sale of Water. City hereby agrees to sell and Company agrees to purchase water from City delivered through the main pipeline which is owned and operated by City for the taking and transmission of spring water from the sources known as Mossbrae Springs No. 2, B, C and D in Siskiyou County, California, under the terms and conditions set forth herein. 2. Terms of the Agreement. This agreement shall be and remain in effect for a period of twenty-five (25) years from its effective date, and shall be renewable for an additional twenty-five (25) years pursuant to the option set forth in paragraph 15. 1 3. Purchase Price. a. City agrees to sell and Company agrees to purchase not more than fifty million (50,000,000) gallons per year, provided that the amount required by Company in any single day shall not interfere with or require any curtailment of domestic water supplied by City to its existing users or future residential users. b. The amount of water received by Company hereunder shall be measured by a meter which shall be installed by City, the cost of the meter will be at the Company's expense, on Company's transmission line near the place of attachment to the City's main transmission line. c. City shall invoice Company in advance for the first year beginning January 1, 1991, in the amount of $25,000, which is the minimum annual fee applicable in the price schedule set forth below in paragraph 3d. The first annual minimum payment of $25,000 is due and payable within 5 days of successful completion of the validation action set forth in paragraph 6b. Thereafter, the annual period will commence on January 1, 1992, whereby Company will make the annual minimum payment of $25,000 in four equal quarterly installments. In the event that the execution of this contract delays or interferes in any way with Company's plant completion, thereby delaying Company's ability to utilize water, City shall waive a pro rata portion of the first year's minimum annual payment corresponding to the entire period of time until Company commences water usage. This period of 2 initial delay shall be limited to no more than three (3) months, whereby any pro rated portion for the first year shall be credited to the annual minimum payment for year two. d. City shall invoice Company for water received by Company from City based on the following rates: 0 - 2.5 million gallons $.010 per gallon Over 2.5 million gallons $.005 per gallon. Annual consumption in excess of 2.5 million gallons by Company shall be invoiced to Company by City at conclusion of year, December 31st, and shall be payable within 30 days of invoice date. e. In the event that City is unable for any cause whatsoever to permit Company to take water in the amounts permitted hereunder for any period of time in excess of one (1) day, City shall waive a pro rata portion of the minimum payment corresponding to the entire period of time during which Company is not permitted to take water continually. f. On the fifth, tenth, fifteenth, twentieth, and twenty-fifth anniversaries of the effective date of this Agreement, the rates per gallon which Company is obliged to pay City shall be increased in the same proportion as any increase, or the aggregate of increases, during the preceding five-year period in charges for water service by City to its residential users, provided that this increase at the end of any five-year period shall not exceed ten percent (10%). 3 4. Representations and Warranties of City. City represents and warrants as follows: a. It is the legal and beneficial owner of the right to take and use not more than one and 97/100ths cubic feet per second of water diverted from the sources known as Spring 2, Spring B, Spring C, and Spring D of Mossbrae Springs, whose respective locations are described as follows: Spring No. 2 - North two degrees twenty-three minutes east (N2 23'E) one thousand three hundred five and one-tenth (1305.1) feet from E1/4 corner of Section 13, T39N, R4W, MDB&M, being within SW1/4 of NW1/4 of Section 7, T39N, R3W, MDB&M. Spring B - North two degrees fifty minutes east (N2 50'E) one thousand three hundred ninety-two and three-tenths (1392.3) feet from E1/4 corner of Section 13, T39N, R4W, MDB&M, being within SW1/4 of NW1/4 of Section 7, T39N, R3W, MDB&M. Spring C - North two degrees forty-six minutes east (N2 46'E) one thousand three hundred ninety-six and five-tenth (1396.5) feet from E1/4 corner of Section 13, T39N, R4W, MDB&M, being within SW1/4 of NW of Section 7, T39N, R3W, MDB&M. Spring D - North three degrees five minutes east (N3 05'E) one thousand four hundred nine and four-tenth (1409.4) feet from E1/4 corner of Section 13, T39N, R4W, MDB&M, being within SW1/4 of NW1/4 of Section 7, T39N, R3W, MDB&M. b. City has the right to sell to Company water pursuant to the above-mentioned rights. c. City shall promptly, if necessary and to the extent necessary, obtain at its own expense the consent or permission of any other person or entity, whether private, commercial or governmental, for its performance and fulfillment of its obligations under this Agreement, except as provided in paragraph 6b. 4 5. City Covenants. City covenants and agrees: a. Water shall be provided by City to Company in its natural state without the addition of chlorine or other chemicals. b. City shall install and maintain such devices as may be necessary to prevent any back flow from its water treatment plant into the water purchased by Company. c. Company is hereby licensed to occupy and use, to the extent reasonably necessary to install and maintain its water line for delivery of water from City's main line, the real property which is subject to an easement of the City for its maintenance and operation of its transmission line or lines. d. City shall not object to Company using for sales purposes the slogan "Dunsmuir Home of the Best Water on Earth," or any derivative thereof. e. City will provide water in such quantities as Company may desire, subject to a limitation of fifty million (50,000,000) gallons per year; provided, however, that in the event of a drought or other natural disaster which causes a decrease in the natural flow from the above described springs to an amount approximately equal to or less than the City needs for its existing users or future residential users, City shall promptly notify Company of the decrease in the natural flow and, until such time as the flow enables City to provide water in excess of the requirements of its current users or future 5 residential users, City shall be excused from providing water to Company and Company shall be excused from its minimum payment obligation on a pro rata basis. f. City hereby consents to the installation by Company, at Company's expense, of dual lines at any point beyond the City meter located near the outlet from its main transmission line to the Company line and Company is authorized to use such dual lines to supply both a bulk outlet and its bottling facilities. g. City shall refrain during the term of this agreement from selling or providing "spring" water, as defined by the State of California, Department of Health Services, to any other bottler or bulk user of water for resale. h. The services provided by the City are subject to regulation by the State of California, Department of Health Services. The City shall not be held responsible for any changes in regulation or legislation which may affect its ability to provide water pursuant to this Agreement. i. City will make service available to Company to access City's main water transmission line, at a point to be reasonably designated between the said springs and the point at which City performs any treatment of said water or adds anything to it, for installation and maintenance by Company of a pipeline through which company may draw or pump water pursuant to this Agreement. 6 6. Indemnity by City. a. City shall indemnify Company and hold it harmless from any and all claims, demands, actions, causes of action or other challenges, whether at law in equity, or in administrative proceedings, asserted by any other person, firm, corporation or entity, whether private, commercial or governmental, relating to or arising out of the agreement herein by City to sell water to Company under the terms of this agreement and to permit Company to connect its transmission line to the main transmission line owned and maintained by City at the point described above and to take, use and sell water purchased hereunder. In the event of any claim, demand, action, cause of action or other challenge by any person or entity to the right or power of City to sell water to Company or otherwise to perform pursuant to the terms of this agreement, City will pay or reimburse to Company any costs, losses and expenses, including attorney fees, which are incurred by Company as a result of any defect or limitation in such rights and powers of City which prevents, delays or materially interferes with the rights granted herein to Company. b. Upon signing this agreement, City and Company will file a validation action, at equal expense to City and Company, in accordance with and as specified in the Code of Civil Procedures. This agreement will become effective upon the successful completion of this validation proceeding or upon the mutual agreement of both City and Company. 7 7. Representations and Warranties by Company. Company warrants and agrees as follows: a. Company is a corporation duly organized and existing under and by virtue of the laws of California. b. Company will, at its own cost and expense, connect its pipelines for receiving water from the main transmission line of City on its main transmission line at or near the City's pump house; provided that, in the event City institutes use of a water treatment facility, Company will be permitted to connect its pipelines at a point reasonably designated between the source of water at the said springs and the said treatment plant. Company will make its connection without any unreasonable interference with or delay in transmission of water through said main transmission line for other purposes by City. 8. Company Covenants. Company covenants and agrees that: a. The establishment by Company of its connection for receiving water from the City's main transmission line shall be made without any unreasonable interference with or delay in transmission of water through said transmission line for other purposes by City. b. Company shall accept water at the point of connection of its transmission line with City's main transmission line in the natural state of the water without any warranty or guarantee by City of its chemical or physical content for the 8 condition of the water, except that City will provide the water in the same state as it does to its own treatment plant. c. Company shall at its own cost and expense receive and treat and sell the water purchased from City without cost or expense to City. d. Company shall install, maintain and operate its transmission line and facilities in accordance with applicable laws and regulations. e. Company will construct and maintain a bottling facility in the City of Dunsmuir within twelve (12) months after approval of this contract by City and the issuance to Company of all permits and licenses which may be required by any local, state, or federal regulatory agency. 9. Indemnity by Company. Company warrants and agrees that it will indemnify and hold City harmless from any claims, demands, actions or causes of action related to or arising from the processing, bottling, handling or shipping of water by Company, from the establishment and operation by Company of a water treatment and bottling plant to which water acquired from City is transmitted by Company, and from death or injury to any person arising from his or her ingestion or use of water provided or sold by Company, excepting only City's liability for its own gross negligence or wilful misconduct. In the event of any claim, demand, action or cause of action related to or arising from the processing, bottling, handling or shipping of water by Company, from the establishment 9 and operation by Company of a water treatment and bottling plant to which water acquired from City is transmitted by Company, or from death or injury to any person arising from his or her ingestion or use of water provided or sold by Company, Company will pay or reimburse to City any costs, losses and expenses, including attorney fees, which are incurred by City as a result of any such claim, demand, action or cause of action. 10. Additional Documents. Each party shall execute and deliver to the other such additional documents as may be reasonably necessary to carry out the intent of the parties to this agreement. 11. Notices. Any notice to be given either party hereunder shall be given in writing and shall be sufficient if sent by certified mail, return receipt requested, or by: a. If to City: Jim Arata, City Manager, 5915 Dunsmuir Avenue, Dunsmuir, CA 96025, with a required copy to Chris Stromsness, Esq., City Attorney, P.O. Box 587, Dunsmuir, CA 96025. b. If to Company: Dunsmuir Bottling Company, P.O. Box 15, Dunsmuir, CA 96025, with a required copy to Samuel L. Holmes, Esq., Rochester & Lea, 44 Montgomery Street, Suite 3600, San Francisco, California 94104. 10 12. Rights of Parties. This agreement shall not be construed to create any right, power or privilege in favor of anyone except the parties hereto. 13. Section Headings. All section headings are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 14. Counterparts. This agreement may be executed in several counterparts, each of which is an original; provided that the original and each executed counterpart shall be deemed to be one and the same instrument, which shall constitute proof of the agreement without the necessity of production or accounting for any other counterpart. 15. Renewal Option. Company is hereby granted an option to renew this agreement for a further term of twenty-five (25) years from the effective date, on the same terms and conditions, except, if on each of the preceding five-year anniversaries the rate increase to the City's residential users equaled or exceeded ten percent (10%), whereby City may at its option renegotiate future five-year increases provided that the increase in any five-year period shall not exceed fifteen percent (15%). Company shall give City written notice of the exercise of the option not less than one (1) year prior to the end of the primary term. 11 16. Effective Date. The effective date of this agreement shall be the next business day following final approval of the terms and conditions, including those provided in 6b, and by such formalities as may be required by the ordinances of City and the execution of this agreement on behalf of the City and on behalf of the Company promptly following such formal approval. DATED: August 8, 1990 CITY OF DUNSMUIR By: /s/ (signature illegible) ---------------------------- City Manager Attested by: /s/ (signature illegible) ------------------------- DUNSMUIR BOTTLING COMPANY By: /s/ Paul A. Kassis ---------------------------- President By: /s/ Scott E. Lidster ---------------------------- Secretary 12 EX-10.17 18 AGREEMENT AND PLAN OF MERGER EXHIBIT 10.17 - ---------------------------------------------------------------------- AGREEMENT AND PLAN OF MERGER Dated as of October 15, 1997 Effective as of 9:00 a.m. EST on October 15, 1997 by and among AquaPenn Spring Water Company, Inc. Castle Rock Spring Water Company, Inc. Dunsmuir Bottling Company doing business as Castle Rock Spring Water Company and Certain Shareholders of Dunsmuir Bottling Company - ---------------------------------------------------------------------- TABLE OF CONTENTS PAGE ARTICLE I THE MERGER SECTION 1.1 The Merger........................ 1 SECTION 1.2 Effective Time of the Merger...... 1 ARTICLE II THE SURVIVING AND PARENT CORPORATIONS SECTION 2.1 Certificate of Incorporation...... 2 SECTION 2.2 Bylaws............................ 2 SECTION 2.3 Directors and Officers............ 2 ARTICLE III MERGER CONSIDERATION SECTION 3.1 Consideration..................... 2 SECTION 3.2 Conversion of Subsidiary Shares... 5 SECTION 3.3 Exchange of Certificates.......... 5 SECTION 3.4 Closing........................... 6 SECTION 3.5 Closing of the Company's Transfer Books 6 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY SECTION 4.1 Organization and Qualification.... 6 SECTION 4.2 Capitalization.................... 7 SECTION 4.3 Authority; Non-Contravention; Approvals 7 SECTION 4.4 Litigation........................ 8 SECTION 4.5 No Violation of Law............... 8 SECTION 4.6 Financial Statements.............. 9 SECTION 4.7 Brokers........................... 9 SECTION 4.8 Employment Agreements............. 9 i ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY SHAREHOLDERS SECTION 5.1 Organization and Qualification.... 9 SECTION 5.2 Capitalization.................... 10 SECTION 5.3 [Intentionally left blank]........ 10 SECTION 5.4 Subsidiaries...................... 10 SECTION 5.5 Authority; Non-Contravention; Approvals 11 SECTION 5.6 Financial Statements.............. 12 SECTION 5.7 Books of Account.................. 12 SECTION 5.8 Absence of Certain Changes of Events 12 SECTION 5.9 Absence of Undisclosed Liabilities 12 SECTION 5.10 Taxes............................ 13 SECTION 5.11 Title to Assets.................. 13 SECTION 5.12 Assets and Properties Complete... 14 SECTION 5.13 Access to Spring................. 14 SECTION 5.14 Water Quality.................... 14 SECTION 5.15 Contracts........................ 15 SECTION 5.16 Compliance with Agreements....... 15 SECTION 5.17 No Violation of Law.............. 15 SECTION 5.18 Litigation....................... 16 SECTION 5.19 Employee Benefit Plans; ERISA.... 16 SECTION 5.20 Labor Matters.................... 18 SECTION 5.21 Environmental Matters............ 19 SECTION 5.22 Trademarks and Intellectual Property Compliance............ 20 SECTION 5.23 Insurance........................ 20 SECTION 5.24 Year 2000 Compliance............. 21 SECTION 5.25 Bank Accounts.................... 21 SECTION 5.26 Business Relations............... 21 SECTION 5.27 Potential Conflicts of Interest.. 22 SECTION 5.28 Disclosure....................... 22 SECTION 5.29 Brokers.......................... 22 SECTION 5.30 Resignation of Directors and Officers....................... 22 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE COMPANY SHAREHOLDERS SECTION 6.1 Authority; Non-Contravention; Approvals........................ 23 SECTION 6.2 Approval of Merger................ 23 SECTION 6.3 Title to Shares................... 23 SECTION 6.4 Tax-Free Reorganization........... 23 SECTION 6.5 Investment; No registration....... 24 ii ARTICLE VII ADDITIONAL AGREEMENTS SECTION 7.1 Expenses and Fees.................. 24 SECTION 7.2 Confidentiality.................... 24 SECTION 7.3 Parent Stock....................... 24 SECTION 7.4 Payment of Obligations............. 25 SECTION 7.5 No Checks, Wires or Withdrawals.... 25 ARTICLE VIII CONDITIONS SECTION 8.1 Condition to Parent's Obligation to Effect the Merger............ 25 SECTION 8.2 Conditions to the Company's Obligation to Effect the Merger. 25 ARTICLE IX POST-CLOSING OBLIGATIONS SECTION 9.1 Agreement to Cooperate............ 26 SECTION 9.2 Public Statements................. 26 SECTION 9.3 Transition........................ 26 SECTION 9.4 Directors and Officers of Surviving Corporation..................... 26 SECTION 9.5 Lock-up Agreements................ 26 SECTION 9.6 Completion of Minutes............. 26 SECTION 9.7 Execution of Further Documents.... 27 ARTICLE X GENERAL PROVISIONS SECTION 10.1 Survival of Representations and Warranties..................... 27 SECTION 10.2 Validity......................... 27 SECTION 10.3 Indemnification.................. 27 SECTION 10.4 Notices.......................... 28 SECTION 10.5 Interpretation................... 29 SECTION 10.6 Miscellaneous.................... 29 SECTION 10.7 Counterparts..................... 29 SECTION 10.8 Parties In Interest.............. 29 SECTION 10.9 Exhibits and Schedules........... 29 iii EXHIBITS - -------- Exhibit A Shareholders of Castle Rock Exhibit 4.8 Form of Employment Agreement Exhibit 8.1 Form of Opinion of Company's Counsel Exhibit 8.2 Form of Opinion of Parent's Counsel SCHEDULES - --------- Schedule 4.2 Capitalization (Parent) Schedule 4.4 Litigation (Parent, Sub) Schedule 5.2 Capitalization (Castle Rock) Schedule 5.4 Subsidiaries (Castle Rock) Schedule 5.5(b) Debt, etc. affected by Merger (Castle Rock) Schedule 5.8 Absence of Certain Changes of Events (Castle Rock) Schedule 5.9 Absence of Undisclosed Liabilities (Castle Rock) Schedule 5.11 Title to Assets (Castle Rock) Schedule 5.12 Assets and Properties Complete (Castle Rock) Schedule 5.14 Water Quality (Castle Rock) Schedule 5.15 Contracts (Castle Rock) Schedule 5.17 No Violation of Law (Castle Rock) Schedule 5.18 Litigation (Castle Rock) Schedule 5.19 Employee Benefits Plans; ERISA (Castle Rock) Schedule 5.20 Labor Matters (Castle Rock) Schedule 5.22 Trademarks and Intellectual Property Compliance (Castle Rock) Schedule 5.23 Insurance (Castle Rock) Schedule 5.24 Year 2000 Compliance (Castle Rock) Schedule 5.25 Bank Accounts (Castle Rock) Schedule 5.27 Conflicts of Interest (Castle Rock) Schedule 7.4 Payment of Obligations (Castle Rock) iv AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER, dated as of October 15, 1997 and effective as of 9:00 a.m. EST on October 15, 1997 (the "Agreement"), is by and among AquaPenn Spring Water Company, Inc., a Pennsylvania corporation ("Parent"), Castle Rock Spring Water Company, Inc., a California corporation and a wholly owned subsidiary of Parent ("Subsidiary"), Dunsmuir Bottling Company, doing business as Castle Rock Spring Water Company, a California corporation (the "Company") and the shareholders of the Company listed in Exhibit A (the "Company Shareholders"). W I T N E S S E T H: WHEREAS, the Boards of Directors of Parent and the Company have determined that the merger of Company with and into Subsidiary (the "Merger") is consistent with and in furtherance of the long-term business strategy of Parent and the Company, and is fair to and in the best interests of Parent and the Company and their respective shareholders; and WHEREAS, Parent, Subsidiary and the Company intend the Merger to qualify as a tax-free reorganization under the provisions of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"). NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE I THE MERGER SECTION 1.1 The Merger. Upon the terms and subject to the conditions of this Agreement, at the Effective Time (as defined in Section 1.2) in accordance with the California Corporations Code (the "CCC"), Company shall be merged with and into Subsidiary and the separate existence of Company shall thereupon cease. Subsidiary shall be the surviving corporation in the Merger and is hereinafter sometimes referred to as the "Surviving Corporation." SECTION 1.2 Effective Time of the Merger. The Merger shall become effective at such time (the "Effective Time") as shall be stated in Articles of Merger, in a form mutually acceptable to Parent and the Company, to be filed with the Secretary of State of the State of California in accordance with the CCC (the "Merger Filing"). The Merger Filing shall be made simultaneously with or as soon as practicable after the closing of the transactions contemplated by this Agreement in accordance with Section 3.5. 1 ARTICLE II THE SURVIVING AND PARENT CORPORATIONS SECTION 2.1 Certificate of Incorporation. The Articles of Incorporation of Subsidiary at and as of the Effective Time shall be the Articles of Incorporation of the Surviving Corporation following the Effective Time, and the name of the Surviving Corporation shall be Castle Rock Spring Water Company, Inc. SECTION 2.2 Bylaws. The Bylaws of Subsidiary at and as of the Effective Time shall be the Bylaws of the Surviving Corporation following the Effective Time, and the name of the Surviving Corporation shall be Castle Rock Spring Water Company, Inc. SECTION 2.3 Directors and Officers. The directors and officers of the Surviving Corporation following the Merger shall not change at the Effective Time, and such directors and officers shall serve in accordance with the Bylaws of the Surviving Corporation until their respective successors are duly elected or appointed and qualified pursuant to Section 9.4. ARTICLE III MERGER CONSIDERATION SECTION 3.1 Consideration. (a) Cash Consideration and Adjustments. (i) On the Closing Date, each Company Shareholder shall be entitled to receive cash consideration in the amount set forth beside such Shareholder's name on Exhibit A, such cash consideration to be, in the aggregate, an amount equal to $1,450,712 (the "Cash Consideration"). One-half of each Company Shareholder's proportional share of the Cash Consideration shall be paid to each Company Shareholder on the Closing Date and the balance of the Cash Consideration for each Company Shareholder (in the aggregate, the "Escrow Cash") shall be placed in escrow with Ballard Spahr Andrews & Ingersoll, as Escrow Agent ("Escrow Agent") pursuant to that certain Escrow Agreement dated October 15, 1997 (the "Escrow Agreement"), and released as described in (iii), (iv) and (v) below. (ii) Within 120 days of the date hereof, Parent shall satisfy or identify all debts, payables, liabilities and other obligations of the Company, as of the date hereof, identified in accordance with Generally Accepted Accounting Principles (the "Liabilities"); provided that "Liabilities" shall include all allowances and bill-backs to the Company's customers. (iii) Upon completion by Parent of the satisfaction or identification of all Liabilities, and if the Liabilities, both satisfied and identified, exceed in the aggregate $4,650,000, then the cash, if any, to be released to the Company Shareholders shall be calculated as follows: Escrow Cash - [Liabilities - $4,650,000]. The balance of the Escrow Cash shall be promptly returned to the Parent. 2 If the amount by which the Liabilities exceed $4,650,000 is greater than the Escrow Cash, then the number of Escrow Shares to be returned to Parent shall be calculated as follows ("IPO", "IPO Price" and "Escrow Shares" shall have the meanings set forth in Section 3.1(b) below): If the IPO has been consummated: [(Liabilities - 4,650,000) - Escrow Cash] / (75% x IPO Price) If the IPO has not been consummated: [(Liabilities - 4,650,000) - Escrow Cash] / 5 If the IPO has been consummated the balance of the Escrow Shares, if any, shall be released to the Company Shareholders after an adjustment, if any, pursuant to Section 3.1(b) below. If the IPO has not been consummated by February 15, 1998, the balance of the Escrow Shares shall be released to the Company Shareholders after an adjustment, if any, pursuant to Section 3.1(b) below. If the amount by which the Liabilities exceed $4,650,000 is equal to or less than the Escrow Cash, the Escrow Shares shall be released to the Company Shareholders upon adjustment, if any, pursuant to and at the time stipulated in Section 3.1(b) below. (iv) Upon completion by Parent of the satisfaction or identification of all Liabilities, and if the Liabilities, both satisfied and identified, are less than $4,650,000, then the Escrow Cash shall be released to the Company Shareholders, the Escrow Shares shall be released to the Company Shareholders upon adjustment, if any, pursuant to and at the time stipulated in Section 3.1(b) below and Parent shall promptly pay to the Company Shareholders an amount in the aggregate equal to the difference between $4,650,000 minus the Liabilities, both satisfied and identified. (v) Upon completion by Parent of the satisfaction or identification of all Liabilities, and if the Liabilities, both satisfied and identified, equal $4,650,000, then the Escrow Cash shall be released to the Company Shareholders and the Escrow Shares shall be released to the Company Shareholders upon adjustment, if any, pursuant to and at the time stipulated in Section 3.1(b) below. (vi) Parent shall regularly update the Company Shareholders regarding the identification of Liabilities and the Company Shareholders shall have the opportunity to contest the validity or amount of any Liability identified by Parent, provided that Parent shall resolve any dispute regarding the validity or amount of any Liability. (b) Share Consideration and Adjustments. (i) On or promptly after the Closing Date, the Company Shareholders shall receive, in the aggregate, the number of shares of common stock of Parent ("Parent Stock") equal to one-half the number of shares obtained by dividing by $5.00 the result of subtracting the aggregate amount of Cash Consideration received by the Company Shareholders in (a) above from $3,000,002 ("Base Shares"). The balance of such shares of Parent Common Stock ("Escrow Shares") shall be placed in escrow with the Escrow Agent pursuant to the Escrow Agreement and adjusted as described in (ii), (iii), (iv) and (v) below. For the purposes of these provisions, "Total Shares" means the sum of Base Shares plus Escrow Shares. 3 (ii) If 75% of the per share price (the "IPO Price") at which the Parent Stock is sold pursuant to an initial public offering of the Parent Stock, not including any over-allotment option, (the "IPO") is $5.00 per share, the number of Escrow Shares shall remain the same pending release pursuant to Section 3.1(a). (iii) If 75% of the IPO Price is greater than $5.00, then the number of Escrow Shares to be released to the Company Shareholders pursuant to Section 3.1(a) shall be calculated as follows: Escrow Shares - [Total Shares - [(Total Shares x 5) / (.75 x IPO Price)]]. The balance of the Escrow Shares shall be promptly returned to the Parent. If the IPO Price is such that the number of shares to be returned to the Parent is greater than the number of Escrow Shares, then the Company Shareholders shall sell such excess to the Parent at a price equal to $5.00 per share. To the extent that Base Shares plus Escrow Shares released to Company Shareholders ("Adjusted Shares") is less than Total Shares, Parent shall issue options to Company Shareholders for the difference between Total Shares and Adjusted Shares to be exercisable at the IPO Price for an exercise period of five years from the date of issuance. (iv) If 75% of the IPO Price is less than $5.00, then the Escrow Shares will be released to the Company Shareholders pursuant to Section 3.1(a) and the number of additional shares the Parent Company shall issue to the Company Shareholders and place in escrow to be released pursuant to Section 3.1(a) shall be calculated as follows: [(Total Shares x 5) / (.75 x IPO Price)] - Total Shares (v) If the Parent has not made an initial public offering of its common shares by February 15, 1998, then, after completion by Parent of the satisfaction or identification of all Liabilities as set forth under Section 3(a)(iii), the Escrow Shares, as adjusted pursuant to Section 3.1(a)(iii), if appropriate, shall be released to the Company Shareholders. (vi) The Company Shareholders shall be deemed, for federal income tax purposes and otherwise, to be the owners of the Escrow Shares while such shares are held by Escrow Agent. The Company Shareholders shall receive any regular or liquidating dividends paid on the Escrow Shares and shall be entitled to vote the Escrow Shares, while such shares are held by Escrow Agent. (c) Each Company Shareholder shall receive the number of shares of Parent Stock set forth beside such Shareholder's name on Exhibit A. (d) No share of Company Common Stock outstanding immediately prior to the Effective Time shall be deemed to be outstanding or to have any rights other than those set forth in this Section 3.1 after the Effective Time. (e) Shares of Company Common Stock held by shareholders of the Company who have, prior to the taking of the vote of the Company's shareholders on the Merger, filed with the Company written demand for the appraisal of their shares of Company Common Stock in accordance with the applicable provisions of the CCC, shall not be deemed to be converted into the right to receive the Merger Consideration unless, and until such time as, such shareholders shall have withdrawn, failed to perfect, 4 or shall have effectively lost, their right to appraisal of or payment for their shares of Company Common Stock under the CCC, at which time such shares shall be converted into the right to receive the Merger Consideration as provided in this Section 3.1. The Company shall give Parent prompt notice of any demand received by the Company for payment of shares of Company Common Stock from a Dissenting Shareholder, and Parent shall have the right to participate in all negotiations and proceedings with respect to such demand. The Company agrees that it will not, except with the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demand for payment. Each Dissenting Shareholder who becomes entitled, pursuant to the provisions of the CCC, to the payment of the value of his, her or its shares shall receive payment therefor from Parent or Subsidiary (but only after the value thereof shall have been agreed upon or finally determined pursuant to the terms of this Agreement and as provided under the CCC). In the event that any Dissenting Shareholder shall have withdrawn, failed to perfect, or shall have effectively lost, his right to appraisal of and payment for his, her or its shares, Parent shall issue and deliver, upon surrender by such Dissenting Shareholder of his, her or its certificate or certificates representing shares of Company Common Stock, the Merger Consideration to which such Dissenting Shareholder may then be entitled under and pursuant to this Section 3.1. (f) In the event that the Parent Stock is combined into a smaller number of shares, then all shares of Parent Stock owned by the Company Shareholders, including the Escrow Shares, and shares of Parent Stock to which the Company Shareholders are or may be entitled, shall be combined and the Company Shareholders shall be entitled to receive the same number of shares of Parent Stock as if Company Shareholders currently owned and held all of the shares held in escrow or to which Company Shareholders are or may be entitled. SECTION 3.2 Conversion of Subsidiary Shares. At the Effective Time, by virtue of the Merger and without any action on the part of Parent as the sole shareholder of Subsidiary, each issued and outstanding share of common stock, no par value, of Subsidiary ("Subsidiary Common Stock") shall be converted into one share of common stock, no par value, of the Surviving Corporation. SECTION 3.3 Exchange of Certificates. (a) At the Effective Time: (i) each holder of a certificate representing shares of Company Common Stock shall surrender such certificates (the "Company Certificates") for cancellation to the Secretary of Parent, together with a duly executed letter of transmittal and such other documents as the Secretary shall reasonably require; (ii) upon surrender of the Company Certificates, the holder of such Company Certificates shall be entitled to receive, subject to the terms of Section 3.1 and the Escrow Agreement, in exchange therefor (A) a certificate representing that number of whole shares of Parent Common Stock and (B) a check for that portion of the Cash Consideration, into which the shares of Company Common Stock theretofore represented by the Company Certificates so surrendered shall have been converted pursuant to the provisions of Section 3.1, and the Company Certificates so surrendered shall be cancelled. Neither Parent nor Subsidiary shall be liable to a holder of shares of Company Common Stock for any shares of Parent Common Stock or dividends or distributions thereon delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. 5 (b) Notwithstanding any other provision of this Agreement, no certificates or scrip for fractional shares of Parent Common Stock shall be issued in the Merger and no Parent Common Stock dividend, stock split or interest shall relate to any fractional security, and such fractional interests shall not entitle the owner thereof to vote or to any other rights of a security holder. In lieu of any such fractional shares, each holder of Company Common Stock who would otherwise have been entitled to receive a fraction of a share of Parent Common Stock upon surrender of Company Certificates for exchange pursuant to this Article III shall be entitled to receive from the Exchange Agent a cash payment. (c) From and after the Effective Time, all Company Common Stock shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing shares of Company Common Stock shall cease to have any rights with respect thereto, except the right to receive in exchange therefor, upon surrender thereof at Closing, the Merger Consideration into which the aggregate number of shares of Company Common Stock represented by such certificate or certificate surrendered shall have been converted pursuant to this Agreement. Notwithstanding any other provision of this Agreement, (i) until holders or transferees of certificates theretofore representing shares of Company Common Stock have surrendered them for exchange as provided herein, no dividends shall be paid with respect to any shares of Parent Common Stock represented by such certificates and no payment for fractional shares shall be made and (ii) without regard to when such certificates representing shares of Company Common Stock are surrendered for exchange as provided herein, no interest shall be paid on any Parent Common Stock dividends or any payment for fractional shares. Upon surrender of a certificate which immediately prior to the Effective Time represented shares of Company Common Stock, there shall be paid to the holder of such certificate the amount of any dividends which became payable after the Effective Time, but which were not paid by reason of the foregoing, with respect to the number of whole shares of Parent Common Stock represented by the certificate or certificates issued upon such surrender. (d) If any certificate for shares of Parent Common Stock is to be issued in a name other than that in which the certificate for shares of Company Common Stock surrendered in exchange therefor is registered, it shall be a condition of such exchange that the certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer and the person requesting such exchange shall have paid to Parent or its transfer agent any applicable transfer or other taxes required by reason of such issuance. (e) In the event any Company Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Company Certificate to be lost, stolen or destroyed, the Surviving Corporation shall issue in exchange for such lost, stolen or destroyed Company Certificate the Parent Common Stock deliverable in respect thereof determined in accordance with this Section 3.4. When authorizing such payment in exchange therefor, the Board of Directors of Parent may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Company Certificate to give Parent such indemnity as it may reasonably direct as protection against any claim that may be made against Parent or the Surviving Corporation with respect to the Company Certificate alleged to have been lost, stolen or destroyed. SECTION 3.4 Closing. The closing (the "Closing") of the transactions contemplated by this Agreement shall take place at a location mutually agreeable to Parent and the Company on the date hereof (the date on which the Closing occurs is referred to in this Agreement as the "Closing Date"). 6 SECTION 3.5 Closing of the Company's Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed and no transfer of shares of Company Common Stock which were outstanding immediately prior to the Effective Time shall thereafter be made. If, after the Effective Time, subject to the terms and conditions of this Agreement, Company Certificates formerly representing Company Common Stock are presented to Parent or the Surviving Corporation, they shall be cancelled and exchanged for Parent Common Stock in accordance with this Article III. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY Parent and Subsidiary each represent and warrant to the Company as of the date hereof as follows: SECTION 4.1 Organization and Qualification. Each of Parent and Subsidiary is a corporation duly organized, validly existing and in good standing or local equivalent thereof under the laws of the state of its incorporation and has the requisite power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted. True, accurate and complete copies of Parent's Articles of Incorporation and Bylaws and Subsidiary's Articles of Incorporation and Bylaws, in each case as in effect on the date hereof, including all amendments thereto, have been or in the case of Subsidiary, will promptly be delivered to the Company. SECTION 4.2 Capitalization. (a) The authorized capital stock of Parent consists of (i) 100,000,000 shares of Parent Common Stock, of which 7,358,239 shares were issued and outstanding as of September 30, 1997, and (ii) 2,000,000 shares of non-voting convertible preferred stock, par value $1.00 per share, of which 1,702,500 shares are issued and outstanding as of September 30, 1997. All of the issued and outstanding shares of Parent Common Stock are validly issued and are fully paid, nonassessable and free of preemptive rights. (b) (i) Except as set forth in Schedule 4.2 attached hereto, as of the date hereof, (A) there were no outstanding subscriptions, options, calls, contracts, commitments, understandings, restrictions, arrangements, rights or warrants, including any right of conversion or exchange under any outstanding security, instrument or other agreement and also including any rights plan or other anti-takeover agreement, obligating Parent or any subsidiary of Parent to issue, deliver or sell, or cause to be issued, delivered or sold or otherwise to become outstanding, additional shares of the capital stock of Parent or obligating Parent or any subsidiary of Parent to grant, extend or enter into any such agreement or commitment. (B) Except as set forth in Schedule 4.2 and except as contemplated hereby, there are no voting trusts other than, proxies or other agreements or understandings to which Parent or any subsidiary of the Parent is a party or is bound with respect to the voting of any shares of capital stock of Parent or any subsidiary and there are no such trusts, proxies, agreements or understandings by, between or among any of Parent's shareholders with respect to Parent Common Stock. There are no outstanding or authorized stock appreciation rights, phantom stock, profit participation or similar rights with respect to Parent. 7 (c) The authorized capital stock of Subsidiary consists of 100 shares of Subsidiary Common Stock, of which 100 shares are issued and outstanding, which shares are owned beneficially and of record by Parent. (d) The shares of Parent Common Stock to be issued to shareholders of the Company in the Merger will be at the Effective Time duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights and will be delivered to each Company Shareholder free and clear of all liens, encumbrances, restrictions and claims of every kind; provided that a portion of such shares will be placed in escrow pursuant to Article III hereof. SECTION 4.3 Authority; Non-Contravention; Approvals. (a) Parent and Subsidiary each have all necessary corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The Parent Common Stock issued pursuant to Article III will, when issued, be duly authorized, validly issued, fully paid and nonassessable, and no shareholder of Parent will have any preemptive right of subscription or purchase in respect thereof. This Agreement has been approved by the Boards of Directors of Parent and Subsidiary, and no other corporate proceedings on the part of Parent or Subsidiary are necessary to authorize the execution and delivery of this Agreement or the consummation by Parent and Subsidiary of the transactions contemplated hereby. This Agreement has been duly executed and delivered by each of Parent and Subsidiary, and, assuming the due authorization, execution and delivery hereof by the Company and the Company Shareholders, constitutes a valid and legally binding agreement of each of Parent and Subsidiary enforceable against each of them in accordance with its terms, except that such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and (ii) general equitable principles. (b) Except for requirements to notify creditors of the occurrence of the transactions contemplated hereby, the execution and delivery of this Agreement by each of Parent and Subsidiary do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Parent or any of its subsidiaries under any of the terms, conditions or provisions of (i) the respective charters or by-laws of Parent or any of its subsidiaries, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to Parent or any of its subsidiaries or any of their respective properties or assets or (iii) any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease or other instrument, obligation or agreement of any kind to which Parent or any of its subsidiaries is now a party or by which Parent or any of its subsidiaries or any of their respective properties or assets may be bound or affected, excluding those violations, conflicts, breaches, defaults, terminations, accelerations or creations of liens, security interests, charges or encumbrances that would not, in the aggregate, have a material adverse effect on the business, operations, properties, assets, condition (financial or other), results of operations or prospects of the Parent and its subsidiaries taken as a whole (a "Parent Material Adverse Effect"). 8 (c) Except for the making of the Merger Filing, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by Parent or Subsidiary or the consummation by Parent or Subsidiary of the transactions contemplated hereby. SECTION 4.4 Litigation. Except as disclosed in Schedule 4.4 attached hereto, there are no claims, suits, actions or proceedings pending or, to the knowledge of Parent, threatened against or relating to Parent or any of its subsidiaries, before any court, governmental department, commission, agency, instrumentality or authority, or any arbitrator which could reasonably be expected, either alone or in the aggregate with all such claims, actions or proceedings, to cause a Parent Material Adverse Effect. Except as set forth in Schedule 4.4 attached hereto, neither Parent nor any of its subsidiaries is subject to any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality, authority or arbitrator which prohibits or restricts the consummation of the transactions contemplated hereby or would reasonably be expected, either alone or in the aggregate, to have a Parent Material Adverse Effect. SECTION 4.5 No Violation of Law. Neither Parent nor any of its subsidiaries is in violation of, or has been given notice or been charged with any violation of, any law, statute, order, rule, regulation, ordinance, or judgment (including, without limitation, any applicable environmental law, ordinance or regulation) of any governmental or regulatory body or authority, except for violations which, in the aggregate, could not reasonably be expected to have a Parent Material Adverse Effect. As of the date of this Agreement, to the knowledge of Parent, no investigation or review by any governmental or regulatory body or authority is pending or threatened, nor has any governmental or regulatory body or authority indicated to Parent an intention to conduct the same, other than, in each case, those the outcome of which, as far as reasonably can be foreseen, will not have a Parent Material Adverse Effect. Parent and its subsidiaries have all permits, licenses, franchises, variances, exemptions, orders and other governmental authorizations, consents and approvals necessary to conduct their businesses as presently conducted (collectively, the "Parent Permits"), except for permits, licenses, franchises, variances, exemptions, orders, authorizations, consents and approvals the absence of which, alone or in the aggregate, would not have a Parent Material Adverse Effect. Parent and its subsidiaries are not in violation of the terms of any Parent Permit, except for delays in filing reports or violations which, alone or in the aggregate, would not have a Parent Material Adverse Effect. SECTION 4.6 Financial Statements. Parent has previously delivered to Company copies of its audited financial statements for the years ending September 30, 1994, 1995 and 1996 and interim unaudited financial statements for the period ended June 30, 1997. The audited and unaudited interim financial statements of Parent (collectively, the "Parent Financial Statements") have been prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as may be indicated therein or in the notes thereto) and fairly present the financial position of Parent and its subsidiaries as of the dates thereof and the results of their operations and changes in financial position for the periods then ended, subject, in the case of the unaudited interim financial statements, to normal year-end and audit adjustments and any other adjustments described therein and to the omission of notes thereto. SECTION 4.7 Brokers. Parent has not engaged, or caused to be incurred, any liability to any finder, broker or sales agent in connection with the origin, negotiation, execution, delivery, or 9 performance of this Agreement and the transactions contemplated hereby, other than Henry R. Hidell of Henry Hidell, Eyster Technological Services, Inc. to whom Parent has paid $100,000. SECTION 4.8 Employment Agreements. Parent and Subsidiary have entered into employment agreements effective as of the Closing with Paul Kassis, Scott Lidster and Clark Wright, substantially in the form of Exhibit 4.8. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY SHAREHOLDERS The Company and each of Paul Kassis, Scott Lidster and Clark Wright (the "Principal Shareholders"), jointly and severally, represent and warrant to Parent and Subsidiary as of the date hereof as follows: SECTION 5.1 Organization and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted. The Company is qualified to do business and is in good standing in each jurisdiction in which the properties owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified and in good standing will not, when taken together with all other such failures, have a material adverse effect on the business, operations, properties, assets, condition (financial or other), results of operations or prospects of the Company and its subsidiaries, taken as a whole (a "Company Material Adverse Effect"). True, accurate and complete copies of the Company's Certificate of Incorporation and By-laws, in each case as in effect on the date hereof, including all amendments thereto, have been delivered to Parent. SECTION 5.2 Capitalization. (a) The authorized capital stock of the Company consists of (i) 10,000 shares of Series A Common Stock, of which 750 shares were issued and outstanding as of the date hereof, and (ii) 10,000 shares of non-voting Series B Common Stock, of which 92 shares were issued and outstanding as of the date hereof. All of such issued and outstanding shares are duly authorized, validly issued and are fully paid, nonassessable and free of preemptive rights and are owned of record and beneficially, free and clear of any liens, by the persons set forth on Schedule 5.2. (No subsidiary of the Company holds any shares of the capital stock of the Company.) (b) There are no outstanding subscriptions, options, calls, contracts, commitments, understandings, restrictions, arrangements, rights or warrants, including any right of conversion or exchange under any outstanding security, instrument or other agreement and also including any rights plan or other anti-takeover agreement, obligating the Company or any subsidiary of the Company to issue, deliver or sell, or cause to be issued, delivered or sold or otherwise to become outstanding, additional shares of the capital stock of the Company or obligating the Company or any subsidiary of the Company to grant, extend or enter into any such agreement or commitment and (ii) except for that certain Buy-Sell Agreement dated July 24, 1990 among the Company and the Principal Shareholders (the "Buy- 10 Sell Agreement"), which will be terminated on the date hereof, and as contemplated hereby, there are no voting trusts, proxies or other agreements or understandings to which the Company or any subsidiary of the Company is a party or is bound with respect to the voting of any shares of capital stock of the Company and there are no such trusts, proxies, agreements or understandings by, between or among any of the Company's shareholders with respect to Company Common Stock. There are no outstanding or authorized stock appreciation rights, phantom stock, profit participation or similar rights with respect to the Company. SECTION 5.3 [Intentionally left blank] SECTION 5.4 Subsidiaries. Schedule 5.4 sets forth the name and state of incorporation of each direct and indirect subsidiary of the Company. Each direct and indirect subsidiary of the Company is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted. Each subsidiary of the Company is qualified to do business, and is in good standing, in each jurisdiction in which the properties owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified and in good standing will not, when taken together with all such other failures, have a Company Material Adverse Effect. All of the outstanding shares of capital stock of each subsidiary of the Company are validly issued, fully paid, nonassessable and free of preemptive rights and are owned directly or indirectly by the Company free and clear of any liens, claims, encumbrances, security interests, equities, charges and options of any nature whatsoever except as set forth in Schedule 5.4 attached hereto. There are no subscriptions, options, warrants, rights, calls, contracts, voting trusts, proxies or other commitments, understandings, restrictions or arrangements relating to the issuance, sale, voting, transfer, ownership or other rights with respect to any shares of capital stock of any subsidiary of the Company, including any right of conversion or exchange under any outstanding security, instrument or agreement. SECTION 5.5 Authority; Non-Contravention; Approvals. (a) The Company has full corporate power and authority to enter into this Agreement to consummate the transactions contemplated hereby. This Agreement has been approved by the Board of Directors and the Company Shareholders of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize the execution and delivery of this Agreement or the consummation by the Company of the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Company, and, assuming the due authorization, execution and delivery hereof by Parent and Subsidiary, constitutes a valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except that such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and (ii) general equitable principles. (b) The execution and delivery of this Agreement by the Company do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any of its subsidiaries under any of the terms, conditions or provisions of (i) the respective charters 11 or by-laws of the Company or any of its subsidiaries, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to the Company or any of its subsidiaries or any of their respective properties or assets or (iii) except as disclosed in Schedule 5.5(b), any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease or other instrument, obligation or agreement of any kind to which the Company or any of its subsidiaries is now a party or by which the Company or any of its subsidiaries or any of their respective properties or assets may be bound or affected, excluding those violations, conflicts, breaches, defaults, terminations, accelerations or creations of liens, security interests, charges or encumbrances that would not, in the aggregate, have a Company Material Adverse Effect. (c) Except for the making of the Merger Filing, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not made or obtained, as the case may be, would not, in the aggregate, have a Company Material Adverse Effect. (d) All governmental waivers, consents, orders and approvals legally required for the consummation of the Merger and the transactions contemplated hereby, and all consents from lenders required to consummate the Merger, have been obtained and are in effect at the Effective Time. SECTION 5.6 Financial Statements. The Company has previously delivered to Parent copies of its compiled financial statements for the years ended December 31, 1992, 1993 and 1994, and its reviewed financial statements for the years ended December 31, 1995 and 1996 and interim unaudited financial statements for the period ended July 31, 1997. The reviewed consolidated financial statements and unaudited interim financial statements of the Company (collectively, the "Company Financial Statements") have been prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as may be indicated therein or in the notes thereto) and fairly present the financial position of the Company and its subsidiaries as of the dates thereof and the results of their operations, cash flows and changes in financial position for the periods then ended, subject, in the case of the unaudited interim financial statements, to normal year-end and audit adjustments and any other adjustments described therein and to the omission of notes thereto. SECTION 5.7 Books of Account. The books of account of the Company accurately and fairly reflect, in reasonable detail and in all material respects, the Company's transactions and the disposition of its assets. All notes and accounts receivable of the Company are reflected in accordance with generally accepted accounting principles on its books and records, are valid receivables subject to no material setoffs or counterclaims, are current and collectible and will be collected in accordance with their terms at their recorded amounts subject only to normal adjustments in the ordinary course of business and the reserves for contractual allowances and bad debts set forth on the face of the balance sheet contained in the most recent Company Financial Statements as adjusted for the passage of time through the Closing Date in accordance with past custom and practice of the Company and its subsidiaries. The Company and the Company Subsidiaries have filed all reports and returns required by any material law or regulation to be filed by them, and have paid all taxes, duties and charges due on the basis of such reports and returns. 12 SECTION 5.8 Absence of Certain Changes of Events. Except as set forth in Schedule 5.8, since July 31, 1997, there has not been any change in the business, operations, properties, assets, liabilities, condition (financial or other) or results of operations of the Company and its subsidiaries, taken as a whole, including as a result of any change in capital structure, employee compensation (including severance rights and benefit plans), accounting method or applicable law, other than changes that were both in the ordinary course of business and which in the aggregate would not have a Company Material Adverse Effect. Also except as set forth in Schedule 5.8, since July 31, 1997, there have been no dividends or other distributions to Company Shareholders declared or paid. SECTION 5.9 Absence of Undisclosed Liabilities. Except as disclosed in Schedule 5.9 attached hereto, neither the Company nor any of its subsidiaries had at July 31, 1997, or has incurred since that date, any liabilities or obligations (whether absolute, accrued, contingent or otherwise) of any nature, except: (a) liabilities, obligations or contingencies (i) which are accrued or reserved against in the Company Financial Statements or reflected in the notes thereto or (ii) which were incurred after July 31, 1997 and in the ordinary course of business and consistent with past practices, (b) liabilities, obligations or contingencies which (i) would not, in the aggregate, have a Company Material Adverse Effect or (ii) have been discharged or paid in full prior to the date hereof and (c) performance obligations with respect to contracts which are of a nature not required to be reflected or reserved against in the consolidated financial statements of the Company and its subsidiaries prepared in accordance with generally accepted accounting principles consistently applied and which were incurred in the ordinary course of business. SECTION 5.10 Taxes. (a) The Company and its subsidiaries have (i) duly filed with the appropriate governmental authorities all Tax Returns (as defined in 5.10(c)) required to be filed by them for all periods ending on or prior to the Effective Time, other than those Tax Returns the failure of which to file would not have a Company Material Adverse Effect, and such Tax Returns are true, correct and complete in all material respects and (ii) duly paid in full or made adequate provision in the Company Financial Statements for the payment of all Taxes (as defined in Section 5.10(b)) due for all periods ending at or prior to the Effective Time. The liabilities and reserves for Taxes reflected in the Company balance sheet are adequate to cover all unpaid Taxes for all periods ending at or prior to the Effective Time and there are no material liens for Taxes upon any property or asset of the Company or any subsidiary thereof, except for liens for Taxes not yet due. There are no unresolved issues of law or fact arising out of a notice of deficiency, proposed deficiency or assessment from the IRS or any other governmental taxing authority with respect to Taxes of the Company or any of its subsidiaries which, if decided adversely, singly or in the aggregate, would have a Company Material Adverse Effect. Neither the Company nor any of its subsidiaries is a party to any agreement providing for the allocation or sharing of Taxes with any entity that is not, directly or indirectly, a wholly owned corporate subsidiary of Company. Neither the Company nor any of its corporate subsidiaries has, with regard to any assets or property held, acquired or to be acquired by any of them, filed a consent to the application of Section 341(f) of the Code. (b) For purposes of this Agreement, the term "Taxes" shall mean all taxes, including, without limitation, income, gross receipts, excise, property, sales, withholding, social security, occupation, use, service, service use, license, payroll, franchise, transfer and recording taxes, fees and charges, windfall profits, severance, customs, import, export, employment or similar taxes, charges, fees, levies or other assessments 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 13 such term shall include any interest, fines, penalties or additional amounts and any interest in respect of any additions, fines or penalties attributable or imposed or with respect to any such taxes, charges, fees, levies or other assessments. (c) For purposes of this Agreement, the term "Tax Return" shall mean any return, report or other document or information required to be supplied to a taxing authority in connection with Taxes. (d) The Company duly elected to be taxed as an S corporation under Subchapter S of the Code and under comparable provisions of the tax laws of the state of California (each an "S Election") effective from the inception of the Company. The S Elections have been in effect continuously since their inception and have not been denied, revoked voluntarily or involuntarily, challenged or contested by any taxing authority. SECTION 5.11 Title to Assets. Schedule 5.11 sets forth a list of all real property leased or owned by the Company and its subsidiaries. The Company and each of its subsidiaries has good and marketable title in fee simple to all its real property and good title to all its leasehold interests and other properties, as reflected in the most recent balance sheet included in the Company Financial Statements, except for properties and assets that have been disposed of in the ordinary course of business since the date of such balance sheet, free and clear of all mortgages, liens, pledges, charges or encumbrances of any nature whatsoever, except (i) the lien of current taxes, payments of which are not yet delinquent, (ii) such imperfections in title and easements and encumbrances, if any, as are not substantial in character, amount or extent and do not materially detract from the value, or interfere with the present use of the property subject thereto or affected thereby, or otherwise materially impair the Company's business operations (in the manner presently carried on by the Company) or (iii) mortgages or security interests incurred in the ordinary course of business and except for such matters which in the aggregate could not reasonably be expected to cause a Company Material Adverse Effect. All leases under which the Company leases real or personal property have been delivered to Parent and are in good standing, valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event which with notice or lapse of time or both would become a default other than defaults under such leases which in the aggregate will not have a Company Material Adverse Effect. SECTION 5.12 Assets and Properties Complete. The assets and properties of the Company and each of its subsidiaries, whether owned or leased, are and as of the Closing Date shall be adequate and sufficient to conduct the business of the Company as currently conducted. Except as disclosed on Schedule 5.12, the Company has unrestricted rights and access to all present sources of water, including fully transferable leases, title in fee simple to land, rights in all resources on such land or within the leasehold, with no restrictions on quantity, time, use, quality or which would otherwise affect the ongoing business of the Company. SECTION 5.13 Access to Spring. To the best of the Company's knowledge, the Company has the legal right to draw water from the water transmission main of the City of Dunsmuir (the "City"), which draws spring water from the source known as Mossbrae Springs No. 2, B, C and D in Siskiyou County, California (the "Source") pursuant to a Water Contract, dated August 8, 1990, between the City and the Company (the "Water Contract"). The City and the Company filed and successfully completed a validation action in accordance with the Code of Civil Procedures as required by Section 6.b. of the Water Contract. There are no permits, orders, or other authorizing regulations or certificates required by the Company in order to draw water in the quantities permitted under the Water Contract from 14 the Source described above or the City's main, or to use such water in the manner in which the Company is using the water so drawn. To the knowledge of the Company, the City has the legal right to draw water from the Source described above and to enter into the Water Contract with the Company. The Company does not use any other water source for water that it bottles or sells. SECTION 5.14 Water Quality. There are no results of laboratory tests conducted by or for the Company analyzing the water obtained under the Water Contract which would preclude the use of such water as bottled spring water to be sold to the public as spring water; and the Company is not aware of results of any such tests conducted by others which would preclude the use of such water as bottled water to be sold to the public. The Company knows of no condition, including, but not limited to, the actual or threatened presence at, in or near the Source of hazardous substances (as defined in Section 5.21), which could preclude the use of water obtained under the Water Contract as bottled spring water to be sold to the public. Except as set forth in Schedule 5.14, the Company knows of no civil, criminal or administrative actions, suits, demands, claims, hearings, investigations or proceedings pending or threatened, against the Company, any of its subsidiaries, or the City which, if successful, could preclude, in whole or in part, the use of the water obtained under the Water Contract as bottled spring water to be sold to the public. The Company knows of no past or present private or public activity, including, but not limited to, mining, silvicultural, manufacturing, or agricultural operations, that has occurred or is occurring near the Source which had or has the potential to cause conditions, including the actual or threatened presence at, in or near the Source of hazardous substances (as defined in Section 5.21). SECTION 5.15 Contracts. Schedule 5.15 sets forth a complete and accurate list of all contracts to which the Company or any of its subsidiaries is a party or by or to which any of them or any of their respective assets or properties is bound or subject except contracts (and related correspondence and other documents) for the sale or purchase of goods and/or services by the Company and/or any of its subsidiaries, entered into with customers or suppliers in the ordinary course of business. All of the contracts listed in Schedule 5.15 are in full force and effect, and neither the Company nor any of its subsidiaries is in default under, or material breach of, any of them, nor to the knowledge of the Company and the Company Shareholders is any other party to any such contract in default thereunder; nor does any event or condition exist that after notice or lapse of time or both could constitute a default thereunder or material breach thereof on the part of the Company or any of its subsidiaries, or to the knowledge of the Company and the Company Shareholders, any other party thereto. The Company has delivered to Parent or its counsel true, correct, and complete copies of all contracts listed in Schedule 5.15, together with copies of all modifications and supplements thereto. SECTION 5.16 Compliance with Agreements. The Company and each of its subsidiaries are not in breach or violation of or in default in the performance or observance of any term or provision of, and no event has occurred which, with notice or lapse of time or action by a third party, could result in a default under, (a) the respective charters, By-laws or similar organizational instruments of the Company or any of its subsidiaries, or (b) any contract, commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond, license, approval or other instrument to which the Company or any of its subsidiaries is a party or by which any of them is bound or to which any of their property is subject, which breaches, violations and defaults, in the case of clause (b) of this Section 5.16, would have, in the aggregate, a Company Material Adverse Effect. SECTION 5.17 No Violation of Law. Except as disclosed in Schedule 5.17 attached hereto, neither the Company nor any of its subsidiaries is in violation of or has been given notice or been charged 15 with any violation of, any law, statute, order, rule, regulation, ordinance or judgment (including, without limitation, any applicable safety or environmental law, ordinance or regulation) of any governmental or regulatory body or authority, except for violations which, in the aggregate, could not reasonably be expected to have a Company Material Adverse Effect. To the knowledge of the Company, no investigation or review by any governmental or regulatory body or authority is pending or threatened, nor has any governmental or regulatory body or authority indicated to the Company an intention to conduct the same, other than, in each case, those the outcome of which, as far as reasonably can be foreseen, will not have a Company Material Adverse Effect. The Company and its subsidiaries have all permits, licenses, franchises, variances, exemptions, orders and other governmental authorizations, consents and approvals necessary to conduct their businesses as presently conducted (collectively, the "Company Permits"), except for permits, licenses, franchises, variances, exemptions, orders, authorizations, consents and approvals the absence of which, alone or in the aggregate, would not have a Company Material Adverse Effect. Schedule 5.17 sets forth a complete list of all Company Permits. The Company and its subsidiaries are not in violation of the terms of any Company Permit, except for delays in filing reports or violations which, alone or in the aggregate, would not have a Company Material Adverse Effect. To the best of the Company's knowledge, upon consummation of the Merger and the other transactions contemplated by this Agreement, all Company Permits will continue to be valid and in full force and effect. SECTION 5.18 Litigation. Except as referred to in Schedule 5.18 attached hereto, there are no claims, suits, actions or proceedings pending or, to the knowledge of the Company, threatened against or relating to the Company or any of its subsidiaries, before any court, governmental department, commission, agency, instrumentality, authority or arbitrator that seek to restrain the consummation of the Merger or which could reasonably be expected, either alone or in the aggregate with all such claims, actions or proceedings, to cause a Company Material Adverse Effect. Except as referred to in Schedule 5.18 attached hereto, neither the Company nor any of its subsidiaries is subject to any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or authority, or any arbitrator which prohibits or restricts the consummation of the transactions contemplated hereby or would have any Company Material Adverse Effect. SECTION 5.19 Employee Benefit Plans; ERISA. (a) Schedule 5.19 sets forth a list of all plans, whether oral or written, in which any employee of the Company ("Employee") participates (individually a "Plan" and collectively the "Plans"). The term Plans shall include (i) any "employee benefit plan" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) any profit sharing, pension, deferred compensation, bonus, stock option, stock purchase, severance, retainer, consulting, health, welfare or incentive plan or agreement whether legally binding or not, (iii) any plan or policy providing for "fringe benefits" to the Employees, including but not limited to vacation, paid holidays, personal leave, employee discount, educational benefit or similar programs, and (iv) any employment agreement, or each oral or written contract, commitment and understanding with each current or former director, officer, employee or stockholder or any associate or relative of any thereof, which is not immediately terminable without cost or other liability to the Company. (b) Neither Company nor any member of the Company's group or affiliated service group, as defined in Section 414 of the Internal Revenue Code ("Members of the Group") is, or has at any time 16 been, a party to any multiemployer plan as defined under Section 3(37) of ERISA ("Multiemployer Plan"), or is, or has at any time been, required to contribute to any such Multiemployer Plan. (c) Neither Company nor any Members of the Group has at any time sponsored or maintained, directly or indirectly, an employee pension benefit plan that was subject to the minimum funding requirements of ERISA or is subject to Title IV of ERISA. (d) Each Plan has been administered in all material respects in accordance with its terms. Each Plan which is an "employee benefit plan", as defined in Section 3(3) of ERISA, complies in all material respects by its terms and in operation with the requirements provided by any and all statutes, orders or governmental rules or regulations currently in effect and applicable to the Plan, including but not limited to ERISA and the Internal Revenue Code. (e) The Company has filed or caused to be filed on a timely basis and distributed to employees and/or participants in the Plans on a timely basis, each and every return, report, statement, notice, declaration and other documents required by any federal, state or local government agency (including, without limitation, the Internal Revenue Service, the Department of Labor, the Pension Benefit Guaranty Corporation and the Securities and Exchange Commission), with respect to each Plan sponsored or maintained by the Company. Furthermore, the Company has withheld and remitted to the proper depository all income taxes and wage taxes on benefits derived under the Plans, to the extent such withholding and remittance is required by law. (f) Each Plan intended to qualify under Section 401(a) of the Internal Revenue Code is the subject of a favorable unrevoked determination letter issued by the Internal Revenue Service as to its qualified status, the Internal Revenue Service has not threatened to revoke any favorable determination letter or opinion letter with respect to each Plan, and nothing has occurred since the date of the most recent determination letter to cause the loss of any Plan's qualification. (g) All contributions for all periods ending prior to the Closing Date (including periods from the first day of the current plan year to the Closing Date) have been made prior to the Closing Date by the Company. (h) All insurance premiums have been paid in full, subject only to normal retrospective adjustments in the ordinary course, with regard to the Plans for plan years ending on or before the Closing Date. With respect to periods from the close of the most recent plan year through the Closing Date with respect to the Plans, all insurance premiums due or payable through the Closing Date have been or will be paid in full, and no such premium is overdue or in a grace period for late payment. (i) With respect to each Plan: (1) no prohibited transactions (as defined in Section 406 of ERISA or Section 4975 of the Internal Revenue Code) have occurred; (2) no action or claim (other than routine claims for benefits made in the ordinary course of Plan administration for which Plan administrative review procedures have not been exhausted) is pending, or to Company's knowledge, threatened or imminent against or with respect to the Plan, any 17 employer who is participating (or who has participated) in any Plan or any fiduciary (as defined in Section 21(A) of ERISA) of the Plan; and (3) Neither the Company nor, to Company's knowledge, any fiduciary of any Plan has any knowledge of any facts which could give rise to any action or claim against or with respect to any Plan, any employer who is participating (or who has participated) in any Plan or any fiduciary (as defined in Section 3(21)(A) of ERISA), of any Plan. (j) Neither the Company nor, to the Company's knowledge, any fiduciary with respect to any Plan has any liability or is threatened with any liability (whether joint or several) (i) for the termination of any single employer plan under Sections 4062 or 4064 of ERISA or any multiple employer plan under Section 4063 of ERISA, (ii) for any interest payments required under Section 302(e) of ERISA or Section 412(m) of the Internal Revenue Code, (iii) for any excise tax imposed by Sections 4971, 4972, 4975, 4976, 4977, 4979, 4980, 4980A or 4980B of the Internal Revenue Code, or (iv) to a fine under Section 502 of ERISA. (k) Neither Company nor any of the Members of the Group have incurred any withdrawal liability with respect to any Multiemployer Plan within the meaning of Sections 4201 and 4204 of ERISA, and no liabilities exist with respect to withdrawals from any Multiemployer Plans which could subject Company or any Members of the Group to any controlled group liability under ERISA. (l) None of the Plans that are welfare benefit plans within the meaning of Section 3(1) of ERISA provide for benefits or coverage for any former or retired employee or their beneficiaries, except to the extent required by Section 4980B of the Internal Revenue Code or Sections 601 through 608, inclusive, of ERISA. There is no VEBA maintained with respect to any such welfare plan. (m) Each Plan which is a "group health plan" (as such term is defined in Section 5000(b)(1) of the Code), complies and has complied with the continuation of group health coverage provisions contained in Section 4980B of the Internal Revenue Code and Sections 601 through 608, inclusive, of ERISA. (n) True, correct and complete copies of all documents creating or evidencing any Plan have been provided to Parent, and true, correct and complete copies of all reports, forms and other documents required to be filed with any governmental entity or distributed to Plan participants or employees (including, without limitation, summary plan descriptions, Forms 5500 and summary annual reports for the past three (3) years for all Plans subject to ERISA) have been provided to Parent. A true, correct and accurate summary of any oral agreement or unwritten Plan described in subsection (a) hereof has been provided to Parent. True, correct and complete copies of employee confidentiality or other agreements protecting proprietary processes or information have been provided to Parent. (o) All expenses and liabilities relating to all of the Plans have been, and will on the Closing Date be fully and properly accrued on Company's books and records and disclosed in accordance with generally accepted accounting principles and in Plan financial statements. (p) Any fidelity bond required to be obtained by Company under ERISA with respect to any Plan has been obtained and is in full force and effect. 18 (q) the Company has to the extent applicable with respect to each Plan, made available to Parent copies of the three most recent attorney's responses to an auditor's request for information. (r) There are no pending investigations, proceedings or other matters concerning any Plan before the Internal Revenue Service, Department of Labor, Pension Benefit Guaranty Corporation, or any other governmental agency, other than determination letter applications filed with the Internal Revenue Service. (s) There are no leased employees employed by the Company (as such term is defined in Section 414(n) of the Internal Revenue Code) that must be taken into account with respect to the requirements of the Plan set forth under Section 414(n)(3) of the Internal Revenue Code. (t) The execution of this Agreement by the Company and the consummation of the transactions contemplated hereunder will not, except as set forth in Schedule 5.19, result in any obligation or liability (with respect to accrued benefits or otherwise) to any Plan, or to any Employee or former Employee of the Company or Members of the Group. SECTION 5.20 Labor Matters. Except as set forth in Schedule 5.20, (a) there are no material controversies pending or, to the knowledge of the Company, threatened between the Company or its subsidiaries and any representatives of any of their employees, (b) none of the employees of the Company or its subsidiaries is covered by any collective bargaining agreement, (c) no one has petitioned within the last five years or is now petitioning for union representation of any of the employees of the Company or its subsidiaries, (d) to the knowledge of the Company, there are no material organizational efforts presently being made involving any of the employees of the Company or its subsidiaries and there have been no work stoppages or other material labor difficulties, (e) the Company and its subsidiaries have, to the knowledge of the Company, complied in all material respects with all laws relating to the employment of labor, including, without limitation, any provisions thereof relating to wages, hours, collective bargaining, and the payment of social security and similar taxes and (f) no person has, to the knowledge of the Company, asserted that the Company or any of its subsidiaries is liable in any material amount for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. SECTION 5.21 Environmental Matters. (a)(i) the Company and its subsidiaries have conducted their respective businesses in compliance with all applicable Environmental Laws (as defined below), including, without limitation, having all permits, licenses and other approvals and authorizations necessary for the operation of their respective businesses as presently conducted, (ii) none of the properties owned by the Company or any of its subsidiaries contain any Hazardous Substance (as defined below) as a result of any activity of the Company or any of its subsidiaries in amounts exceeding the levels permitted by applicable Environmental Laws, (iii) neither the Company nor any of its subsidiaries has received any notices, demand letters or requests for information from any Federal, state, local or foreign governmental entity or third party indicating that the Company or any of its subsidiaries may be in violation of, or liable under, any Environmental Law in connection with the ownership or operation of their businesses, (iv) there are no civil, criminal or administrative actions, suits, demands, claims, hearings, investigations or proceedings pending or threatened, against the Company or any of its subsidiaries relating to any violation, or alleged violation, of any Environmental Law, (v) no reports have been filed, or are required to be filed, by the Company or any of its subsidiaries concerning the release of any Hazardous Substance or the threatened or actual violation of any Environmental Law, (vi) no Hazardous Substance has been treated, disposed of, released or transported in violation of any applicable Environmental Law from any 19 properties owned by the Company or any of its subsidiaries as a result of any activity of the Company or any of its subsidiaries during the time such properties were owned, leased or operated by the Company or any of its subsidiaries, (vii) there have been no environmental investigations, studies, audits, tests, reviews or other analyses regarding compliance or noncompliance with any applicable Environmental Law conducted by or which are in the possession of the Company or its subsidiaries relating to the activities of the Company or its subsidiaries, (viii) there are no underground storage tanks on, in or under any properties owned by the Company or any of its subsidiaries and no underground storage tanks have been closed or removed from any of such properties during the time such properties were owned, leased or operated by the Company or any of its subsidiaries, (ix) there is no asbestos or asbestos containing material present in any of the properties owned by the Company and its subsidiaries, and no asbestos has been removed from any of such properties during the time such properties were owned, leased or operated by the Company or any of its subsidiaries, (x) none of the properties owned by the Company or any of its subsidiaries contains environmentally sensitive areas, including, without limitation, wetlands as defined in the federal Clean Water Act of 1970, and amendments thereto, which would adversely effect the ability of the Company or any of its subsidiaries to engage in future development of said properties, and (xi) neither the Company, its subsidiaries nor any of their respective properties are subject to any material liabilities or expenditures (fixed or contingent) relating to any suit, settlement, court order, administrative order, regulatory requirement, judgment or claim asserted or arising under any Environmental Law, except for violations of the foregoing clauses (i) through (xi) that, singly or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect. (b) As used herein, "Environmental Law" means any Federal, state, local or foreign law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction, requirement or agreement with any governmental entity relating to (x) the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource) or to human health or safety or (y) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances, in each case as amended and as in effect on the Closing Date. The term Environmental Law includes, without limitation, (i) the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as amended and as in effect on the Closing Date, or any state counterpart thereof, and (ii) any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries, damages or penalties due to, or threatened as a result of, the presence of, effects of or exposure to any Hazardous Substance. (c) As used herein, "Hazardous Substance" means any substance presently or hereafter listed, defined, designated or classified as hazardous, toxic, radioactive, or dangerous, or otherwise regulated, under any Environmental Law. Hazardous Substance includes any substance to which exposure is regulated by any government authority or any Environmental Law including, without limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, 20 industrial substance or petroleum or any derivative or by-product thereof, radon, radioactive material, asbestos containing material, urea formaldehyde foam insulation, lead or polychlorinated biphenyls. SECTION 5.22 Trademarks and Intellectual Property Compliance. The Company and its subsidiaries own or have the right to use, without any material payment to any other party, all of their patents, trademarks (registered or unregistered), trade names, service marks, copyrights, technology, know-how and applications as set forth in Schedule 5.22 ("Intellectual Property Rights"), and the consummation of the transactions contemplated hereby will not alter or impair such rights in any material respect. Other than the Intellectual Property Rights, no other intellectual property rights, privileges, licenses, contracts or other agreements are necessary to or used in the conduct of business of the Company or any of its subsidiaries. To the knowledge of the Company, no claims are pending by any person with respect to the ownership, validity, enforceability or use of any such Intellectual Property Rights which claims could reasonably be expected to have a Company Material Adverse Effect. Neither the Company nor any of its subsidiaries, nor to the knowledge of the Company, any of the employees of the Company or any of its subsidiaries, has infringed or made unlawful use of, or is infringing or making unlawful use of, any proprietary or confidential information of any person or entity. SECTION 5.23 Insurance. Schedule 5.23 sets forth all of the insurance policies of the Company. Except to the extent there would be no Company Material Adverse Effect, all of the Company's and its subsidiaries' liability, theft, life, health, fire, title, worker's compensation and other forms of insurance, surety bonds and umbrella policies, insuring the Company and its subsidiaries and their directors, officers, employees, independent contractors, properties, assets and business, are valid and in full force and effect and without any premium past due or pending notice of cancellation, and are, in the reasonable judgment of the Company, adequate for the business of the Company and its subsidiaries as now conducted, and there are no claims, singly or in the aggregate, under such policies in excess of $50,000, which, in any event, are not in excess of the limitations of coverage set forth in such policies. The Company and its subsidiaries have taken all actions reasonably necessary to insure that their independent contractors obtain and maintain adequate insurance coverage. All of the insurance policies referred to in this Section 5.23 are "occurrence" policies and no such policies are "claims made" policies. Neither the Company nor any of its subsidiaries has knowledge of any fact indicating that such policies will not continue to be available to the Company and its subsidiaries upon substantially similar terms subsequent to the Effective Time. The provision and/or reserves in the Company Financial Statements are adequate for any and all self insurance programs maintained by the Company or its subsidiaries. SECTION 5.24 Year 2000 Compliance. Each production system which includes software, hardware, databases or embedded control systems (microprocessor controlled, robotic or other device) (collectively, a "System"), that constitutes any part of, or is used in connection with the use, operation or enjoyment of, any material tangible or intangible asset or real property of the Company and its subsidiaries (i) is designed (or has been modified) to be used prior to and after January 1, 2000, (ii) will operate without error arising from the creation, recognition, acceptance, calculation, display, storage, retrieval, accessing, comparison, sorting, manipulation, processing or other use of dates or date-based, date-dependent or date-related data, including but not limited to century recognition, day-of-the-week recognition, leap years, date values and interfaces of date functionalities, and (iii) will not be adversely affected by the advent of the year 2000, the advent of the twenty-first century or the transition from the twentieth century through the year 2000 and into the twenty-first century (collectively, items (i) through (iii) are referred to herein as "Year 2000 Compliant"). No System that is material to the business, 21 finances or operations of the Company or any subsidiary receives data from or communicates with any component or system external to itself (whether or not such external component or system is the Company's, any subsidiary's or any third party's) that is not itself Year 2000 Compliant. All licenses for the use of any system-related software, hardware, databases or embedded control system permit the Company or its subsidiaries or a third party to make all modifications, bypasses, de-bugging, work-arounds, repairs, replacements, conversions or corrections necessary to permit the System to operate compatibly, in conformance with their respective specifications, and to be Year 2000 Compliant. Except as set forth in Schedule 5.24, neither the Company nor any of its subsidiaries has any reason to believe that it may incur material expenses arising from or relating to the failure of any of its Systems as a result of not being Year 2000 Compliant. SECTION 5.25 Bank Accounts. Schedule 5.25 sets forth all banks or other financial institutions with which the Company has an account or maintains a safe deposit box, showing the type and account number of each such account and safe deposit box and the names of the persons authorized as signatories thereon or to act or deal in connection therewith. SECTION 5.26 Business Relations. Neither the Company nor the Company Shareholders know or have any reason to believe that any customer or supplier of the Company or the subsidiaries of the Company will cease to do business with the Company or the subsidiaries of the Company after the consummation of the transactions contemplated hereby in the same manner and at the same levels as previously conducted with the Company or the subsidiaries of the Company as the case may be. SECTION 5.27 Potential Conflicts of Interest. Except as set forth on Schedule 5.27, (a) No officer, director, or shareholder of the Company or any of its subsidiaries (a) owns, directly or indirectly, any interest (excepting not more than 1% stock holdings for investment purposes in securities of publicly held and traded companies) in, or is an officer, director, employee, or consultant of, any person or entity that is a competitor, lessor, lessee, customer, or supplier of the Company or any of its subsidiaries; (b) owns, directly or indirectly, in whole or in part, any tangible or intangible property that the Company or any of its subsidiaries is using or the use of which is necessary for the business of the Company or any of its subsidiaries; or (c) has any cause of action or other claim whatsoever against, or owes any amount to, the Company or any of its subsidiaries, except for claims in the ordinary course of business, such as for accrued vacation pay, accrued benefits under employee benefit plans, and similar matters and agreements. (b) To the knowledge of the Company, no officer, director, employee, or consultant of the Company or any of its subsidiaries is presently obligated under or bound by any agreement or instrument, or any judgment, decree, or order of any court of administrative agency, that (i) conflicts or may conflict with his or her agreements and obligations to use his or her best efforts to promote the interests of the Company or any of its subsidiaries, (ii) conflicts or may conflict with the business or operations of the Company or any of its subsidiaries as presently conducted or as proposed to be conducted in the short term, or (iii) restricts or may restrict the use or disclosure of any information that may be useful to the Company or any of its subsidiaries. SECTION 5.28 Disclosure. No representation or warranty of the Company or any of the Company Shareholders in this Agreement (including the exhibits and schedules hereto), or any of the other Agreements to be executed and delivered by any of them as contemplated hereby, or any statement made or document presented by the Company or any of the Company Shareholders in connection 22 therewith or herewith, contains or shall contain any untrue statement of a material fact or omits or shall omit to state a material fact required to be stated therein or necessary to make the statements contained therein not false or misleading. There is no fact that the Company has not disclosed to Parent in writing that materially adversely affects the business or condition (financial or otherwise) of the Company or the ability of the Company or any of the Company Shareholders to perform their respective obligations under this Agreement or to consummate any of the transactions contemplated hereby. SECTION 5.29 Brokers. Neither the Company nor the Company Shareholders have engaged, or caused to be incurred, any liability to any finder, broker or sales agent in connection with the origin, negotiation, execution, delivery, or performance of this Agreement and the transactions contemplated hereby. SECTION 5.30 Resignation of Directors and Officers. Parent has received the written resignation, effective as of Closing, of each director and officer of the Company and its subsidiaries. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE COMPANY SHAREHOLDERS Each of the Company Shareholders represents and warrants to Parent and Subsidiary as of the date hereof as follows: SECTION 6.1 Authority; Non-Contravention; Approvals. (a) Such Company Shareholder has full legal right, power and authority to enter into, execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by, and assuming the due authorization, execution and delivery hereof by Parent, and Subsidiary and the Company, constitutes a valid and legally binding agreement of such Company Shareholder, enforceable against such Company Shareholder in accordance with its terms, except that such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and (ii) general equitable principles. (b) The execution and delivery of this Agreement by each Company Shareholder do not violate, conflict with or result in a breach of any provision of or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of such Company Shareholder under any of the terms, conditions or provisions of (i) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to such Company Shareholder or any of such Company Shareholder's respective properties or assets or (ii) any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease or other instrument, obligation or agreement of any kind to which such Company Shareholder is now a party or by which such Company Shareholder or any of such Company Shareholder's respective properties or assets may be bound. (c) No declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery 23 of this Agreement by each Company Shareholder or the consummation by each Company Shareholder of the transactions contemplated hereby. SECTION 6.2 Approval of Merger. The Company Shareholders have adopted and approved the Merger and this Agreement by executing a written consent of the shareholders of the Company. SECTION 6.3 Title to Shares. Each Company Shareholder has good and marketable title to and is the lawful owner, of record and beneficially, of the Company Common Stock set forth next to such Company Shareholder's name in Schedule 5.2. Such Company Common Stock constitutes all of the shares of Company Common Stock owned by such Company Shareholder, either directly or indirectly. The Company Common Stock owned by such Company Shareholder is not or will not be subject to any lien, claim, encumbrance or restriction of any type, kind or nature in favor of any third party or any third party interests. SECTION 6.4 Tax-Free Reorganization. In order to preserve the tax-free treatment of the Merger under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code, each Company Shareholder agrees that such Company Shareholder has no plan or intention to sell or otherwise dispose of any shares of Parent Common Stock received by such Company Shareholder as Merger Consideration, which sale or disposition would have the effect of reducing the aggregate number of shares of Parent Common Stock received by all Company Shareholders in the Merger to an amount that would be equal in value as of the date of the Merger to less than 51% of the fair market value of all the shares of Company Common Stock outstanding immediately prior to the Merger. SECTION 6.5 Investment; No registration. Each Company Shareholder (i) understands that Parent Common Stock received by such Company Shareholder as Merger Consideration has not been, and will not be, registered under the Securities Act, or under any state securities laws, and is being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering, (ii) is acquiring such Parent Common Stock solely for such Company Shareholder's own account for investment purposes, and not with a view to the distribution thereof, (iii) is a sophisticated investor with knowledge and experience in business and financial matters, (iv) has received sufficient information concerning Parent and has had the opportunity to obtain additional information as desired in order to evaluate the merits and the risks inherent in holding Parent Common Stock, and (v) is able to bear the economic risk and lack of liquidity inherent in holding Parent Common Stock. ARTICLE VII ADDITIONAL AGREEMENTS SECTION 7.1 Expenses and Fees. Each party hereto agrees to bear its own expenses, including reasonable and customary fees and expenses payable to attorneys and accountants in connection with the transactions contemplated hereby, provided, however, that any fees and expenses payable to Reese, Smalley, Wiseman & Schweitzer, LLP shall be payable solely by the Company Shareholders. SECTION 7.2 Confidentiality. Each of Parent, Subsidiary, the Company and the Company Shareholders will hold in strict confidence all documents and information concerning any party hereto furnished to them and their representatives in connection with the transactions contemplated by this 24 Agreement and will not release or disclose such information to any other person, except as required by law, with the same undertaking from such accountants, attorneys, financial advisors and other representatives of each party. Regardless of whether the transactions contemplated by this Agreement shall be consummated, such confidence shall be maintained and such information shall not be used in competition with any party hereto. Notwithstanding the foregoing, such information shall not be considered confidential if it (i) is or becomes generally available to the public other than as a result of disclosure by any other party hereto, (ii) becomes available to any party from a public source, or (iii) is independently developed by any party hereto through persons who have not had, directly or indirectly, access to non-public information. SECTION 7.3 Parent Stock. Each certificate representing restricted Parent Stock received by Company Shareholders as Merger Consideration will be imprinted with a legend substantially in the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS COVERING SUCH SECURITIES OF AQUAPENN SPRING WATER COMPANY, INC. OR AN OPINION OF COUNSEL SATISFACTORY TO AQUAPENN SPRING WATER COMPANY, INC. STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT, OFFER, PLEDGE OR OTHER DISTRIBUTION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND SUCH LAWS." SECTION 7.4 Payment of Obligations. On the Closing Date or after the Closing Date and promptly upon verification of the proper pay-off amounts, Parent will pay all obligations of the Company, including obligations to related parties and obligations for which personal guarantees were given by shareholders, disclosed in Schedule 7.4. SECTION 7.5 No Checks, Wires or Withdrawals. The Principal Shareholders agree not to issue any checks, authorize any account or wire transfers or otherwise withdraw any funds from the Company's or the Surviving Corporation's bank account(s) on or after the Closing Date, without the prior written consent of the chief financial officer of Parent. ARTICLE VIII CONDITIONS SECTION 8.1 Condition to Parent's Obligation to Effect the Merger. Unless waived by Parent, its obligation to effect the Merger shall be subject to (a) the receipt of an opinion from Reese, Smalley, Wiseman & Schweitzer, LLP, counsel to the Company, dated as of the Closing Date, substantially in the form set forth in Exhibit 8.1 attached hereto; (b) the receipt of resignations from 25 the Principal Shareholders as officers and directors of the Company; and (c) the termination of the Buy-Sell Agreement. SECTION 8.2 Conditions to the Company's Obligation to Effect the Merger. Unless waived by Company, its obligation to effect the Merger shall be subject to the receipt of an opinion from McQuaide, Blasko, Schwartz, counsel to Parent, dated as of the Closing Date, substantially in the form set forth in Exhibit 8.2 attached hereto. ARTICLE IX POST-CLOSING OBLIGATIONS SECTION 9.1 Agreement to Cooperate. Subject to the terms and conditions herein provided, each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable pursuant to all agreements, contracts, indentures or other instruments to which the parties hereto are a party, or under any applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including using its reasonable efforts (i) to obtain all necessary or appropriate waivers, consents and approvals from lenders, landlords, security holders or other parties whose waiver, consent or approval is required in connection with the Merger, (ii) to effect all necessary registrations, filings and submissions and (iii) to lift any injunction or other legal bar to the Merger, the transactions contemplated hereby and all post-closing actions necessary or required hereunder. By way of clarification and not limitation of the foregoing, the Principal Shareholders agree to use their best efforts to fully cooperate with Parent and the Surviving Corporation in their efforts to identify all Liabilities of the Company and to complete an audit of the Company's Financial Statements as quickly as possible following the Closing. SECTION 9.2 Public Statements. Unless required by law, the parties (i) shall consult with each other prior to issuing any press release or any written public statement with respect to this Agreement or the transactions contemplated hereby, and (ii) shall not issue any such press release or written public statement prior to such consultation. SECTION 9.3 Transition. The Company Shareholders shall not take any action that is designed or intended to have the effect of discouraging any employee, lessor, licensor, customer, supplier or other business associate of the Company or of Parent from maintaining the same business relationships with the Company after the Closing as it maintained with the Company or with Parent prior to the Closing unless such action is taken in accordance with prudent business practices. SECTION 9.4 Directors and Officers of Surviving Corporation. As soon as practicable after closing, Parent shall cause the Shareholder of the Surviving Corporation to elect Paul Kassis and Scott Lidster as additional directors of Surviving Corporation, and Paul Kassis; Scott Lidster; and Clark Wright to be appointed as President; Vice President and Secretary; and Vice President and Treasurer, respectively, of Surviving Corporation each to serve at the pleasure of the shareholder of Surviving Corporation and directors of Parent. Paul Kassis, Scott Lidster and Clark Wright each agree to resign as directors and officers of the Surviving Corporation immediately upon request of Parent. 26 SECTION 9.5 Lock-up Agreements. Each Company Shareholder shall execute a lock-up agreement in relation to the IPO in the same form as lock-up agreements executed by the shareholders of Parent. Each Company Shareholder agrees to cooperate fully with Parent in the IPO, including without limitation assistance with the preparation of financial statements and the audit of the financial statements required in connection with the IPO. SECTION 9.6 Completion of Minutes. Scott Lidster and Paul Kassis agree to draft and execute minutes to any and all board meetings and shareholders meetings for which no minutes currently exist. SECTION 9.7 Execution of Further Documents. Promptly upon request by another party to this Agreement, each party shall execute whatever certificates and documents, and will file, record and publish such certificates and documents which are required to complete all transactions contemplated by this Merger Agreement. ARTICLE X GENERAL PROVISIONS SECTION 10.1 Survival of Representations and Warranties. All of the representations and warranties of Parent, Subsidiary, the Company and the Company Shareholders contained in this Agreement shall survive the Closing and continue in full force and effect for a period of twenty-four (24) months thereafter. SECTION 10.2 Validity. If any provision of this Agreement or the application thereof to any person or circumstance is held invalid or unenforceable, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected thereby and to such end the provisions of this Agreement are agreed to be severable. SECTION 10.3 Indemnification. (a) The Principal Shareholders jointly and severally agree to defend, indemnify and hold Parent and Subsidiary and their respective officers, directors, shareholders, affiliates, employees and agents, and their respective successors and assigns, harmless from and against any and all claims, actions, damages, obligations, losses, liabilities, costs and expenses (including attorneys' fees, costs of collection, other costs of defense and all other fees and costs incurred by Parent and Subsidiary) resulting from: (i) any misrepresentation or omission from or breach of warranty by the Company or the Company Shareholders made in Articles V and VI of this Agreement or in any certificate or document delivered to Parent or Subsidiary by the Company or the Company Shareholders under or in connection with this Agreement; (ii) any breach of any agreement, covenant or commitment of the Company or the Company Shareholders made or contained in this Agreement; (iii) any claim or liability which arises from events or conditions occurring prior to the Closing Date, other than those reflected on the Company Financial Statements or the Schedules to this Agreement; and (iv) tax liabilities incurred by the Company prior to the Closing Date. (b) Parent agrees to defend, indemnify and hold the Company Shareholders and their respective heirs, executors and personal representatives and the Company harmless from and against any and all claims, actions, damages, obligations, losses, liabilities, costs and expenses (including attorneys' fees, costs of collection, other costs of defense and all other fees and costs incurred by the Company or 27 the Company Shareholders resulting from (i) any misrepresentation or omission from or by Parent or Subsidiary made in Article IV of this Agreement or in any certificate or document delivered to the Company or the Company Shareholders by Parent or Subsidiary under or in connection with this Agreement (except for any Private Placement Memorandum), and (ii) any breach of any covenant, agreement or commitment of Parent or Subsidiary made or contained in this Agreement. (c) Any person seeking indemnity under this Section 10.3 (an "Indemnified Person") shall be entitled to make a claim for indemnity under Section 10.3(a) or Section 10.3(b) hereof, as the case may be, only if written notice, specifying in reasonable detail the basis of the claims shall have been provided to the party from which indemnity may be sought (the "Indemnifying Party") (a) within ninety days after the Indemnified Person shall have become aware of facts constituting the basis for such a claim or (b) if earlier, in the case of any action or proceeding by a third party, not more than fifteen days after the commencement of such action or proceeding. In the case of any such action or proceeding by a third party, if the Indemnifying Party so elects or is requested by the Indemnified Person, the Indemnifying Party will assume the defense of such action or proceeding, including the employment of counsel reasonably satisfactory to the Indemnified Person and the payment of the fees and disbursements of such counsel. In the event, however, that such counsel reasonably determines that its representation of both the Indemnifying Party and one or more Indemnified Persons would present such counsel with a conflict of interest or if the Indemnifying Party fails to assume the defense of the action or proceeding in a timely manner after receiving notice, then such Indemnified Person may employ separate counsel to represent or defend it in any such action or proceeding and the Indemnifying Party will pay the fees and disbursement of such counsel; provided, however, that the Indemnifying Party will not be required to pay the fees and disbursements of more than one separate law firm for all Indemnified Persons in any jurisdiction in any single action or proceeding. (d) So long as the Indemnifying Party is conducting the defense of the Indemnified Party in accordance with this Section 10.3(a), the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the claim; (b) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to any claim without the prior written consent of the Indemnifying Party (not to be withheld unreasonably), and (c) the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to any claim without the prior written consent of the Indemnified Party (not to be withheld unreasonably). SECTION 10.4 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, mailed by registered or certified mail (return receipt requested) or sent via facsimile to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) If to Parent or Subsidiary to: AquaPenn Spring Water Company, Inc. P.O. Box 938 1 AquaPenn Drive Milesburg, PA 16853 Attention: Edward J. Lauth Facsimile Number: (814) 353-9108 28 with a copy to: Ballard Spahr Andrews & Ingersoll 1735 Market Street, 51st Floor Philadelphia, Pennsylvania 19103 Attention: Brian D. Doerner, Esq. Facsimile Number: (215) 864-8999 (b) If to the Company, to: Dunsmuir Bottling Company d/b/a Castle Rock Spring Water Company 4900 Mountain Lakes Blvd. Redding, CA 96003 Attention: President Facsimile Number: 916-243-8415 with a copy to: Reese, Smalley, Wiseman & Schweitzer, LLP 1265 Willis Street Redding, CA 96001 Attention: Howard Schweitzer Facsimile Number: (916) 241-5106 SECTION 10.5 Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. In this Agreement, unless a contrary intention appears, (i) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision and (ii) reference to any Article or Section means such Article or Section hereof. No provision of this Agreement shall be interpreted or construed against any party hereto solely because such party or its legal representative drafted such provision. SECTION 10.6 Miscellaneous. This Agreement (including the documents and instruments referred to herein) (a) constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof, (b) is not intended to confer upon any other person any rights or remedies hereunder, except for rights of indemnified Parties under Section 10.2 and (c) shall not be assigned by operation of law or otherwise, except that Subsidiary may assign this Agreement to any other wholly owned subsidiary of Parent. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE. SECTION 10.7 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Each of the parties agrees to accept and be bound by facsimile signatures hereto. 29 SECTION 10.8 Parties In Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and except as set forth in the exception to Section 10.3, nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. SECTION 10.9 Exhibits and Schedules. All Exhibits and Schedules referred to in this Agreement shall be attached hereto and are incorporated by reference herein. 30 IN WITNESS WHEREOF, Parent, Subsidiary and the Company have caused this Agreement to be signed by their respective officers as of the date first written above. ATTEST: AQUAPENN SPRING WATER COMPANY, INC. By: /s/ Geoffrey F. Feidelberg By: /s/ Edward J. Lauth, III -------------------------- ------------------------ Name: Geoffrey F. Feidelberg Name: Edward J. Lauth, III Title: COO Title: President ATTEST: CASTLE ROCK SPRING WATER COMPANY, INC. By: /s/ Geoffrey F. Feidelberg By: /s/ Edward J. Lauth, III -------------------------- ------------------------ Name: Geoffrey F. Feidelberg Name: Edward J. Lauth, III Title: Secretary Title: President ATTEST: DUNSMUIR BOTTLING COMPANY By: /s/ Scott E. Lidster By: /s/ Paul A. Kassis -------------------- ------------------ Name: Scott E. Lidster Name: Paul A. Kassis Title: Secretary Title: President /s/ Paul A. Kassis ------------------ Paul Kassis /s/ Scott E. Lidster -------------------- Scott Lidster /s/ Clark Wright ---------------- Clark Wright /s/ Raymond C. Kassis TTEF -------------------------- Ray Kassis, Trustee Ray and Sharon Kassis Trust dtd July 15, 1993 31 /s/ Sharon K. Kassis, Trustee ----------------------------- Sharon Kassis, Trustee Ray and Sharon Kassis Trust dtd July 15, 1993 /s/ Donald K. Lidster Trustee ----------------------------- Donald K. Lidster, Trustee The Lidster Trust dtd July 1, 1983 and amended June 25, 1987 /s/ Gernith L. M. Lidster - Trustee ----------------------------------- Gernith L. Lidster, Trustee The Lidster Trust dtd July 1, 1983 and amended June 25, 1987 32 EXHIBIT A Total Stock Shares Cash Value ----- ------ ---- ----- .2969121 Paul Kassis 250 ($ 525,000) 105,000 $ 365,736 $ 890,736 .2969121 Scott Lidster 250 ($ 525,000) 105,000 365,736 890,736 .2969121 Clark Wright 250 ($ 200,000) 40,000 690,736 890,736 .0498812 R & S, 42 ($ 149,645) 29,929 0 149,645 Kassis Trust .0498812 D & G, 42 ($ 149,645) 29,929 0 149,645 Lidster Trust .0095011 Clark Wright 8 28,504 28,504 842 ($1,549,290) 309,858 $1,450,712 $3,000,002 EX-10.18 19 1992 STOCK OPTION PLAN EXHIBIT 10.18 AQUAPENN SPRING WATER COMPANY, INC. 1992 STOCK OPTION PLAN 1. Purpose. The purpose of this Stock Incentive Plan (the "Plan") is to advance the development, growth and financial condition of AquaPenn Spring Water Company, Inc. (the "Corporation") by providing incentives through participation in the appreciation of capital stock of the Corporation so as to secure, retain and motivate personnel who may be responsible for or involved in the management and operation of the affairs of the Corporation. 2. Term. The Plan shall become effective as of the date it is adopted by the Corporation's Board of Directors (the"Board"), so long as the Corporation's stockholders duly approve the Plan within twelve (12) months either before or after the date of the Board's adoption of the Plan. Any and all options and rights awarded under the Plan ("Awards") before it is so approved by the Corporation's stockholders shall be conditional upon and may not be exercised before timely obtainment of such approval, and shall lapse upon the failure thereof. If the Plan is so approved, it shall continue in effect until all Awards either have lapsed or been exercised or cancelled according to their terms under the Plan. 3. Stock. The shares of stock that may be issued under the Plan shall not exceed in the aggregate 500,000 shares of the Corporation's no par value common stock (the "Stock"), as may be adjusted pursuant to paragraph 17 hereof. Such shares of Stock may 1 be either authorized and unissued shares of Stock, or authorized shares of Stock issued by the Corporation and subsequently reacquired by it as treasury stock. Under no circumstances shall any fractional shares of Stock be issued or sold under the Plan or any Award. Except as may be otherwise provided in the Plan, any Stock subject to an Award that for any reason lapses or terminates prior to its exercise as to such Stock shall become and again be available under the Plan. The Corporation shall reserve and keep available, and shall duly apply for any requisite governmental authority to issue or sell the number of shares of Stock needed to satisfy the requirements of the Plan while in effect. The Corporation's failure to obtain any such governmental authority deemed necessary by the Corporation's legal counsel for the lawful issuance and sale of Stock under the Plan shall relieve the Corporation of any duty, or liability for the failure to issue or sell such Stock as to which such authority has not been obtained. 4. Administration. The Plan shall be administered by a committee (the "Committee") consisting of not fewer than three (3) persons serving for such terms as determined, selected and appointed by the Board. The Board shall fill all vacancies occurring in the Committee's membership, and at any time and for any reason may add additional members to the Committee or may remove members from the Committee and appoint their successors. The members of the Committee may, but need not be members of the Board, but no person shall be a member of the Committee unless he or she is ineligible while serving on the Committee and has been 2 ineligible for at least one (1) year prior to his or her appointment to the Committee to receive any Awards, allocations or other options or rights of or with respect to Stock or any other capital stock of the Corporation or its affiliates under the Plan or any other plan of the Corporation or its affiliates. A majority of the Committee's membership shall constitute a quorum for the transaction of all business of the Committee, and all decisions and actions taken by the Committee shall be determined by a majority of the members of the Committee attending a meeting at which a quorum of the Committee is present. The Committee shall be responsible for the management and operation of the Plan and, subject to its provisions, shall have full, absolute and final power and authority, exercisable in its sole discretion: to interpret and construe the provisions of the Plan, adopt, revise and rescind rules and regulations relating to the Plan and its administration, and decide all questions of fact arising in the application thereof; except as may be required pursuant to any employment agreement of the Corporation, to determine what, to whom, when and under what facts and circumstances Awards shall be made, and the form, number, terms, conditions and duration thereof, including but not limited to when exercisable, the number of shares of Stock subject thereto, and Stock option purchase prices; to adopt, revise and rescind procedural rules for the transaction of the Committee's business, subject to any directives of the Board not inconsistent with the provisions or intent of the Plan or applicable provisions of law; 3 and to make all other determinations and decisions, take all actions and do all things necessary or appropriate in and for the administration of the Plan. The Committee's determinations, decisions and actions under the Plan, including but not limited to those described above, need not be uniform or consistent, but may be different and selectively made and applied, even in similar circumstances and among similarly situated persons. Unless contrary to the provisions of the Plan, all decisions, determinations and actions made or taken by the Committee shall be final and binding upon the Corporation and all interested persons, and their heirs, personal and legal representatives, successors, assigns and beneficiaries. No member of the Committee or of the Board shall be liable for any decision, determination or action made or taken in good faith by such person under or with respect to the Plan or its administration. 5. Awards. Awards may be made under the Plan in the form of (a) "Qualified Options" to purchase Stock that are intended to qualify for certain tax treatment as incentive stock options under Sections 421 and 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or (b) "Non-Qualified Options" to purchase Stock that do not qualify under Sections 421-424 of the Code. All Awards and the terms and conditions thereof shall be set forth in written agreements, in such form and content as approved by the Committee from time to time, and shall be subject to the provisions of the Plan whether or not contained in such agreements. Every Award made to a person (a "Recipient") shall be exercisable during 4 his or her lifetime only by the Recipient, and shall not be salable, transferable or assignable by the Recipient except by his or her Will or pursuant to applicable laws of descent and distribution. 6. Eligibility. Persons eligible to receive Awards shall be those key officers and other employees of the Corporation as determined by the Committee. In no case, however, shall any current member of the Committee be eligible to receive any Awards. A person's eligibility to receive Awards shall not confer upon him or her any right to receive any Awards; rather, the Committee shall have the sole authority, exercisable in its discretion consistent with the provisions of the Plan, to select when, to whom and under what facts and circumstances Awards will be made. Except as otherwise provided, a person's eligibility to receive, or actual receipt of Awards under the Plan shall not limit or affect his or her benefits under or eligibility to participate in any other incentive or benefit plan or program of the Corporation or its affiliates. 7. Grant of Award. On the first business day immediately following the adoption of the Plan by the Corporation's Board of Directors, an Award for 450,000 shares of the Stock shall be granted under the Plan to Patrick Cresci, the Vice President of Operations of the Corporation, as set forth in the Stock Option Agreement that is attached hereto as Exhibit "A". 8. Qualified Options. In addition to other applicable provisions of the Plan, all Qualified Options and Awards thereof 5 shall be under and subject to the following terms and conditions: (a) No Qualified Option shall be awarded more than ten (10) years after the date the Plan is adopted by the Board or the date the Plan is approved by the Corporation's stockholders, whichever date is earlier; (b) The time period during which any Qualified Option is exercisable, as determined by the Committee, shall not commence before the expiration of six (6) months or continue beyond the expiration of ten (10) years after the date such Option is awarded; and (c) The purchase price of a share of Stock subject to any Qualified Option, as determined by the Committee, shall not be less than the Stock's fair market value at the time such Option is awarded. 9. Non-Qualified Options. In addition to other applicable provisions of the Plan, all Non-Qualified Options and Awards thereof shall be under and subject to the following terms and conditions: (a) The time period during which any Non-Qualified Option is exercisable, as determined by the Committee, shall not commence before the expiration of six (6) months or continue beyond the expiration of ten (10) years after the date such Option is awarded; (b) If a Recipient of a Non-Qualified Option, before its lapse or full exercise, ceases to be eligible under the Plan, the Committee may permit the Recipient thereafter to exercise 6 such Option during its remaining term, to the extent that the Option was then and remains exercisable, for such time period and under such terms and conditions as may be prescribed by the Committee; and (c) The purchase price of a share of Stock subject to any Non-Qualified Option shall be determined by the Committee. 10. Exercise. Except as otherwise provided in the Plan or specified in an individual award, Awards may be exercised in whole or in part by giving written notice thereof to the Secretary of the Corporation, or his or her designee, identifying the Award being exercised, the number of shares of Stock with respect thereto, and other information pertinent to exercise of the Award. The purchase price of the shares of Stock with respect to which an Award is exercised shall be fully payable with the written notice of exercise, either in cash or in Stock at its then current fair market value, or in any combination thereof, as the Committee shall determine. Funds received by the Corporation from the exercise of any Award shall be used for its general corporate purposes. The number of shares of Stock subject to an Award shall be reduced by the number of shares of Stock with respect to which the Recipient has exercised rights under the Award. The Committee may permit an acceleration of previously established exercise terms of any Awards as, when, under such facts and circumstances, and subject to such other or further requirements and conditions as the Committee may deem necessary or appropriate. In addition: (a) if the Corporation or its 7 stockholders execute an agreement to dispose of all or substantially all of the Corporation's assets or capital stock by means of sale, merger, consolidation, reorganization, liquidation or otherwise, as a result of which the Corporation's stockholders as of immediately before such transaction will not own more than forty-nine percent (49%) of the total combined voting power of all classes of voting capital stock of the surviving entity (be it the Corporation or otherwise) immediately after the consummation of such transaction, thereupon any and all Awards immediately shall become and remain exercisable with respect to the total number of shares of Stock still subject thereto for the remainder of their respective terms until the consummation of such transaction, or if not consummated, until the agreement therefor expires or is terminated, in which case thereafter all Awards shall be treated as if said agreement never had been executed; or (b) if there is a change in the ownership of fifty-one percent (51%) or more of all classes of voting capital stock of the Corporation through the acquisition of, or an offer to acquire such percentage of the Corporation's voting capital stock by any person or entity, or persons or entities acting in concert or as a group, and such acquisition or offer has not been duly approved by the Board, thereupon any and all Awards immediately shall become and remain exercisable with respect to the total number of shares of Stock still subject thereto for the remainder of their respective terms. 11. Withholding. Whenever the Corporation is about to issue Stock pursuant to any Award, the Corporation may require the 8 Recipient to remit to the Corporation an amount sufficient to satisfy fully any federal, state and other jurisdictions' income and other tax withholding requirements prior to the delivery of any certificates for such shares of Stock. Whenever payments are to be made in cash to any Recipient pursuant to his or her exercise of an Award, such payments shall be made net after deduction of all amounts sufficient to satisfy fully any federal, state and other jurisdictions' income and other tax withholding requirements. 12. Value. Where used in the Plan, the "fair market value" of Stock or any options or rights with respect thereto, including Awards, shall mean and be determined by (a) the average of the highest and lowest reported sales prices thereof on the principal established domestic securities exchange on which listed, and if not listed, then (b) the average of the dealer "bid" and "ask" prices thereof on the New York over-the-counter market as reported by the National Association of Securities Dealers, Inc., in either case as of the specified or otherwise required or relevant time, or if not traded as of such specified, required or relevant time, then based upon such reported sales or "bid" and "ask" prices before and/or after such time in accordance with pertinent provisions of and principles under the Code and the regulations promulgated thereunder. 13. Amendment. The Committee may amend or terminate the Plan at any time, but may not without the approval of the Corporation's stockholders: (a) increase the maximum number of shares of Stock that may be issued under the Plan (other than adjustments pursuant 9 to paragraph 17 hereof), (b) extend the time period during which any Award is exercisable, (c) extend the term of the Plan, or (d) change the minimum Stock purchase price under any Qualified Option. In no event shall any such termination or amendment limit or affect any outstanding Award, or the rights of a Recipient thereunder, without such Recipient's consent. In addition, the Committee may prescribe other or additional terms, conditions and provisions with respect to the grant or exercise of any or all Awards as the Committee may determine necessary or appropriate for such Awards and the Stock subject thereto to qualify under and comply with all applicable laws, rules and regulations, and changes therein, including but not limited to the provisions of Sections 421 and 422 of the Code, Section 16 of the Securities Exchange Act of 1934, as amended, and Rule 16b-3 promulgated by the Securities and Exchange Commission. Without limiting the generality of the preceding sentence, each Qualified Option, shall be subject to such other and additional terms, conditions and provisions as the Committee may deem necessary or appropriate in order to qualify such Option, or connected Option, as an incentive stock option under Section 422 of the Code, including but not limited to the following provisions: (i) the aggregate fair market value, at the time such Option is awarded, of the Stock subject thereto and of any Stock or other capital stock with respect to which incentive stock options qualifying under Sections 421 and 422 of the Code are exercisable for the first time by the Recipient 10 during any calendar year under the Plan and any other plans of the Corporation or its affiliates, shall not exceed $100,000.00; (ii) No Qualified Option shall be awarded to any person if at the time of such Award, such person owns Stock possessing more than ten percent (10%) of the total combined voting power of all classes of capital stock of the Corporation or its affiliates, unless at the time such Option is awarded the Stock purchase price under such Option is at least one hundred and ten percent (110%) of the fair market value of the Stock subject to such Option and the Option by its terms is not exercisable after the expiration of five (5) years from the date it is awarded; and (iii) If the Recipient of a Qualified Option ceases to be employed by the Corporation or any Subsidiary for any reason other than his or her death, the Committee may permit the Recipient thereafter to exercise such Option during its remaining term for a period of not more than three (3) months after such cessation of employment to the extent that the Option was then and remains exercisable, unless such employment cessation was due to the Recipient's disability as defined in Section 22(e)(3) of the Code, in which case such three (3) month period shall be twelve (12) months; if the Recipient dies while employed by the Corporation, the Committee may permit the Recipient's qualified personal representatives, or any persons who acquire the Qualified 11 Option pursuant to his or her Will or laws of descent and distribution, thereafter to exercise such Option during its remaining term for a period of not more than one (1) year after the Recipient's death to the extent that the Option was then and remains exercisable; the Committee may impose terms and conditions upon and for said exercise of such Qualified Option after such cessation of the Recipient's employment or his or her death. From time to time, the Committee may rescind, revise and add to any of such terms, conditions and provisions as may be necessary or appropriate to have any Awards be or remain qualified and in compliance with all applicable laws, rules and regulations, and may delete, omit or waive any of such terms, conditions or provisions that are no longer required by reason of changes in applicable laws, rules or regulations. 14. Continued Employment. Nothing in the Plan or any Award shall confer upon any Recipient or other persons any right to continue in the employment of, or maintain any particular relationship with the Corporation or its affiliates, or limit or affect any rights, powers or privileges that the Corporation or its affiliates may have to supervise, discipline and terminate such Recipient or other persons, and the employment and other relationships thereof. However, the Committee may require as a condition of making and/or exercising any Award that its Recipient agree to, and in fact provide services, either as an employee or in another capacity, to or for the Corporation for such time period 12 following the date the Award is made and/or exercised as the Committee may prescribe. The immediately preceding sentence shall not apply to any Qualified Option to the extent such application would result in disqualification of said Option as an incentive stock option under Sections 421 and 422 of the Code. 15. General Restrictions. Each Award shall be subject to the requirement and provision that if at any time the Committee determines it necessary or desirable as a condition of or in consideration of making such Award, or the purchase or issuance or Stock thereunder, (a) the listing, registration or qualification of the Stock subject to the Award, or the Award itself, upon any securities exchange or under any federal or state securities or other laws, (b) the approval of any governmental authority, or (c) an agreement by the Recipient with respect to disposition of any Stock (including without limitation that at the time of the Recipient's exercise of the Award, any Stock thereby acquired is being and will be acquired solely for investment purposes and without any intention to sell or distribute such Stock), then such Award shall not be consummated in whole or in part unless such listing, registration, qualification, approval or agreement shall have been appropriately effected or obtained to the satisfaction of the Committee and legal counsel for the Corporation. 16. Rights. Except as otherwise provided in the Plan, the Recipient of any Award shall have no rights as a holder of the Stock subject thereto unless and until one or more certificates for the shares of such Stock are issued and delivered to the Recipient. 13 No adjustments shall be made for dividends, either ordinary or extraordinary, or any other distributions with respect to Stock, whether made in cash, securities or other property, or any rights with respect thereto, for which the record date is prior to the date that any certificates for Stock subject to an Award are issued to the Recipient pursuant to his or her exercise thereof. No Award, or the grant thereof, shall limit or affect the right or power of the Corporation or its affiliates to adjust, reclassify, recapitalize, reorganize or otherwise change its or their capital or business structure, or to merge, consolidate, dissolve, liquidate or sell any or all of its or their business, property or assets. 17. Adjustments. Except as otherwise provided in the Plan, no Recipient of any Award shall have any rights, powers or privileges or be entitled to any adjustments of or with respect to his or her Award by reason of any stock split, dividend, distribution or division, recapitalization, merger, consolidation, reorganization, liquidation, dissolution, issuance, sale or exchange of shares of Stock or any other capital stock or any rights thereto, increase or decrease in the authorized number of shares of Stock or any other capital stock, sale, transfer or other disposition of any assets of any kind, or any other similar action or transaction by, of or with respect to the Corporation or its affiliates. In the event of a change in the Stock as presently constituted, which change is limited to a change of all of the authorized shares thereof into the same number of shares with a 14 different par value, the shares resulting from such change shall be deemed to be Stock within the meaning and for purposes of the Plan without further action. The aggregate number of shares of Stock available for Awards under the Plan, and the shares of Stock subject to any and all outstanding Awards and the option purchase price for each share of Stock thereunder all shall be adjusted proportionately for and on account of any increase or decrease in the number of issued shares of Stock after the effective date of the Plan resulting from (a) a split, division or consolidation of, or any other capital change or adjustment with respect to shares of Stock, (b) the payment of any Stock dividend with respect to shares of Stock, or (c) any other increase or decrease in the number of issued shares of Stock effected without the receipt of consideration by the Corporation. In the event the Corporation is the surviving corporation of any merger, consolidation or other reorganization, any and all outstanding Awards shall apply and relate to the securities to which a holder of Stock is entitled after such merger, consolidation or other reorganization. Upon any liquidation or dissolution of the Corporation, or any merger, consolidation or other reorganization of which the Corporation is not the surviving corporation, any and all outstanding Awards shall terminate upon consummation of such merger, consolidation or other reorganization, but prior to such consummation shall be exercisable to the extent that the same otherwise are exercisable under the Plan. 15 18. Forfeiture. Notwithstanding anything to the contrary in this Plan, if the Committee finds after full consideration of the facts presented on behalf of the Corporation and the involved Recipient, that he or she has been engaged in fraud, embezzlement, theft, commission of a felony, or dishonesty in the course of his or her employment by the Corporation that has damaged it, or that the Recipient has disclosed trade secrets of the Corporation or its affiliates, the Recipient shall forfeit all rights under and to unexercised Awards, and all exercised Awards under which the Corporation yet has not delivered the certificates for shares of Stock, all of which Awards and rights shall be automatically cancelled. The decision of the Committee as to the cause of the Recipient's discharge from employment with the Corporation and the damage thereby suffered shall be final for purposes of the Plan, but shall not affect the finality of the Recipient's discharge by the Corporation for any other purposes. The preceding provisions of this paragraph shall not apply to any Qualified Option to the extent such application would result in disqualification of said Option as an incentive stock option under Sections 421 and 422 of the Code. 19. Indemnification. In and with respect to the administration of the Plan, the Corporation shall indemnify each present and future member of the Committee and/or of the Board, who shall be entitled without further action on his or her part to indemnity from the Corporation for all damages, losses, judgments, settlement amounts, punitive damages, excise taxes, fines, 16 penalties, costs and expenses (including without limitation attorneys' fees and disbursements) incurred by such member in connection with any threatened, pending or completed action, suit or other proceedings of any nature, whether civil, administrative, investigative or criminal, whether formal or informal, and whether by or in the right or name of the Corporation, any class of its security holders, or otherwise, in which such member may be or have been involved, as a party or otherwise, by reason of his or her being or having been a member of the Committee and/or of the Board, whether or not he or she continues to be such a member. The provisions, protection and benefits of this paragraph shall apply and exist to the fullest extent permitted by applicable law to and for the benefit of all present and future members of the Committee and/or of the Board, and their respective heirs, personal and legal representatives, successors and assigns, in addition to all other rights that they may have as a matter of law, by contract, or otherwise, except (a) as may not be allowed by applicable law, (b) to the extent there is entitlement to insurance proceeds under insurance coverage provided by the Corporation on account of the same matter or proceeding for which indemnification hereunder is claimed, or (c) to the extent there is entitlement to indemnification from the Corporation, other than under this paragraph, on account of the same matter or proceeding for which indemnification hereunder is claimed. 17 20. Miscellaneous. Any reference contained in this Plan to a particular section or provision of law, rule or regulation, including but not limited to the Internal Revenue Code of 1986 and the Securities Exchange Act of 1934, both as amended, shall include any subsequently enacted or promulgated section or provision of law, rule or regulation, as the case may be, of similar import. Where used in this Plan: the plural shall include the singular, and unless the context otherwise clearly requires, the singular shall include the plural; and, the term "affiliates" shall mean each and every subsidiary (as defined in Section 425 of the Code) and any parent of the Corporation. The captions of the numbered paragraphs contained in this Plan are for convenience only, and shall not limit or affect the meaning, interpretation or construction of any of the provisions of the Plan. ------------- END ------------- 18 AQUAPENN SPRING WATER COMPANY, INC. 1992 STOCK OPTION PLAN STOCK OPTION AGREEMENT Pursuant to the AquaPenn Spring Water Company, Inc. 1992 Stock Option Plan (the "Plan"), an option and right to purchase not more than a total of four hundred and fifty thousand (450,000) shares of no par value common stock (the "Stock") of AquaPenn Spring Water Company, Inc., a Pennsylvania business corporation ("AquaPenn"), is hereby granted to Patrick Cresci (the "Optionee") under and subject to the following terms and conditions: 1. After a twelve (12) month time period after the date of the adoption by AquaPenn of the 1992 Stock Option Plan, (the "Effective Date"), the Optionee may purchase up to fifty thousand (50,000) shares of Stock; however, the Optionee may not exercise such purchase right before the expiration of six (6) months after the date of this Agreement. In addition, on each of the succeeding eight (8) anniversaries of the Effective Date, an additional fifty thousand (50,000) shares of Stock shall become available for the Optionee's purchase hereunder. The Optionee's right to purchase up to four hundred fifty thousand (450,000) shares of Stock as above provided in this paragraph shall be cumulative; for example, if the Optionee purchases 50,000 shares of the 150,000 shares of Stock available for purchase as of the fourth anniversary of the Effective Date, the Optionee would be entitled to purchase up to 100,000 shares of Stock until the fourth anniversary of the Effective Date, and upon the EXHIBIT "A" 19 fourth anniversary, the Optionee would be entitled to purchase 200,000 shares of Stock. 2. This Agreement and the option and right to purchase Stock hereunder shall terminate at 11:59 o'clock p.m. on the tenth year after adoption of the 1992 Stock Option Plan, or at such earlier time as may be provided in this Agreement, or if earlier, when the option to purchase Stock hereunder has lapsed or been exercised or canceled under the provisions of this Agreement or the provisions of the Plan; upon termination of this Agreement, any unexercised option or right to purchase Stock hereunder shall expire and the Optionee shall have no further rights under this Agreement. Provided however, that a termination of this Agreement or lapse or cancellation of the option hereunder shall not terminate, limit or affect AquaPenn's right of repurchase under paragraph 4(b) of this Agreement, which right of repurchase shall survive as provided in said paragraph 4(b). 3. If at any time while this Agreement is in effect, the Optionee's employment with AquaPenn is terminated by AquaPenn without cause under the provisions of paragraph 2(b) of the Employment Agreement, the Optionee (or the duly qualified personal representative of his estate, to the extent permitted by applicable law) then may purchase up to four hundred and fifty thousand (450,000) shares of Stock, minus the number of shares of Stock previously purchased by the Optionee under this Agreement. Such option to purchase shall expire on the third (3rd) anniversary of the effective date of such termination of the Optionee's employment 20 and if not exercised by that time, such option and this Agreement shall lapse and terminate. 4. (a) If at any time while this Agreement is in effect, the Optionee's employment with AquaPenn terminates for any reason other than by AquaPenn without case (including without limitation a termination of employment due to the Optionee's death), the Optionee (or the duly qualified personal representative of his estate, to the extent permitted by applicable law) then may purchase under this Agreement up to that number of shares of Stock that is equal to thirty thousand (30,000) shares of Stock multiplied by the number of twelve (12) month time periods (including any part of a twelve-month period) beginning with the Effective Date and ending with the effective date of such termination of the Optionee's employment, but in no event more than three hundred thousand (300,000) shares of Stock, minus the number of shares of Stock previously purchased by the Optionee under this Agreement. Such option to purchase shall expire on the sixtieth (60th) day after the effective date of such termination of the Optionee's employment and if not exercised by that time, such option and this Agreement shall lapse and terminate. For example, if the Optionee terminates his employment nine weeks after the third anniversary of the Effective Date, the Optionee then would be entitled to purchase within the next 60 days 90,000 shares of Stock less what he already had purchased under this Agreement. (b) If prior to such a termination of the Optionee's employment with AquaPenn for any reason other than by AquaPenn 21 without cause (including without limitation a termination of employment due to the Optionee's death), the Optionee has purchased more shares of Stock than he would be entitled to purchase under paragraph 4(a) above, AquaPenn shall have the right to purchase from the Optionee (and his purchasers, transferees, assignees and any other persons to whom the Optionee may have disposed of his shares of Stock in any manner, and the Optionee's personal and legal representatives, estate, heirs and testamentary beneficiaries) any or all of the shares of Stock purchased by the Optionee under this Agreement in excess of the number of shares of Stock that the Optionee is entitled to purchase under paragraph 4(a) above. Such right to repurchase by AquaPenn shall be at the same per share purchase price as was paid by the Optionee for each such excess share of Stock, and shall expire on the sixtieth (60th) day after the effective date of such termination of the Optionee's employment (and if not exercised by that time, shall be of no further force or effect). 5. Notwithstanding the preceding provisions hereof, if while this Agreement is in effect: (a) AquaPenn or its stockholders execute an agreement to dispose of all or substantially all of AquaPenn's assets or capital stock by means of sale, merger, consolidation, reorganization, liquidation or otherwise, as a result of which AquaPenn's stockholders as of immediately before such transaction will not own more than forty-nine percent (49%) of the total combined voting power of all classes of voting capital stock of the surviving entity (be it AquaPenn or otherwise) 22 immediately after the confirmation of such transaction, or (b) there is a change in the ownership of fifty-one percent (51%) or more of all classes of voting capital stock of AquaPenn through the acquisition of, or an offer to acquire such percentage of AquaPenn's voting capital stock by any person or entity, or persons or entities acting in concert or as a group, and such acquisition or offer has not been duly approved by the Board, or (c) there is a public offering of the common stock of AquaPenn, and in any such case (a, b or c above) the employment of the Optionee with AquaPenn continues and then is in effect under that certain Employment Agreement between AquaPenn and the Optionee dated ---------------- (the "Employment Agreement"), the Optionee's right to purchase Stock under paragraph 1 above shall be accelerated (without further action) so that the Optionee may purchase immediately under this Agreement up to four hundred fifty thousand (450,000) shares of Stock, minus the number of shares of Stock previously purchased by the Optionee under this Agreement. Provided, that if while this Agreement is in effect, the Optionee's employment with AquaPenn for any reason terminates at any time subsequent to any of the events described in (a, b or c) in the immediately preceding sentence, the Optionee's option to purchase Stock under this paragraph 5 shall remain in effect only until: (a) three months after the effective date of such termination of the Optionee's employment, if such termination of employment is by AquaPenn without cause under the provisions of paragraph 2(b) of 23 the Employment Agreement, and if not exercised by that time, such option and this Agreement shall lapse and terminate; or (b) the sixtieth (60th) day after the effective date of such termination of the Optionee's employment, if such termination of employment occurs for any reason other than by AquaPenn without cause (including without limitation a termination of employment due to the Optionee's death), and if not exercised by that time, such option and this Agreement shall lapse and terminate. Any shares of Stock actually purchased by the Optionee pursuant to his exercise of the accelerated rights above provided in this paragraph 5 shall not be subject to AquaPenn's right of repurchase under paragraph 4(b) of this Agreement. 6. All share certificates for Stock issued pursuant to the exercise of the option to purchase under paragraph 1 above shall be conspicuously endorsed with a legend providing notice of AquaPenn's right of repurchase under paragraph 4(b) above. 7. The option price for each share of Stock purchased under this Agreement, regardless of when purchased, shall be $1.75 per share, the fair market value of the Stock as of the date of this Agreement. Any exercise of the option to purchase Stock under this Agreement and payment of such option price for the Stock being purchased shall be made in the manner provided in paragraph 10 of the Plan. 8. The option and right granted to the Optionee under this Agreement shall be exercisable during the Optionee's lifetime only by the Optionee, and shall not be salable, transferable or 24 assignable in any manner by the Optionee except by his or her Will or pursuant to applicable laws of descent and distribution. 9. It is intended that the Optionee's option and right to purchase Stock under this Agreement shall be an incentive stock option qualified under Sections 421 and 422 of the Internal Revenue Code of 1986, as amended, to the fullest extent permitted by said Sections and the rules and regulations promulgated thereunder. 10. Except as otherwise hereinbefore provided, this Agreement and the option to purchase Stock hereunder are subject to all of the terms, conditions and provisions of the Plan, a copy of which has been furnished to and received by the Optionee. The provisions of this Agreement shall be construed under and enforced in accordance with the laws of the Commonwealth of Pennsylvania. Where used in this Agreement, the words "hereunder", "herein" and other similar compounds of the word "here" shall mean and refer to this entire Agreement and not to any particular paragraph or provision of this Agreement. 25 IN WITNESS WHEREOF, pursuant to the Plan, AquaPenn Spring Water Company, Inc. and Patrick Cresci, each intending to be legally bound hereby, have duly executed this Agreement as of the ---------- day of - ----------, 19--. ATTEST: AQUAPENN SPRING WATER COMPANY, INC. - -------------------- ------------------------------ Secretary Edward J. Lauth, III President WITNESS: OPTIONEE: - -------------------- ------------------------------ Patrick Cresci 26 EX-21 20 SUBSIDIARIES OF THE COMPANY EXHIBIT 21 SUBSIDIARIES OF THE COMPANY AquaPenn Spring Water Company South, Inc. (Pennsylvania Corporation) (Formerly known as Great American Spring Water Ice Company, Inc.) Pure American, Inc. (Pennsylvania Corporation) (Formerly S C Acquisition Company, Inc.) AquaPenn Spring Water Industries, Inc. (Pennsylvania Corporation) The Eight (8) Ounce Company, Inc. (Pennsylvania Corporation) IAPSW, Inc. (Delaware Corporation) RAPSW, Inc., a wholly owned subsidiary of IAPSW, Inc. (Delaware Corporation) Castle Rock Spring Water Company, Inc. (California Corporation) EX-23.1 21 CONSENT OF KPMG PEAT MARWICK LLP Exhibit 23.1 Accountants' Consent The Board of Directors AquaPenn Spring Water Co., Inc. We consent to the use of our report dated October 21, 1997, except for note 15 which is as of October 24, 1997, included in this Registration Statement on Form S-1 of AquaPenn Spring Water Co., Inc. and to the reference to our firm under the headings "Experts" and "Selected Consolidated Financial Data." /s/ KPMG Peat Marwick LLP - --------------------------- State College, Pennsylvania October 24, 1997 EX-27 22 FDS --FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF AQUAPENN SPRING WATER COMPANY, INC. FOR THE YEAR ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 0.00 Year SEP-30-1997 SEP-30-1997 1.000 687 0 3,705 (100) 1,534 6,494 26,392 (6,361) 26,580 3,398 0 0 1,714 0 16,351 26,580 37,526 38,015 28,317 33,444 (328) 0 208 4,692 1,905 2,787 0 0 0 2,787 .47 .47
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