-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, M4sQCw5RWsYKhJYLGB1Ta9z56FsNoTWDtLWAQpFZgRGjOmZtGv5ceLrHUAK+Ddgo DbDjwQLNV8eYeLQvXHCx4w== 0000950134-95-000919.txt : 19950508 0000950134-95-000919.hdr.sgml : 19950508 ACCESSION NUMBER: 0000950134-95-000919 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19950505 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DR PEPPER BOTTLING COMPANY OF TEXAS CENTRAL INDEX KEY: 0000843397 STANDARD INDUSTRIAL CLASSIFICATION: BOTTLED & CANNED SOFT DRINKS CARBONATED WATERS [2086] IRS NUMBER: 752008278 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-56292 FILM NUMBER: 95535019 BUSINESS ADDRESS: STREET 1: 2304 CENTURY CTR CITY: IRVING STATE: TX ZIP: 75062 BUSINESS PHONE: 2145791024 MAIL ADDRESS: STREET 1: 2304 CENTURY CENTER CITY: IRVING STATE: TX ZIP: 75062 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DR PEPPER BOTTLING HOLDINGS INC CENTRAL INDEX KEY: 0000843396 STANDARD INDUSTRIAL CLASSIFICATION: BOTTLED & CANNED SOFT DRINKS CARBONATED WATERS [2086] IRS NUMBER: 752275754 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-56292-01 FILM NUMBER: 95535020 BUSINESS ADDRESS: STREET 1: 2304 CENTURY CTR CITY: IRVING STATE: TX ZIP: 75062 BUSINESS PHONE: 2145791024 MAIL ADDRESS: STREET 1: 2304 CENTURY CENTER CITY: IRVING STATE: TX ZIP: 75062 POS AM 1 POST-EFFECTIVE AMENDMENT NO. 3 TO FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1995 DR PEPPER BOTTLING COMPANY OF TEXAS REGISTRATION NO. 33-56292 DR PEPPER BOTTLING HOLDINGS, INC. REGISTRATION NO. 33-56292-01 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 POST-EFFECTIVE AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 DR PEPPER BOTTLING COMPANY OF TEXAS DR PEPPER BOTTLING HOLDINGS, INC. (Exact name of Co-Registrant as (Exact name of Co-Registrant as specified in its charter) specified in its charter)
TEXAS 75-2008278 DELAWARE 75-2275754 (State or other jurisdiction (I.R.S. Employer (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) of incorporation or organization) Identification No.)
2086 (Primary Standard Industrial Classification Code Number) JIM L. TURNER 2304 CENTURY CENTER 2304 CENTURY CENTER IRVING, TEXAS 75062 IRVING, TEXAS 75062 (214) 579-1024 (214) 579-1024 (Address including zip code, and telephone (Name, address, including zip code, and number, including telephone area code, of Co-Registrants' principal number, including area code, of agent for executive offices) service)
Copies to: R. SCOTT COHEN JOHN J. SCHUSTER WEIL, GOTSHAL & MANGES CAHILL GORDON & REINDEL 100 CRESCENT COURT 80 PINE STREET SUITE 1300 NEW YORK, NEW YORK 10005 DALLAS, TEXAS 75201
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO TIME 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. /X/ ------------------------ 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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 DR PEPPER BOTTLING COMPANY OF TEXAS CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
ITEM NUMBER OF FORM S-1 PROSPECTUS AND TITLE OF ITEM CAPTION OR LOCATION ------------------------------------------------- -------------------------------------- 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus................... Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus....................................... Inside Front Cover Page; Available Information 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors; Selected Historical Financial Data 4. Use of Proceeds.................................. Prospectus Summary; Use of Proceeds 5. Determination of Offering Price.................. * 6. Dilution......................................... * 7. Selling Security Holders......................... * 8. Plan of Distribution............................. Front Cover Page; Plan of Distribution 9. Description of Securities to be Registered....... Front Cover Page; Prospectus Summary; Description of the Senior Notes; Description of the Discount Notes 10. Interests of Named Experts and Counsel........... * 11. Information with Respect to the Registrant....... Front Cover Page; Prospectus Summary; Recapitalization Plan; Risk Factors; The Company and Holdings; Capitalization; Selected Historical Financial Data; Management's Discussion and Analysis of Results of Operations and Financial Condition; Business; Management; Securities Ownership and Certain Transactions; Index to Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities... *
- --------------- * Omitted because answer is not applicable or negative. 3 DR PEPPER BOTTLING HOLDINGS, INC. CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
ITEM NUMBER OF FORM S-1 PROSPECTUS AND TITLE OF ITEM CAPTION OR LOCATION ------------------------------------------------- -------------------------------------- 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus................... Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus....................................... Inside Front Cover Page; Available Information 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors; Selected Historical Financial Data 4. Use of Proceeds.................................. Prospectus Summary; Use of Proceeds 5. Determination of Offering Price.................. * 6. Dilution......................................... * 7. Selling Security Holders......................... * 8. Plan of Distribution............................. Front Cover Page; Plan of Distribution 9. Description of Securities to be Registered....... Front Cover Page; Prospectus Summary; Description of the Senior Notes; Description of the Discount Notes 10. Interests of Named Experts and Counsel........... * 11. Information with Respect to the Registrant....... Front Cover Page; Prospectus Summary; The Company and Holdings; Recapitalization Plan; Risk Factors; Capitalization; Selected Historical Financial Data; Management's Discussion and Analysis of Results of Operations and Financial Condition; Business; Management; Securities Ownership and Certain Transactions; Index to Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities... *
- --------------- * Omitted because answer is not applicable or negative. 4 PROSPECTUS MAY 5, 1995 DR PEPPER BOTTLING COMPANY OF TEXAS $125,000,000 10 1/4% SENIOR NOTES DUE 2000 AND DR PEPPER BOTTLING HOLDINGS, INC. $125,000,000 11 5/8% SENIOR DISCOUNT NOTES DUE 2003 This Prospectus relates to $125,000,000 in aggregate principal amount of 10 1/4% Senior Notes due 2000 (the "Senior Notes") of Dr Pepper Bottling Company of Texas (the "Company") and $125,000,000 in aggregate principal amount of 11 5/8% Senior Discount Notes due 2003 (the "Discount Notes") of Dr Pepper Bottling Holdings, Inc. ("Holdings"), which were issued in an underwritten public offering in connection with the Recapitalization Plan (as defined herein) of the Company and Holdings. The Senior Notes bear interest at a rate of 10 1/4% per annum, payable semi-annually on February 15 and August 15 of each year, commencing August 15, 1993. The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time on or after February 16, 1998 at the redemption prices set forth herein plus accrued interest, if any, to the date of redemption. No sinking fund will exist with respect to the Senior Notes. In the event of a Change in Control (as defined herein) of the Company or Holdings, the Company will be obligated to make an offer to purchase all outstanding Senior Notes at a redemption price of 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. The Senior Notes are senior unsecured obligations of the Company, rank pari passu in right of payment with all existing and future senior debt of the Company, and are senior in right of payment to all subordinated indebtedness of the Company. For a more complete description of the Senior Notes, see "Description of the Senior Notes." The Discount Notes were issued at a substantial discount from their principal amount. See "Description of the Discount Notes" and "Certain Federal Income Tax Considerations." Commencing February 16, 1998, interest will accrue until maturity on the Discount Notes at the rate of 11 5/8% per annum. Interest on the Discount Notes is payable semi-annually on February 15 and August 15 of each year, commencing August 15, 1998. The Discount Notes are redeemable, in whole or in part, at the option of Holdings, on or after February 16, 1998, at the redemption prices set forth herein plus accrued interest. In the event Holdings consummates an initial public offering of its common stock on or before the third anniversary of the issuance of the Discount Notes, Holdings may, at its option, use all or a portion of the proceeds of such sale to redeem up to one-third of the aggregate principal amount of the Discount Notes originally issued at 108% of the Accreted Value (as defined herein) thereof at the date of redemption. No sinking fund will exist with respect to the Discount Notes. In the event of a Change in Control (as defined herein) of Holdings, Holdings will be obligated to make an offer to purchase all outstanding Discount Notes at a redemption price of 101% of the Accreted Value thereof on any repurchase date prior to February 16, 1998, or 101% of the principal amount thereof plus accrued and unpaid interest to any repurchase date on or after February 16, 1998. The Discount Notes are senior unsecured obligations of Holdings, rank pari passu in right of payment with all existing and future senior debt of Holdings, and are senior in right of payment to all subordinated indebtedness of Holdings. As indebtedness of Holdings, however, the Discount Notes are effectively subordinated to all obligations of the Company. At February 28, 1995, the aggregate amount of indebtedness and other obligations of the Company was approximately $255.2 million. For a more complete description of the Discount Notes, see "Description of the Discount Notes." There is currently no established public trading market for the Senior Notes or the Discount Notes. The Company and Holdings have been advised by Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ Securities") that it has made a market in the Senior Notes and the Discount Notes in the past, and that, subject to applicable laws and regulations, it currently intends to do so in the future; however, DLJ Securities is not obligated to do so. Any market making may be discontinued at any time and there is no assurance that an active public market for the Senior Notes or the Discount Notes will develop or that if such a market develops, that it will continue. This Prospectus has been prepared for use by DLJ Securities in connection with offers of the Senior Notes and the Discount Notes in market making transactions. DLJ Securities may act as principal or agent in such transactions. See "Plan of Distribution." SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SENIOR NOTES OR THE DISCOUNT NOTES. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 5 NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFERINGS MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, HOLDINGS OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. TABLE OF CONTENTS
PAGE Prospectus Summary...................... 3 The Company and Holdings................ 8 Recapitalization Plan................... 9 Risk Factors............................ 10 Use of Proceeds......................... 14 Capitalization.......................... 15 Selected Historical Financial Data...... 16 Management's Discussion and Analysis of Results of Operations and Financial Condition............................. 18 Business................................ 22 Management.............................. 27 Securities Ownership and Certain Transactions.......................... 31 Description of the Senior Notes......... 34 Description of the Discount Notes....... 49 Description of the 1993 Bank Financing............................. 65 Description of the Preferred Stock and the Warrant........................... 67 Description of Certain Existing Obligations........................... 69 Certain Federal Income Tax Considerations........................ 70 Plan of Distribution.................... 74 Legal Matters........................... 75 Experts................................. 75 Available Information................... 75 Index to Financial Statements........... F-1
THE COMPANY WILL FURNISH HOLDERS OF THE SENIOR NOTES AND HOLDINGS WILL FURNISH HOLDERS OF THE DISCOUNT NOTES WITH ANNUAL REPORTS CONTAINING, AMONG OTHER INFORMATION, AUDITED FINANCIAL STATEMENTS CERTIFIED BY AN INDEPENDENT PUBLIC ACCOUNTING FIRM AND QUARTERLY REPORTS CONTAINING UNAUDITED FINANCIAL INFORMATION FOR THE FIRST THREE QUARTERS OF EACH FISCAL YEAR. THE COMPANY AND HOLDINGS WILL ALSO FURNISH SUCH OTHER REPORTS AS THEY MAY DETERMINE OR AS MAY BE REQUIRED BY LAW. 2 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements and notes thereto appearing elsewhere in this Prospectus. Certain capitalized terms used in this Prospectus Summary are defined elsewhere in this Prospectus. THE COMPANY AND HOLDINGS The Company is the largest independent franchise bottler of DR PEPPER brand products, accounting for approximately 12% of the total volume of such products, and is one of the largest independent soft drink bottlers in the United States. The Company produces, markets, and distributes carbonated soft drinks pursuant to franchise agreements with companies owning the rights to various soft drink formulae. Principal products are bottled and canned under franchises from Dr Pepper/Seven-Up Corporation (DR PEPPER and SEVEN-UP brand products), Cadbury Beverages North America, Inc. (CANADA DRY, SUNKIST, A&W, SQUIRT, and COUNTRYTIME brand products), Royal Crown Cola Company, Big Red, Inc. (BIG RED) and Monarch Company (NUGRAPE). The Company also distributes certain other non-carbonated soft drinks, including leading bottled waters such as Evian and Naya, within defined territories pursuant to distribution agreements with various companies. These franchise and distribution agreements generally grant to the Company the exclusive right to market and distribute the licensed product in bottles and cans within defined territories. Certain of the franchise agreements also grant to the Company the nonexclusive right to sell and distribute fountain syrup within a defined territory. The Company's three major franchise and distribution territories are Dallas/Fort Worth, Houston, and Waco, Texas. The Company's operating strategy is to (i) manufacture and market leading soft drink products within a comprehensive range of soft drink categories, principally focusing on sales of national brands in the non-cola segments of the soft drink market; (ii) increase the market shares of its portfolio of brands by utilizing a wide range of marketing activities, including price and consumer promotion, retail space management and advertising; (iii) broaden penetration of the higher margin "single drink" segment of the soft drink market; and (iv) acquire contiguous bottling territories and additional franchises for major brands within existing territories. Holdings is a holding company, the primary asset of which is the common stock of the Company. Holdings was formed in 1988 to acquire the Company in a leveraged recapitalization transaction. See "The Company and Holdings." RECAPITALIZATION PLAN In 1993, the Company and Holdings completed a recapitalization plan (the "Recapitalization Plan") the purpose of which plan was to reduce the aggregate amount of interest expense and preferred stock dividend requirements. The principal elements of the Recapitalization Plan are described below. The following elements of the Recapitalization Plan were completed on February 18, 1993 (the "Closing Date"): (i) the issuance and sale by the Company of the Senior Notes; (ii) the issuance and sale by Holdings of the Discount Notes; (iii) the issuance and sale by Holdings of senior exchangeable preferred stock and a warrant to purchase 15% of the common stock of Holdings in a private transaction for $30 million (the "Equity Offering"); (iv) the repurchase of $154,650,000 of the $162 million aggregate principal amount of outstanding Senior Subordinated Discount Notes due 1998 of the Company (the "Old Discount Notes") pursuant to a cash tender offer (the "Tender Offer") and a related solicitation of consents from the holders of the Old Discount Notes (the "Consent Solicitation"); and (v) the repayment of all amounts outstanding under two then existing credit agreements of the Company. The following elements of the Recapitalization Plan were completed on March 22, 1993: (a) borrowings by the Company of approximately $91.7 million pursuant to a Credit Agreement, dated February 18, 1993 (the "1993 Bank Credit Agreement"), among the Company, Texas Commerce Bank National Association ("TCB"), as Agent, and the banks named therein (the "1993 Bank Financing"); and (b) the redemption of all of the outstanding Senior Exchangeable Preferred Stock of the Company (the "Old Preferred Stock"). On November 20, 1993 the Company redeemed the remaining $7,350,000 aggregate principal amount of Old Discount Notes not repurchased pursuant to the Tender Offer. 3 7 THE SECURITIES SENIOR NOTES Maturity...................... February 15, 2000. Interest Rate................. 10 1/4% per annum. Interest Payment Dates........ February 15 and August 15, commencing August 15, 1993. Ranking....................... The Senior Notes are senior unsecured obligations of the Company and rank pari passu with other senior indebtedness of the Company and senior to all subordinated debt of the Company. However, other than trade payables, virtually all of the other senior indebtedness of the Company is secured by substantially all of the assets of the Company. Because such other senior indebtedness is secured, the Senior Notes effectively rank junior to such indebtedness. Optional Redemption........... The Senior Notes may not be redeemed prior to February 16, 1998. On or after February 16, 1998, the Company, at its option, may redeem the Senior Notes in whole or in part at the redemption prices set forth herein plus accrued interest to the date of redemption. Certain Covenants............. The indenture under which the Senior Notes were issued contains certain covenants that, among other things, limit the ability of the Company to pay dividends or make certain other restricted payments, to incur additional indebtedness, to encumber or sell assets, to enter into transactions with affiliates, to make certain investments, to merge or consolidate with any other person and to transfer or lease its assets. Change in Control............. If a Change in Control (as defined) of the Company or Holdings occurs, each holder of Senior Notes will have the right to require the Company to repurchase any or all Senior Notes owned by such holder at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date. DISCOUNT NOTES Maturity...................... February 15, 2003. Interest Rate................. 11 5/8% per annum. Interest Payment Dates........ No interest will accrue on the Discount Notes prior to February 16, 1998. Commencing February 16, 1998, interest on the Discount Notes will accrue at the rate of 11 5/8% per annum, and will be payable in cash semiannually on each February 15 and August 15, commencing on August 15, 1998. Original Issue Discount....... For federal income tax purposes, the Discount Notes were issued with "original issue discount" equal to the difference between the issue price of the Discount Notes and the sum of all cash payments (whether denominated as principal or interest) to be made thereon. Each holder of a Discount Note must include in gross income for federal income tax purposes the sum of the daily portions of such original issue discount for each day during each taxable year in which the Discount Note is held, even though no interest payments will 4 8 be received prior to August 15, 1998. See "Certain Federal Income Tax Considerations." Ranking....................... The Discount Notes are senior unsecured obligations of Holdings, but are structurally subordinated to claims against Holdings' subsidiaries. Accordingly, the Discount Notes effectively rank junior to all of the outstanding indebtedness of the Company and in the event of the dissolution, bankruptcy, liquidation or reorganization of the Company and Holdings, the holders of the Discount Notes may not receive any amounts with respect to the Discount Notes until after the payment in full of the claims of creditors of the Company. As of February 28, 1995, the aggregate amount of indebtedness and other obligations of the Company to which the holders of the Discount Notes were effectively subordinated was approximately $255.2 million. In addition, all of the common stock of the Company was pledged to secure Holdings' guarantee of the obligations of the Company under the 1993 Bank Credit Agreement. Optional Redemption........... The Discount Notes may not be redeemed prior to February 16, 1998. On or after February 16, 1998, Holdings, at its option, may redeem the Discount Notes in whole or in part at the redemption prices set forth herein plus accrued interest to the date of redemption. In the event Holdings consummates an initial public offering of its common stock on or before the third anniversary of the issuance of the Discount Notes, Holdings may, at its option, use all or a portion of the proceeds of such sale to redeem up to one-third of the aggregate principal amount of the Discount Notes originally issued at 108% of the Accreted Value thereof at the date of redemption. Certain Covenants............. The indenture under which the Discount Notes were issued contains certain covenants that, among other things, limit the ability of Holdings and the Company to pay dividends or make certain other restricted payments, to incur additional indebtedness, to encumber or sell assets, to enter into transactions with affiliates, to make certain investments, to merge or consolidate with any other person or to transfer or lease their assets. Change in Control............. If a Change in Control (as defined) of Holdings occurs, each holder of Discount Notes will have the right to require Holdings to repurchase any or all Discount Notes owned by such holder at a redemption price of 101% of the Accreted Value (as defined) thereof on any repurchase date prior to February 16, 1998 or 101% of the principal amount thereof plus accrued and unpaid interest, if any, to any repurchase date on or after February 16, 1998. 5 9 COMPANY SUMMARY FINANCIAL DATA The following table presents selected operating, balance sheet and other data of the Company as of and for the years ended December 31, 1992, 1993 and 1994. The financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the financial statements of the Company and the related notes thereto contained elsewhere herein.
COMPANY ------------------------------ YEAR ENDED DECEMBER 31, ------------------------------ 1992 1993(A)(B) 1994 (IN THOUSANDS) OPERATING DATA: Net sales.................................................... $288,271 $310,881 $332,204 Gross profit................................................. 102,488 114,924 117,828 Operating profit............................................. 30,001 33,606 35,995 Other expense (income): Interest.................................................. 30,830 23,957 22,392 Other..................................................... 908 (1,280) 983 Income (loss) before extraordinary item...................... (1,737) 10,929 12,480 Extraordinary item -- loss on recapitalization.......................................... -- (31,559) -- Net earnings (loss).......................................... (1,737) (20,630) 12,480 Dividends on preferred stock................................. 13,171 5,806 -- OTHER DATA: EBITDA(c).................................................... 43,811 49,061 51,188 Depreciation................................................. 8,658 9,593 9,273 Amortization of excess cost over net assets of business acquired.................................................. 5,505 5,751 5,519 Amortization of debt issuance costs.......................... 1,107 1,337 1,384 Additions to property, plant and equipment, net(d)......................................... 6,346 8,367 10,644 Deficiency of earnings available to cover fixed charges(e).......................................... 1,737 -- -- Ratio of earnings to fixed charges(e)(f)..................... -- 1.43x 1.53x BALANCE SHEET DATA (AT END OF PERIOD): Working capital.............................................. 3,258 657 (9,818) Total assets................................................. 227,625 243,175 237,816 Long-term debt, less current maturities...................... 212,562 227,696 199,261 Stockholders' deficit........................................ (24,896) (37,593) (25,113)
- --------------- (a) The operating data for the year ended December 31, 1993 reflect the impact of the acquisition of substantially all the assets of Dr Pepper Bottling Company of Galveston, Inc. for the period from April 13, 1993 to December 31, 1993. See "The Company and Holdings." (b) On a pro forma basis, assuming the transactions contemplated by the Recapitalization Plan had been consummated on January 1, 1993, for the year ended December 31, 1993, interest expense would have been $22,579, income before extraordinary item would have been $12,260, extraordinary loss on recapitalization would have been $31,738, net loss would have been $19,478, dividends on preferred stock would have been $0, amortization of debt issuance costs would have been $1,384 and ratio of earnings to fixed charges would have been 1.51x. Such pro forma financial data does not purport to represent what the results of operations of the Company would actually have been if the transactions contemplated by the Recapitalization Plan had in fact been consummated on January 1, 1993, or to project the results of operations for any future periods. (c) "EBITDA" represents, for any relevant period, income (loss) before extraordinary item plus interest, taxes, depreciation, amortization of excess cost over net assets of businesses acquired, amortization of debt issuance costs, and other non-cash expenses. EBITDA is presented here not a measure of operating results, but rather as a measure of the Company's operating cash flow and debt service ability. Certain restrictive covenants contained in the 1993 Bank Credit Agreement and in the indenture governing the Senior Notes are based on the Company's operating cash flow, subject to certain adjustments. See "Description of the Senior Notes -- Certain Definitions" and "Description of the 1993 Bank Financing -- Covenants." (d) Additions to property, plant and equipment are presented net of proceeds received upon the disposition of such assets. Additions to property, plant and equipment for the year ended December 31, 1992 reflect the receipt of $1,487 by the Company upon the sale/leaseback of a portion of its trucking fleet. (e) "Fixed charges" consist of interest (including amortization of discount and debt issuance costs) and the interest component of lease expense. (f) For the purpose of calculating the ratio of earnings to fixed charges, "earnings" represents income (loss) before extraordinary item plus fixed charges. 6 10 HOLDINGS SUMMARY FINANCIAL DATA The following table presents selected operating, balance sheet and other data of Holdings as of and for the years ended December 31, 1992, 1993 and 1994. The financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the financial statements of Holdings and the related notes thereto contained elsewhere herein.
HOLDINGS --------------------------------- YEAR ENDED DECEMBER 31, --------------------------------- 1992 1993(A)(B) 1994 (IN THOUSANDS) OPERATING DATA: Net sales.................................................. $288,271 $ 310,881 $ 332,204 Gross profit............................................... 102,488 114,924 117,828 Operating profit........................................... 30,001 33,606 35,995 Other expense (income): Interest................................................. 30,830 31,304 31,777 Other.................................................... 908 (1,014) 1,287 Dividends on Company preferred stock....................... 13,171 5,806 -- Income (loss) before extraordinary item.................... (14,908) (2,490) 2,791 Extraordinary item -- loss on recapitalization............. -- (31,559) -- Net earnings (loss)........................................ (14,908) (34,049) 2,791 Net loss per common share.................................. (1.12) (2.67) (.08) Dividends on Preferred Stock............................... -- 2,079 3,677 OTHER DATA: EBITDA(c).................................................. 43,811 49,067 51,211 Depreciation............................................... 8,658 9,593 9,273 Amortization of excess cost over net assets of business acquired................................................. 5,505 5,751 5,519 Amortization of debt issuance costs........................ 1,107 1,610 1,711 Accretion of bond discount................................. -- 7,340 9,385 Additions to property, plant and equipment, net(d)......... 6,346 8,367 10,644 Deficiency of earnings available to cover fixed charges(e)............................................... 14,908 2,490 -- Ratio of earnings to fixed charges(e)(f)................... -- -- 1.08x BALANCE SHEET DATA (AT END OF PERIOD): Working capital............................................ 3,258 374 (10,078) Total assets............................................... 227,625 245,863 240,199 Long-term debt, less current maturities.................... 212,562 306,149 287,099 Preferred Stock(g)......................................... -- 29,635 33,502 Stockholders' deficit...................................... (109,394) (142,994) (144,070)
- --------------- (a) The operating data for the year ended December 31, 1993 reflect the impact of the acquisition of substantially all the assets of Dr Pepper Bottling Company of Galveston, Inc. for the period from April 13, 1993 to December 31, 1993. See "The Company and Holdings." (b) On a pro forma basis, assuming the transactions contemplated by the Recapitalization Plan had been consummated on January 1, 1993, for the year ended December 31, 1993, interest expense would have been $31,019, dividends on Company preferred stock would have been $0, income before extraordinary item would have been $3,500, extraordinary loss on recapitalization would have been $31,738, net loss would have been $28,238, amortization of debt issuance costs would have been $1,711, accretion of bond discount would have been $8,433 and the ratios of earnings to (i) fixed charges and (ii) combined fixed charges and preferred stock dividend requirements on the Preferred Stock would have been 1.11x and 1.03x, respectively. (For purposes of calculating such ratios, "earnings" represents income (loss) before extraordinary item plus fixed charges.) Such pro forma financial data does not purport to represent what the results of operations of Holdings would actually have been if the transactions contemplated by the Recapitalization Plan had in fact been consummated on January 1, 1993, or to project the results of operations for any future periods. (c) "EBITDA" represents, for any relevant period, income (loss) before extraordinary item plus interest, taxes, depreciation, amortization of excess cost over net assets of business acquired, amortization of debt issuance costs, other non-cash expenses and dividends on Company preferred stock. EBITDA is presented here not as a measure of operating results, but rather as a measure of Holdings' consolidated operating cash flow and debt service ability. Certain restrictive covenants contained in the indenture governing the Discount Notes are based on Holdings' consolidated operating cash flow, subject to certain adjustments. See "Description of the Discount Notes -- Certain Definitions." (d) Additions to property, plant and equipment are presented net of proceeds received upon the disposition of such assets. Additions to property, plant and equipment for the year ended December 31, 1992 reflect the receipt of $1,487 by the Company upon the sale/leaseback of a portion of its trucking fleet. (e) "Fixed charges" consist of interest (including amortization of discount and debt issuance costs), the interest component of lease expense, and dividend requirements for the Old Preferred Stock. Dividend requirements for the Company's Old Preferred Stock have not been tax effected because Holdings had no provision for income tax expense applicable to income from continuing operations for the periods presented. (f) For the purpose of calculating the ratio of earnings to fixed charges, "earnings" represents income before taxes and extraordinary items plus fixed charges. (g) The Preferred Stock is subject to mandatory redemption under certain circumstances. 7 11 THE COMPANY AND HOLDINGS The Company is the largest independent franchise bottler of DR PEPPER brand products, accounting for approximately 12% of the total volume of such products, and is one of the largest independent soft drink bottlers (i.e., bottlers that have no affiliations with either The Coca-Cola Company or PepsiCo, Inc.) in the United States. The Company produces, markets, and distributes carbonated soft drinks pursuant to franchise agreements with companies owning the rights to various soft drink formulae. Principal products are bottled and canned under franchises from Dr Pepper/Seven-Up Corporation (DR PEPPER and SEVEN-UP brand Cadbury Beverages North America, Inc. (CANADA DRY, SUNKIST, A&W , SQUIRT, and COUNTRYTIME brand products), Royal Crown Cola Company, Big Red, Inc. (BIG RED) and Monarch Company (NUGRAPE). The Company also distributes certain other non-carbonated soft drinks, including leading bottled waters such as Evian and Naya, within defined territories pursuant to distribution agreements with various companies. These franchise and distribution agreements generally grant to the Company the exclusive right to market and distribute the licensed product in bottles and cans within defined territories. Certain of the franchise agreements also grant to the Company the nonexclusive right to sell and distribute fountain syrup within a defined territory. The Company's three major franchise and distribution territories are Dallas/Fort Worth, Houston, and Waco, Texas. The Company was formed in 1985 to acquire Dallas/Fort Worth Dr Pepper Bottling Company and Dr Pepper Bottling Company of Waco, which companies held franchises to produce, market, and distribute DR PEPPER brand soft drink products in the Dallas/Fort Worth and Waco, Texas franchise territories, as well as franchises to produce, market, and distribute certain other soft drink products within defined franchise territories. Since that time, the Company has continued to grow through the acquisition of new franchise territories and additional brand products within existing franchise territories. The following table sets forth information regarding certain of the subsequent acquisitions:
ACQUISITION FRANCHISE MAJOR BRAND ACQUISITION DATE COST TERRITORY PRODUCTS Certain assets of The October 1985 $ 1.3 million Waco 7UP Seven-Up Company Certain assets of Dr December 1986 58.8 million Houston DR PEPPER, 7UP Pepper Bottling Company of Houston, Inc. Certain assets of Full January 1989 24.5 million(a) Dallas/Fort Worth RC, CANADA DRY, Service Beverage SUNKIST Company of Texas Fort Worth 7UP Seven-Up Bottling Company January 1990 4.0 million(b) Dallas 7UP of Dallas, Inc. Certain assets of Dr April 1993 9.0 million(c) Galveston DR PEPPER, 7UP Pepper Bottling Company of Galveston, Inc.
- --------------- (a) Includes a payment made by the Company with respect to a noncompetition agreement entered into by the seller and certain of its principals. (b) In addition to the cash purchase price of $4 million, the Company entered into a noncompetition agreement with certain stockholders of the seller providing for cash payments, aggregating $3 million, to be made over a specified period. (c) In addition to the cash purchase price of $9 million, the Company entered into a noncompetition agreement with certain stockholders of the seller providing for cash payments, aggregating $1 million, to be made over a specified period. Holdings is a holding company, the primary asset of which is the common stock of the Company. Holdings was formed in 1988 to acquire the Company in a leveraged recapitalization transaction. The Company's and Holdings' principal executive offices are located at 2304 Century Center, Irving, Texas 75062 and their telephone number is (214) 579-1024. 8 12 RECAPITALIZATION PLAN In 1993, the Company and Holdings completed the Recapitalization Plan. The purpose of the Recapitalization Plan was to reduce aggregate interest expense and preferred stock dividend requirements. The sources and uses of funds for, and the principal elements of, the Recapitalization Plan are described below. SOURCES AND USES OF FUNDS The following table sets forth the sources of funds used by the Company and Holdings to effect the Recapitalization Plan and the application of such funds by the Company and Holdings.
AMOUNT (IN MILLIONS) Sources of Funds: Cash on hand........................................................... $ 9.6 1993 Bank Financing.................................................... 91.7 Senior Notes........................................................... 125.0 Discount Notes......................................................... 71.1 Equity Offering........................................................ 30.0 ------- Total.......................................................... $ 327.4 ======= Uses of Funds: Repurchase of Old Discount Notes pursuant to the Tender Offer and Consent Solicitation................................................ $ 180.7 Repayment of Old Credit Agreements..................................... 30.3 Redemption of Old Preferred Stock...................................... 91.7 Redemption of remaining Old Discount Notes............................. 7.8 Estimated transaction fees and expenses................................ 16.9 ------- Total.......................................................... $ 327.4 =======
ELEMENTS OF THE RECAPITALIZATION PLAN Sources of Funds Cash on Hand. The Company used $9.6 million of cash on hand to fund the transactions contemplated by the Recapitalization Plan. 1993 Bank Financing. The 1993 Bank Financing consists of (i) a term loan facility (the "1993 Term Loan Facility") pursuant to which the Company borrowed $91.7 million on March 22, 1993 and (ii) a revolving line of credit facility in a principal amount of up to $25 million (the "1993 Revolving Line of Credit Facility"). The 1993 Bank Financing was provided under the 1993 Bank Credit Agreement. See "Description of the 1993 Bank Financing." Senior Notes. The Company issued and sold the Senior Notes in the aggregate principal amount of $125 million. See "Description of the Senior Notes." Discount Notes. Holdings issued and sold the Discount Notes in the aggregate principal amount of $125 million, generating gross proceeds of approximately $71.1 million. See "Description of the Discount Notes." Equity Offering. Holdings issued and sold to Crown, Cork & Seal Company, Inc. Master Retirement Trust ("Crown") $30 million liquidation preference of senior exchangeable preferred stock (the "Preferred Stock") and a warrant (the "Warrant") to purchase up to 15% of the common stock of Holdings on a fully diluted basis. Uses of Funds Tender Offer and Consent Solicitation. The Company purchased $154,650,000 of the $162 million aggregate principal amount of Old Discount Notes previously outstanding from holders of Old Discount Notes pursuant to the Tender Offer and Consent Solicitation. The total consideration paid pursuant to the Tender 9 13 Offer and the Consent Solicitation was approximately $173.6 million plus accrued interest of approximately $7.1 million to but excluding the Closing Date. Repayments of Old Credit Agreements. Upon the closing of the offerings of the Senior Notes and the Discount Notes, the Company repaid all the outstanding principal of the borrowings under the Credit Agreement dated as of October 28, 1988, as amended (the "1988 Credit Agreement"), between the Company and the lenders and agent named therein, and the Credit Agreement dated as of January 18, 1989, as amended (the "1989 Credit Facility"), between the Company and the lenders and agent named therein (the 1988 Credit Agreement and 1989 Credit Facility collectively being referred to as the "Old Credit Agreements") and paid all the accrued and unpaid interest thereon (approximately $30.3 million) (the "Loan Repayments"). Redemption of Old Preferred Stock. On the date of the closing of the offerings of the Senior Notes and the Discount Notes, the Company called for redemption all of the then outstanding Old Preferred Stock (approximately $89.5 million liquidation preference) on March 22, 1993 at a redemption price equal to 100% of the liquidation preference plus accrued and unpaid dividends of approximately $2.2 million to but excluding the redemption date. Redemption of Remaining Old Discount Notes. On November 20, 1993, the Company redeemed the remaining $7,350,000 aggregate principal amount of Old Discount Notes not repurchased pursuant to the Tender Offer at a redemption price of 105.8125% of such principal amount plus unpaid interest on the outstanding Old Discount Notes to the redemption date, or an aggregate redemption price of approximately $7.8 million. Expenses. Approximately $16.9 million of funds available to the Company and Holdings were used to pay fees and expenses related to the Recapitalization Plan, including the underwriting discounts and commissions and related expenses incurred in connection with the initial offerings of the Senior Notes and the Discount Notes. RISK FACTORS Prospective purchasers of the Senior Notes and the Discount Notes should consider the specific factors set forth below as well as the other information set forth in this Prospectus. HIGH LEVERAGE AND ABILITY TO SERVICE DEBT Each of the Company and Holdings is and will continue to be highly leveraged. As of December 31, 1994, the Company and Holdings had total outstanding long-term indebtedness (including current maturities) of approximately $213.7 million and $301.5 million, respectively. As of December 31, 1994, approximately $68.1 million was outstanding under the 1993 Term Loan Facility. The Company will be required to repay the principal under the 1993 Term Loan Facility as follows: $13.8 million in 1995, $15.5 million in 1996, $17.2 million in each of 1997 and 1998 and $4.4 million in 1999, subject to reduction for mandatory and optional repayments. The 1993 Revolving Line of Credit Facility will mature in 1999, and any amounts remaining outstanding thereunder will be required to be paid in full at maturity. The substantial indebtedness of the Company and Holdings will continue to limit their ability to respond to changing business and economic conditions. Changing business and economic conditions may affect the financial condition or financing requirements of the Company and Holdings and could impose risks to the holders of the Senior Notes and the Discount Notes. Moreover, the Company's existing sale-leaseback arrangement, 1993 Bank Credit Agreement and the indentures governing the Senior Notes and the Discount Notes impose operating and financial restrictions on the Company and Holdings. Such restrictions affect, and in many respects limit or prohibit, among other things, the ability of the Company and Holdings to incur additional indebtedness, make capital expenditures, create liens, sell assets, engage in mergers or acquisitions or make dividends or other payments. The 1993 Bank Credit Agreement also requires that the Company satisfy certain financial covenants. Any failure by the Company to comply with these or other covenants and restrictions contained in the 1993 Bank 10 14 Credit Agreement and the Company's sale-leaseback arrangements could result in a default thereunder, which in turn could cause such indebtedness to be declared immediately due and payable. The ability of the Company to comply with these covenants and restrictions may be affected by events beyond its control. Borrowings under the 1993 Bank Credit Agreement bear interest at floating rates. Increases in interest rates on such borrowings could adversely affect the financial condition or results of operations of the Company and Holdings. While interest rates are currently at low levels, increases in interest rates could negatively impact the ability of the Company and Holdings to meet their debt service obligations, including their obligations pursuant to the Senior Notes and the Discount Notes. As required by the 1993 Bank Credit Agreement, the Company entered into interest rate protection arrangements, expiring June 30, 1996, in an aggregate notional amount equal to $45 million, subject to reduction by $2 million at the end of each quarter starting with the quarter ending June 30, 1994. Based on the Company's anticipated operating results, management believes that the Company's future operating activities will generate sufficient cash flows to repay borrowings under the 1993 Term Loan Facility as they become due and payable. However, based on such anticipated operating results, management does not expect that the Company's future operating activities will generate sufficient cash flows to repay the Senior Notes and the Discount Notes at their respective maturities. Accordingly, the Company and Holdings expect that they will be required to refinance all or substantially all of the Senior Notes and the Discount Notes at their respective maturities or sell equity or assets to fund the repayment of all or substantially all of the Senior Notes and the Discount Notes at their respective maturities, or effect a combination of the foregoing. While the Company and Holdings believe that they will be able to refinance the Senior Notes and the Discount Notes at or prior to their respective maturities, or raise sufficient funds through equity or asset sales to repay such indebtedness, or effect a combination of foregoing, there can be no assurance that such will be the case. The ability of the Company and Holdings to meet their debt service obligations will depend on the future operating performance and financial results of the Company, which will be subject in part to factors beyond the control of the Company, such as prevailing economic conditions and financial, business, and other factors. The highly leveraged position of the Company and the restrictive covenants contained in the debt instruments of the Company could significantly limit its ability to withstand competitive pressures or adverse economic conditions, make acquisitions, or take advantage of business opportunities that may arise. HOLDING COMPANY STRUCTURE; LIMITATIONS ON ACCESS TO CASH FLOW OF THE COMPANY Holdings conducts business through the Company and has no operations of its own. The primary asset of Holdings is the common stock of the Company. Holdings is dependent on the cash flow of the Company in order to meet its debt service obligations. The 1993 Bank Credit Agreement and the Senior Notes indenture impose significant restrictions on the payment of dividends and the making of loans by the Company to Holdings. However, the Senior Notes indenture allows the Company to pay dividends to Holdings in accordance with a specified formula if, after giving effect thereto, no event of default, or an event that with the passage of time or the giving of notice, or both, would constitute an event of default under the Senior Notes indenture shall have occurred and be continuing. See "Description of the Senior Notes -- Covenants -- Limitation on Restricted Payments." In addition, the 1993 Bank Credit Agreement allows the Company to pay dividends to Holdings in an amount necessary to make cash interest payments on the Discount Notes, provided that no event of default exists or would be created under the 1993 Bank Credit Agreement. The final amounts outstanding under the 1993 Bank Credit Agreement mature June 30, 1999, the Senior Notes mature February 15, 2000 and the Discount Notes mature February 15, 2003. As a result of the holding company structure of Holdings, the creditors of Holdings, including the holders of the Discount Notes, effectively rank junior to all creditors of the Company, including the bank lenders under the 1993 Bank Credit Agreement, the holders of the Senior Notes, trade creditors and the holders of the Company's obligations under the sale-leaseback arrangements related to the Company's two bottling plants. In the event of the dissolution, bankruptcy, liquidation or reorganization of the Company, the holders of the Discount Notes will not receive any amounts in respect of the Discount Notes until after the payment in full of the claims of the creditors of the Company. As of February 28, 1995, the aggregate amount of indebtedness and other obligations of the Company to which the holders of the Discount Notes were effectively 11 15 subordinated was approximately $255.2 million. In addition, all of the common stock of the Company was pledged to secure Holdings' guarantee of the obligations of the Company under the 1993 Bank Credit Agreement. UNSECURED STATUS OF SENIOR NOTES AND DISCOUNT NOTES The Senior Notes and the Discount Notes are not secured by any of the assets of the Company or Holdings. In addition, the obligations of the Company under the 1993 Bank Credit Agreement and Holdings' guarantee of such obligations are secured by pledges of substantially all of their respective assets. ORIGINAL ISSUE DISCOUNT CONSEQUENCES OF THE DISCOUNT NOTES The Discount Notes were issued at a substantial discount from their principal amount. Consequently, the purchasers of the Discount Notes generally will be required to include amounts in gross income for federal income tax purposes in advance of receipt of the cash payments to which the income is attributable. See "Certain Federal Income Tax Considerations" for a more detailed discussion of the federal income tax consequences to the holders of the Discount Notes of the purchase, ownership and disposition of the Discount Notes. If a bankruptcy case is commenced by or against Holdings under the United States Bankruptcy Code, the claim of a holder of Discount Notes with respect to the principal amount thereof may be limited to an amount equal to the sum of (i) the initial public offering price and (ii) that portion of the original issue discount which is not deemed to constitute "unmatured interest" for purposes of the United States Bankruptcy Code. Any original issue discount that was not amortized as of any such bankruptcy filing would constitute "unmatured interest." FRAUDULENT TRANSFER CONSIDERATIONS Under fraudulent transfer law, if a court were to find, in a lawsuit by an unpaid creditor or representative of creditors of the Company or Holdings, that the Company or Holdings received less than fair consideration or reasonably equivalent value for incurring the indebtedness represented by the Senior Notes or the Discount Notes, respectively, and, at the time of such incurrence, the Company or Holdings (i) was insolvent or was rendered insolvent by reason of such incurrence, (ii) was engaged or about to engage in a business or transaction for which its remaining property constituted unreasonably small capital or (iii) intended to incur, or believed it would incur, debts beyond its ability to pay as such debts mature, such court could, among other things, (a) avoid all or a portion of the Company's or Holdings' obligations to the holders of the Senior Notes or the Discount Notes; and/or (b) subordinate the Company's or Holdings' obligations to the holders of the Senior Notes or the Discount Notes to other existing and future indebtedness of the Company or Holdings, the effect of which would be to entitle such other creditors to be paid in full before any payment could be made on the Senior Notes or the Discount Notes, as the case may be. The measure of insolvency for purposes of determining whether a transfer is avoidable as a fraudulent transfer varies depending upon the law of the jurisdiction which is being applied. Generally, however, a debtor would be considered insolvent if the sum of all of its liabilities were greater than the value of all of its property at a fair valuation, or if the present fair salable value of the debtor's assets were less than the amount required to repay its probable liability on its debts as they become absolute and matured. There can be no assurance as to what standard a court would apply in order to determine solvency. To the extent that proceeds from the sale of the Senior Notes or the Discount Notes are deemed to have been used to redeem the Old Preferred Stock, a court may find that the Company or Holdings did not receive fair consideration or reasonably equivalent value for the incurrence of the indebtedness represented thereby. In addition, if a court were to find that the incurrence of the indebtedness incurred in connection with the acquisition of the Company by Holdings (i.e., indebtedness outstanding under one of the Old Credit Agreements and the Old Discount Notes) constituted a fraudulent transfer, to the extent that proceeds from the sale of the Senior Notes or the Discount Notes are used to retire such indebtedness, a court may find that the Company or Holdings did not receive fair consideration or reasonably equivalent value for the incurrence of the indebtedness represented by the Senior Notes or the Discount Notes. 12 16 On the basis of its historical financial information, its recent operating history as discussed in "Management's Discussion and Analysis of Results of Operations and Financial Condition" and other factors, the Company and Holdings believe that, following the issuance of the Senior Notes and the Discount Notes and the incurrence of the indebtedness under the 1993 Term Loan Facility upon consummation of the Recapitalization Plan, the Company and Holdings were solvent, had sufficient capital for the business in which they are engaged and did not incur debts beyond their ability to pay such debts as they mature. There can be no assurance, however, that a court would necessarily agree with these conclusions. DEPENDENCE ON FRANCHISES The Company operates under franchise agreements with a number of soft drink concentrate and syrup producers. The franchise agreements contain comprehensive provisions regarding the bottling, distribution, and sale of the franchisors' products and impose substantial obligations on the Company. Violation of the provisions of any franchise agreement could result in the termination of such franchise, resulting in the Company's loss of the right to bottle and sell the products covered by such franchise. No assurance can be given that the Company will be able to maintain its existing franchises indefinitely. Most of the Company's franchise agreements also contain provisions requiring the Company to obtain the consent of the concentrate producer in the event of certain changes in ownership of the Company. Such provisions vary among the franchise agreements. In addition, the Company's franchise agreements are not assignable without the consent of the concentrate producer. CHANGE IN CONTROL The 1993 Bank Credit Agreement provides that, if a "Change in Control", as defined in the indentures governing the Senior Notes or the Discount Notes or the documents governing the Preferred Stock, occurs, it constitutes an event of default under the 1993 Bank Credit Agreement. In addition, in the event of a "Change in Control" as defined in the indentures governing the Senior Notes and the Discount Notes, each holder of such notes has the right to require the Company or Holdings, as the case may be, to repurchase any or all Senior Notes or Discount Notes owned by such holder at the prices stated herein. See "Description of the Senior Notes -- Covenants -- Change in Control" and "-- Certain Definitions -- Change in Control" and "Description of the Discount Notes -- Covenants -- Change in Control" and " -- Certain Definitions -- Change in Control." In the event of a Change in Control as defined under the documents governing the Preferred Stock, each holder of shares of Preferred Stock has the right to require Holdings to repurchase any or all such shares owned by such holder at the price stated herein. See "Description of the Preferred Stock and the Warrant -- Preferred Stock." In the event of a Change in Control as defined under either of such indentures or the documents governing the Preferred Stock, the Company and Holdings will likely be required to refinance the indebtedness outstanding under the 1993 Bank Credit Agreement, the Senior Notes, the Discount Notes and the Preferred Stock. There can be no assurance that the Company and Holdings would be able to refinance such indebtedness and Preferred Stock. DEPENDENCE ON MANAGEMENT The performance of the Company is dependent on the active participation of its principal officers and the retention of certain key personnel, including Jim L. Turner, the President and Chief Executive Officer of the Company. The loss of the services of Mr. Turner could have a material adverse effect upon the Company. The Company maintains a key-man life insurance policy on Mr. Turner in the amount of $2.5 million, which is payable to the Company in the event of Mr. Turner's death, and policies to fund certain payments due to Mr. Turner's estate under his employment agreement following his death. INTEREST OF DLJ SECURITIES Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ Securities") has performed various financial advisory and investment banking services for the Company, including services performed in connection with the Recapitalization Plan. DLJ Securities received $6.9 million in underwriting discounts and 13 17 commissions for serving as underwriter for the Senior Notes and the Discount Notes. DLJ Securities also served as dealer manager for the Tender Offer and the Consent Solicitation and received customary fees and was reimbursed for expenses in connection therewith. DLJ Securities also earned a commission of approximately $177,000 in connection with its effecting the sale of a note of the landlord under the Company's sale-leaseback arrangement and was reimbursed for expenses in connection therewith. DLJ Capital Corporation ("DLJ Capital"), which is an affiliate of DLJ Securities, beneficially owns a significant equity interest in Holdings and has the right to designate a member of the board of directors of Holdings and has so designated a member. DLJ Securities, as custodian, also holds a significant equity interest in Holdings. See "Securities Ownership and Certain Transactions," "Description of Certain Existing Obligations -- Sale-Leaseback Arrangement," and "Plan of Distribution." ABSENCE OF PRIOR PUBLIC MARKET The Senior Notes and the Discount Notes are issues of securities for which there is currently no established public trading market. DLJ Securities has informed the Company and Holdings that it has made a market in the Senior Notes and the Discount Notes in the past and that, subject to applicable laws and regulations, it currently intends to do so in the future. However, DLJ Securities is not obligated to do so, and any such market making may be discontinued at any time without notice. There can be no assurance that an active trading market will develop for the Senior Notes and the Discount Notes. See "Plan of Distribution." The liquidity of, and trading markets for, the Senior Notes and the Discount Notes may also be adversely affected by declines in the market for high yield securities generally. Such a decline may adversely affect such liquidity and trading markets independent of the financial performance of, and prospects for, the Company and Holdings. COMPETITION The soft drink business is highly competitive. The Company's soft drink products compete generally with all liquid refreshments and in particular with numerous nationally-known soft drinks such as Coca-Cola and Pepsi Cola, the bottlers of which have greater financial resources than the Company. Principal methods of competition in the soft drink industry are advertising campaigns, pricing, packaging, management of shelf space in retail outlets, and the development of new products. In recent years, price competition has been especially intense with respect to sales of soft drink products to food stores, with local bottlers granting significant discounts and allowances off wholesale prices in order to maintain or increase market share in the food store segment. USE OF PROCEEDS This Prospectus has been prepared for use by DLJ Securities in connection with offers of the Senior Notes and the Discount Notes in market making transactions. Neither the Company nor Holdings will receive any proceeds from sales of Senior Notes or Discount Notes, respectively, in such transactions. 14 18 CAPITALIZATION The following table sets forth (i) the capitalization of the Company as of December 31, 1994 and (ii) the consolidated capitalization of Holdings as of December 31, 1994. The table should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Prospectus. See "Selected Historical Financial Data."
COMPANY HOLDINGS -------- --------- (IN THOUSANDS) Short-term debt: Current maturities of long-term debt and obligations under capital leases............................................................. $ 14,448 $ 14,448 Long-term debt: 1993 Bank Financing................................................... 54,291 54,291 Senior Notes.......................................................... 117,000 117,000 Sale/leaseback borrowings............................................. 26,670 26,670 Discount Notes........................................................ -- 87,838 Capital leases and other.............................................. 1,300 1,300 -------- --------- Total long-term debt.......................................... $199,261 $ 287,099 ======== ========= Preferred Stock......................................................... $ -- $ 33,502 Stockholders' deficit: Common Stock.......................................................... 1 136 Additional paid-in capital............................................ 110,227 14,383 Consideration to continuing predecessor stockholders in excess of book value.............................................................. (33,948) (33,948) Accumulated deficit................................................... (101,393) (124,641) -------- --------- Total stockholders' deficit................................... (25,113) (144,070) -------- --------- Total capitalization.......................................... $188,596 $ 190,979 ======== =========
15 19 SELECTED HISTORICAL FINANCIAL DATA COMPANY SELECTED HISTORICAL FINANCIAL DATA The following table presents selected operating, balance sheet and other data of the Company as of and for the years ended December 31, 1990, 1991, 1992, 1993 and 1994 derived from the consolidated financial statements of the Company, which have been audited by KPMG Peat Marwick LLP. The financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the financial statements of the Company and the related notes thereto contained elsewhere herein.
COMPANY ------------------------------------------------------ YEAR ENDED DECEMBER 31, ------------------------------------------------------ 1990(A) 1991 1992 1993(B)(C) 1994 (IN THOUSANDS) OPERATING DATA: Net sales................................ $247,029 $267,225 $288,271 $310,881 $332,204 Gross profit............................. 89,332 97,063 102,488 114,924 117,828 Operating profit......................... 19,753 24,949 30,001 33,606 35,995 Other expense (income): Interest.............................. 31,888 31,793 30,830 23,957 22,392 Other................................. 1,094 1,586 908 (1,280) 983 Earnings (loss) before extraordinary item.................................. (13,292) (8,430) (1,737) 10,929 12,480 Extraordinary item -- loss on recapitalization...................... -- -- -- (31,559) -- Net earnings (loss)...................... (13,229) (8,430) (1,737) (20,630) 12,480 Dividends on preferred stock............. 9,442 11,152 13,171 5,806 -- OTHER DATA: Depreciation............................. 10,282 10,127 8,658 9,593 9,273 Amortization of excess cost over net assets of business acquired........... 5,956 5,439 5,505 5,751 5,519 Amortization of debt issuance costs...... 974 1,433 1,107 1,337 1,384 Accretion of bond discount............... 19,881 19,000 -- -- -- Additions to property, plant and equipment, net(d)..................... 5,236 5,580 6,346 8,367 10,644 Deficiency of earnings available to cover fixed charges(e)...................... 13,229 8,430 1,737 -- -- Ratio of earnings to fixed charges(e)(f)......................... -- -- -- 1.43x 1.53x BALANCE SHEET DATA (AT END OF PERIOD): Working capital.......................... 13,933 4,622 3,258 657 (9,818) Total assets............................. 245,536 229,618 227,625 243,175 237,816 Long-term debt, less current maturities............................ 233,260 221,069 212,562 227,696 199,261 Stockholders' deficit.................... (14,723) (23,157) (24,896) (37,593) (25,113)
- --------------- (a) The operating data for the year ended December 31, 1990 reflect the impact of the acquisition of all of the outstanding capital stock of Seven-Up Bottling Company of Dallas, Inc. for the period from January 12, 1990 through December 31, 1990. See "The Company and Holdings." (b) The operating data for the year ended December 31, 1993 reflect the impact of the acquisition of substantially all the assets of Dr Pepper Bottling Company of Galveston, Inc. for the period from April 13, 1993 to December 31, 1993. See "The Company and Holdings." (c) On a pro forma basis, assuming the transactions contemplated by the Recapitalization Plan had been consummated on January 1, 1993, for the year ended December 31, 1993, interest expense would have been $22,579, income before extraordinary item would have been $12,260, extraordinary loss on recapitalization would have been $31,738, net loss would have been $19,478, dividends on preferred stock would have been $0, amortization of debt issuance costs would have been $1,384 and ratio of earnings to fixed charges would have been 1.51x. Such pro forma financial data does not purport to represent what the results of operations of the Company would actually have been if the transactions contemplated by the Recapitalization Plan had in fact been consummated on January 1, 1993, or to project the results of operations for any future periods. (d) Additions to property, plant and equipment are presented net of proceeds received upon the disposition of such assets. Additions to property, plant and equipment for the year ended December 31, 1992 reflect the receipt of $1,487 by the Company upon the sale/leaseback of a portion of its trucking fleet. (e) "Fixed charges" consist of interest (including amortization of discount and debt issuance costs) and the interest component of lease expense. (f) For the purpose of calculating the ratio of earnings to fixed charges, "earnings" represents income (loss) before extraordinary item plus fixed charges. 16 20 HOLDINGS SELECTED HISTORICAL FINANCIAL DATA The following table presents selected operating, balance sheet and other data of Holdings as of and for the years ended December 31, 1990, 1991, 1992, 1993 and 1994 derived from the consolidated financial statements of Holdings, which have been audited by KPMG Peat Marwick LLP. The financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the financial statements of Holdings and the related notes thereto contained elsewhere herein.
HOLDINGS ------------------------------------------------------- YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1990(A) 1991 1992 1993(B)(C) 1994 (IN THOUSANDS) OPERATING DATA: Net sales............................... $247,029 $267,225 $ 288,271 $ 310,881 $332,204 Gross profit............................ 89,332 97,063 102,488 114,924 117,828 Operating profit........................ 19,753 24,949 30,001 33,606 35,995 Other expense (income): Interest.............................. 31,888 31,793 30,830 31,304 31,777 Other................................. 1,094 1,586 908 (1,014 ) 1,287 Dividends on Company preferred stock.... 9,442 11,152 13,171 5,806 -- Earnings (loss) before extraordinary item.................................. (22,671) (19,582) (14,908) (2,490 ) 2,791 Extraordinary item -- loss on recapitalization...................... -- -- -- (31,559 ) -- Net earnings (loss)..................... (22,671) (19,582) (14,908) (34,049 ) 2,791 Net earnings (loss) per common share.... (1.70) (1.46) (1.12) (2.67 ) (.08) Dividends on Preferred Stock............ -- -- -- 2,079 3,677 OTHER DATA: Depreciation............................ 10,282 10,127 8,658 9,593 9,273 Amortization of excess cost over net assets of business acquired........... 5,956 5,439 5,505 5,751 5,519 Amortization of debt issuance costs..... 974 1,433 1,107 1,610 1,711 Accretion of bond discount.............. 19,881 19,000 -- 7,340 9,385 Additions to property, plant and equipment, net(e)..................... 5,236 5,580 6,346 8,367 10,644 Deficiency of earnings available to cover: Fixed charges(f)...................... 22,671 19,582 14,908 2,490 -- Ratio of earnings to fixed charges(e)(f)......................... -- -- -- -- 1.08x BALANCE SHEET DATA (AT END OF PERIOD): Working capital......................... 13,933 4,622 3,258 374 (10,078) Total assets............................ 245,536 229,618 227,625 245,863 240,199 Long-term debt, less current maturities............................ 233,260 221,069 212,562 306,149 287,099 Preferred Stock(g)...................... -- -- -- 29,635 33,502 Stockholders' deficit................... (74,904) (94,486) (109,394) (142,994 ) (144,070)
- --------------- (a) The operating data for the year ended December 31, 1990 reflect the impact of the acquisition of all of the outstanding capital stock of Seven-Up Bottling Company of Dallas, Inc. for the period from January 12, 1990 through December 31, 1990. See "The Company and Holdings." (b) The operating data for the year ended December 31, 1993 reflect the impact of the acquisition of substantially all the assets of Dr Pepper Bottling Company of Galveston, Inc. for the period from April 13, 1993 to December 31, 1993. See "The Company and Holdings." (c) On a pro forma basis, assuming the transactions contemplated by the Recapitalization Plan had been consummated on January 1, 1993, for the year ended December 31, 1993, interest expense would have been $31,019, dividends on Company preferred stock would have been $0, income before extraordinary item would have been $3,500, extraordinary loss on recapitalization would have been $31,738, net loss would have been $28,238, amortization of debt issuance costs would have been $1,711, accretion of bond discount would have been $8,433 and the ratios of earnings to (i) fixed charges and (ii) combined fixed charges and preferred stock dividend requirements on the Preferred Stock would have been 1.11x and 1.03x, respectively. (For purposes of calculating such ratios, "earnings" represents income (loss) before extraordinary item plus fixed charges.) Such pro forma financial data does not purport to represent what the results of operations of Holdings would actually have been if the transactions contemplated by the Recapitalization Plan had in fact been consummated on January 1, 1993, or to project the results of operations for any future periods. (d) Additions to property, plant and equipment are presented net of proceeds received upon the disposition of such assets. Additions to property, plant and equipment for the year ended December 31, 1992 reflect the receipt of $1,487 by the Company upon the sale/leaseback of a portion of its trucking fleet. (e) "Fixed charges" consist of interest (including amortization of discount and debt issuance costs), the interest component of lease expense, and dividend requirements for the Old Preferred Stock. (f) For the purpose of calculating the ratio of earnings to fixed charges, "earnings" represents income before taxes and extraordinary items plus fixed charges. (g) The Preferred Stock is subject to mandatory redemption under certain circumstances. 17 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS General The Company's primary measurement of unit volume is case sales. Case sales refers to physical cases of beverages sold, including both premix products (ready-to-serve beverages which are sold in tanks and converted to case sales on the basis of four cases per tank) and postmix products (fountain syrups to which carbonated water must be added and which are converted to case sales on the basis of one case per gallon). Franchise case sales represent primarily sales of the Company's branded products to retailers only. Contract case sales are comprised of sales, primarily of products in cans, to unaffiliated bottling companies that hold soft drink franchises and to a wholesaler of private label brand soft drink products. Contract sales may fluctuate significantly from year to year, and are made at relatively low prices and gross profit margins (historically representing approximately 16% of contract sales revenues) due to the competition for such sales, and are not a primary focus of management in determining the Company's business strategy. As a result, management believes that changes in franchise net sales more accurately measure growth than changes in total net sales. The primary asset of Holdings is the common stock of the Company. Holdings conducts no business other than holding the common stock of the Company. As a result, the operating data items for both Holdings and the Company are the same for the years ended December 31, 1990, 1991 and 1992, with the exception that dividends on the Company's Old Preferred Stock are shown as a minority interest in Holdings' statements of operations. With respect to 1993 and 1994, as a result of the consummation of the transactions contemplated by the Recapitalization Plan, only net sales, cost of sales, gross profit, operating expenses and operating profit are the same for the Company and Holdings. Year Ended December 31, 1994 Compared to Year Ended December 31, 1993 Net sales, excluding contract net sales, for the year ended December 31, 1994 increased to $308.0 million compared to $287.3 million for 1993. The increase was due to a 7.8% increase in franchise case sales, with growth attributable to the acquisition of the franchise territory of Dr Pepper Bottling Company of Galveston, Inc. ("Dr Pepper Galveston") on April 13, 1993 (the "Galveston Acquisition") and to strong results from Dr Pepper and 7UP brands. Contract net sales for the year ended December 31, 1994 increased 2.6% from 1993 due to an increase in lower-margin private label contract sales volume partially offset by a small reduction in regular contract sales. As a result of the foregoing, net sales for the year ended December 31, 1994 increased 6.9% to $332.2 million compared to $310.9 million for 1993. Cost of sales for the year ended December 31, 1994 increased to $214.4 million compared to $196.0 million for 1993. The increase was due primarily to an increase in franchise case sales as well as increases in the prices paid by the Company for certain raw materials, primarily concentrate, sweetener, and plastic bottles. These increases in costs were partially offset by reduced costs for aluminum cans. As a percentage of net sales, cost of sales for the year ended December 31, 1994 increased to 64.5% from 63.0% for 1993. Marketing expenses for the year ended December 31, 1994 decreased to $7.6 million compared to $9.4 million for 1993 due to a higher level of sports media advertising and sponsorship agreements in 1993. Marketing expenses represented approximately 2.3% of net sales in 1994 compared to 3.0% in 1993. Administrative and general expenses for the year ended December 31, 1994 increased to $62.9 million compared to $60.6 million for 1993. The increase was due primarily to an increase of $2.0 million in labor and employee benefit expenses, an increase of $.1 million in fleet expenses under a full service lease arrangement, an increase of $.6 million in full service commissions, and an increase of $.2 million in other expenses, partially offset by an increase of $.6 million in incentive credits from The Dr Pepper Company for placement of vending machines. Depreciation expense for the year ended December 31, 1994 increased to $5.8 million from 18 22 $5.6 million for 1993. Amortization of intangible assets for the year ended December 31, 1994 decreased to $5.5 million from $5.8 million for 1993. As a result of the above factors, operating profit for the year ended December 31, 1994 increased to $36.0 million, or 10.8% of net sales, compared to $33.6 million, or 10.8% of net sales, for 1993. Interest expense for the Company for the year ended December 31, 1994 decreased to $22.4 million from $24.0 million for 1993 due to reduction of outstanding indebtedness under the 1993 Bank Credit Agreement. Amortization of the Company's deferred debt issuance costs for the year ended December 31, 1994 was $1.4 million compared to $1.3 million for 1993. Other income for the Company for the year ended December 31, 1994 was $.4 million compared to $2.6 million for 1993. The 1993 amount included $2.5 million paid to the Company in settlement of its 1988 lawsuit against Del Monte Corporation for its refusal to consent to the acquisition of the Company by Holdings and the subsequent termination of the Company's license to produce and distribute Hawaiian Punch products. As a result of the above factors, the Company's income before income taxes for the year ended December 31, 1994 was $12.6 million compared to income before income taxes of $10.9 million for 1993. Income taxes for the year ended December 31, 1994 were $.1 million. Income before extraordinary item for the year ended December 31, 1994 was $12.5 million compared to income before extraordinary item of $10.9 million for 1993. Holdings' amortization of deferred debt issuance costs for the year ended December 31, 1994 increased to $1.7 million compared to $1.6 million for 1993. Interest expense (including bond accretion on the Discount Notes) for Holdings for the year ended December 31, 1994 increased to $31.8 million from $31.3 million for 1993. The increase was due to additional bond accretion on the Discount Notes, partially offset by reduced cash interest due to a paydown of indebtedness under the 1993 Bank Credit Agreement. As a result of the above factors, Holdings generated income before extraordinary item of $2.8 million for the year ended December 31, 1994, compared to a loss before extraordinary item of $2.5 million for 1993. The net loss before extraordinary item for Holdings of $2.5 million for the year ended December 31, 1993 reflects charges of $5.8 million relating to dividends on the Company's Old Preferred Stock. The Old Preferred Stock was classified as a minority interest for purposes of the financial statements of Holdings. Extraordinary loss for the year ended December 31, 1993 amounted to $31.6 million, due to transactions contemplated by the Recapitalization Plan. There was no extraordinary item for the year ended December 31, 1994. As a result, Holdings generated net income of $2.8 million for the year ended December 31, 1994, compared to a net loss of $34.0 million for 1993. Year Ended December 31, 1993 Compared to Year Ended December 31, 1992 Net sales, excluding contract net sales, for the year ended December 31, 1993 increased to $287.3 million compared to $262.8 million for 1992. The increase was due to a 10.2% increase in franchise case sales, with growth attributable to the acquisition of the franchise territory of Dr Pepper Galveston in the Galveston Acquisition and to strong results from DR PEPPER as well as from allied brands. Contract net sales for the year ended December 31, 1993 decreased 7.5% from 1992 due to the elimination of contract sales to Dr Pepper Galveston as a result of the consummation of the Galveston Acquisition. As a result of the foregoing, net sales for the year ended December 31, 1993 increased 7.8% to $310.9 million compared to $288.3 million in 1992. Cost of sales for the year ended December 31, 1993 increased to $196.0 million compared to $185.8 million in 1992. The increase was due primarily to an increase in franchise case sales as well as increases in the prices paid by the Company for certain raw materials, primarily concentrate. Increases in concentrate costs were partially offset by cost decreases in other ingredients and materials including sweetener, 19 23 P.E.T. bottles, and aluminum cans. As a percentage of net sales, cost of sales for the year ended December 31, 1993 decreased to 63.0% from 64.4% in 1992. Marketing expense for the year ended December 31, 1993 increased to $9.4 million compared to $6.0 million in 1992. This increase was due primarily to higher expenditures for sports media advertising and sponsorship agreements with various sports organizations, including the new Dallas NHL hockey team, the new baseball stadium in Arlington for the Texas Rangers, and the Southwest Conference basketball tournament. Marketing expenses represented approximately 3.0% of net sales for the year ended December 31, 1993 compared to 2.1% of net sales in 1992. Administrative and general expenses for the year ended December 31, 1993 increased to $60.6 million compared to $55.6 million in 1992. This increase was primarily due to an increase of $3.3 million in labor and employee benefit expenses, an increase of $1.5 million in fleet expenses due to an upgrade in fleet vehicles under a full service lease arrangement, an increase of $0.7 million in full service commissions, and an increase of $0.3 million in other expenses, offset by a reduction in bad debts expense of $0.8 million due to recoveries in 1993. Depreciation expense for the year ended December 31, 1993 increased to $5.6 million from $5.4 million in 1992. Amortization of intangible assets for the year ended December 31, 1993 increased to $5.8 million compared to $5.5 million in 1992. As a result of the above factors, operating profit for the year ended December 31, 1993 increased to $33.6 million, or 10.8% of net sales, compared to $30.0 million, or 10.4% of net sales, in 1992. Interest expense for the Company for the year ended December 31, 1993 decreased to $24.0 million from $30.8 million in 1992. The decrease was due primarily to lower interest rates on outstanding indebtedness as a result of the transactions contemplated by the Recapitalization Plan. Amortization of the Company's deferred debt issuance costs for the year ended December 31, 1993 was $1.3 million compared to $1.1 million in 1992. Loss from disposition of assets for the year ended December 31, 1993 was $32,000 compared to a gain of $0.2 million in 1992. Other income for the Company for the year ended December 31, 1993 was $2.6 million compared to other expenses of $28,000 in 1992, due to the $2.5 million settlement of the Company's 1988 lawsuit against Del Monte Corporation for its refusal to consent to the acquisition of the Company by Holdings and the subsequent termination of the Company's license to produce and distribute Hawaiian Punch products. As a result of the above factors, the Company's income before extraordinary item for the year ended December 31, 1993 was $10.9 million compared to a loss of $1.7 million in 1992. Holdings' amortization of deferred debt issuance costs for the year ended December 31, 1993 increased to $1.6 million compared to $1.1 million in 1992. Interest expense for Holdings for the year ended December 31, 1993 increased to $31.3 million from $30.8 million in 1992. The increase was due to higher indebtedness as a result of the Recapitalization Plan, partially offset by lower interest rates on such indebtedness. Interest expense for Holdings for the year ended December 31, 1993 includes $7.3 million of bond accretion on the Discount Notes. As a result of the above factors, Holdings generated income before dividends on the Company's Old Preferred Stock and extraordinary item of $3.3 million for the year ended December 31, 1993 compared to a loss of $1.7 million in 1992. The net loss before extraordinary item for Holdings of $2.5 million for the year ended December 31, 1993 reflects charges of $5.8 million related to dividends on the Company's Old Preferred Stock. The net loss before extraordinary item for Holdings for the year ended December 31, 1992 reflects charges of $13.2 million relating to dividends on the Company's Old Preferred Stock. The Old Preferred Stock was classified as a minority interest for purposes of the financial statements of Holdings. As a result of the above factors, a net loss before extraordinary item of $2.5 million was reported for Holdings for the year ended December 31, 1993 compared to a net loss before extraordinary item of $14.9 million in 1992. 20 24 Extraordinary loss for the year ended December 31, 1993 amounted to $31.6 million, due to the transactions contemplated by the Recapitalization Plan. After the extraordinary item, Holdings generated a net loss of $34.0 million for the year ended December 31, 1993 compared to a net loss of $14.9 million in 1992. LIQUIDITY AND CAPITAL RESOURCES Holdings conducts business through the Company and has no material operations of its own. The primary asset of Holdings is the common stock of the Company. Accordingly, Holdings is dependent on the cash flow of the Company to meet its obligations. Holdings has no material obligations other than those under the Discount Notes, the Preferred Stock and any exchange debentures of Holdings into which such stock becomes exchangeable, and certain contingent obligations under Holdings' guarantee of the Company's obligations under the 1993 Bank Credit Agreement. Holdings, though, is not expected to have any material need for cash until interest on the Discount Notes becomes payable in cash beginning August 15, 1998. The Discount Notes will mature in 2003. The 1993 Bank Credit Agreement and the Senior Notes indenture impose significant restrictions on the payment of dividends and the making of loans by the Company to Holdings. However, the Senior Notes indenture allows the Company to pay dividends to Holdings in accordance with a specified formula if, after giving effect thereto, no event of default, or an event that with the passage of time or the giving of notice, or both, would constitute an event of default under the Senior Notes indenture shall have occurred and be continuing. See "Description of the Senior Notes -- Covenants -- Limitation on Restricted Payments." In addition, the 1993 Bank Credit Agreement allows the Company to pay dividends to Holdings in an amount necessary to make cash interest payments on the Discount Notes, provided that no event of default exists or would be created under the 1993 Bank Credit Agreement. The Company remains highly leveraged following the consummation of the transactions contemplated by the Recapitalization Plan. The Company's principal use of funds in the future will be the payment of principal and interest under the 1993 Bank Financing and the Senior Notes. As of December 31, 1994, approximately $68.1 million was outstanding under the 1993 Term Loan Facility. The Company will be required to repay the principal under the 1993 Term Loan Facility as follows: $13.8 million in 1995, $15.5 million in 1996, $17.2 million in each of 1997 and 1998 and $4.4 million in 1999, subject to reduction for mandatory and optional prepayments. In addition, the Company will be required to further retire the principal amount outstanding under the 1993 Bank Credit Agreement with Excess Cash Flow (as defined in the 1993 Bank Credit Agreement). It is expected that the Company's primary sources of financing for its future business activities will be funds from operations, together with additional borrowings under the 1993 Revolving Line of Credit Facility. The 1993 Revolving Line of Credit Facility provides for revolving loans in an aggregate amount of up to $25 million with a $5 million sublimit for the issuance of letters of credit. The 1993 Revolving Line of Credit Facility will mature in 1999. During 1994, the Company purchased $8.0 million aggregate principal amount of its outstanding Senior Notes at an aggregate purchase price of $8.2 million. The purchase price was funded from cash on hand. In January 1995 the Company used the Revolving Line of Credit Facility to purchase an additional $5.0 million of its Senior Notes for $5.1 million. See "Description of the 1993 Bank Financing." Because the obligations under the 1993 Bank Credit Agreement bear interest at floating rates, the Company will be sensitive to changes in prevailing interest rates. As required by the 1993 Bank Credit Agreement, the Company entered into interest rate protection arrangements, expiring June 30, 1996, in an aggregate notional amount equal to $45 million, subject to reduction by $2 million at the end of each quarter starting with the quarter ended June 30, 1994. The Company had negative working capital of $9.8 million at December 31, 1994 compared to working capital of $0.7 million at December 31, 1993. Based on the Company's anticipated operating results, management believes that the Company's future operating activities will generate sufficient cash flows to repay borrowings under the 1993 Term Loan Facility as they become due and payable. However, based on such anticipated operating results, management does not expect that the Company's future operating activities will generate sufficient cash flows to repay the Senior Notes and the Discount Notes at their respective maturities. Accordingly, the Company and Holdings expect 21 25 that they will be required to refinance all or substantially all of the Senior Notes and the Discount Notes at their respective maturities or sell equity or assets to fund the repayment of all or substantially all of the Senior Notes and the Discount Notes at their respective maturities, or effect a combination of the foregoing. While the Company and Holdings believe that they will be able to refinance the Senior Notes and the Discount Notes at or prior to their respective maturities, or raise sufficient funds through equity or asset sales to repay such indebtedness, or effect a combination of the foregoing, there can be no assurance that such will be the case. The 1993 Bank Credit Agreement contains numerous financial and operating covenants and prohibitions that impose limitations on the liquidity of the Company, including requirements that the Company satisfy certain financial ratios and maintain certain specified levels of net worth, and limitations on the incurrence of additional indebtedness. See "Description of the 1993 Bank Financing -- Covenants." The indentures governing the Senior Notes and the Discount Notes also contain covenants that impose limitations on the liquidity of the Company and Holdings, including a limitation on the incurrence of additional indebtedness. See "Description of the Senior Notes -- Certain Covenants" and "Description of the Discount Notes -- Certain Covenants." The ability of the Company and Holdings to meet their debt service requirements and to comply with such covenants will be dependent upon future operating performance and financial results of the Company, which will be subject to financial, economic, competitive and other factors affecting the Company, many of which are beyond its control. Management anticipates expansion related capital expenditures in 1995 and 1996 to service volume growth at several locations. During 1994 capital expenditures totaled $10.8 million. The Company anticipates that capital expenditures will total approximately $8.0 million to $8.5 million for each of the years 1995 through 1997. In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement 109"). Statement 109 requires a change from the deferred method of accounting for income taxes of APB Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, 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. The Company and Holdings have adopted the provisions of Statement 109 effective January 1, 1993 and the cumulative effect of the change in accounting for income taxes was immaterial. In December 1990, the Financial Accounting Standards Board issued Statement 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("Statement 106") which is effective for fiscal years beginning after December 15, 1992. The Company and Holdings do not provide postretirement benefits and, therefore, the provisions of Statement 106 are not applicable. In November 1992, the Financial Accounting Standards Board issued Statement 112, "Employers' Accounting for Postemployment Benefits" ("Statement 112") which is effective for fiscal years beginning after December 15, 1993. The Company and Holdings do not provide postretirement benefits and, therefore, the provisions of Statement 112 are not applicable. BUSINESS GENERAL The Company produces, markets and distributes carbonated soft drinks pursuant to franchise agreements with companies owning the rights to various soft drink formulae. Principal products are bottled and canned under franchises from Dr Pepper/Seven-Up Corporation (DR PEPPER and SEVEN-UP brand products), Cadbury Beverages North America, Inc. (CANADA DRY, SUNKIST, A&W, SQUIRT, and COUNTRYTIME brand products), Royal Crown Cola Company, Big Red, Inc. (BIG RED) and The Monarch 22 26 Company, Inc. (NUGRAPE). The Company also distributes certain other non-carbonated soft drinks, including leading bottled waters such as Evian and Naya, within defined territories pursuant to distribution agreements with various companies. The Company's three major franchise territories are Dallas/Fort Worth, Houston, and Waco, Texas. The Company's products compete principally in the non-cola segments of the soft drink market, which represented in the aggregate approximately 43% of the total soft drink sales volume through supermarkets and grocery stores in the Company's franchise territories in 1994, and appeal to a wide variety of consumer taste preferences. The Company believes that its portfolio of highly recognizable non-cola franchise brands (which, in the Company's territories, generally rank first or second in their respective beverage flavor categories) enhance the Company's ability to compete effectively for retail shelf space and further penetrate the "single drink" market. The franchise and distribution agreements pursuant to which the Company operates generally grant to the Company the exclusive right to market and distribute the licensed product in bottles and cans. Certain of the franchise agreements also grant to the Company the nonexclusive right to sell and distribute fountain syrup within a described territory. Substantially all of the franchise agreements are perpetual. However, the respective franchisors generally may terminate such agreements in the event of a material breach of the terms thereof by the Company. The Company's franchise agreements contain comprehensive provisions regarding the production, distribution, and sale of the franchisors' products and impose substantial obligations on the Company. Most of the Company's franchise agreements contain special provisions that require the Company to obtain the consent of the franchisor in the event of certain changes in ownership of the Company. The terms of such change in ownership provisions vary from agreement to agreement. The Company's franchise agreements contain provisions prohibiting the Company from assigning its rights thereunder to any other person without the consent of the franchisor. The Company may terminate such franchise agreements generally upon the expiration of a notice period. INDUSTRY TRENDS The soft drink industry has historically been characterized by certain favorable factors, including a low level of technological risk and the exclusive marketing and distribution rights granted under franchise agreements. The challenge to bottlers and franchisors has been to meet changing consumer tastes with innovative products and packaging and increased product availability. The Company believes that a growing awareness of health-related issues has caused many consumers to shift their preferences away from hot drinks, such as tea or coffee, and alcoholic beverages, and towards products such as bottled water, diet and caffeine-free soft drinks and juice-added, sodium-free and nutrient-added beverages. Additional concerns about the content and purity of tap water have further strengthened the growth of these beverage categories, as well as contributing to the demand for more traditional naturally sweetened soft drinks. In certain regions of the United States, the independent bottling industry continues to be fragmented, with many small franchise territories and a number of bottlers with only a few established brands. The Company believes that the lack of a multi-brand product offering or large case volume renders many of these bottlers unable to compete effectively for retail shelf space and limits their ability to consistently match the advertising and promotional support which larger bottlers can give to their brands. Accordingly, the Company believes that smaller independent bottlers with contiguous territories may represent acquisition opportunities for the Company which would allow the Company to expand the geographic region within which the Company markets leading non-cola products and to realize operating efficiencies in production and distribution as a result of increased volume. PRODUCTS Franchise Case Sales. Franchise case sales represent primarily sales of the Company's branded products to retailers only. The Company's principal soft drink products are produced, marketed and distributed pursuant to franchise agreements and include DR PEPPER, Diet DR PEPPER, 7UP, Diet 7UP, various CANADA DRY and SUNKIST products, RC Cola, Diet Rite Cola, A & W Root Beer, Diet A & W Root Beer, A & W Cream Soda, Diet A & W Cream Soda, SQUIRT, COUNTRYTIME Lemonade, BIG RED and NUGRAPE. 23 27 Franchise case sales for the Company's principal soft drink products as a percentage of the Company's total franchise case sales for the three years ended December 31, 1992, 1993 and 1994 are summarized below:
YEAR ENDED DECEMBER 31, ------------------------- 1992 1993 1994 DR PEPPER................................................... 52.2% 51.5% 52.9% Cadbury Beverages North America, Inc.(1).................... 12.1 12.5 12.2 7UP and Diet 7UP............................................ 10.6 11.1 11.2 Diet DR PEPPER.............................................. 11.1 10.6 10.5 RC Cola and Diet Rite Cola.................................. 4.8 4.6 4.3 BIG RED..................................................... 4.5 4.3 4.1 Other....................................................... 4.7 5.4 4.8 ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== =====
- --------------- (1) Includes SUNKIST flavors, CANADA DRY products, CRUSH products A&W products, SQUIRT, SUNDROP products and COUNTRYTIME Lemonade. On March 1, 1995, Cadbury Beverages North America, Inc. consummated a tender offer whereby it acquired the capital stock of Dr Pepper/Seven-Up Corporation. Contract Sales. The Company also bottles and cans soft drink products for sale to unaffiliated bottling companies that hold soft drink franchises and to retailers of private label brand soft drink products. Contract sales may fluctuate significantly from year to year, and are made at relatively low prices and gross profit margins due to the competition for such sales. As a result, contract case sales are not a primary focus of management in determining the Company's business strategy, but are undertaken to utilize available capacity and to offset fixed overhead expenses. Contract sales represented approximately 8.8%, 7.6% and 7.3% of the Company's net sales in 1992, 1993, and 1994, respectively, and approximately 5.3%, 5.4% and 6.0% of the Company's gross profit in 1992, 1993 and 1994, respectively. OPERATING STRATEGY The Company's operating strategy is to (i) manufacture and market leading soft drink products within a comprehensive range of soft drink categories, principally focusing on sales of national brands in the non-cola segments of the soft drink market; (ii) increase the market shares of its portfolio of brands by utilizing a wide range of marketing activities, including price and consumer promotion, retail space management and advertising; (iii) broaden its penetration of the higher margin "single drink" segment of the soft drink market and (iv) acquire contiguous bottling territories and additional franchises for major brands within existing territories. Management believes that this strategy will enable the Company to market products meeting a wide variety of consumer preferences and result in case sales growth within its operating territories. By utilizing the Company's marketing and distribution strengths, the Company believes that it can realize growth in the major segments where soft drink products are sold. These segments are the "home market," consisting of supermarkets, grocery stores, mass merchandisers, drugstores, liquor stores and other similar retail outlets, and the "single drink" or on-premise segment, consisting of convenience stores, vending, and fountain outlets. Single drink sales generally are less susceptible to price competition and, accordingly, offer the prospect of higher margins. In addition, the Company believes that single drink sales afford the Company the opportunity to introduce its products and packaging innovations to new consumers. The Company, therefore, has aggressively pursued, and intends to continue to aggressively pursue, sales in the single drink or on-premise segment. MARKETING The principal components of the Company's marketing program are brand management, customer service, promotional activities and product merchandising. The Company's marketing programs vary according to geographic location, consumer preferences and the competitive environment. 24 28 Marketing programs for each of the Company's franchised brands are coordinated with the franchisor. Advertising campaigns are developed by the franchisors on the national level, and by both the Company and the franchisor on the local level. A significant portion of the Company's promotional efforts focuses on price discounting and allowances, newspaper advertising and coupons. The goal of these activities is to position the Company's brands competitively in the marketplace and obtain "feature" retail advertisements and end-aisle displays in high volume retail outlets. End-aisle and secondary displays are important marketing tools because they are tied to special promotions and feature advertisements designed to stimulate sales and encourage impulse purchases. The Company's merchandisers are responsible for building displays in conjunction with promotional programs and restocking products on the beverage aisles of grocery stores. Marketing expenditures are incurred by the Company, by the franchisors and by cooperative arrangements between the two. The Company pays retail stores under annual marketing agreements for the right to be included in the retailer's advertising programs. Retail promotional programs are the Company's most significant marketing expenditures and are supported through cooperative arrangements with the franchisors. National media advertising is funded primarily by the franchisors, while local media advertising is funded through cooperative arrangements. SALES AND DISTRIBUTION The Company's sales methods vary according to its geographic markets and specific customer segments. Sales in the larger markets are oriented towards high-volume customers such as large retail chains, which results in economies of scale in selling and distribution expenses. Products are generally sold in advance by a salesperson. Orders are then delivered and merchandised within 24 hours by other Company employees. Some market segments, however, are served by traditional route sales. This sales method requires that the drivers of the route trucks perform both a sales and delivery function. Account volume is often the determining factor in establishing the appropriate sales method. The Company seeks to maximize market penetration by effectively utilizing its distribution channels. The Company's principal method of distribution is direct-store-door ("DSD") delivery, which is also the Company's preferred method of distribution because the Company has greater control over the sales, marketing and merchandising of products. Deliveries are made from distribution facilities by the Company's fleet of trucks. In certain rural territories or small volume areas where DSD is not cost efficient, an independent distributor is engaged by the Company to sell its franchise products. In most situations, the distributor is required to purchase finished product from the Company. The Company also manufactures products for other independent bottlers or private label owners that lack sufficient volume to justify the capital investment of a manufacturing plant. These contract bottling operations generate profit margins which are typically less than DSD operations. The "single drink" or on-premise segment consists of convenience stores, vending, and fountain outlets. The Company's estimated 42,000 vending machines are typically Company-owned and loaned to retail outlets or distributors. The Company is primarily responsible for machine maintenance and product restocking. Both the Company and retail customers effect sales through vending machines. Fountain equipment, which is primarily owned by the Company, dispenses products in restaurants, bars, amusement parks, theaters and other similar locations. The Company sells either premix products (ready-to-serve beverages) or postmix products (fountain syrups to which carbonated water must be added) to retailers in stainless steel or disposable containers for use in fountain equipment. The Company generally loans visi-coolers (brand identified refrigerated cabinets) to large retail outlets and convenience stores that sell the Company's products. COMPETITION The soft drink business is highly competitive. The Company's soft drink products compete generally with all liquid refreshments and in particular with numerous nationally-known soft drinks such as Coca-Cola and Pepsi Cola, the bottlers of which have greater financial resources than the Company. Principal methods of competition in the soft drink industry are advertising campaigns, pricing, packaging, management of shelf 25 29 space in retail outlets, and the development of new products. In recent years, price competition has been especially intense with respect to sales of soft drink products to food stores, with local bottlers granting significant discounts and allowances off wholesale prices in order to maintain or increase market share in the food store segment. PLANTS AND PHYSICAL PROPERTIES The Company currently bottles and cans soft drink products in its production facilities located in Irving and Houston, Texas. The Houston facility was completed, and its bottling and canning lines were installed, in 1981. The Irving facility's lines were installed in 1978. The Irving and Houston, Texas facilities primarily operate on the equivalent of a one-shift basis, consisting of 10 hours, four days a week. Management believes that there is substantial additional capacity available with little or no capital expenditures required to realize such capacity. The Company also owns warehouse distribution facilities in Waco, Spring, Beaumont, Fort Worth, Sherman, and Galveston, Texas and a facility in Dallas, Texas from which it conducts vending operations. On June 30, 1989, the Company completed the sale and leaseback of its Irving and Houston production facilities. The net proceeds from such transaction were used to reduce outstanding borrowings under the term loan portion of the 1988 Credit Agreement. The Company owns the trucks used to service its Houston and Waco franchise territories. The Company leases the trucks used to service its Dallas/Ft. Worth franchise territory. SOURCES AND AVAILABILITY OF RAW MATERIALS; INVENTORIES The Company may purchase concentrates and syrups only from its franchisors for use in the production of its respective soft drink products. The Company purchases sweeteners, carbon dioxide, glass and plastic bottles, cans, closures, premix and postmix containers (including metal tanks and plastic bags and cardboard boxes) and other packaging materials from multiple suppliers. The Company does not anticipate any significant difficulties in securing adequate supplies of raw materials at acceptable prices in the future. One week's inventory of concentrate is kept on site for the Company's principal soft drink brands. An inventory of two to three days of high fructose corn sweetener is usually maintained. As numerous suppliers are available, only one to two days' inventory for cans, glass, and plastic bottles is maintained. EMPLOYEES As of February 28, 1995, the Company employed 1,347 persons. No Company employees are represented by a union, and the Company considers its employee relations to be good. GOVERNMENT REGULATION The production and marketing of beverages are subject to rules and regulations of the United States Food and Drug Administration ("FDA") and other federal, state, and local health agencies. The FDA also regulates the labelling of containers. The Company believes that it is in material compliance with the rules and regulations of the FDA. The Company is subject to the rules and regulations of the United States Environmental Protection Agency (the "EPA") and state and local environmental authorities. The Company believes that it is in material compliance with the rules and regulations of the EPA and such authorities. LEGAL PROCEEDINGS The Company is a party to various lawsuits arising in the ordinary course of business. The Company, however, does not believe that the outcome of any of these lawsuits will have a material adverse effect on its business or financial condition. 26 30 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Set forth below are the names, ages, and positions of the executive officers and directors of the Company and the executive officers and directors of Holdings. All directors hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified and all executive officers hold office at the pleasure of the Board of Directors. The New Stockholders Agreement (as defined herein) contains certain provisions regarding the composition of the Board of Directors of Holdings. See "Securities Ownership and Certain Transactions -- Certain Transactions -- Stockholders Agreement." NAME AND AGE OFFICE AND PRINCIPAL OCCUPATION Jim L. Turner, 49..................... Chairman of the Board of Holdings; Chairman, President, and Chief Executive Officer of the Company since 1985; Director of The Morningstar Group Inc.; Director of All American Bottling Corporation; Director of G. Heileman Brewing Company, Inc. Thomas O. Hicks, 49................... Director of Holdings; Director of the Company; Director of Sybron Corporation; Director of Neodata Corporation; Director of Life Partners Group, Inc.; Director of Berg Electronics, Inc.; Director of G. Heileman Brewing Company, Inc.; Chairman of the Board of Chancellor Communications Corporation; Director of HMW Communications, Inc.; Director of Semi-Tech, Inc.; Co-Founder, Chairman of the Board, President, Chief Executive Officer and Chief Operating Officer of Hicks, Muse, Tate & Furst, Incorporated, a Dallas-based private investment firm organized in 1989; Co-Chairman of the Board and Co-Chief Executive Officer of Hicks & Haas Incorporated. William O. Hunt, 61................... Director of Holdings; Director of Michael's Stores, Inc.; Chairman of the Board of Hogan Systems, Inc.; Director of Allen Group, Inc.; Chairman of the Board, Chief Executive Officer and President of Intellical Inc. from 1992 to present; Chairman of the Board, Chief Executive Officer and President of Alliance Telecommunications Corporation from 1989 to 1992; private investor from 1988 to 1989; Chairman of the Board and Chief Executive Officer of Alliance Telecommunications Corporation from 1986 to 1988; private investor from 1985 to 1986; Chairman of the Board and Chief Executive Officer of NetAmerica, Inc. from 1983 to 1985. J. Kent Sweezey, 42................... Director of Holdings; Managing Director of DLJ Securities, which is engaged in the investment banking business, since 1990; Senior Vice President of DLJ Securities from 1989 to 1990; Vice President of DLJ Securities from 1984 to 1989. 27 31 NAME AND AGE OFFICE AND PRINCIPAL OCCUPATION Harold Wisnoski, 61................... Senior Vice President -- Operations since 1988; Vice President -- Operations from 1984 to 1988. C. Marvin Montgomery, 54.............. Vice President -- Finance and Chief Financial Officer of the Company and Holdings since 1989; Vice President -- Finance of Coca-Cola Bottlers of Detroit, Inc. from 1987 to 1989. Thomas J. Taszarek, 48................ Senior Vice President -- Administration since 1993; Vice President -- Personnel since 1986. Charles D. Burkhart, 46............... Senior Vice President -- Marketing, D/FW Division since 1993; General Manager of Quality Beverage Company, Inc., a distributor of alcoholic and non-alcoholic beverages, from 1992 to 1993; President of Shenley Affiliated Brands, a division of Guinness, PLC, a producer and importer of alcoholic and non-alcoholic beverages, from 1988 to 1992. L. Glenn Glasco, 61................... Vice President -- Southwest Fountain Supply/ Vending Services since 1983. Richard E. Edgell, 39................. Regional Vice President -- Sales and Marketing, Houston Region since 1990; Regional Vice President of Sales of Kemmerer Bottling, Indianapolis, Indiana from 1988 to 1990. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth all compensation paid by the Company to its Chief Executive Officer and the four remaining most highly compensated executive officers for the three fiscal years ended December 31, 1992, 1993 and 1994. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------ ANNUAL AWARDS COMPENSATION ------------ ------------------ OPTIONS/ ALL OTHER SALARY BONUS SARS COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)(1) - ----------------------------------------- ---- ------- ------- ------------ ------------ Jim L. Turner 1994 410,000 299,000 -- 3,946 Chairman, President and 1993 404,153 318,750 6,449 Chief Executive Officer 1992 396,461 226,000 6,262 Charles D. Burkhart(2) 1994 140,000 17,050 -- -- Senior Vice President -- Marketing, 1993 29,615 15,000 -- -- Dallas/Ft. Worth division 1992 -- -- -- -- Harold Wisnoski 1994 110,933 24,050 -- 2,025 Senior Vice President -- 1993 107,500 31,000 2,264 Operations 1992 111,634 30,000 2,545 Eugene W. Honermann(3) 1994 118,029 23,050 -- 2,116 Senior Vice President -- Sales, 1993 115,000 31,000 2,389 Dallas/Ft. Worth division 1992 111,347 30,000 2,540 C. Marvin Montgomery 1994 99,469 15,050 -- 1,718 Vice President -- Finance and Chief 1993 94,942 22,000 1,923 Financial Officer 1992 91,384 17,000 1,851
28 32 - --------------- (1) The 1994 amounts include: (a) As to Mr. Turner, (i) the Company's matching contributions of $2,250 under the Savings Plan (as defined herein), (ii) payment by the Company of a premium of $989 for the term portion of a life insurance policy on behalf of Mr. Turner, and (iii) $707, which represents the dollar value of the benefit to Mr. Turner of the remainder of the premiums paid by the Company during 1994 under such insurance policy. (b) As to Messrs. Wisnoski, Honermann, Montgomery and Edgell, the Company's matching contributions of the respective amounts under the Savings Plan. (2) Mr. Burkhart was hired by the Company on October 11, 1993. (3) Mr. Honermann resigned from the Company during the first quarter of 1995. Employment Agreement Mr. Turner has entered into an eight-year employment agreement, dated as of February 18, 1993, with the Company to serve as its Chairman, President and Chief Executive Officer. Such employment agreement provides that Mr. Turner receive an annual salary of $425,000 during the first year of the agreement, and that such salary be increased during each succeeding year of the agreement by 7% of the base salary paid in the preceding year of the agreement. Mr. Turner also will be provided the use of a car during the term of the agreement and other benefits customary in employment agreements. The employment agreement also contains provisions governing Mr. Turner's participation in employee benefit plans and the payment of an annual incentive bonus to Mr. Turner based on the Company's attainment of specified operating goals. The employment agreement provides that the Company will purchase an annuity contract for the benefit of Mr. Turner to provide an annuity income at age 55 of approximately $150,000 per year. The employment agreement provides that if Mr. Turner's employment is terminated due to death or disability, Mr. Turner or his personal representative will receive on the dates when due payments equal to 100% of his salary and bonus for the first three years following death or disability and 75% of his salary and bonus for each remaining year of the agreement plus any amounts due under a policy of life insurance to be provided by the Company for the benefit of his designated beneficiaries. In the event that Mr. Turner's employment is terminated for reasons other than death or disability, the agreement provides that he may elect to receive from the Company a lump-sum payment equal to the present value of the base salary and bonus due to him for the remaining term of the agreement, provided that he may not make such an election at any time when there is a default under the 1993 Credit Agreement, or if the exercise of such election or the payment by the Company of the amount required as a result of such election would result in such a default. Further, the agreement provides that regardless of his decision to make the above-described election, Mr. Turner shall be entitled to receive in full any bonus not previously received by him with respect to the fiscal year prior to the termination of his employment and a pro-rated portion of the bonus payable with respect to the fiscal year in which his employment is terminated. Director Compensation Messrs. Turner, Hicks and Sweezey do not receive compensation for their services as directors. William O. Hunt, who served as trustee under a voting trust agreement with DLJ Capital, received $25,000 per annum from DLJ Capital, which was reimbursed by the Company, for serving as voting trustee and a director of Holdings. See "Securities Ownership and Certain Transactions -- Voting Trust Agreement." Mr. Hunt may receive compensation as an "outside director" following the termination of the referenced voting trust agreement. Holdings' current policy is to pay each "outside director" $1,000 per month plus $1,000 per meeting attended. Directors of the Company and Holdings are reimbursed for their reasonable expenses in attending meetings of the respective boards of directors. Company Profit Sharing Benefits The Company maintains a tax-qualified defined contribution 401(k) profit sharing plan known as the Dr Pepper Retirement & Savings Plan (the "Savings Plan"). All employees over age 21 with one year of service are eligible to participate in the Savings Plan. Participants may elect to defer up to fifteen percent of 29 33 their compensation and have it contributed to the Savings Plan on a pre-tax basis. In addition, as long as it has sufficient net profits, as determined by the Company's board of directors, the Company automatically matches fifty percent of the first three percent of each participant's salary deferral contributions. In accordance with the Internal Revenue Code of 1986, as amended, the amount which may be contributed annually to the Savings Plan by or on behalf of any participant is subject to the limitations imposed on defined contribution plan contributions. Currently, these limitations prohibit participant salary deferrals in excess of $9,240 annually (as adjusted for inflation) and limit total participant and company contributions to the lesser of $30,000 annually per participant or 25% of the participant's annual compensation. Additional limitations on salary deferral and employer matching contributions apply to highly compensated employees if certain nondiscrimination tests are not satisfied. Holdings' Stock Option Plan Holdings adopted the Dr Pepper Bottling Holdings, Inc. 1989 Stock Option Plan on January 17, 1989 (the "Stock Option Plan"). Options granted under the Stock Option Plan will be exercisable for the Class A Common Stock of Holdings. The maximum number of shares of the Class A Common Stock of Holdings to be issued pursuant to the exercise of options granted under the Stock Option Plan is 666,665 (which number is subject to adjustment in the case of certain corporate reorganizations). Options granted under the Stock Option Plan may be either qualified ("incentive options") under section 422 of the Internal Revenue Code of 1986, as amended, or nonqualified ("non-statutory options"). Options may be granted to consultants, employees, officers, and directors of Holdings and of the Company. The Stock Option Plan provides that the board of directors, a committee thereof, the President, or the Chief Executive Officer of Holdings have the authority to grant options. Options granted under the Stock Option Plan will be exercisable at such times, in such amounts, and at such exercise prices as shall be determined by such of the board of directors, a committee thereof, the President, or the Chief Executive Officer that actually grants the options; provided, however, that the exercise price for incentive options granted under the Stock Option Plan will be not less than the fair market value of the Class A Common Stock of Holdings on the date of grant and the exercise price for non-statutory options granted under the Stock Option Plan will be not less than 50% of the fair market value of the Class A Common Stock of Holdings on the date of grant. The Stock Option Plan also contains provisions concerning the treatment of an optionee's options in the event of the death or disability of such optionee, a change in the optionee's relationship with Holdings or the Company as an employee or director thereof or as a consultant thereto, or the occurrence of certain fundamental corporate changes involving Holdings. The Stock Option Plan also provides that optionees may be granted cash awards in connection with the exercise of options. As of February 28, 1995, 424,800 non-statutory options, exercisable at an exercise price of $1.00 per share, had been granted pursuant to the Stock Option Plan. In addition, 241,865 options, exercisable at an exercise price of $.90 per share, had been granted under the Stock Option Plan. As of February 28, 1995, 666,165 options remained unexercised. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Neither the Company nor Holdings has a compensation committee. Functions equivalent to those of a compensation committee are performed by the Company's entire board of directors, of which Mr. Turner is the Chairman. Accordingly, Mr. Turner participated in the deliberations of the Board of Directors concerning compensation of executive officers (other than himself). 30 34 SECURITIES OWNERSHIP AND CERTAIN TRANSACTIONS SECURITIES OWNERSHIP All the issued and outstanding shares of common stock of the Company are held by Holdings. Holdings has guaranteed the obligations of the Company under the 1993 Bank Credit Agreement and such guarantee is secured by a first priority, perfected security interest in the common stock of the Company. The following table sets forth the beneficial ownership of the outstanding shares of Class A Common Stock, par value $.01 per share, of Holdings ("Class A Common Stock") by each person who is a director of the Company or Holdings, each executive officer listed in the Summary Compensation Table under the caption "Management -- Compensation of Directors and Executive Officers" above, all persons that are directors and executive officers of the Company and Holdings as a group, and each person known by Holdings to be the beneficial owner of more than 5% of the outstanding shares of such Class A Common Stock (i) as of May 1, 1995 and (ii) as of May 1, 1995 on a fully-diluted basis. Except as otherwise discussed below, each of the directors, executive officers, and 5% stockholders has sole voting and investment power with respect to all shares indicated as being owned by such person. For information regarding the New Stockholders Agreement (as defined herein), see "Certain Transactions -- Stockholders Agreement" below.
PERCENT OF PERCENT OF CLASS A OUTSTANDING FULLY-DILUTED NAME AND ADDRESS COMMON STOCK COMMON STOCK(1) COMMON STOCK(1)(2) DLJ Capital Corporation(3)(4)............................ 5,667,000 41.54% 33.67% 140 Broadway New York, New York Thomas O. Hicks(5)....................................... 925,322 6.78% 5.50% 200 Crescent Court Suite 1600 Dallas, Texas Jim L. Turner(3)(6)...................................... 3,550,200 25.57% 21.09% 2304 Century Center Irving, Texas William O. Hunt(7)....................................... 66,667 * * 6901 McKamy Dallas, Texas J. Kent Sweezey(8)....................................... -- -- -- 2200 Ross Avenue Suite 2900 Dallas, Texas Charles D. Burkhart...................................... -- -- -- 2304 Century Center Irving, Texas Harold Wisnoski(9)....................................... 8,500 * * 2304 Century Center Irving, Texas Eugene W. Honermann(9)................................... 10,000 * * 2304 Century Center Irving, Texas C. Marvin Montgomery(9).................................. 7,500 * * 2304 Century Center Irving, Texas Crown Cork & Seal Company, Inc. Master Retirement Trust(3)(10)......................... 2,525,000 15.62% 15.00% 9300 Ashton Road Philadelphia, Pennsylvania Directors and officers as a group (11 persons)(11)............................ 4,582,689 32.87% 27.22%
- --------------- * Less than one percent. (1) Pursuant to Holdings' Certificate of Incorporation, each holder of Class A Common Stock is entitled to one vote for each share thereof held. (2) For purposes of calculating the percentage of outstanding shares of common stock on a fully-diluted basis, the shares of Class A Common Stock issuable upon the exercise of the Warrant issued as part of 31 35 the Equity Offering and all the shares issuable upon the exercise of options outstanding under the Stock Option Plan (including the options held by Mr. Turner) are assumed to be outstanding. (3) The shares of Class A Common Stock of such person are subject to the New Stockholders Agreement. See "Certain Transactions -- Stockholders Agreement" below. (4) The referenced shares include 3,722,465 shares held by DLJ Securities as Custodian under a Note, Pledge and Custody Agreement dated as of December 15, 1992 for the benefit of certain employees of Donaldson, Lufkin & Jenrette Inc. and its affiliates. DLJ Securities and DLJ Capital are affiliates of Donaldson, Lufkin & Jenrette Inc. (5) As of May 1, 1995, Mr. Hicks held 465,744 shares of Class A Common Stock, four trusts for the benefit of Mr. Hicks' children for which Mr. Hicks serves as trustee owned an aggregate of 459,578 shares of Class A Common Stock (representing in the aggregate 925,322 shares of Class A Common Stock). (6) Includes 241,865 shares of Class A Common Stock issuable to Mr. Turner upon the exercise of outstanding stock options. (7) Mr. Hunt has the right under an option to purchase such shares from DLJ Capital. Mr. Hunt formerly served as the voting trustee under a voting trust agreement with DLJ Capital. See "Certain Transactions -- Voting Trust Agreement" below. (8) Mr. Sweezey, a Managing Director of DLJ Securities, has been designated to the Board of Directors of Holdings by DLJ Capital pursuant to the New Stockholders Agreement. (9) All such shares of Class A Common Stock are issuable upon the exercise of outstanding stock options. Mr. Honermann resigned from the Company during the first quarter of 1995. (10) The 2,525,000 shares set forth in the table are the shares issuable upon exercise of the Warrant issued as part of the Equity Offering. The Warrant entitles the holder thereof to purchase up to 15% of the fully-diluted common stock of Holdings. (11) The shares of Class A Common Stock set forth in the table include the shares held by Mr. Turner (including the shares referenced in note (6) above), the shares held by Mr. Hicks (including the shares held by the trusts referenced in note (5) above), the shares that Mr. Hunt has the right to purchase from DLJ Capital, and the shares issuable to Mr. Wisnoski, Mr. Honermann and Mr. Montgomery upon the exercise of outstanding stock options. CERTAIN TRANSACTIONS Stockholders Agreement In connection with the Recapitalization Plan and on the Closing Date, Holdings, DLJ Capital, William O. Hunt, as voting trustee (the "Voting Trustee") under the Voting Trust Agreement identified under "Voting Trust Agreement" below, Jim L. Turner and Crown entered into a stockholders agreement (the "New Stockholders Agreement"). Pursuant to the New Stockholders Agreement, DLJ Capital, the Voting Trustee, Jim L. Turner and Crown agreed to vote their capital stock to insure that the Board of Directors of Holdings will at all times consist of five persons, one person designated by DLJ Capital, one person designated by the Voting Trustee, and three persons designated by Jim L. Turner. DLJ Capital designated Mr. Sweezey, the Voting Trustee designated himself and Mr. Turner designated Mr. Hicks and himself to the Board of Directors. Mr. Turner has advised Holdings that he has not yet determined whether he will exercise his right under the New Stockholders Agreement to name one other designee and, if so, who such designee will be. DLJ Capital has informed Holdings that, in connection with the termination of the Voting Trust Agreement, the Voting Trustee will assign its right to designate a director to DLJ Capital. The New Stockholders Agreement also prohibits (with certain exceptions) Holdings or any of its subsidiaries from engaging in certain fundamental corporate transactions without the consent of DLJ Capital including, without limitation, amendments to its charter or by-laws, mergers, acquisitions or the sale or lease of substantially all of its assets, or issuances or sales of its capital stock, or any rights to acquire capital stock or any securities or notes convertible into or exchangeable for its capital stock. The right of Mr. Turner to designate directors under the New Stockholders Agreement will terminate in the event that Mr. Turner and/or his Affiliates (as defined) no longer own common stock and common stock equivalents that collectively represent at least 17.5% of the fully 32 36 diluted common stock of Holdings (excluding from such calculation any common stock and common stock equivalents issued after the date of the New Stockholders Agreement). The right of designation of DLJ Capital and the requirement of obtaining DLJ Capital's consent, as described above, will terminate in the event that DLJ Capital and its Affiliates and/or the employees of DLJ Capital or its Affiliates no longer own common stock or common stock equivalents that collectively represent 17.5% of the fully diluted common stock of Holdings (excluding from such calculation any common stock and common stock equivalents issued after the date of the New Stockholders Agreement). The New Stockholders Agreement grants certain rights of first refusal and tag-along rights with respect to transfers of Class A Common Stock by the parties, other than certain transfers by parties to the New Stockholders Agreement to their respective affiliates and certain employees, or except pursuant to certain public offerings. In addition, Holdings granted certain preemptive rights to the other parties to the New Stockholders Agreement with respect to the issuance of common stock and common stock equivalents. Also, under the New Stockholders Agreement, Holdings granted the parties thereto certain demand and piggy-back registration rights in respect of Class A Common Stock. The demand registration rights may be exercised no earlier than two years after the date of the New Stockholders Agreement. The New Stockholders Agreement will terminate in its entirety upon a public offering of Holdings' common stock in the amount of $30.0 million or more. The preceding summary of certain provisions of the New Stockholders Agreement is qualified in its entirety by reference to the full text of such agreement, a copy of which has been filed with the Securities and Exchange Commission (the "Commission") as an exhibit to the Registration Statement of which this Prospectus is a part. Voting Trust Agreement DLJ Capital and William O. Hunt were parties to a Voting Trust Agreement dated as of October 28, 1988, (the "Voting Trust Agreement"), pursuant to which Mr. Hunt, as trustee, had exclusive power to vote any shares of Class A Common Stock at any time owned by DLJ Capital or its affiliates that represented in excess of 5% of the total number of shares of Holdings' voting stock at any time outstanding. Pursuant to the Voting Trust Agreement, DLJ Capital directed Mr. Hunt to enter into the New Stockholders Agreement. Mr. Hunt had full power and authority to vote the shares subject to the Voting Trust Agreement as in his sole judgment he believed to be in the best interests of the stockholders of Holdings generally. Further, Mr. Hunt was required to vote the shares subject to the Voting Trust Agreement (or use his power to designate a director of Holdings) to prevent the election of more than one affiliate of DLJ Capital or The Equitable Life Assurance Society of the United States, the parent company of DLJ Capital, as a director of Holdings at each election of directors. DLJ Capital has informed Holdings that DLJ Capital has terminated the Voting Trust Agreement. DLJ Capital entered into a Stock Option Agreement dated as of October 28, 1988, granting Mr. Hunt, in his individual capacity, an option to purchase from DLJ Capital up to 66,667 shares of Class A Common Stock of Holdings for a period of ten years at an option exercise price of $.90 per share. In addition, while Mr. Hunt served as trustee under the Voting Trust Agreement, DLJ Capital paid to him an annual fee of $25,000, which fee was reimbursed by the Company. The preceding summary of certain provisions of the Voting Trust Agreement is qualified in its entirety by reference to the full text of such agreement, a copy of which has been filed with the Commission as an exhibit to the Registration Statement of which this Prospectus is a part. Transactions with DLJ Capital and its Affiliates In connection with the Recapitalization Plan, DLJ Securities received $6.9 million in underwriting discounts and commissions for serving as underwriter of the Senior Notes and the Discount Notes. DLJ Securities also served as dealer manager for the Tender Offer and Consent Solicitation and received customary fees and was reimbursed for expenses in connection therewith. 33 37 DLJ Securities sold the note of the landlord (the "Landlord Note") under the Company's sale-leaseback arrangement on October 19, 1993 at a price of $17,698,500 (the "Sales Price") plus accrued interest of $95,985. DLJ Securities received a commission of $176,985 in connection with such sale (1% of the Sales Price) and reimbursement of $94,472 for expenses incurred in connection with such sale, both of which were paid out of the proceeds from such sale. The remaining proceeds from such sale in excess of the principal amount of the Landlord Note plus accrued interest ($1,227,043) were paid to the Company. Transactions with Jim L. Turner Jim L. Turner, President and Chief Executive Officer of the Company and Holdings, is a party to the New Stockholders Agreement. As part of the Recapitalization Plan, in April 1993 Holdings issued and sold 308,335 shares of Class A Common Stock to Mr. Turner at a purchase price of $.90 per share, or $277,501.50 in the aggregate. The purchase price was paid by the delivery by Mr. Turner to Holdings of $3,083.35 in cash and a promissory note in the aggregate principal amount of $274,418.15 which has a term of five years and bears a rate of interest at TCB's prime rate. Holdings has the right to require Mr. Turner to reconvey to Holdings 140,000 of such shares in the event that Holdings does not achieve certain minimum levels of net sales and earnings before interest, taxes, depreciation and amortization for the year ending December 31, 1994. DESCRIPTION OF THE SENIOR NOTES The Senior Notes were issued under an Indenture (the "Senior Notes Indenture") between the Company and U.S. Trust Company of Texas, N.A., as Trustee (the "Senior Notes Trustee"), a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. The following summaries of certain provisions of the Senior Notes Indenture are qualified in their entirety by reference to all the provisions of the Senior Notes Indenture. Wherever particular sections or defined terms of the Senior Notes Indenture are referred to, such sections or defined terms are incorporated herein by reference. Capitalized terms not otherwise defined below or elsewhere in this Prospectus have the meanings given to them in the Senior Notes Indenture. GENERAL The Senior Notes are general unsecured obligations of the Company, senior in right of payment to all subordinated indebtedness of the Company (including the Old Discount Notes) and pari passu in right of payment to all other unsecured indebtedness of the Company, and are limited to $125 million in aggregate principal amount. The Senior Notes are issuable only in registered form, without coupons, in denominations of $1,000 or any integral multiple thereof. MATURITY, INTEREST AND PRINCIPAL The Senior Notes will mature on February 15, 2000. Interest on the Senior Notes is payable in cash semi-annually on each February 15 and August 15, commencing August 15, 1993 (each an "Interest Payment Date"), to the persons in whose names the Senior Notes are registered at the close of business on the preceding February 1 and August 1 (each an "Interest Record Date"). Interest will accrue from the most recent Interest Payment Date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from the date of issuance. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Principal and premium, if any, and interest on each Senior Note is be payable, and the Senior Notes may be presented for transfer or exchange, at the office or agency of the Company maintained for such purpose. At the option of the Company, payment of interest may be made by check mailed to registered holders of the Senior Notes at the addresses set forth on the registry books of the Company. No service charge will be made for any exchange or registration of transfer of Senior Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Unless otherwise designated by the Company, the Company's office or agency will be the corporate trust office of the Senior Notes Trustee. 34 38 OPTIONAL REDEMPTION The Senior Notes may not be redeemed prior to February 16, 1998. On or after February 16, 1998, the Company, at its option, may redeem the Senior Notes in whole or in part at the following redemption prices (expressed as percentages of the principal amount thereof) together with accrued and unpaid interest to the redemption date:
IF REDEEMED DURING THE TWELVE-MONTH REDEMPTION PERIOD BEGINNING FEBRUARY 16, PRICE 1998............................................................ 101.708% 1999............................................................ 100.000%
In case of a partial redemption, selection of Senior Notes or portions thereof for redemption shall be made by the Senior Notes Trustee in such manner as in its sole discretion it shall deem appropriate and fair. Senior Notes may be redeemed in part in multiples of $1,000 only. The 1993 Bank Credit Agreement contains provisions that prohibit optional redemption of the Senior Notes until all amounts due thereunder have been paid in full. Notice of redemption will be sent, by first-class mail, at least 30 days and not more than 60 days prior to the date fixed for redemption to each holder of Senior Notes to be redeemed at the last address for such holder then shown on the registry books. Any notice that relates to a Senior Note to be redeemed in part only shall state the portion of the principal amount to be redeemed and that on and after the redemption date, upon surrender of the Senior Note, a new Senior Note or Senior Notes will be issued in a principal amount equal to the unredeemed portion thereof. On and after the redemption date (unless the Company shall default in the payment of such Senior Notes at the redemption price, together with accrued interest to the redemption date), interest will cease to accrue on the Senior Notes or part thereof called for redemption. COVENANTS The Senior Notes Indenture contains, among other things, the following covenants: Change in Control If a Change in Control occurs, each holder shall have the right to require the Company to repurchase in whole or in part such holder's Senior Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. Within 30 days following any Change in Control, the Company shall mail a notice to each holder stating: (1) that a Change in Control has occurred and that such holder has the right to require the Company to repurchase in whole or in part such holder's Senior Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase; (2) such other information as may be required by applicable law and regulations; (3) the repurchase date (which shall be no earlier than 20 business days nor later than 30 business days from the date such notice is mailed); and (4) the instructions determined by the Company, consistent with this covenant and applicable law, that a holder must follow in order to have its Senior Notes repurchased. The Company's ability to repurchase Senior Notes upon a Change in Control may be limited by the terms of then existing contractual obligations. The 1993 Bank Credit Agreement prohibits any such repurchases unless all amounts outstanding under the 1993 Bank Credit Agreement have been paid in full. In addition, the Company may not have adequate financial resources to effect such an offer. The inability of the Company to repurchase Senior Notes upon a Change in Control would constitute an Event of Default under the Senior Notes Indenture. 35 39 The Company will comply with all applicable tender offer rules (including, without limitation, Rule 14e-1 under the Exchange Act) in the event that the Company is required to make an offer to repurchase the Senior Notes following a Change in Control. Limitation on Debt The Company will not, and will not permit its subsidiaries to, create, incur or assume or otherwise become liable for any Debt, except (a) Debt incurred by the Company pursuant to borrowings under the 1993 Bank Credit Agreement in an aggregate principal amount not to exceed $125 million; provided that such $125 million limit shall be reduced by any scheduled prepayments under the term loan portion of the 1993 Bank Credit Agreement as in effect on the date of the Senior Notes Indenture; (b) Debt evidenced by the Senior Notes; (c) Debt of the Company to any subsidiary and of any subsidiary to the Company or any other subsidiary; (d) Acquisition Debt related to an advance, loan or investment permitted by clause (f) under the "Limitations on Investments, Loans or Advances" covenant described below or the acquisition by the Company of all or any portion of the assets of any person engaged in the manufacturing, packaging, marketing, or distribution of beverages, the full line vending business, or the manufacturing of products used in any of the foregoing provided a majority of such assets acquired relate to the foregoing and provided that the principal amount of such Acquisition Debt at any time outstanding does not exceed $40 million; (e) Debt outstanding on the date of the Senior Notes Indenture; (f) Debt of the Company attributable to any Interest Rate Agreement; (g) Debt of the Company attributable to letters of credit used in the ordinary course of business; (h) to the extent not otherwise provided for in clauses (a) through (g) above, Debt of the Company the aggregate outstanding principal amount of which shall not at any time exceed $10 million; and (i) any extension, renewal or replacement by the Company of any of (a), (b), (d) and (e) above provided that (1) the amount of the Debt issued pursuant to this clause (i) (or, if such new Debt is issued at a price less than the principal amount thereof, the original issue price) shall not exceed the Debt being extended, renewed or replaced (plus accrued interest and fees and expenses related thereto) or, in the case of any extension or renewal of a revolving credit facility or the replacement of any revolving credit facility with another revolving credit facility, without increasing the aggregate principal amount that may be borrowed under such facility, (2) if the Debt being extended, renewed or replaced has a maturity after February 15, 2000, the Debt issued pursuant to this clause (i) shall have not have a maturity prior to February 16, 2000, and (3) if the Debt being extended, renewed or replaced is subordinate to the Senior Notes, the Debt issued pursuant to this clause (i) must be subordinate at least to the same extent. Notwithstanding the foregoing, the Company may create, incur or assume or otherwise become liable with respect to Debt if, at the time such Debt is so created, incurred or assumed (the "Incurrence Date") and after giving effect thereto and to the application of the proceeds thereof, the pro forma ratio of Consolidated Cash Flow to Fixed Charges for the four fiscal quarters ending with the fiscal quarter ended immediately preceding the Incurrence Date shall not be less than 1.75 to 1 if the Incurrence Date is on or prior to March 31, 1996 and 2.25 to 1 if the Incurrence Date is subsequent thereto. The pro forma ratio of Consolidated Cash Flow to Fixed Charges will, as applicable, be calculated on the following basis: (a) notwithstanding clauses (a) and (b) of the definition of Consolidated Net Income (Loss) set forth under "Certain Definitions," if the Debt which is being created, incurred or assumed is Acquisition Debt, the ratio of Consolidated Cash Flow to Fixed Charges shall be determined on a pro forma basis giving effect to the creation, incurrence or assumption of such Acquisition Debt, application of the proceeds therefrom, Fixed Charges related thereto and Consolidated Cash Flow of such acquired person, business, property or asset as if such transaction had occurred at the beginning of such four quarter period; and (b) there shall be excluded from Fixed Charges any Fixed Charges related to Debt (other than Debt created, incurred or assumed for working capital purposes) repaid during the pro forma period or thereafter and which is not outstanding on the Incurrence Date. For purposes of the foregoing provision, cash flow generated by any acquired person, business, property or asset shall be determined on the same basis provided in the definition of Consolidated Cash Flow set forth under "Certain Definitions" during the immediately preceding four full fiscal quarter period plus (y) (i) the savings in cost of goods sold that would have resulted during that period from the effect of using the Company's actual costs for comparable goods and services during that period and (ii) other savings in cost of goods sold or eliminations of selling, general and administrative expenses as determined by 36 40 the Company in good faith in its consideration of such acquisitions and consistent with the Company's experiences in acquisitions of similar businesses minus (z) the incremental expenses that would be included in costs of goods sold and selling, general and administrative expenses that would have been incurred by the Company in the operation of such acquired person, business, property or assets during such period as determined by the Company in good faith in its consideration of such acquisitions and consistent with the Company's experiences in acquisitions of similar businesses. In addition, for purposes of this paragraph, Consolidated Cash Flow and Fixed Charges shall be calculated after giving effect on a pro forma basis for the period of such calculation to the creation, incurrence or assumption of any Debt (other than Debt created, incurred or assumed for working capital purposes) at any time during the period commencing on the first day following the four full fiscal quarter period that precedes the Incurrence Date and ending on and including the Incurrence Date (and that is outstanding on the Incurrence Date), including, without limitation, the incurrence of the Debt giving rise to the need to make such calculation, as if such creation, incurrence or assumption occurred and the proceeds therefrom had been applied on the first day of such four full fiscal quarter period. For purposes of the preceding two paragraphs, any waiver, extension or continuation of any or all mandatory prepayments or installment payments by the Company of any of the Debt under the term loan portion of the 1993 Bank Credit Agreement shall not be or be deemed to be the creation, incurrence or assumption of Debt by the Company to the extent that the amount of outstanding borrowings by the Company thereunder has not been increased. Limitation on Restricted Payments The Company and its subsidiaries will not make any Restricted Payment if, after giving effect thereto: (a) an Event of Default, or an event that with the passage of time or the giving of notice, or both, would constitute an Event of Default, shall have occurred and be continuing; or (b) the aggregate amount of all Restricted Payments made by the Company and its subsidiaries (the amount expended or distributed for such purposes, if other than in cash, to be determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors filed with the Senior Notes Trustee) from and after the date of the Senior Notes Indenture, shall exceed the sum (without duplication) of (i) the aggregate of 50% of the Consolidated Net Income (Loss) (or in the event of a loss, 100% of any such loss) of the Company accrued for the period (taken as one accounting period) commencing with the first full fiscal quarter after the date of the Senior Notes Indenture to and including the fiscal quarter ended immediately prior to the date of such calculation plus (ii) the aggregate net proceeds, including the fair market value of property other than cash (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors filed with the Senior Notes Trustee), received by the Company from the issuance or sale (other than to a subsidiary) from and after the date of the Senior Notes Indenture of its Capital Stock (excluding any Redeemable Stock or Capital Stock convertible into Redeemable Stock, but including Capital Stock other than Redeemable Stock issued upon conversion of, or exchange for, Redeemable Stock or securities other than its Capital Stock), and warrants and rights to purchase its Capital Stock plus (iii) $7.5 million; provided that the foregoing clause (b) shall not prevent (A) the making of Permitted Payments; and (B) the payment of any dividend within 60 days after the date of its declaration if such dividend could have been made on the date of its declaration without violation of clauses (a) and (b) above; provided that the amount of Restricted Payments made pursuant to clause (B) above shall be included in any computation of the amount of Restricted Payments made pursuant to this provision. As used herein, the aggregate net proceeds received by the Company (x) from the issuance of its Capital Stock upon the conversion of, or exchange for, securities evidencing Debt of the Company shall be calculated on the assumption that the gross proceeds from such issuance are equal to the aggregate principal amount of the Debt evidenced by such securities converted or exchanged and (y) upon the conversion or exchange of other securities of the Company shall be equal to the aggregate net proceeds of the original sale of the securities so converted or exchanged if such proceeds of such original sale were not previously included in any calculation of aggregate proceeds for purposes of this provision plus any additional sums payable upon conversion or exchange. 37 41 Limitation on Investments, Loans and Advances The Company will not, and will not permit any of its subsidiaries to, make any advances or loans to, or investments (by way of transfers of property, contributions to capital, acquisitions of stock, securities or evidences of indebtedness, or otherwise) in, any other person, except that: (a) any subsidiary of the Company may make advances or loans to or investments in the Company and the Company may make investments in any wholly-owned subsidiary to the extent permitted under the 1993 Bank Credit Agreement as in effect on the date of the Senior Notes Indenture; (b) each of the Company and its subsidiaries may acquire and hold receivables owing to it, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms (provided that nothing in the foregoing shall prevent the Company or any subsidiary from offering such concessionary trade terms as management deems reasonable in the circumstances); (c) the Company and its subsidiaries may make investments in cash and Cash Equivalents; (d) the Company or any of its subsidiaries may make payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (e) the Company or any of its subsidiaries may acquire and own stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or such subsidiary or in satisfaction of judgments; (f) the Company and any of its subsidiaries may make investments (by way of transfers of property, contributions to capital, acquisitions of equity securities or evidences of indebtedness, or otherwise) in any person (including, without limitation, any subsidiary of the Company), provided that (i) at least a majority of such person's revenues result from the manufacturing, packaging, marketing, or distribution of beverages, the full line vending business, or the manufacturing of products used in any of the foregoing and (ii) immediately after making such investment, the Company or the Company and its subsidiaries possess the power to direct the management and policies of such entity, directly or indirectly, through the ownership of voting securities, by contract or otherwise; (g) the Company and its subsidiaries may make investments in (i) stock options to purchase Common Stock of Holdings issued to employees of the Company or any of its subsidiaries pursuant to any employee stock option plan or (ii) Common Stock of Holdings issued in respect thereof, in either case upon termination of such employee's employment with the Company or such subsidiary; provided that the aggregate amount of payments described in this clause (g) shall not exceed $200,000 in any 12-month period; and (h) transactions with affiliates permitted as described below under "Transactions with Affiliates." Restrictions on Disposition of Assets Subject to the paragraph headed "Limitations on Merger" below, the Company will not, and will not permit any of its subsidiaries to, sell, transfer or otherwise dispose of, in any 12-month period, any assets (including by way of sale-and-leaseback), other than in the ordinary course of business, or the Capital Stock of any subsidiary directly or indirectly owned by the Company, with an aggregate value of greater than $5 million, unless (a) at least 75% in value of the consideration received therefor by the Company or such subsidiary is in the form of cash; provided that the amount of (i) any liabilities (as shown on the Company's or such subsidiary's most recent balance sheet or in the notes thereto) of the Company or any such subsidiary that are assumed by the transferee in any such transaction and (ii) any marketable securities, notes or other obligations received by the Company or any such subsidiary from such transferee that are immediately converted by the Company or such subsidiary into cash, shall both be deemed to be cash for the purposes of this provision; provided further, however, that the 75% limitation referred to above shall not apply to any sale, transfer or other disposition of assets (including the Capital Stock of any subsidiary directly or indirectly owned by the Company) in which the cash portion of the consideration received therefor, determined in accordance with the foregoing proviso, is equal to or greater than what the after-tax net proceeds would have been had such transaction complied with the aforementioned 75% limitation; and (b) the net cash proceeds of the sale, transfer or other disposition of such assets or Capital Stock are, within 12 months of receipt of such net cash proceeds, (i) applied to the permanent reduction of amounts outstanding under the 1993 Bank Credit Agreement, (ii) reinvested in the business or businesses of the Company or any of its subsidiaries, (iii) subject to the "Limitations on Loans, Investments and Advances" described above, utilized to make any advances or loans to or investments (by way of transfers of property, contributions to capital, acquisitions of stock, securities or evidences of indebtedness, or otherwise) in any person, or (iv) are used to acquire all or a portion 38 42 of the assets of any person engaged in the manufacturing, packaging, marketing or distribution of beverages, the full line vending business, or the manufacturing of products used in any of the foregoing provided a majority of such acquired assets relate to the foregoing. If the Company or such subsidiary does not elect to, or is not permitted to, apply any or all of such net cash proceeds in accordance with one or more of the foregoing clauses (b)(i), (ii), (iii) or (iv), then such net cash proceeds or any remaining portion thereof shall be applied by the Company or such subsidiary within 12 months of such receipt to make an offer to purchase Senior Notes (an "Asset Sale Offer") at a price equal to 100% of the principal amount of Senior Notes to be repurchased plus accrued interest thereon to the date of repurchase. Notwithstanding the foregoing, in the event that such net cash proceeds, after giving effect to any application thereof permitted by clause (b)(i), (ii), (iii) or (iv) above, are less than $5 million, the application of such net cash proceeds to an Asset Sale Offer may be deferred until such time as such net cash proceeds not otherwise applied pursuant to clause (b)(i), (ii), (iii) or (iv) above are at least equal to $5 million, at which time the Company or such subsidiary shall apply all such net cash proceeds to an Asset Sale Offer. The Company will comply with all applicable tender offer rules (including, without limitation, Rule 14e-1 under the Exchange Act) in the event that the Company is required to make an Asset Sale Offer. Conduct of Business The Company will not, and will not permit any of its subsidiaries to, engage, directly or indirectly, in any business other than the manufacturing, packaging, marketing or distribution of beverages, the full line vending business, to the extent reasonably deemed necessary by the Company in connection with the maintenance or extension of its beverage vending business, or the manufacturing of any products used in any of the foregoing, to the extent reasonably deemed necessary by the Company in connection with good faith efforts by the Company to reduce its cost of goods sold. Notwithstanding the foregoing, if the Company or any of its subsidiaries shall acquire, in a transaction permitted under the "Limitation on Investments, Loans and Advances" covenant described above, an interest in any person engaged in a business other than as specified in the preceding sentence or assets used in any such other business, it will not constitute a breach or violation of this covenant for the Company or such subsidiary to continue such other business so long as it shall be using its best efforts to promptly sell such other business. Restriction on Issuance and Sale of Subsidiary Stock The Company will not permit any of its subsidiaries to issue any shares of its Capital Stock to any person other than the Company or one or more wholly-owned subsidiaries. The Company will not and will not permit any of its subsidiaries to sell, transfer or otherwise dispose of any shares of Capital Stock of any of its subsidiaries to any person unless, at the time of such sale, transfer or other disposition, all such shares of such subsidiary then owned by the Company or any of its subsidiaries are so sold, transferred or otherwise disposed of. Limitations on Merger The Senior Notes Indenture provides that the Company may not consolidate with or merge with or into another person or sell, lease or convey all or substantially all its assets to another person unless (a)(i) the Company is the continuing corporation in the case of a merger or (ii) the resulting, surviving or transferee person (the "Surviving Entity") is a corporation or partnership organized under the laws of the United States, any state thereof or the District of Columbia and expressly assumes by supplemental indenture all the obligations of the Company under the Senior Notes Indenture and the Senior Notes; (b) no Event of Default (or event or condition that with the passage of time, the giving of notice, or both, would become an Event of Default) shall have occurred and be continuing immediately after giving effect to such transaction; (c) the Net Worth of the Company or the Surviving Entity on a pro forma basis after giving effect to such transaction (but prior to any purchase accounting adjustments resulting from the transaction) is not less than the Net Worth of the Company immediately prior to such transaction; and (d) immediately after giving effect to such transaction, the Company or the Surviving Entity, as the case may be, could incur at least $1.00 of additional 39 43 Debt pursuant to the provisions of the Senior Notes Indenture described above in the second paragraph under the caption "Limitation on Debt." For purposes of clause (d) above, the ratio of Consolidated Cash Flow to Fixed Charges shall be calculated such that (x) notwithstanding clauses (a) and (b) of the definition of Consolidated Net Income (Loss) set forth below under "Certain Definitions," the ratio of Consolidated Cash Flow to Fixed Charges shall be determined on a pro forma basis giving effect to the creation, incurrence or assumption of Debt by the Company in connection with any merger or consolidation, the Fixed Charges related thereto and the Consolidated Cash Flow of the person merging with or into or consolidating with the Company, and (y) there shall be excluded from Fixed Charges any Fixed Charges related to Debt (other than Debt created, incurred or assumed for working capital purposes) of the Company and its subsidiaries repaid during the pro forma period or thereafter and which is not outstanding on the date of the transaction giving rise to such calculation (the "Transaction Date"). For purposes of this "Limitations on Merger" provision, Consolidated Cash Flow and Fixed Charges shall be calculated after giving effect on a pro forma basis for the period of such calculation to the creation, incurrence or assumption of any Debt (other than Debt created, incurred or assumed for working capital purposes) at any time during the period commencing on the first day following the four full fiscal quarter period that precedes the Transaction Date and ending on and including the Transaction Date (and that is outstanding on the Transaction Date), including, without limitation, the creation, incurrence or assumption of any Debt in connection with such transaction, as if such creation, incurrence or assumption occurred and the proceeds therefrom had been applied on the first day of such four full fiscal quarter period. Notwithstanding the foregoing, clauses (c) and (d) shall not prohibit a transaction the principal purpose of which is to change the state of incorporation of the Company and which does not have as one of its purposes the evasion of the limitations imposed on consolidations, mergers, sales or conveyances by the Company. Limitations on Dividends and Other Payment Restrictions Affecting Subsidiaries The Company will not, and will not permit any of its subsidiaries to, create, assume or otherwise cause or suffer to exist or to become effective any consensual encumbrance or restriction on the ability of any subsidiary to (a) pay dividends or make any other distributions on its Capital Stock to the Company; (b) make payments in respect of any Debt owed to the Company or any of the Company's subsidiaries; (c) make loans or advances to the Company or any of the Company's wholly-owned subsidiaries; or (d) transfer any of its property to the Company or any of the Company's wholly-owned subsidiaries; provided, however, that (i) the restrictions contained in the 1993 Bank Credit Agreement as in effect on the date of the Senior Notes Indenture, (ii) consensual encumbrances or restrictions that are no less favorable to the Company than those required by the 1993 Bank Credit Agreement as in effect on the date of the Senior Notes Indenture granted in connection with any Debt, (iii) consensual encumbrances or restrictions binding upon any person at the time such person becomes a subsidiary of the Company so long as such encumbrances or restrictions are not created, incurred or assumed in contemplation of such person becoming a subsidiary of the Company, (iv) customary non-assignment or sublease provisions of any lease of the Company or any of its subsidiaries, (v) non-assignment provisions of any franchise or distribution agreement, (vi) restrictions imposed by applicable law, and (vii) any restrictions with respect to a subsidiary of the Company imposed pursuant to an agreement which has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such subsidiary, shall not be prohibited. Nothing contained in this "Limitations on Dividends and Other Payment Restrictions Affecting Subsidiaries" covenant shall prevent the Company from entering into any agreement providing for the incurrence of Permitted Liens or restricting the sale or other disposition of property or assets of the Company or any of its subsidiaries which are subject to any Permitted Liens. Limitations on Liens The Company will not, and will not permit any of its subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any lien upon or with respect to any of the property of the Company or any such subsidiary whether now owned or hereafter acquired, or on any income or profits therefrom, or assign or otherwise convey any right to receive income to secure any Debt unless, contemporaneously therewith or prior thereto, effective provision shall be made whereby the Senior Notes are secured equally and ratably with such 40 44 other Debt; provided that this provision shall not prohibit the creation, incurrence, existence, or assumption of any Permitted Liens or any lien securing other Debt required to be equally and ratably secured as a result of the incurrence of such lien. Transactions with Affiliates So long as any of the Senior Notes remain outstanding, neither the Company nor any of its subsidiaries will, directly or indirectly, enter into any transaction with any affiliate of the Company except for transactions (including any loans or advances by or to any affiliate) in good faith the terms of which are fair and reasonable to the Company or such subsidiary, as the case may be, and are at least as favorable as the terms that could be obtained by the Company or such subsidiary, as the case may be, in a comparable transaction made on an arm's length basis between unaffiliated parties; provided that, subject to the next succeeding proviso, any such transaction shall be conclusively deemed to be on terms which are fair and reasonable to the Company or any of its subsidiaries and on terms which are at least as favorable as the terms which could be obtained on an arm's length basis between unaffiliated parties if such transaction is approved by a majority of the Company's Board of Directors (including a majority of the Company's independent directors, if any); provided further that, with respect to the purchase or disposition of assets of the Company or any of its subsidiaries, other than the purchase of inventory in the ordinary course of business, having a net book value in excess of $10 million, the Company shall, in addition to obtaining approval of its Board of Directors, obtain a written opinion of an Independent Financial Advisor stating that the terms of such transaction are fair and reasonable to the Company or its subsidiary, as the case may be, and are at least as favorable to the Company or such subsidiary, as the case may be, as could have been obtained on an arm's length basis between unaffiliated parties. Notwithstanding the foregoing, the restriction on transactions with affiliates shall not apply to (a) payments to DLJ Securities or any affiliate thereof pursuant to any underwriting or financial advisory agreement, whether or not existing on the date of the Senior Notes Indenture, between DLJ Securities or any affiliate thereof and the Company and any subsidiary thereof, (b) any transactions (including loans, advances or other payments) related to compensation arrangements with employees of the Company or any of its subsidiaries (including any such employee who may be deemed an affiliate of the Company or its subsidiaries), such arrangements to include, without limitation, employment agreements and severance arrangements, (c) the transactions and payments contemplated in the Dealer Manager Agreement, dated December 30, 1992, between DLJ Securities and the Company and any other transactions and payments related to the Recapitalization Plan, (d) tax-sharing arrangements to the extent substantially consistent with the past practice of the Company and its affiliates, (e) any transaction between the Company and any of its wholly-owned subsidiaries or between any of its wholly-owned subsidiaries, and (f) any other transactions with affiliates of the Company entered into prior to February 18, 1993, the date of the Senior Notes Indenture. Recapitalization Plan Notwithstanding the foregoing covenants, the Senior Notes Indenture permits the Company and its subsidiaries to consummate the transactions which are part of the Recapitalization Plan as described herein, including the payment of fees and expenses in connection with the Recapitalization Plan. SUPPLEMENTAL SENIOR NOTES INDENTURES The Senior Notes Indenture permits the Company and the Senior Notes Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Senior Notes at the time outstanding, to amend or supplement the Senior Notes Indenture or any supplemental indenture or modify the rights of the holders of the Senior Notes, provided that no such modification may, without the consent of each holder of the Senior Notes affected thereby, (a) reduce the amount of Senior Notes whose holders must consent to any amendment, supplement or waiver, (b) reduce the rate of or extend the time for payment of interest on any Senior Note, (c) reduce the principal of (or change the manner of computing the amount due on acceleration) or extend the final maturity of any Senior Notes, (d) reduce any amount payable on redemption, (e) adversely affect any right of repayment at the option of the holder of any Senior Note under the "Change 41 45 in Control" or "Restrictions on Disposition of Assets" covenants described above or (f) impair or affect the right of any holder of Senior Notes to institute suit for the payment of any Senior Note. EVENTS OF DEFAULT AND REMEDIES The Senior Notes Indenture defines an Event of Default as being (a) default in the payment of any installment of interest on the Senior Notes as and when the same becomes due and payable, and the continuance of such default for 30 days, (b) default in the payment of all or any part of the principal on the Senior Notes as and when the same shall become due and payable at maturity, upon any redemption, by declaration or otherwise, (c) failure on the part of the Company duly to observe or perform any other covenant or agreement on the part of the Company contained in the Senior Notes or the Senior Notes Indenture and the continuance of such failure for a period of 60 days after the date on which written notice specifying such failure, stating that such notice is a "Notice of Default" and demanding that the Company remedy the same is given to the Company by the Senior Notes Trustee or to the Company and the Senior Notes Trustee by the holders of at least 25% in aggregate principal amount of the Senior Notes, (d) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company or any of its Material Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or any of its Material Subsidiaries or for any substantial part of the property of the Company or any of its Material Subsidiaries or ordering the winding up or liquidation of the affairs of the Company or any of its Material Subsidiaries and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days, (e) the Company or any of its Material Subsidiaries shall commence a voluntary case under any applicable bankruptcy, insolvency, or other similar law nor or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or any of its Material Subsidiaries or for any substantial part of the property of the Company or any of its Material Subsidiaries, or the Company or any of its Material Subsidiaries shall make any general assignment for the benefit of creditors, (f) any acceleration of the maturity of Debt of the Company or any of its Material Subsidiaries, or a failure to pay any such Debt at its stated maturity, aggregating in either case at least $10 million to the extent not effectively waived, and after expiration of any applicable grace period with respect thereto and (g) final judgments not covered by insurance aggregating in excess of $5 million rendered against the Company or any of its Material Subsidiaries and not stayed or discharged within 90 days. The Senior Notes Indenture will provide that if a default (the term "default" for purposes of this provision being defined as any event or condition which is, or with notice or lapse of time or both would be, an Event of Default) occurs and is continuing and if is it known to the Senior Notes Trustee, the Senior Notes Trustee must, within 90 days after the occurrence of such default, give to the holders of Senior Notes notice of such default, provided that, except in the case of default in payment of principal or interest in respect of such Senior Notes, the Senior Notes Trustee will be protected in withholding such notice if it in good faith determines that the withholding of such notice is in the interests of the holders of Senior Notes. "Material Subsidiary" means, as of any date, any subsidiary of the Company (a) the value of whose assets, as such assets would appear on a consolidated balance sheet of such subsidiary and its consolidated subsidiaries prepared on such date in accordance with generally accepted accounting principles, is at least 10% of the value of the assets of the Company and its consolidated subsidiaries, or (b) whose Consolidated Cash Flow for the most recently completed fiscal quarter immediately preceding such date was at least 10% of the Consolidated Cash Flow of the Company for such fiscal quarter. If an Event of Default occurs and is continuing (other than an Event of Default specified in clause (d) or (e) relating to the Company), unless the principal of all of the Senior Notes shall have already become due and payable, either the Senior Notes Trustee or the holders of not less than 25% in aggregate principal amount of the Senior Notes then outstanding, by notice in writing to the Company (and to the Senior Notes Trustee if given by holders of Senior Notes) (an "Acceleration Notice"), may declare all the Senior Notes, and the accrued interest thereon, to be due and payable immediately. If an Event of Default specified in clause (d) or (e) above relating to the Company occurs, all the Senior Notes, and the accrued interest thereon, shall be immediately due and payable without any declaration or other act on the part of the Senior Notes Trustee or 42 46 the holders of Senior Notes. In the event of a declaration of acceleration because an Event of Default set forth in clause (f) above has occurred and is continuing, such declaration of acceleration shall be automatically annulled if the holders of the Debt that is the subject of such Event of Default have rescinded the declaration of acceleration in respect of such Debt within 15 business days thereof and if (i) the annulment of such acceleration would not conflict with any judgment or decree of a court of competent jurisdiction, (ii) all existing Events of Default, except non-payment of principal or interest which shall have become due solely because of the acceleration, have been cured or waived and (iii) the Company has delivered an Officer's Certificate to the Senior Notes Trustee to the effect of clauses (i) and (ii) above. Prior to the declaration of acceleration of the maturity of the Senior Notes, the holders of a majority in aggregate principal amount of the Senior Notes at the time outstanding may on behalf of all the holders of Senior Notes waive any default or Event of Default and its consequences, except a default (a) in the payment of principal of or interest on any Senior Note or (b) in the repurchase of any Senior Note at the option of the holder thereof under the "Change in Control" and "Restrictions on Disposition of Assets" covenants set forth above. Subject to the provisions of the Senior Notes Indenture relating to the duties of the Senior Notes Trustee, the Senior Notes Trustee is under no obligation to exercise any of its rights or powers under the Senior Notes Indenture at the request, order or direction of any of the holders of Senior Notes, unless such holders of Senior Notes have offered to the Senior Notes Trustee reasonable security or indemnity. Subject to all provisions of the Senior Notes Indenture and applicable law, the holders of a majority in aggregate principal amount of the Senior Notes at the time outstanding have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Senior Notes Trustee, or exercising any trust or power conferred on the Senior Notes Trustee. The Company is required to furnish the Senior Notes Trustee, within 120 days after the end of each fiscal year, an officers' certificate to the effect that such officers have supervised a review of the activities of the Company and its subsidiaries and of performance under the Senior Notes Indenture and that, to the best of such officers' knowledge, based on their review, the Company has fulfilled all its obligations under the Senior Notes Indenture, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to them, its nature and its status. SATISFACTION AND DISCHARGE OF THE SENIOR NOTES INDENTURE; COVENANT DEFEASANCE The Senior Notes Indenture will cease to be of further effect as to all outstanding Senior Notes (except as to (a) rights of registration of transfer and exchange, and the Company's right of optional redemption, (b) substitution of mutilated, defaced, destroyed, lost or stolen Senior Notes, (c) rights of holders to receive payments of principal of and interest on the Senior Notes, (d) the rights, obligations and immunities of the Senior Notes Trustee under the Senior Notes Indenture and (e) the rights of the holders of the Senior Notes as beneficiaries with respect to the property so deposited with the Senior Notes Trustee under the provisions referred to in this paragraph) when (x) the Company shall have paid or caused to be paid the principal of and interest on the Senior Notes outstanding as and when the same shall have become due and payable or (y) the Company shall have delivered to the Senior Notes Trustee for cancellation all outstanding Senior Notes (except lost, stolen or destroyed Senior Notes which have been replaced or paid) or (z)(i) the Senior Notes not previously delivered to the Senior Notes Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year, or are to be called for redemption under arrangements satisfactory to the Senior Notes Trustee for the giving of notice of redemption, and (ii) the Company shall have irrevocably deposited or caused to be deposited with the Senior Notes Trustee, as trust funds, (A) money in an amount or (B) U.S. government obligations which through the payment of interest and principal will provide, not later than one day before the due date of payments in respect of the Senior Notes, money in an amount or (C) a combination thereof, sufficient to pay the principal of and interest on the outstanding Senior Notes to maturity or redemption, as the case may be. The Senior Notes Indenture will also cease to be in effect (except as aforesaid) on the 91st day after the deposit by the Company with the Senior Notes Trustee, in trust for the benefit of the holders of Senior Notes, (a) money in an amount or (b) U.S. government obligations which through the payment of interest and principal will provide not later than one day before the due date of any payment referred to below, money in an 43 47 amount, or (c) a combination thereof, sufficient in the opinion of a nationally recognized independent public accounting firm to pay and discharge without consideration of reinvestment of such interest the principal of and each installment of principal and interest on the Senior Notes then outstanding at the maturity date of such principal or installment of interest on the outstanding Senior Notes on the maturity date of such principal or installment of interest. Such a trust may only be established if the Company has delivered to the Senior Notes Trustee an opinion of counsel acceptable to the Senior Notes Trustee (who may be counsel to the Company) to the effect that the defeasance and discharge will not be deemed, or result in, a taxable event, with respect to holders of the Senior Notes. The Senior Notes Indenture will not be discharged if, among other things, an Event of Default, or an event which with notice or lapse of time would have become an Event of Default, shall have occurred and be continuing on the date of such deposit or during the period ending on the 91st day after such date. In the event of any such defeasance and discharge, Senior Note holders will thereafter be able to look only to such trust fund for payment of principal and interest on the Senior Notes. The Senior Notes Indenture provides that the Company may cease to comply with certain of the covenants contained in the Senior Notes Indenture, including those described above under the captions "Change in Control," "Limitation on Debt," "Limitations on Restricted Payments," "Limitation on Investments, Loans and Advances," "Restrictions on Disposition of Assets," "Conduct of Business," "Restriction on Issuance and Sale of Subsidiary Stock," "Limitations on Merger," "Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries," "Limitation on Liens" and "Transactions with Affiliates," if the Company irrevocably deposits with the Senior Notes Trustee (a) money in an amount, or (b) U.S. government obligations, which, through the payment of interest and principal in respect thereof in accordance with their terms, will provide, not later than one day before the due date of any payment referred to below, money in an amount, or (c) a combination thereof, sufficient in the opinion of a nationally recognized independent public accounting firm to pay and discharge without consideration of the reinvestment of such interest the principal of and each installment of interest on the outstanding Senior Notes on the maturity date of such principal or installment of interest. The obligations of the Company under the Senior Notes Indenture other than with respect to the covenants referred to above shall remain in full force and effect. Such a trust may only be established if the Company has delivered to the Senior Notes Trustee an opinion of counsel acceptable to the Senior Notes Trustee (who may be counsel to the Company) to the effect that the deposit and related covenant defeasance will not be deemed, or result in, a taxable event with respect to holders of Senior Notes. In the event the Company takes the necessary action to enable it to omit to comply with certain covenants of the Senior Notes Indenture as described above and the Senior Notes are declared due and payable because of the occurrence of an Event of Default, the amount of money and U.S. government obligations on deposit with the Senior Notes Trustee will be sufficient to pay amounts due on the Senior Notes at the time of their stated maturity but may not be sufficient to pay amounts due on the Senior Notes at the time of the acceleration resulting from such Event of Default. In such event, the Company shall remain liable for such payments. REPORTS So long as Senior Notes are outstanding, the Company will furnish to the holders thereof such quarterly and annual financial reports that the Company is required to file with the Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (or similar reports in the event the Company is not at the time required to file such reports with the Commission). CERTAIN DEFINITIONS In addition to the terms defined above, the Senior Notes Indenture contains, among other things, the following definitions: "Acquisition Debt" means (i) Debt of any person existing at the time such person became a subsidiary of the Company (or such person is merged into the Company or one of its subsidiaries) or assumed in connection with the acquisition of assets from any such person (other than assets acquired in the ordinary course of 44 48 business), but excluding Debt of such person incurred in connection with, or in contemplation of, such person becoming a subsidiary of the Company or being merged into a subsidiary of the Company and Debt of such person which is extinguished, retired or repaid in connection with such person becoming a subsidiary of the Company or being merged into the Company or one of its subsidiaries, and (ii) Debt incurred or created by the Company in connection with the transaction or series of transactions pursuant to which a person became a subsidiary of the Company (or such person is merged into the Company or one of its subsidiaries) or in connection with the acquisition of assets from any such person (other than assets acquired in the ordinary course of business). "Capital Stock" means, with respect to any person, any and all shares, interests, participations or other equivalents (however designated) of such person's capital stock, whether or not outstanding on the date of the Senior Notes Indenture, including, without limitation, any option, warrant or other right relating to any such capital stock. "Cash Equivalents" shall mean (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof), (ii) time deposits and certificates of deposit of any bank party to the 1993 Bank Credit Agreement or any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000, (iii) repurchase obligations with a term of not more than 7 days for underlying securities of the types described in clause (i) entered into with any bank meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by the parent corporation of any bank party to the Credit Agreement or domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 and commercial paper rated at least A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2 or the equivalent thereof by Moody's Investors Service, Inc. and in each case maturing within one year after the date of acquisition, and (v) investments in money market funds substantially all of the assets of which are comprised of securities of the types described in clauses (i) through (iv) above. "Change in Control" means (a) a sale of all or substantially all the assets of the Company or Holdings to any person or related group of persons (other than DLJ Capital, Jim L. Turner, any of their respective affiliates or any voting trustee for any of the foregoing) as an entirety or substantially as an entirety in one transaction or series of transactions, (b) the merger or consolidation of the Company or Holdings with or into another corporation or the merger of another corporation into the Company or Holdings with the effect that immediately after such transaction the stockholders of the Company, in the event of a merger or consolidation involving the Company, or Holdings, in the event of a merger or consolidation involving Holdings, immediately prior to such transaction hold less than 50% of the total voting power generally entitled to vote in the election of directors, managers or trustees of the person surviving such merger or consolidation, (c) any person or related group of persons (other than DLJ Capital, Jim L. Turner, any of their respective affiliates or any voting trustee for any of the foregoing) acquires by way of purchase, merger, consolidation, or other business combination a majority interest of the total voting power entitled to vote in the election of directors, managers or trustees of the Company or Holdings, (d) a majority of the Board of Directors of the Company or Holdings ceases to be individuals elected by the Board of Directors or nominated by the Board of Directors for election by the stockholders of the Company or Holdings or (e) the liquidation or dissolution of the Company or Holdings. "Consolidated Cash Flow" of any person for any period means (a) the Consolidated Net Income (Loss) of such person for such period, plus (b) the sum of (i) income taxes, determined on a consolidated basis for such person and its consolidated subsidiaries in accordance with generally accepted accounting principles, (ii) Fixed Charges of such person and its consolidated subsidiaries, (iii) depreciation expense, determined on a consolidated basis for such person and its consolidated subsidiaries in accordance with generally accepted accounting principles, (iv) amortization expense, determined on a consolidated basis for such person and its consolidated subsidiaries in accordance with generally accepted accounting principles, and (v) all other non-cash items deducted from net revenues in determining Consolidated Net Income (Loss) for such period, all determined on a consolidated basis for such person and its consolidated subsidiaries in accordance with generally accepted accounting principles, and less (c)(i) any non-cash items added to net revenues in 45 49 determining Consolidated Net Income (Loss) for such period and (ii) the lesser of (A) the aggregate amount actually paid by such person and its consolidated subsidiaries during such period on account of capital expenditures and (B) the average amount paid on account of such expenditures during an equivalent period based on the three next preceding periods, in each case determined in accordance with generally accepted accounting principles. "Consolidated Net Income (Loss)" of any person for any period means the Net Income of such person and its consolidated subsidiaries for such period, determined on a consolidated basis for such person and its consolidated subsidiaries in accordance with generally accepted accounting principles; provided that (a) the Net Income of any person other than a consolidated subsidiary in which such person or any of its consolidated subsidiaries has a joint interest with a third party shall be included only to the extent of the amount of dividends or distributions actually paid to such person or a consolidated subsidiary during such period, (b) the Net Income of any person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, and (c) the Net Income of any consolidated subsidiary of such person shall be excluded (i) to the extent such subsidiary is prohibited, directly or indirectly, from distributing any such Net Income or any portion thereof to such person and (ii) to the extent of any other person's interest in dividends or other distributions by such subsidiary. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its subsidiaries against fluctuations in currency values. "Debt" of any person means at any date, without duplication, (i) all obligations of such person for borrowed money, (ii) all obligations of such person evidenced by bonds, debentures, notes, letters of credit or other similar instruments, (iii) all obligations of such person to pay the deferred purchase price of property or services, except accounts payable arising in the ordinary course of business, (iv) all obligations of such person as lessee under capital leases, (v) all Debt of others guaranteed by such person and (vi) to the extent not otherwise included, obligations under Interest Rate Agreements and Currency Agreements. "Fixed Charges" of any person for any period means (a) interest expense of such person and its consolidated subsidiaries (including amortization of original issue discount or non-cash interest payments or accruals and the interest component of capital leases but excluding the amortization of debt issuance costs), plus (b) the product of (i) cash dividends paid on any preferred stock of such person and cash and non-cash dividends paid on any preferred stock of any consolidated subsidiary of such person times (ii) a fraction, the numerator of which is one and the denominator of which is one minus the effective aggregate federal, state and local tax rate of such person or consolidated subsidiary, as the case may be, for the determination period after giving effect to the application of net operating loss carryforwards, expressed as a decimal. "Independent Financial Advisor" means a nationally recognized investment banking firm (i) which does not (and whose directors, officers, employees and affiliates do not) have a direct or indirect financial interest in the Company or any successor to the Company or any subsidiary of the Company that is material to the Company, any such subsidiary or such investment banking firm, (ii) which has not been and, at the time it is called upon to give independent financial advice to the Company or any successor to the Company or any such subsidiary, as the case may be, is not (and none of whose directors, officers, employees or affiliates is) a promoter, director or officer with respect to the Company or any successor to the Company or any such subsidiary and (iii) which, in the judgment of the Board of Directors of the Company or any successor to the Company or the Board of Directors, general partner or partners or individuals in the case of any such subsidiary, is otherwise qualified to serve as an independent financial advisor. Any such person may be compensated and indemnified by the Company or any successor to the Company and any such subsidiary, as the case may be, and such compensation and indemnity shall not of itself be considered a direct or indirect material financial interest within the meaning of clause (i) of the next preceding sentence. "Interest Rate Agreement" means any interest rate protection agreement, interest rate future, interest rate option, interest rate swap, interest rate cap or other interest rate hedge arrangement, to or under which the Company or any of its subsidiaries is a party or a beneficiary. 46 50 "Material Subsidiary" of any person means, as of any date, any subsidiary of such person (a) the value of whose assets, as such assets would appear on a consolidated balance sheet of such subsidiary and its consolidated subsidiaries prepared on such date in accordance with generally accepted accounting principles, is at least 10% of the value of the assets of such person and its consolidated subsidiaries, determined as aforesaid, or (b) whose Consolidated Cash Flow for the most recently completed fiscal quarter immediately preceding such date was at least 10% of the Consolidated Cash Flow of such person for such fiscal quarter. "Net Income" of any person for any period means the net income (loss) of such person for such period, before preferred stock dividend requirements, determined in accordance with generally accepted accounting principles, except that extraordinary items and non-recurring gains and losses as determined in accordance with generally accepted accounting principles shall be excluded. "Net Worth" of any person means as of any date the aggregate of capital, surplus and retained earnings of such person and its consolidated subsidiaries as would be shown on a balance sheet of such person and its consolidated subsidiaries prepared as of such date in accordance with generally accepted accounting principles. "Permitted Liens" with respect to the Company and its subsidiaries means: (a) liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Company or its subsidiaries, as the case may be, in conformity with generally accepted accounting principles; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's, or other like liens arising in the ordinary course of business and not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of business of the Company or such subsidiary and any exceptions to title set forth in any title insurance policies; (f) any attachment or judgment lien, unless the judgment it secures shall not, within 60 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 60 days after the expiration of any such stay; (g) any other liens imposed by operation of law which do not materially affect the Company's ability to perform its obligations under the Senior Notes Indenture; (h) liens existing on the date of the Senior Notes Indenture (including, without limitation, liens granted pursuant to the Security Documents (as defined in the 1993 Bank Credit Agreement)) and liens granted after the date of the Senior Notes Indenture by the Company or any subsidiary of the Company pursuant to the terms and provisions of the 1993 Bank Credit Agreement, as in effect on the date of the Senior Notes Indenture, or the Security Documents, as in effect on the date of the Senior Notes Indenture, to secure obligations of the Company or such subsidiary under the 1993 Bank Credit Agreement or the Security Documents, as in effect on the date of the Senior Notes Indenture, and amendments, renewals and extensions thereof if the principal amount of any Debt secured thereby is not increased and the lien, as amended, renewed or extended, does not cover any property not covered by such lien prior to such amendment, extension or renewal; (i) rights of banks to set off deposits against debts owed to said banks; (j) purchase money mortgages and purchase money security interests incurred in the normal and ordinary course of the Company's business; (k) rights of landlords, lenders, investors and/or creditors under sale/leaseback arrangements; and (l) liens on the assets of any entity existing at the time such assets are acquired by the Company or any of its subsidiaries, whether by merger, consolidation, purchase of assets or otherwise; provided that such liens (i) are not created, incurred or assumed in contemplation of such assets being acquired by the Company or any of its subsidiaries and (ii) do not extend to any other property of the Company or any of its subsidiaries. "Permitted Payments" means, with respect to the Company or any of its subsidiaries, (a) any dividend payable to the Company or any wholly-owned subsidiary of the Company by any subsidiary of the Company; (b) the redemption, defeasance, repurchase or other acquisition or retirement for value prior to scheduled 47 51 maturity of any Debt which by its terms is subordinated to the Senior Notes with the proceeds from the issuance of (1) Debt which is subordinated in right of payment to the Senior Notes and which has no mandatory prepayment (including any payment at the option of the holder of such Debt other than an option given to a holder pursuant to a "Change in Control" covenant which is no more favorable to the holders of such Debt than the provisions contained in the Senior Notes Indenture and such Debt provides that the Company will not repurchase such Debt pursuant to such provisions prior to the Company's repurchase of the Senior Notes required to be repurchased by the Company pursuant to the Senior Notes Indenture) prior to, and has a scheduled maturity no earlier than, the earlier of (i) February 15, 2000 and (ii) the scheduled maturity of the Debt being redeemed, defeased, repurchased or otherwise acquired or retired, as the case may be, provided that such Debt is called for redemption, defeased, repurchased or otherwise acquired within 45 days after the date the additional Debt is incurred or (2) Capital Stock (other than Redeemable Stock); (c) the repurchase of Debt subordinated to the Senior Notes pursuant to the "Change in Control" covenant set forth in the indenture with respect to such subordinated Debt or such other instrument governing any such subordinated Debt; provided that such repurchases shall only be permitted if all of the terms and conditions in such covenant have been fully complied with and such repurchases are made in accordance with the terms of the Senior Notes Indenture and such indenture or other instrument; and provided further, that the Company has repurchased all Senior Notes required to be repurchased by the Company pursuant to the terms and conditions of the "Change in Control" covenant included in the Senior Notes Indenture prior to the repurchase of any subordinated Debt pursuant to the "Change in Control" covenant included in the indenture with respect to such subordinated Debt of the Company or pursuant to the terms of such subordinated Debt's governing instrument; (d) the repurchase of Redeemable Stock pursuant to the "Change in Control" covenant set forth in the instrument governing any such Redeemable Stock; provided that such repurchases shall only be permitted if all of the terms and conditions in such covenant have been fully complied with and such repurchases are made in accordance with the terms of the Senior Notes Indenture and such instrument; and provided further, that the Company has repurchased all Senior Notes required to be repurchased by the Company pursuant to the terms and conditions of the "Change in Control" covenant included in the Senior Notes Indenture prior to the repurchase of any Redeemable Stock pursuant to the terms of such Redeemable Stock's governing instrument; (e) the redemption by a wholly-owned subsidiary of its Capital Stock; (f) the payment of dividends to Holdings in such amounts as may be necessary to pay taxes of Holdings; provided that such payment shall actually be used by Holdings to pay such taxes; (g) the payment of dividends to Holdings in such amounts as may be necessary to pay operating and/or administrative expenses of Holdings, up to a maximum of $50,000 in each fiscal year; (h) the repurchase or other acquisition or retirement for value of any shares of the Company's Capital Stock with additional shares of Capital Stock of the Company other than Redeemable Stock (unless the redemption provisions of such Redeemable Stock prohibit the redemption thereof prior to the date on which the Capital Stock to be acquired or retired could have been redeemed) or the proceeds from the issuance thereof; and (i) the redemption of the Old Preferred Stock pursuant to a notice of redemption issued in connection with issuance and sale of the Senior Notes. "Redeemable Stock" means any class or series of Capital Stock of any person that by its terms or otherwise is (i) required to be redeemed prior to the stated maturity of the Senior Notes, (ii) redeemable at the option of the holder thereof at any time prior to the stated maturity of the Senior Notes or (iii) convertible into or exchangeable for Capital Stock referred to in clause (i) or (ii) or Debt having a scheduled maturity prior to the stated maturity of the Senior Notes; provided that any Capital Stock which would not constitute Redeemable Stock but for the provisions thereof giving holders thereof the right to require the Company to repurchase or redeem such Capital Stock upon the occurrence of a change in control occurring prior to the stated maturity of the Senior Notes shall not constitute Redeemable Stock if the change in control provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in the "Change in Control" covenant included in the Senior Notes Indenture and such Capital Stock specifically provides that the Company will not repurchase or redeem any such stock pursuant to such provision prior to the Company's repurchase of such Senior Notes as may be required to be repurchased pursuant to the provisions of the "Change in Control" covenant included in the Senior Notes Indenture. 48 52 "Restricted Payment" means with respect to any person (a) any dividend or other distribution on any shares of such person's Capital Stock (except dividends or distributions in additional shares of Capital Stock of such person other than Redeemable Stock); (b) any payment on account of the purchase, redemption, retirement for value or other acquisition of any shares of such person's Capital Stock; or (c) any defeasance, redemption, repurchase or other acquisition or retirement for value prior to final maturity of any Debt ranked subordinate in right of payment to the Senior Notes and having a final maturity date subsequent to the maturity of the Senior Notes. DESCRIPTION OF THE DISCOUNT NOTES The Discount Notes were issued under an Indenture (the "Discount Notes Indenture") between Holdings and United States Trust Company of New York, as Trustee (the "Discount Notes Trustee"), a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. The following summaries of certain provisions of the Discount Notes Indenture are qualified in their entirety by reference to all the provisions of the Discount Notes Indenture. Wherever particular sections or defined terms of the Discount Notes Indenture are referred to, such sections or defined terms are incorporated herein by reference. Capitalized terms not otherwise defined below or elsewhere in this Prospectus have the meanings given to them in the Discount Notes Indenture. GENERAL The Discount Notes are general unsecured obligations of Holdings, senior in right of payment to all subordinated indebtedness of Holdings (including the Old Discount Notes) and pari passu in right of payment to all other unsecured indebtedness of Holdings, and are limited to $125 million in aggregate principal amount. The Discount Notes are issuable only in registered form, without coupons, in denominations of $1,000 or any integral multiple thereof. MATURITY, INTEREST AND PRINCIPAL The Discount Notes will mature on February 15, 2003. Interest on the Discount Notes will not accrue on the Discount Notes prior to February 16, 1998. Commencing August 15, 1998, interest on the Discount Notes will be payable in cash semiannually on each February 15 and August 15 (each an "Interest Payment Date") to the persons in whose names the Discount Notes are registered at the close of business on the preceding February 1 and August 1 (each an "Interest Record Date"). Interest will accrue from the most recent Interest Payment Date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from February 16, 1998. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Principal and premium, if any, and interest on each Discount Note will be payable, and the Discount Notes may be presented for transfer or exchange, at the office or agency of Holdings maintained for such purpose. At the option of Holdings, payment of interest may be made by check mailed to registered holders of the Discount Notes at the addresses set forth on the registry books of Holdings. No service charge will be made for any exchange or registration of transfer of Discount Notes, but Holdings may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Unless otherwise designated by Holdings, Holdings' office or agency will be the corporate trust office of the Discount Notes Trustee. 49 53 OPTIONAL REDEMPTION The Discount Notes may not be redeemed prior to February 16, 1998. On or after February 16, 1998, Holdings, at its option, may redeem the Discount Notes in whole or in part at the following redemption prices (expressed as percentages of the principal amount thereof) together with accrued and unpaid interest to the redemption date:
IF REDEEMED DURING THE TWELVE-MONTH REDEMPTION PERIOD BEGINNING FEBRUARY 16, PRICE 1998........................................................... 104.359% 1999........................................................... 102.906% 2000........................................................... 101.453% 2001 and thereafter............................................ 100.000%
In the event Holdings consummates an initial public offering of its common stock on or before the third anniversary of the issuance of the Discount Notes, Holdings may, at its option, use all or a portion of the proceeds of such sale to redeem up to one-third of the aggregate principal amount of the Discount Notes originally issued at 108% of the Accreted Value (as defined herein) thereof at the date of redemption. Only one redemption may be made pursuant to the provisions described in this paragraph. In case of a partial redemption, selection of Discount Notes or portions thereof for redemption shall be made by the Discount Notes Trustee in such manner as in its sole discretion it shall deem appropriate and fair. Discount Notes may be redeemed in part in multiples of $1,000 only. Notice of redemption will be sent, by first-class mail, at least 30 days and not more than 60 days prior to the date fixed for redemption to each holder of Discount Notes to be redeemed at the last address for such holder then shown on the registry books. Any notice that relates to a Discount Note to be redeemed in part only shall state the portion of the principal amount to be redeemed and that on and after the redemption date, upon surrender of the Discount Note, a new Discount Note or Discount Notes will be issued in a principal amount equal to the unredeemed portion thereof. On and after the redemption date (unless Holdings shall default in the payment of such Discount Notes at the redemption price, together with accrued interest to the redemption date), interest will cease to accrue on the Discount Notes or part thereof called for redemption. COVENANTS The Discount Notes Indenture contains, among other things, the following covenants: Change in Control If a Change in Control occurs, each holder shall have the right to require Holdings to repurchase in whole or in part such holder's Discount Notes at a purchase price in cash equal to 101% of the Accreted Value thereof on the date of repurchase (if such date of repurchase is prior to February 16, 1998) or 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase (if such date of repurchase is on or after February 16, 1998). Within 30 days following any Change in Control, Holdings shall mail a notice to each holder stating: (1) that a Change in Control has occurred and that such holder has the right to require Holdings to repurchase in whole or in part such holder's Discount Notes at a purchase price in cash equal to 101% of the Accreted Amount thereof on any date of repurchase prior to February 16, 1998 or 101% of the principal amount thereof plus accrued and unpaid interest, if any, to any date of repurchase on and after February 16, 1998; (2) such other information as may be required by applicable law and regulations; (3) the repurchase date (which shall be no earlier than 20 business days nor later than 30 business days from the date such notice is mailed); and (4) the instructions determined by Holdings, consistent with this covenant and applicable law, that a holder must follow in order to have its Discount Notes repurchased. 50 54 Holdings' ability to repurchase Discount Notes upon a Change in Control may be limited by the terms of then existing contractual obligations. In addition, Holdings may not have adequate financial resources to effect such an offer. The inability of Holdings to repurchase Discount Notes upon a Change in Control would constitute an Event of Default under the Discount Notes Indenture. Holdings will comply with all applicable tender offer rules (including, without limitation, Rule 14e-1 under the Exchange Act) in the event that Holdings is required to make an offer to repurchase the Discount Notes following a Change in Control. Limitation on Debt and Subsidiary Preferred Stock Holdings will not, and will not permit its subsidiaries to, create, incur or assume or otherwise become liable for any Debt, except (a) Debt incurred by the Company and guaranteed by Holdings pursuant to borrowings under the 1993 Bank Credit Agreement in an aggregate principal amount not to exceed $125 million; provided that such $125 million limit shall be reduced by any scheduled prepayments under the term loan portion of the 1993 Bank Credit Agreement as in effect on the date of the Discount Notes Indenture; (b) Debt evidenced by the Senior Notes and the Discount Notes; (c) Debt of Holdings to any subsidiary and of any subsidiary to Holdings or any other subsidiary; (d) Acquisition Debt related to an advance, loan or investment permitted by clause (f) under the "Limitations on Investments, Loans or Advances" covenant described below or the acquisition by the Company or Holdings of all or any portion of the assets of any person engaged in the manufacturing, packaging, marketing, or distribution of beverages, the full line vending business, or the manufacturing of products used in any of the foregoing, provided a majority of such assets acquired relate to the foregoing and provided that the principal amount of such Acquisition Debt at any time outstanding does not exceed $40 million; (e) Debt outstanding on the date of the Discount Notes Indenture; (f) Debt of the Company attributable to any Interest Rate Agreement; (g) Debt of the Company attributable to letters of credit used in the ordinary course of business; (h) to the extent not otherwise provided for in clauses (a) through (h) above, Debt of the Company or Holdings the aggregate outstanding principal amount of which shall not at any time exceed $10 million; and (i) any extension, renewal or replacement by the Company or Holdings, as the case may be, of any of (a), (b), (d) and (e) above provided that (1) the amount of the Debt issued pursuant to this clause (i) (or, if such new Debt is issued at a price less than the principal amount thereof, the original issue price) shall not exceed the Debt being extended, renewed or replaced (plus accrued interest and fees and expenses related thereto) or, in the case of any extension or renewal of a revolving credit facility or the replacement of any revolving credit facility with another revolving credit facility, without increasing the aggregate principal amount that may be borrowed under such facility, (2) if the Debt being extended, renewed or replaced has a maturity after February 15, 2003, the Debt issued pursuant to this clause (i) shall have not have a maturity prior to February 16, 2003, and (3) if the Debt being extended, renewed or replaced is subordinate to the Discount Notes, the Debt issued pursuant to this clause (i) must be subordinate at least to the same extent. Notwithstanding the preceding paragraph, the Company and its subsidiaries may create, incur or assume or otherwise become liable with respect to Debt if, at the time such Debt is so created, incurred or assumed (the "Incurrence Date") and after giving effect thereto and to the application of the proceeds thereof, the pro forma ratio of Consolidated Cash Flow to Fixed Charges for the four fiscal quarters ending with the fiscal quarter ended immediately preceding the Incurrence Date for the Company shall not be less than 1.75 to 1, if the Incurrence Date is on or prior to March 31, 1996, or 2.25 to 1, if the Incurrence Date is subsequent thereto. Notwithstanding the preceding paragraph, Holdings may create, incur or assume or otherwise become liable with respect to Debt if, at the Incurrence Date and after giving effect to such creation, incurrence or assumption and to the application of the proceeds thereof, the pro forma ratio of Consolidated Cash Flow to Fixed Charges for the four fiscal quarters ending with the fiscal quarter ended immediately preceding the Incurrence Date shall not be less than 1.5 to 1 for Holdings and 1.75 to 1 for the Company if the Incurrence Date is on or prior to March 31, 1996 and 2.0 to 1 for Holdings and 2.25 to 1 for the Company if the Incurrence Date is subsequent thereto. Notwithstanding the covenant set forth under "Restriction on Issuance and Sale of Subsidiary Stock" below, Holdings may permit the issuance or sale, transfer or other disposition of Subsidiary Preferred Stock if, at the time such Subsidiary Preferred Stock is issued or sold, transferred, or 51 55 otherwise disposed of (an "Incurrence Date") and after giving effect thereto and to the application of the proceeds thereof, the pro forma ratio of Consolidated Cash Flow to Fixed Charges for the four fiscal quarters ending with the fiscal quarter ended immediately preceding the Incurrence Date shall not be less than 1.5 to 1 if the Incurrence Date is on or prior to March 31, 1996 or 2.0 to 1 if the Incurrence Date is subsequent thereto. The pro forma ratio of Consolidated Cash Flow to Fixed Charges will, as applicable, be calculated on the following basis: (a) notwithstanding clauses (a) and (b) of the definition of Consolidated Net Income (Loss) set forth under "Certain Definitions," if the Debt which is being created, incurred or assumed is Acquisition Debt, the ratio of Consolidated Cash Flow to Fixed Charges shall be determined on a pro forma basis giving effect to the creation, incurrence or assumption of such Acquisition Debt, application of the proceeds therefrom, Fixed Charges related thereto and Consolidated Cash Flow of such acquired person, business, property or asset as if such transaction had occurred at the beginning of such four quarter period; and (b) there shall be excluded from Fixed Charges any Fixed Charges related to Debt (other than Debt created, incurred or assumed for working capital purposes) repaid during the pro forma period or thereafter and which is not outstanding on the Incurrence Date. For purposes of the foregoing provision, cash flow generated by any acquired person, business, property or asset shall be determined on the same basis provided in the definition of Consolidated Cash Flow set forth under "Certain Definitions" during the immediately preceding four full fiscal quarter period plus (y) (i) the savings in cost of goods sold that would have resulted during that period from the effect of using the Company's or Holdings' actual costs for comparable goods and services during that period and (ii) other savings in cost of goods sold or eliminations of selling, general and administrative expenses as determined by the Company or Holdings in good faith in its consideration of such acquisitions and consistent with the Company's or Holdings' experiences in acquisitions of similar businesses minus (z) the incremental expenses that would be included in costs of goods sold and selling, general and administrative expenses that would have been incurred by the Company or Holdings in the operation of such acquired person, business, property or assets during such period as determined by the Company or Holdings in good faith in its consideration of such acquisitions and consistent with the Company's or Holdings' experiences in acquisitions of similar businesses. In addition, for purposes of this paragraph, Consolidated Cash Flow and Fixed Charges shall be calculated after giving effect on a pro forma basis for the period of such calculation to the creation, incurrence or assumption of any Debt (other than Debt created, incurred or assumed for working capital purposes) or Subsidiary Preferred Stock at any time during the period commencing on the first day following the four full fiscal quarter period that precedes the Incurrence Date and ending on and including the Incurrence Date (and that is outstanding on the Incurrence Date), including, without limitation, the incurrence of the Debt or Subsidiary Preferred Stock giving rise to the need to make such calculation, as if such creation, incurrence or assumption occurred and the proceeds therefrom had been applied on the first day of such four full fiscal quarter period. Any Debt incurred by Holdings pursuant to this paragraph may not have a scheduled maturity prior to the stated maturity of the Discount Notes; provided that any Debt which would not have a scheduled maturity prior to the stated maturity of the Discount Notes but for the provisions thereof giving holders thereof the right to require Holdings to repurchase or redeem such Debt upon the occurrence of a change in control occurring prior to the stated maturity of the Discount Notes shall not constitute Debt having a maturity prior to the stated maturity of the Discount Notes if the change in control provisions applicable to such Debt are no more favorable to the holders of such Debt than the provisions contained in the "Change in Control" covenant included in the Discount Notes Indenture and such Debt specifically provides that Holdings will not repurchase or redeem any such Debt pursuant to such provision prior to Holdings' repurchase of such Discount Notes as may be required to be repurchased pursuant to the provisions of the "Change in Control" covenant included in the Discount Notes Indenture. For purposes of the preceding two paragraphs, any waiver, extension or continuation of any or all mandatory prepayments or installment payments by the Company of any of the Debt under the term loan portion of the 1993 Bank Credit Agreement shall not be or be deemed to be the creation, incurrence or assumption of Debt by the Company to the extent that the amount of outstanding borrowings by the Company thereunder has not been increased. 52 56 Limitation on Restricted Payments Holdings and its subsidiaries will not make any Restricted Payment if, after giving effect thereto: (a) an Event of Default, or an event that with the passage of time or the giving of notice, or both, would constitute an Event of Default, shall have occurred and be continuing; or (b) the aggregate amount of all Restricted Payments made by Holdings and its subsidiaries (the amount expended or distributed for such purposes, if other than in cash, to be determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors filed with the Discount Notes Trustee) from and after the date of the Discount Notes Indenture, shall exceed the sum (without duplication) of (i) the aggregate of 50% of the Consolidated Net Income (Loss) (or in the event of a loss, 100% of any such loss) of Holdings accrued for the period (taken as one accounting period) commencing with the first full fiscal quarter after the date of the Discount Notes Indenture to and including the fiscal quarter ended immediately prior to the date of such calculation plus (ii) the aggregate net proceeds, including the fair market value of property other than cash (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors filed with the Discount Notes Trustee), received by Holdings and its subsidiaries from the issuance or sale (other than to a subsidiary) from and after the date of the Discount Notes Indenture of Capital Stock (excluding any Redeemable Stock or Capital Stock convertible into Redeemable Stock, but including Capital Stock other than Redeemable Stock issued upon conversion of, or exchange for, Redeemable Stock or securities other than its Capital Stock), and warrants and rights to purchase its Capital Stock plus (iii) $7.5 million; provided that the foregoing clause (b) shall not prevent (A) the making of Permitted Payments; and (B) the payment of any dividend within 60 days after the date of its declaration if such dividend could have been made on the date of its declaration without violation of clauses (a) and (b) above; provided that the amount of Restricted Payments made pursuant to clause (B) above shall be included in any computation of the amount of Restricted Payments made pursuant to this provision. As used herein, the aggregate net proceeds received by Holdings or any subsidiary (x) from the issuance of Capital Stock upon the conversion of, or exchange for, securities evidencing Debt of Holdings or such subsidiary shall be calculated on the assumption that the gross proceeds from such issuance are equal to the aggregate principal amount of the Debt evidenced by such securities converted or exchanged and (y) upon the conversion or exchange of other securities of Holdings or such subsidiary shall be equal to the aggregate net proceeds of the original sale of the securities so converted or exchanged if such proceeds of such original sale were not previously included in any calculation of aggregate proceeds for purposes of this provision plus any additional sums payable upon conversion or exchange. Limitation on Investments, Loans and Advances Holdings will not, and will not permit any of its subsidiaries to, make any advances or loans to, or investments (by way of transfers of property, contributions to capital, acquisitions of stock, securities or evidences of indebtedness, or otherwise) in, any other person, except that: (a) any subsidiary of Holdings may make advances or loans to or investments in Holdings and Holdings may make investments in any wholly-owned subsidiary to the extent permitted under the 1993 Bank Credit Agreement as in effect on the date of the Discount Notes Indenture; (b) each of Holdings and its subsidiaries may acquire and hold receivables owing to it, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms (provided that nothing in the foregoing shall prevent Holdings or any subsidiary from offering such concessionary trade terms as management deems reasonable in the circumstances); (c) Holdings and its subsidiaries may make investments in cash and Cash Equivalents; (d) Holdings or any of its subsidiaries may make payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (e) Holdings or any of its subsidiaries may acquire and own stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to Holdings or such subsidiary or in satisfaction of judgments; (f) Holdings and any of its subsidiaries may make investments (by way of transfers of property, contributions to capital, acquisitions of equity securities or evidences of indebtedness, or otherwise) in any person (including, without limitation, any subsidiary of Holdings), provided that (i) at least a majority of such person's revenues result from the manufacturing, packaging, marketing, or distribution of beverages, the full line vending business, or the manufacturing of 53 57 products used in any of the foregoing and (ii) immediately after making such investment, Holdings or Holdings and its subsidiaries possess the power to direct the management and policies of such entity, directly or indirectly, through the ownership of voting securities, by contract or otherwise; (g) Holdings and its subsidiaries may make investments in (i) stock options to purchase Common Stock of Holdings issued to employees of Holdings or any of its subsidiaries pursuant to any employee stock option plan or (ii) Common Stock of Holdings issued in respect thereof, in either case upon termination of such employee's employment with Holdings or such subsidiary; provided that the aggregate amount of payments described in this clause (g) shall not exceed $200,000 in any 12-month period; and (h) transactions with affiliates permitted as described below under "Transactions with Affiliates." Restrictions on Disposition of Assets Subject to the paragraph headed "Limitations on Merger" below, Holdings will not, and will not permit any of its subsidiaries to, sell, transfer or otherwise dispose of, in any 12-month period, any assets (including by way of sale-and-leaseback), other than in the ordinary course of business, or the Capital Stock of any subsidiary directly or indirectly owned by Holdings, with an aggregate value of greater than $5 million, unless (a) at least 75% in value of the consideration received therefor by Holdings or such subsidiary is in the form of cash; provided that the amount of (i) any liabilities (as shown on the Company's or such subsidiary's most recent balance sheet or in the notes thereto) of Holdings or any such subsidiary that are assumed by the transferee in any such transaction and (ii) any marketable securities, notes or other obligations received by Holdings or any such subsidiary from such transferee that are immediately converted by Holdings or such subsidiary into cash, shall both be deemed to be cash for the purposes of this provision; provided further, however, that the 75% limitation referred to above shall not apply to any sale, transfer or other disposition of assets in which the cash portion of the consideration received therefor, determined in accordance with the foregoing proviso, is equal to or greater than what the after-tax net proceeds would have been had such transaction complied with the aforementioned 75% limitation; and (b) the net cash proceeds of the sale, transfer or other disposition of such assets (including Capital Stock of any subsidiary directly or indirectly owned by Holdings) or Capital Stock are, within 12 months of receipt of such net proceeds, (i) applied to permanent reduction of amounts outstanding under the 1993 Bank Credit Agreement, (ii) reinvested in the business or businesses of Holdings or any of its subsidiaries, (iii) subject to the "Limitations on Loans, Investments and Advances" described above, utilized to make any advances or loans to or investments (by way of transfers of property, contributions to capital, acquisitions of stock, securities or evidences of indebtedness, or otherwise) in any person, (iv) are used to acquire all or a portion of the assets of any person engaged in the manufacturing, packaging, marketing or distribution of beverages, the full line vending business, or the manufacturing of products used in any of the foregoing provided a majority of such acquired assets relate to the foregoing or (v) applied to redemption or repurchase of the Senior Notes. If Holdings or such subsidiary does not elect to, or is not permitted to, apply any or all of such net cash proceeds in accordance with one or more of the foregoing clauses (b)(i), (ii), (iii), (iv) or (v), then such net cash proceeds or any remaining portion thereof shall be applied by Holdings or such subsidiary within 12 months of such receipt to make an offer to purchase Discount Notes (an "Asset Sale Offer") at a price equal to 100% of the Accreted Value thereof on the date of repurchase (if such date of repurchase is prior to February 16, 1998) or 100% of the principal amount of Discount Notes to be repurchased plus accrued interest thereon to the date of repurchase (if such date of repurchase is on or after February 16, 1998). Notwithstanding the foregoing, in the event that such net cash proceeds, after giving effect to any application thereof permitted by clause (b)(i), (ii), (iii), (iv) or (v) above, are less than $5 million, the application of such net cash proceeds to an Asset Sale Offer may be deferred until such time as such net cash proceeds not otherwise applied pursuant to clause (b)(i), (ii), (iii), (iv) or (v) above are at least equal to $5 million, at which time Holdings or such subsidiary shall apply all such net cash proceeds to an Asset Sale Offer. Holdings will comply with all applicable tender offer rules (including, without limitation, Rule 14e-1 under the Exchange Act) in the event that Holdings is required to make an Asset Sale Offer. 54 58 Conduct of Business Holdings will not, and will not permit any of its subsidiaries to, engage, directly or indirectly, in any business other than the manufacturing, packaging, marketing or distribution of beverages, the full line vending business, to the extent reasonably deemed necessary by the Company in connection with the maintenance or extension of its beverage vending business, or the manufacturing of any products used in any of the foregoing, to the extent reasonably deemed necessary by the Company in connection with good faith efforts by the Company to reduce its cost of goods sold. Notwithstanding the foregoing, if Holdings or any of its subsidiaries shall acquire, in a transaction permitted under the "Limitation on Investments, Loans and Advances" covenant described above, an interest in any person engaged in a business other than as specified in the preceding sentence or assets used in any such other business, it will not constitute a breach or violation of this covenant for Holdings or such subsidiary to continue such other business so long as it shall be using its best efforts to promptly sell such other business. Restriction on Issuance and Sale of Subsidiary Stock Holdings will not permit any of its subsidiaries to issue any shares of its Capital Stock to any person other than Holdings or one or more wholly-owned subsidiaries. Notwithstanding the foregoing, the subsidiaries of Holdings may issue preferred stock to persons other than Holdings or a wholly-owned subsidiary if the issuance is permitted pursuant to the provisions of the second paragraph under "Limitation on Debt" above. Holdings will not and will not permit any of its subsidiaries to sell, transfer or otherwise dispose of any shares of Capital Stock of any of its subsidiaries to any person unless, at the time of such sale, transfer or other disposition, all such shares of such subsidiary then owned by Holdings or any of its subsidiaries are so sold, transferred or otherwise disposed of or, if preferred stock of a subsidiary is to be sold, transferred or otherwise disposed of, the sale, transfer or other disposition of such preferred stock to the transferee is permitted pursuant to the provisions of the second paragraph under "Limitation on Debt" above. Limitations on Merger The Discount Notes Indenture provides that Holdings may not consolidate with or merge with or into another person or sell, lease or convey all or substantially all its assets to another person unless (a)(i) Holdings is the continuing corporation in the case of a merger or (ii) the resulting, surviving or transferee person (the "Surviving Entity") is a corporation or partnership organized under the laws of the United States, any state thereof or the District of Columbia and expressly assumes by supplemental indenture all the obligations of Holdings under the Discount Notes Indenture and the Discount Notes; (b) no Event of Default (or event or condition that with the passage of time, the giving of notice, or both, would become an Event of Default) shall have occurred and be continuing immediately after giving effect to such transaction; (c) the Net Worth of Holdings or the Surviving Entity on a pro forma basis after giving effect to such transaction (but prior to any purchase accounting adjustments resulting from the transaction) is not less than the Net Worth of Holdings immediately prior to such transaction; and (d) immediately after giving effect to such transaction, Holdings or the Surviving Entity, as the case may be, could incur at least $1.00 of additional Debt pursuant to the provisions of the Discount Notes Indenture described above in the second paragraph under the caption "Limitation on Debt." For purposes of clause (d) above, the ratio of Consolidated Cash Flow to Fixed Charges shall be calculated such that (x) notwithstanding clauses (a) and (b) of the definition of Consolidated Net Income (Loss) set forth below under "Certain Definitions," the ratio of Consolidated Cash Flow to Fixed Charges shall be determined on a pro forma basis giving effect to the creation, incurrence or assumption of Debt by Holdings in connection with any merger or consolidation, the Fixed Charges related thereto and the Consolidated Cash Flow of the person merging with or into or consolidating with Holdings, and (y) there shall be excluded from Fixed Charges any Fixed Charges related to Debt (other than Debt created, incurred or assumed for working capital purposes) of Holdings and its subsidiaries repaid during the pro forma period or thereafter and which is not outstanding on the date of the transaction giving rise to such calculation (the "Transaction Date"). For purposes of this "Limitations on Merger" provision, Consolidated Cash Flow and Fixed Charges shall be calculated after giving effect on a pro forma basis for the period of such calculation to 55 59 the creation, incurrence or assumption of any Debt (other than Debt created, incurred or assumed for working capital purposes) at any time during the period commencing on the first day following the four full fiscal quarter period that precedes the Transaction Date and ending on and including the Transaction Date, (and that is outstanding on the Transaction Date), including, without limitation, the creation, incurrence or assumption of any Debt in connection with such transaction, as if such creation, incurrence or assumption occurred and the proceeds therefrom had been applied on the first day of such four full fiscal quarter period. Notwithstanding the foregoing, clauses (c) and (d) shall not prohibit a transaction the principal purpose of which is to change the state of incorporation of Holdings and which does not have as one of its purposes the evasion of the limitations imposed on consolidations, mergers, sales or conveyances by Holdings. Limitations on Dividends and Other Payment Restrictions Affecting Subsidiaries Holdings will not, and will not permit any of its subsidiaries to, create, assume or otherwise cause or suffer to exist or to become effective any consensual encumbrance or restriction on the ability of any subsidiary to (a) pay dividends or make any other distributions on its Capital Stock to Holdings; (b) make payments in respect of any Debt owed to Holdings or any of Holdings' subsidiaries; (c) make loans or advances to Holdings or any of Holdings' wholly-owned subsidiaries; or (d) transfer any of its property to Holdings or any of Holdings' wholly-owned subsidiaries; provided, however, that (i) the restrictions contained in the 1993 Bank Credit Agreement as in effect on the date of the Discount Notes Indenture, (ii) consensual encumbrances or restrictions that are no less favorable to Holdings than those required by the 1993 Bank Credit Agreement as in effect on the date of the Discount Notes Indenture, (iii) consensual encumbrances or restrictions binding upon any person at the time such person becomes a subsidiary of Holdings so long as such encumbrances or restrictions are not created, incurred or assumed in contemplation of such person becoming a subsidiary of Holdings, (iv) customary non-assignment or sublease provisions of any lease of Holdings or any of its subsidiaries, (v) non-assignment provisions of any franchise or distribution agreement, (vi) restrictions imposed by applicable law, and (vii) any restrictions with respect to a subsidiary of Holdings imposed pursuant to an agreement which has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such subsidiary, shall not be prohibited. Nothing contained in this "Limitations on Dividends and Other Payment Restrictions Affecting Subsidiaries" covenant shall prevent Holdings from entering into any agreement providing for the incurrence of Permitted Liens or restricting the sale or other disposition of property or assets of Holdings or any of its subsidiaries which are subject to any Permitted Liens. Limitations on Liens Holdings will not create, incur, assume or permit to exist any lien upon or with respect to any of the property of Holdings, whether now owned or hereafter acquired, or on any income or profits therefrom, or assign or otherwise convey any right to receive income to secure any Debt unless, contemporaneously therewith or prior thereto, effective provision shall be made whereby the Discount Notes are secured equally and ratably with such other Debt; provided that this provision shall not prohibit the creation, incurrence, existence, or assumption of any Permitted Liens or any lien securing other Debt required to be equally and ratably secured as a result of the incurrence of such lien. Transactions with Affiliates So long as any of the Discount Notes remain outstanding, neither Holdings nor any of its subsidiaries will, directly or indirectly, enter into any transaction with any affiliate of Holdings except for transactions (including any loans or advances by or to any affiliate) in good faith the terms of which are fair and reasonable to Holdings or such subsidiary, as the case may be, and are at least as favorable as the terms that could be obtained by Holdings or such subsidiary, as the case may be, in a comparable transaction made on an arm's length basis between unaffiliated parties; provided that, subject to the next succeeding proviso, any such transaction shall be conclusively deemed to be on terms which are fair and reasonable to Holdings or any of its subsidiaries and on terms which are at least as favorable as the terms which could be obtained on an arm's length basis between unaffiliated parties if such transaction is approved by a majority of Holdings' Board of Directors (including a majority of Holdings' independent directors, if any); provided further that, with respect 56 60 to the purchase or disposition of assets of Holdings or any of its subsidiaries, other than the purchase of inventory in the ordinary course of business, having a net book value in excess of $10 million, Holdings shall, in addition to obtaining approval of its Board of Directors, obtain a written opinion of an Independent Financial Advisor stating that the terms of such transaction are fair and reasonable to Holdings or its subsidiary, as the case may be, and are at least as favorable to Holdings or such subsidiary, as the case may be, as could have been obtained on an arm's length basis between unaffiliated parties. Notwithstanding the foregoing, the restriction on transactions with affiliates shall not apply to (a) payments to DLJ Securities or any affiliate thereof pursuant to any underwriting or financial advisory agreement, whether or not existing on the date of the Discount Notes Indenture, between DLJ Securities or any affiliate thereof and Holdings and any subsidiary thereof, (b) any transactions (including loans, advances or other payments) related to compensation arrangements with employees of Holdings or any of its subsidiaries (including any such employee who may be deemed an affiliate of Holdings or its subsidiaries), such arrangements to include, without limitation, employment agreements and severance arrangements, (c) the transactions and payments contemplated in the Dealer Manager Agreement, dated December 30, 1992, between DLJ Securities and the Company and any other transactions and payments related to the Recapitalization Plan, (d) tax-sharing arrangements to the extent substantially consistent with the past practice of Holdings and its affiliates, (e) any transaction between Holdings and any of its wholly-owned subsidiaries or between any of its wholly-owned subsidiaries, and (f) any other transactions with affiliates of Holdings entered into prior to February 18, 1993, the date of the Discount Notes Indenture. Recapitalization Plan Notwithstanding the foregoing covenants, the Discount Notes Indenture permits Holdings and its subsidiaries to consummate the transactions which are part of the Recapitalization Plan as described herein, including the payment of fees and expenses in connection with the Recapitalization Plan. SUPPLEMENTAL DISCOUNT NOTES INDENTURES The Discount Notes Indenture permits Holdings and the Discount Notes Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Discount Notes at the time outstanding, to amend or supplement the Discount Notes Indenture or any supplemental indenture or modify the rights of the holders of the Discount Notes, provided that no such modification may, without the consent of each holder of the Discount Notes affected thereby, (a) reduce the amount of Discount Notes whose holders must consent to any amendment, supplement or waiver, (b) reduce the rate of or extend the time for payment of interest on any Discount Note, (c) reduce the principal of (or change the manner of computing the amount due on acceleration) or extend the final maturity of any Discount Notes, (d) reduce any amount payable on redemption, (e) adversely affect any right of repayment at the option of the holder of any Discount Note under the "Change in Control" or "Restrictions on Disposition of Assets" covenants described above, or (f) impair or affect the right of any holder of Discount Notes to institute suit for the payment of any Discount Note. EVENTS OF DEFAULT AND REMEDIES The Discount Notes Indenture defines an Event of Default as being (a) default in the payment of any installment of interest on the Discount Notes as and when the same becomes due and payable, and the continuance of such default for 30 days, (b) default in the payment of all or any part of the principal on the Discount Notes as and when the same shall become due and payable at maturity, upon any redemption, by declaration or otherwise, (c) failure on the part of Holdings duly to observe or perform any other covenant or agreement contained in the Discount Notes or the Discount Notes Indenture and the continuance of such failure for a period of 60 days after the date on which written notice specifying such failure, stating that such notice is a "Notice of Default" and demanding that Holdings remedy the same is given to Holdings by the Discount Notes Trustee or to Holdings and the Discount Notes Trustee by the holders of at least 25% in aggregate principal amount of the Discount Notes, (d) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of Holdings or any of its Material Subsidiaries in an involuntary case under 57 61 any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of Holdings or any of its Material Subsidiaries or for any substantial part of the property of Holdings or any of its Material Subsidiaries or ordering the winding up or liquidation of the affairs of Holdings or any of its Material Subsidiaries and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days, (e) Holdings or any of its Material Subsidiaries shall commence a voluntary case under any applicable bankruptcy, insolvency, or other similar law nor or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of Holdings or any of its Material Subsidiaries or for any substantial part of the property of Holdings or any of its Material Subsidiaries, or Holdings or any of its Material Subsidiaries shall make any general assignment for the benefit of creditors, (f) any acceleration of the maturity of Debt of Holdings or any of its Material Subsidiaries, or a failure to pay any such Debt at its stated maturity, aggregating in either case at least $10 million to the extent not effectively waived and after expiration of any grace period with respect thereto and (g) final judgments not covered by insurance aggregating in excess of $5 million rendered against Holdings or any of its Material Subsidiaries and not stayed or discharged within 90 days. The Discount Notes Indenture will provide that if a default (the term "default" for purposes of this provision being defined as any event or condition which is, or with notice or lapse of time or both would be, an Event of Default) occurs and is continuing and if is it known to the Discount Notes Trustee, the Discount Notes Trustee must, within 90 days after the occurrence of such default, give to the holders of Discount Notes notice of such default, provided that, except in the case of default in payment of principal or interest in respect of such Discount Notes, the Discount Notes Trustee will be protected in withholding such notice if it in good faith determines that the withholding of such notice is in the interests of the holders of Discount Notes. "Material Subsidiary" means, as of any date, any subsidiary of Holdings (a) the value of whose assets, as such assets would appear on a consolidated balance sheet of such subsidiary and its consolidated subsidiaries prepared on such date in accordance with generally accepted accounting principles, is at least 10% of the value of the assets of Holdings and its consolidated subsidiaries, or (b) whose Consolidated Cash Flow for the most recently completed fiscal quarter immediately preceding such date was at least 10% of the Consolidated Cash Flow of Holdings for such fiscal quarter. If an Event of Default occurs and is continuing (other than an Event of Default specified in clause (d) or (e) relating to Holdings), unless the principal of all of the Discount Notes shall have already become due and payable, either the Discount Notes Trustee or the holders of not less than 25% in aggregate principal amount of the Discount Notes then outstanding, by notice in writing to Holdings (and to the Discount Notes Trustee if given by holders of Discount Notes) (an "Acceleration Notice"), may declare all the Discount Notes and the accrued interest thereon (or, prior to February 16, 1998, the Accreted Amount) to be due and payable immediately. If an Event of Default specified in clause (d) or (e) above relating to Holdings occurs, all the Discount Notes and the accrued interest thereon (or, prior to February 16, 1998, the Accreted Amount), shall be immediately due and payable without any declaration or other act on the part of the Discount Notes Trustee or the holders of Discount Notes. In the event of a declaration of acceleration because an Event of Default set forth in clause (f) above has occurred and is continuing, such declaration of acceleration shall be automatically annulled if the holders of the Debt that is the subject of such Event of Default have rescinded the declaration of acceleration in respect of such Debt within 15 business days thereof and if (i) the annulment of such acceleration would not conflict with any judgment or decree of a court of competent jurisdiction, (ii) all existing Events of Default, except non-payment of principal (or, prior to February 16, 1998, the Accreted Amount) or interest which shall have become due solely because of the acceleration, have been cured or waived and (iii) Holdings has delivered an Officer's Certificate to the Discount Notes Trustee to the effect of clauses (i) and (ii) above. The declaration of acceleration is subject to the condition that if, at any time after the principal of the Discount Notes shall have been so declared due and payable, and before any judgment or decree for the payment of monies due shall have been obtained or entered as hereinafter provided, Holdings shall pay or shall deposit with the Discount Notes Trustee a sum sufficient to pay all matured installments of interest on all the Discount Notes and the principal of any and all Discount Notes which shall have become due otherwise than by acceleration and such amount as shall be sufficient to cover reasonable compensation to the Discount Notes 58 62 Trustee and its agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Discount Notes Trustee except as a result of negligence or bad faith, and if any and all Events of Default under the Discount Notes Indenture, other than the non-payment of the principal of the Discount Notes which shall have become due by acceleration, shall have been cured, waived or otherwise remedied as provided herein -- then and in every such case the holders of a majority in aggregate principal amount of the Discount Notes then outstanding, by written notice to Holdings and to the Discount Notes Trustee, may waive all defaults and rescind and annul such declaration and its consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon. Prior to the declaration of acceleration of the maturity of the Discount Notes, the holders of a majority in aggregate principal amount of the Discount Notes at the time outstanding may on behalf of all the holders of Discount Notes waive any default or Event of Default and its consequences, except a default (a) in the payment of principal of or interest on any Discount Note or (b) in the repurchase of any Discount Note at the option of the holder thereof under the "Change in Control" and "Restrictions on Disposition of Assets" covenants set forth above. Subject to the provisions of the Discount Notes Indenture relating to the duties of the Discount Notes Trustee, the Discount Notes Trustee is under no obligation to exercise any of its rights or powers under the Discount Notes Indenture at the request, order or direction of any of the holders of Discount Notes, unless such holders of Discount Notes have offered to the Discount Notes Trustee reasonable security or indemnity. Subject to all provisions of the Discount Notes Indenture and applicable law, the holders of a majority in aggregate principal amount of the Discount Notes at the time outstanding have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Discount Notes Trustee, or exercising any trust or power conferred on the Discount Notes Trustee. Holdings is required to furnish the Discount Notes Trustee, within 120 days after the end of each fiscal year, an officers' certificate to the effect that such officers have supervised a review of the activities of Holdings and its subsidiaries and of performance under the Discount Notes Indenture and that, to the best of such officers' knowledge, based on their review, Holdings has fulfilled all its obligations under the Discount Notes Indenture, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to them, its nature and its status. SATISFACTION AND DISCHARGE OF THE DISCOUNT NOTES INDENTURE; COVENANT DEFEASANCE The Discount Notes Indenture will cease to be of further effect as to all outstanding Discount Notes (except as to (a) rights of registration of transfer and exchange, and Holdings' right of optional redemption, (b) substitution of mutilated, defaced, destroyed, lost or stolen Discount Notes, (c) rights of holders to receive payments of principal of and interest on the Discount Notes, (d) the rights, obligations and immunities of the Discount Notes Trustee under the Discount Notes Indenture and (e) the rights of the holders of the Discount Notes as beneficiaries with respect to the property so deposited with the Discount Notes Trustee under the provisions referred to in this paragraph) when (x) Holdings shall have paid or caused to be paid the principal of and interest on the Discount Notes outstanding as and when the same shall have become due and payable or (y) Holdings shall have delivered to the Discount Notes Trustee for cancellation all outstanding Discount Notes (except lost, stolen or destroyed Discount Notes which have been replaced or paid) or (z)(i) the Discount Notes not previously delivered to the Discount Notes Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption under arrangements satisfactory to the Discount Notes Trustee for the giving of notice of redemption and (ii) Holdings shall have irrevocably deposited or caused to be deposited with the Discount Notes Trustee, as trust funds, (A) money in an amount or (B) U.S. government obligations which through the payment of interest and principal will provide, not later than one day before the due date of payments in respect of the Senior Notes, money in an amount or (C) a combination thereof, sufficient to pay the principal of and interest on the outstanding Discount Notes to maturity or redemption, as the case may be. The Discount Notes Indenture will also cease to be in effect (except as aforesaid) on the 91st day after the deposit by Holdings with the Discount Notes Trustee, in trust for the benefit of the holders of Discount Notes, (a) money in an amount or (b) U.S. government obligations which through the payment of interest and principal will provide, not later than one day before the due date of any payment referred to below, money 59 63 in an amount, or (c) a combination thereof, sufficient in the opinion of a nationally recognized independent public accounting firm to pay and discharge without consideration of reinvestment of such interest the principal of and each installment of principal and interest on the Discount Notes then outstanding at the maturity date of such principal or installment of interest on the outstanding Discount Notes on the maturity date of such principal or installment of interest. Such a trust may only be established if Holdings has delivered to the Discount Notes Trustee an opinion of counsel acceptable to the Discount Notes Trustee (who may be counsel to Holdings) to the effect that the defeasance and discharge will not be deemed, or result in, a taxable event, with respect to holders of the Discount Notes. The Discount Notes Indenture will not be discharged if, among other things, an Event of Default, or an event which with notice or lapse of time would have become an Event of Default, shall have occurred and be continuing on the date of such deposit or during the period ending on the 91st day after such date. In the event of any such defeasance and discharge, Discount Note holders will thereafter be able to look only to such trust fund for payment of principal and interest on the Discount Notes. The Discount Notes Indenture provides that Holdings may cease to comply with certain of the covenants contained in the Discount Notes Indenture, including those described above under the captions "Change in Control," "Limitation on Debt," "Limitations on Restricted Payments," "Limitation on Investments, Loans, and Advances," "Restrictions on Disposition of Assets," "Conduct of Business," "Restriction on Issuance and Sale of Subsidiary Stock," "Limitations on Merger," "Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries," "Limitation on Liens" and "Transactions with Affiliates," if Holdings irrevocably deposits with the Discount Notes Trustee (a) money in an amount, or (b) U.S. government obligations, which, through the payment of interest and principal in respect thereof in accordance with their terms, will provide, not later than one day before the due date of any payment referred to below, money in an amount, or (c) a combination thereof, sufficient in the opinion of a nationally recognized independent public accounting firm to pay and discharge (without consideration of the reinvestment of such interest the principal of and each installment of interest on the outstanding Discount Notes on the maturity date of such principal or installment of interest. The obligations of Holdings under the Discount Notes Indenture other than with respect to the covenants referred to above shall remain in full force and effect. Such a trust may only be established if Holdings has delivered to the Discount Notes Trustee an opinion of counsel acceptable to the Discount Notes Trustee (who may be counsel to Holdings) to the effect that the deposit and related covenant defeasance will not be deemed, or result in, a taxable event with respect to holders of Discount Notes. In the event Holdings takes the necessary action to enable it to omit to comply with certain covenants of the Discount Notes Indenture as described above and the Discount Notes are declared due and payable because of the occurrence of an Event of Default, the amount of money and U.S. government obligations on deposit with the Discount Notes Trustee will be sufficient to pay amounts due on the Discount Notes at the time of their stated maturity but may not be sufficient to pay amounts due on the Discount Notes at the time of the acceleration resulting from such Event of Default. In such event, Holdings shall remain liable for such payments. REPORTS So long as Discount Notes are outstanding, Holdings will furnish to the holders thereof such quarterly and annual financial reports that Holdings is required to file with the Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (or similar reports in the event Holdings is not at the time required to file such reports with the Commission). CERTAIN DEFINITIONS In addition to the terms defined above, the Discount Notes Indenture contains, among other things, the following definitions: "Accreted Value" as of any date of determination prior to February 16, 1998 means the sum of (a) the initial offering price of the Discount Notes and (b) the portion of the original issue discount per Discount Note (which for this purpose shall be deemed to be the excess of the principal amount over the initial offering 60 64 price) which shall be amortized with respect to such Discount Note through such date, such original issue discount to be so amortized at the rate of 11 5/8% per annum (such percentage being expressed as a percentage of the sum of the initial offering price plus previously amortized original issue discount) using semi-annual compounding of such rate on each February 15 and August 15, commencing August 15, 1993, from the date of issuance of the Discount Notes through the date of determination. "Acquisition Debt" means (i) Debt of any person existing at the time such person became a subsidiary of Holdings (or such person is merged into Holdings or one of its subsidiaries) or assumed in connection with the acquisition of assets from any such person (other than assets acquired in the ordinary course of business), including Debt incurred in connection with, or in contemplation of, such person becoming a subsidiary of Holdings or being merged into Holdings or a subsidiary of Holdings (but excluding Debt of such person which is extinguished, retired or repaid in connection with such person becoming a subsidiary of Holdings) and (ii) Debt incurred or created by Holdings or any of its subsidiaries in connection with the transaction or series of transactions pursuant to which such person became a subsidiary of Holdings (or such person is merged into Holdings or one of its subsidiaries) or in connection with the acquisition of assets from any such person (other than assets acquired in the ordinary course of business). "Capital Stock" means, with respect to any person, any and all shares, interests, participations or other equivalents (however designated) of such person's capital stock, whether or not outstanding on the date of the Discount Notes Indenture, including, without limitation, any option, warrant or other right relating to any such capital stock. "Cash Equivalents" shall mean (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof), (ii) time deposits and certificates of deposit of any bank party to the 1993 Credit Agreement or any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000, (iii) repurchase obligations with a term of not more than 7 days for underlying securities of the types described in clause (i) entered into with any bank meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by the parent corporation of any bank party to the Credit Agreement or domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 and commercial paper rated at least A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2 or the equivalent thereof by Moody's Investors Service, Inc. and in each case maturing within one year after the date of acquisition, and (v) investments in money market funds substantially all of the assets of which are comprised of securities of the types described in clauses (i) through (iv) above. "Change in Control" means (a) a sale of all or substantially all the assets of Holdings to any person or related group of persons (other than DLJ Capital, Jim L. Turner, any of their respective affiliates or any voting trustee for any of the foregoing) as an entirety or substantially as an entirety in one transaction or series of transactions, (b) the merger or consolidation of Holdings with or into another corporation or the merger of another corporation into Holdings with the effect that immediately after such transaction the stockholders of Holdings immediately prior to such transaction hold less than 50% of the total voting power generally entitled to vote in the election of directors, managers or trustees of the person surviving such merger or consolidation, (c) any person or related group of persons (other than DLJ Capital, Jim L. Turner, any of their respective affiliates or any voting trustee for any of the foregoing) acquires by way of purchase, merger, consolidation, or other business combination a majority interest of the total voting power entitled to vote in the election of directors, managers or trustees of Holdings, (d) a majority of the Board of Directors of Holdings ceases to be individuals elected by the Board of Directors or nominated by the Board of Directors for election by the stockholders of Holdings or (e) the liquidation or dissolution of Holdings. "Consolidated Cash Flow" of any person for any period means (a) the Consolidated Net Income (Loss) of such person for such period, plus (b) the sum of (i) income taxes, determined on a consolidated basis for such person and its consolidated subsidiaries in accordance with generally accepted accounting principles, (ii) Fixed Charges of such person and its consolidated subsidiaries, (iii) depreciation expense, determined on a consolidated basis for such person and its consolidated subsidiaries in accordance with generally accepted 61 65 accounting principles, (iv) amortization expense, determined on a consolidated basis for such person and its consolidated subsidiaries in accordance with generally accepted accounting principles, and (v) all other non-cash items deducted from net revenues in determining Consolidated Net Income (Loss) for such period, all determined on a consolidated basis for such person and its consolidated subsidiaries in accordance with generally accepted accounting principles, and less (c)(i) any non-cash items added to net revenues in determining Consolidated Net Income (Loss) for such period and (ii) the lesser of (A) the aggregate amount actually paid by such person and its consolidated subsidiaries during such period on account of capital expenditures and (B) the average amount paid on account of such expenditures during an equivalent period based on the three next preceding periods, in each case determined in accordance with generally accepted accounting principles. "Consolidated Net Income (Loss)" of any person for any period means the Net Income of such person and its consolidated subsidiaries for such period, determined on a consolidated basis for such person and its consolidated subsidiaries in accordance with generally accepted accounting principles; provided that (a) the Net Income of any person other than a consolidated subsidiary in which such person or any of its consolidated subsidiaries has a joint interest with a third party shall be included only to the extent of the amount of dividends or distributions actually paid to such person or a consolidated subsidiary during such period, (b) the Net Income of any person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, and (c) the Net Income of any consolidated subsidiary of such person shall be excluded (i) to the extent such subsidiary is prohibited, directly or indirectly, from distributing any such Net Income or any portion thereof to such person (provided that this clause (i) as it applies to the Company shall not be effective for any calculation of Consolidated Net Income (Loss) for the purpose of the Discount Notes Indenture) and (ii) to the extent of any other person's interest in dividends or other distributions by such subsidiary. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect Holdings or any of its subsidiaries against fluctuations in currency values. "Debt" of any person means at any date, without duplication, (i) all obligations of such person for borrowed money, (ii) all obligations of such person evidenced by bonds, debentures, notes, letters of credit or other similar instruments, (iii) all obligations of such person to pay the deferred purchase price of property or services, except accounts payable arising in the ordinary course of business, (iv) all obligations of such person as lessee under capital leases, (v) all Debt of others guaranteed by such person and (vi) to the extent not otherwise included, obligations under Interest Rate Agreements and Currency Agreements. "Fixed Charges" of any person for any period means (a) interest expense of such person and its consolidated subsidiaries (including amortization of original issue discount or non-cash interest payments or accruals and the interest component of capital leases but excluding the amortization of debt issuance costs), plus (b) the product of (i) cash dividends paid on any preferred stock of such person and cash and non-cash dividends paid on any preferred stock of any consolidated subsidiary of such person times (ii) a fraction, the numerator of which is one and the denominator of which is one minus the effective aggregate federal, state and local tax rate of such person or consolidated subsidiary, as the case may be, for the determination period after giving effect to the application of net operating loss carryforwards, expressed as a decimal. "Independent Financial Advisor" means a nationally recognized investment banking firm (i) which does not (and whose directors, officers, employees and affiliates do not) have a direct or indirect financial interest in Holdings or any successor to Holdings or any subsidiary of Holdings that is material to Holdings, any such subsidiary or such investment banking firm, (ii) which has not been and, at the time it is called upon to give independent financial advice to Holdings or any successor to Holdings or any such subsidiary, as the case may be, is not (and none of whose directors, officers, employees or affiliates is) a promoter, director or officer with respect to Holdings or any successor to Holdings or any such subsidiary and (iii) which, in the judgment of the Board of Directors of Holdings or any successor to Holdings or the Board of Directors, general partner or partners or individuals in the case of any such subsidiary, is otherwise qualified to serve as an independent financial advisor. Any such person may be compensated and indemnified by Holdings or any successor to 62 66 Holdings and any such subsidiary, as the case may be, and such compensation and indemnity shall not of itself be considered a direct or indirect material financial interest within the meaning of clause (i) of the next preceding sentence. "Interest Rate Agreement" means any interest rate protection agreement, interest rate future, interest rate option, interest rate swap, interest rate cap or other interest rate hedge arrangement, to or under which Holdings or any of its subsidiaries is a party or a beneficiary. "Material Subsidiary" of any person means, as of any date, any subsidiary of such person (a) the value of whose assets, as such assets would appear on a consolidated balance sheet of such subsidiary and its consolidated subsidiaries prepared on such date in accordance with generally accepted accounting principles, is at least 10% of the value of the assets of such person and its consolidated subsidiaries, determined as aforesaid, or (b) whose Consolidated Cash Flow for the most recently completed fiscal quarter immediately preceding such date was at least 10% of the Consolidated Cash Flow of such person for such fiscal quarter. "Net Income" of any person for any period means the net income (loss) of such person for such period before preferred stock dividend requirements, determined in accordance with generally accepted accounting principles, except that extraordinary items and non-recurring gains and losses as determined in accordance with generally accepted accounting principles shall be excluded. "Net Worth" of any person means as of any date the aggregate of capital, surplus and retained earnings of such person and its consolidated subsidiaries as would be shown on a balance sheet of such person and its consolidated subsidiaries prepared as of such date in accordance with generally accepted accounting principles. "Permitted Liens" with respect to Holdings and its subsidiaries means: (a) liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of Holdings or its subsidiaries, as the case may be, in conformity with generally accepted accounting principles; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's, or other like liens arising in the ordinary course of business and not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of business of Holdings or such subsidiary and any exceptions to title set forth in any title insurance policies; (f) any attachment or judgment lien, unless the judgment it secures shall not, within 60 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 60 days after the expiration of any such stay; (g) any other liens imposed by operation of law which do not materially affect Holdings' ability to perform its obligations under the Discount Notes Indenture; (h) liens existing on the date of the Discount Notes Indenture (including, without limitation, liens granted pursuant to the Security Documents (as defined in the 1993 Bank Credit Agreement)) and liens granted after the date of the Discount Notes Indenture by Holdings or any subsidiary of Holdings pursuant to the terms and provisions of the 1993 Bank Credit Agreement, as in effect on the date of the Discount Notes Indenture, or the Security Documents, as in effect on the date of the Discount Notes Indenture, to secure obligations of Holdings or such subsidiary under the 1993 Bank Credit Agreement or the Security Documents, as in effect on the date of the Discount Notes Indenture, and amendments, renewals and extensions thereof if the principal amount of any Debt secured thereby is not increased and the lien, as amended, renewed or extended, does not cover any property not covered by such lien prior to such amendment, extension or renewal; (i) rights of banks to set off deposits against debts owed to said banks; (j) purchase money mortgages and purchase money security interests incurred in the normal and ordinary course of Holdings' business; (k) rights of landlords, lenders, investors and/or creditors under sale/leaseback arrangements; and (l) liens on the assets of any entity existing at the time such assets are 63 67 acquired by Holdings or any of its subsidiaries, whether by merger, consolidation, purchase of assets or otherwise; provided that such liens (i) are not created, incurred or assumed in contemplation of such assets being acquired by Holdings or any of its subsidiaries and (ii) do not extend to any other property of Holdings or any of its subsidiaries. "Permitted Payments" means, with respect to Holdings or any of its subsidiaries, (a) any dividend payable to Holdings or any wholly-owned subsidiary of Holdings by any subsidiary of Holdings; (b) the redemption, defeasance, repurchase or other acquisition or retirement for value prior to scheduled maturity of any Debt which by its terms is subordinated to the Discount Notes or the redemption, defeasance, repurchase or other acquisition for value of any preferred stock of Holdings, in either case with the proceeds from the issuance of (1) Debt which is subordinated in right of payment to the Discount Notes and which has no mandatory prepayment (including any payment at the option of the holder of such Debt other than an option given to a holder pursuant to a "Change in Control" covenant which is no more favorable to the holders of such Debt than the provisions contained in the Discount Notes Indenture and such Debt provides that Holdings will not repurchase such Debt pursuant to such provisions prior to Holdings' repurchase of the Discount Notes required to be repurchased by Holdings pursuant to the Discount Notes Indenture) prior to, and has a scheduled maturity no earlier than, the earlier of (i) February 15, 2003 and (ii) if Debt is being redeemed, defeased, repurchased or otherwise acquired or retired, the scheduled maturity of such Debt, provided that such Debt or preferred stock is called for redemption, defeased, repurchased or otherwise acquired within 45 days after the date the additional Debt is incurred or (2) Capital Stock (other than Redeemable Stock); (c) the repurchase of Debt subordinated to the Discount Notes pursuant to the "Change in Control" covenant set forth in the indenture with respect to such subordinated Debt or such other instrument governing any such subordinated Debt; provided that such repurchases shall only be permitted if all of the terms and conditions in such covenant have been fully complied with and such repurchases are made in accordance with the terms of the Discount Notes Indenture and such indenture or other instrument; and provided further, that Holdings has repurchased all Discount Notes required to be repurchased by Holdings pursuant to the terms and conditions of the "Change in Control" covenant included in the Discount Notes Indenture prior to the repurchase of any subordinated Debt pursuant to the "Change in Control" covenant included in the indenture with respect to such subordinated Debt of Holdings or pursuant to the terms of such subordinated Debt's governing instrument; (d) the repurchase of Redeemable Stock pursuant to the "Change in Control" covenant set forth in the instrument governing any such Redeemable Stock; provided that such repurchases shall only be permitted if all of the terms and conditions in such covenant have been fully complied with and such repurchases are made in accordance with the terms of the Discount Notes Indenture and such instrument; and provided further, that the Company has repurchased all Discount Notes required to be repurchased by the Company pursuant to the terms and conditions of the "Change in Control" covenant included in the Discount Notes Indenture prior to the repurchase of any Redeemable Stock pursuant to the terms of such Redeemable Stock's governing instrument; (e) the redemption by a wholly-owned subsidiary of its Capital Stock; (f) the payment of any dividends on subsidiary preferred stock incurred pursuant to the second paragraph of the "Limitation on Debt" covenant described above; (g) the repurchase or redemption of subsidiary preferred stock incurred pursuant to the second paragraph of the "Limitation of Debt" covenant described above; (h) the payment of dividends to Holdings in such amounts as may be necessary to pay taxes of Holdings; provided that such payment shall actually be used by Holdings to pay such taxes; (i) the payment of dividends to Holdings in such amounts as may be necessary to pay operating and/or administrative expenses of Holdings, up to a maximum of $50,000 in each fiscal year; (j) the repurchase or other acquisition or retirement for value of any shares of Holdings' Capital Stock with additional shares of Capital Stock of Holdings other than Redeemable Stock (unless the redemption provisions of such Redeemable Stock prohibit the redemption thereof prior to the date on which the Capital Stock to be acquired or retired could have been redeemed) or the proceeds from the issuance thereof; (k) the redemption of the Old Preferred Stock pursuant to a notice of redemption issued in connection with the issuance and sale of the Discount Notes; and (l) the repurchase or redemption of, or payments made in connection with the cancellation of, stock options to purchase Common Stock of Holdings issued to employees of Holdings or any of its subsidiaries pursuant to any employee stock option plan or Common Stock of Holdings issued in respect thereof, in either case upon 64 68 termination of such employee's employment with Holdings or such subsidiaries provided that the aggregate amount of payments described in this clause (l) shall not exceed $200,000 in any 12-month period. "Redeemable Stock" means any class or series of Capital Stock of any person that by its terms or otherwise is (i) required to be redeemed prior to the stated maturity of the Discount Notes, (ii) redeemable at the option of the holder thereof at any time prior to the stated maturity of the Discount Notes or (iii) convertible into or exchangeable for Capital Stock referred to in clause (i) or (ii) or Debt having a scheduled maturity prior to the stated maturity of the Discount Notes; provided that any Capital Stock which would not constitute Redeemable Stock but for the provisions thereof giving holders thereof the right to require Holdings to repurchase or redeem such Capital Stock upon the occurrence of a change in control occurring prior to the stated maturity of the Discount Notes shall not constitute Redeemable Stock if the change in control provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in the "Change in Control" covenant included in the Discount Notes Indenture and such Capital Stock specifically provides that Holdings will not repurchase or redeem any such stock pursuant to such provision prior to Holdings' repurchase of such Discount Notes as may be required to be repurchased pursuant to the provisions of the "Change in Control" covenant included in the Discount Notes Indenture. "Restricted Payment" means with respect to any person (a) any dividend or other distribution on any shares of such person's Capital Stock (except dividends or distributions in additional shares of Capital Stock of such person other than Redeemable Stock); (b) any payment on account of the purchase, redemption, retirement for value or other acquisition of any shares of such person's Capital Stock; or (c) any defeasance, redemption, repurchase or other acquisition or retirement for value prior to final maturity of any Debt ranked subordinate in right of payment to the Discount Notes and having a final maturity date subsequent to the maturity of the Discount Notes. DESCRIPTION OF THE 1993 BANK FINANCING On February 18, 1993, the Company entered into the 1993 Bank Credit Agreement. The 1993 Bank Financing consists of (i) the 1993 Term Loan Facility, pursuant to which the Company borrowed $91.7 million on March 22, 1993, and (ii) the 1993 Revolving Line of Credit Facility in the aggregate amount of $25 million (the 1993 Revolving Line of Credit Facility and the 1993 Term Loan Facility collectively being the "Facilities"). The following summaries of certain provisions of the 1993 Bank Credit Agreement are qualified in their entirety by reference to all the provisions of the 1993 Bank Credit Agreement, a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. 1993 TERM LOAN FACILITY The Company borrowed $91.7 million under the 1993 Term Loan Facility to fund the redemption of the Old Preferred Stock. 1993 REVOLVING LINE OF CREDIT FACILITY The 1993 Revolving Line of Credit Facility provides for borrowings of up to $25 million, which may be borrowed and repaid in minimum increments of $1 million or an integral multiple of $500,000 in excess thereof through the maturity date. Borrowings under the 1993 Revolving Line of Credit Facility may be applied to all working capital purposes and may be used to make approved acquisitions. The 1993 Revolving Credit Facility has a $5 million sublimit for the issuance of letters of credit. MATURITY AND AMORTIZATION SCHEDULE The Facilities mature June 30, 1999. The 1993 Term Loan Facility provides for quarterly principal amortization payments commencing April 15, 1994 and on each June 30, September 30, December 31 and April 15 thereafter. As of December 31, 1994, approximately $68.1 million was outstanding under the 1993 Term Loan Facility. The Company will be required to repay the principal under the 1993 Term Loan Facility 65 69 as follows: $13.8 million in 1995, $15.5 million in 1996, $17.2 million in each of 1997 and 1998 and $4.4 million in 1999, subject to reduction for mandatory and optional repayments. The 1993 Term Loan Facility also provides for mandatory prepayments, commencing April 15, 1994 and continuing on an annual basis thereafter, in an amount not less than 75% of Excess Cash Flow, or in the event the ratio of Borrower Debt to Operating Cash Flow of the Company falls below 4.0 to 1.0 for any fiscal year, in an amount not less than 50% of Excess Cash Flow. "Borrower Debt" means Indebtedness of the Company (determined on a consolidated basis). "Indebtedness" means (without duplication), for any person, (i) all indebtedness of such person for borrowed money or arising out of any extension of credit to or for the account of such person or for the deferred purchase price of property or services, except indebtedness which is owing to trade creditors in the ordinary course of business and which is due within 90 days after the original invoice date; (ii) Indebtedness of the kind described in clause (i) which is secured by (or for which the holder of such Indebtedness has any existing right, contingent or otherwise, to be secured by) any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance upon or in property owned by such person, whether or not such person has assumed or become liable for the payment of such Indebtedness or obligations; (iii) capitalized lease obligations of such person; and (iv) all guaranties or other contingent liabilities (other than endorsements for collection in the ordinary course of business), direct or indirect, with respect to Indebtedness of the kind described in clause (i), (ii) or (iii) of another person, through an agreement or otherwise. "Excess Cash Flow" means Operating Cash Flow of the Company for any period, less cash interest payments, scheduled principal reductions on debt, cash payments for taxes, the cash portion of capital expenditures, permitted distributions, the cash portion of the purchase price for permitted acquisitions, voluntary prepayments under the 1993 Bank Credit Agreement and certain permitted investments, plus (or minus) the cash effect of extraordinary gains (or losses) and the amount by which Working Capital (as defined) decreases (or increases). "Operating Cash Flow" means the net income (loss) of the Company plus depreciation, amortization, interest expense, income tax expense and all other non-cash items deducted from net revenues in determining net income (loss), plus or minus adjustments for extraordinary items and gains (or losses) on disposition of assets and less any non-cash items added to net revenues in determining net income (loss). The Facilities may be voluntarily prepaid at any time without premium. INTEREST Loans under the Facilities bear interest at a floating rate equal, at the Company's option, to the Alternate Base Rate plus 1.5% per annum or the Eurodollar Rate plus 2.75% per annum. In the event that the ratio of Borrower Debt to Operating Cash Flow is less than 4.75 to 1.00, the applicable interest rate will be reduced by 1/4 of 1% per annum; in the event that the ratio of Borrower Debt to Operating Cash Flow is less than 4.00 to 1.00, the applicable interest rate will be reduced by 1/2 of 1% per annum; and in the event that the ratio of Borrower Debt to Operating Cash Flow is less than 3.50 to 1.00, the applicable interest rate will be reduced by 3/4 of 1% per annum. "Alternate Base Rate" means the highest of the prime rate of Texas Commerce Bank in effect from time to time, the federal funds effective rate plus 1/2%, and the ninety-day secondary CD Rate (adjusted for statutory reserves and FDIC assessments) plus 1 1/4%. The "Eurodollar Rate" means the rate established daily by an interbank market for Eurodollar funds selected by the Agent, adjusted for actual reserves. Interest on Alternate Base Rate borrowings will be payable quarterly in arrears and interest on Eurodollar Rate borrowings will be payable at the end of the relevant interest period (but not less often than quarterly). As required by the 1993 Bank Credit Agreement, the Company entered into interest rate protection arrangements, expiring June 30, 1996, in an aggregate notional amount equal to $45 million, subject to reduction by $2 million at the end of each quarter starting with the quarter ending June 30, 1994. GUARANTY Amounts owed under the Facilities are the direct obligations of the Company and are unconditionally guaranteed by Holdings. 66 70 SECURITY The Facilities are secured by a first priority, perfected security interest in all the Company's accounts receivable, general intangibles, equipment, inventory and other personal property (including deposit accounts) and all unencumbered real property, and all proceeds of the foregoing, subject to no other lien, security interest or encumbrance unless permitted. In addition, Holdings' guarantee of the Company's obligations under the Facilities will be secured by a first priority, perfected security interest in the common stock of the Company. COVENANTS The 1993 Bank Credit Agreement contains customary covenants, including (a) limitations on additional debt and liens, (b) limitations on sales of assets and mergers, (c) limitations on cash dividends and stock repurchases, (d) limitations on capital expenditures, (e) limitations on acquisitions and (f) limitations on the prepayment of the Senior Notes or any subordinated debt. The 1993 Bank Credit Agreement also contains various financial covenants, including covenants requiring the maintenance of minimum ratios of Operating Cash Flow to interest on Borrower Debt and Operating Cash Flow to debt service on Borrower Debt and maintenance of a minimum fixed charge coverage ratio and a minimum current ratio, and setting forth maximum ratios of Borrower Debt to Operating Cash Flow and total debt to Operating Cash Flow. EVENTS OF DEFAULT The 1993 Bank Credit Agreement contains typical events of default, including, without limitation, (a) default in the payment of principal on the Facilities when due, (b) default in the payment of any interest on the Facilities when due and continuing for five days, (c) default in the performance, or breach, of any covenant of the Company, (d) occurrence of any event of default under any other debt of the Company in excess of $1 million, (e) any final, nonappealable judgment for the payment of money in excess of $1 million (exclusive of insured amounts) shall be rendered against the Company, (f) a change of control, as defined in the Senior Note Indenture or Discount Note Indenture, shall have occurred, and (g) certain events involving bankruptcy or insolvency of the Company. FEES, EXPENSES AND INDEMNIFICATION In connection with the 1993 Bank Credit Agreement, the Company paid the Agent an aggregate underwriting fee of approximately $3.9 million. The Agent also is entitled to an annual agency administrative fee of $100,000, payable quarterly in advance. In addition, the Company will pay quarterly in arrears a commitment fee of 0.5% per annum on the unused portion of the Facilities and the letter of credit fee ranging between 2.75% and 2% per annum (depending on the Company's ratio of Senior Debt to Operating Cash Flow) on the face amount of letters of credit issued and outstanding. The Company agreed to reimburse the Agent for its reasonable out-of-pocket costs and expenses (including syndication expenses and reasonable fees and expenses of the Agent's counsel) incurred in connection with the 1993 Bank Financing and to indemnify the Agent against any losses, claims, damages, liabilities and expenses caused by or arising out of or in connection with the Recapitalization Plan. DESCRIPTION OF THE PREFERRED STOCK AND THE WARRANT As part of the Recapitalization Plan, Holdings sold to Crown 1,200,000 shares of Preferred Stock and the Warrant for an aggregate purchase price of $30 million. PREFERRED STOCK Each share of Preferred Stock has a liquidation preference of $25.00 per share, plus accrued and unpaid dividends. Dividends are payable quarterly at the rate of $2.75 per annum per share. Dividends on the Preferred Stock are cumulative and, at the option of Holdings, may be paid through the issuance of additional shares of Preferred Stock on each dividend payment date through April 1, 1998. The Preferred Stock is optionally redeemable, in whole or in part, at $25.00 per share, plus accrued and unpaid dividends thereon on or after April 1, 1998, provided that Holdings is also entitled to optionally redeem Preferred Stock with all or a portion of the proceeds from an initial public offering of Holdings common stock consummated on or before 67 71 the third anniversary of the issuance of the Preferred Stock. Holdings will be required to redeem 25% of the then outstanding shares of Preferred Stock on the twelfth anniversary of the date of the first original issuance thereof at a redemption price equal to $25.00 per share plus all accrued and unpaid dividends thereon and will be required to redeem an additional 25% on the thirteenth anniversary of such issuance at such price. Holdings will be required to redeem all remaining outstanding shares of Preferred Stock on the fourteenth anniversary of such original issuance. The failure by Holdings to mandatorily redeem shares of Preferred Stock will cause an automatic exchange of all shares of Preferred Stock then outstanding into the 11% Junior Subordinated Exchange Debentures due 2006 of Holdings (the "Holdings Exchange Debentures"). The Preferred Stock is exchangeable, in whole or in part, at the option of Holdings on any dividend payment date for Holdings Exchange Debentures. Each share of Preferred Stock will be exchanged for $25.00 in principal amount of Holdings Exchange Debentures in denominations of $25.00 or integral multiples thereof. Any such optional exchange will be prohibited if a default under the indenture governing the Holdings Exchange Debentures exists or would exist after giving effect to such exchange. A partial exchange will be prohibited if dividends are in arrears on the Preferred Stock, Holdings has failed to comply with the put option described below or Holdings has failed to comply with the mandatory redemption provisions of the Preferred Stock. So long as the Holdings Exchange Debentures are held by the original purchaser of the Preferred Stock, such Exchange Debentures will have the benefit of the covenants comparable to those contained in the Discount Note Indenture. Upon the occurrence of a change in control (as defined below), at the election of the holders of the Preferred Stock, Holdings will be required to purchase for cash all shares of Preferred Stock at $25.25 per share, plus accrued and unpaid dividends to the date of repurchase. A "change in control" for purposes of the Preferred Stock means: (i) a sale of all or substantially all of the assets of the Company or Holdings to any person or related group of persons (other than an affiliate or affiliates of Holdings or the Company) as an entirety or substantially as an entirety in one or a series of transactions; (ii) a merger or consolidation of Holdings occurs as a result of which DLJ Capital, Jim L. Turner or their affiliates or any voting trustee therefor hold in the aggregate less than 40% of the voting and economic power of the surviving corporation; (iii) a refinancing of more than 50% of the initial principal amount of the Discount Notes prior to their stated maturity, unless in the opinion of a nationally recognized investment banking firm, jointly selected by DLJ Capital, Jim L. Turner and the purchaser of the Preferred Stock, immediately after such refinancing the fair market value of the Preferred Stock is at least equal to 100% of its liquidation preference; (iv) at any time prior to the consummation of an initial public offering of common stock by Holdings, DLJ Capital, Jim L. Turner or their affiliates or any voting trustee therefor shall hold in the aggregate less than 40% of the total voting and economic power of Holdings or, at any time following the consummation of an initial public offering of common stock by Holdings, such persons shall hold in the aggregate less than 50% of the total voting and economic power of Holdings held by them in the aggregate on the date of closing of the Recapitalization Plan; or (v) a majority of the Board of Directors of Holdings ceases to be individuals elected by the Board of Directors or nominated by the Board of Directors for election by the stockholders of Holdings. The terms of the securities purchase agreement relating to the sale of the Preferred Stock prohibit Holdings from allowing the Company to issue any capital stock other than shares currently held by Holdings and require that Holdings continue to own such stock. In addition, such terms limit transactions with and payments to affiliates and related parties. In addition, such terms require that, in the event the Preferred Stock is not redeemed in connection with the refinancing of the Discount Notes and indebtedness under the 1993 Bank Financing, Holdings will enter into an agreement extending to the holders of the Preferred Stock (i) covenants substantially the same as those covenants appearing in the Discount Notes Indenture, as modified to conform such covenants to the terms of the refinancing, or (ii) in the event Holdings issues a subordinated debt security in connection with the refinancing and the holders of the Preferred Stock so elect, 68 72 substantially the same covenants appearing in such subordinated debt security. The foregoing terms are for the benefit of Crown and transferees of the Preferred Stock that are designated affiliates of Crown. The holders of the Preferred Stock shall have the right to elect 25% of Holdings' Board of Directors if Holdings fails to (i) declare and pay dividends on any two dividend payment dates or (ii) repurchase the shares of Preferred Stock that holders thereof have elected to have repurchased by Holdings upon the occurrence of Change in Control. The right to elect board members will continue to exist until all dividend arrearages are paid in full in cash, those shares of Preferred Stock which were elected to be repurchased upon the occurrence of a Change in Control have been repurchased or all of the Preferred Stock is redeemed in full in cash. Except as aforesaid or as may otherwise be required by law, the Preferred Stock has no voting rights. WARRANT The Warrant entitles the holder thereof to purchase 2,525,000 shares of Class A Common Stock, representing 15% of the fully-diluted common stock of Holdings at the time of the consummation of the transactions contemplated by the Recapitalization Plan. The Warrant has an exercise price of $.01 per share and will be exercisable until the later to occur of twenty years from the date of issuance or one year after the Preferred Stock or the Holdings Exchange Debentures are redeemed in full. The number of shares issuable upon exercise of the Warrant will be adjusted in the event of stock dividends, subdivisions, and combinations and for issuances of additional shares of common stock of Holdings at less that fair market value. The holder of the Warrant is a party to the New Stockholders Agreement. See "Securities Ownership and Certain Transactions -- Certain Transactions -- Stockholders Agreement." DESCRIPTION OF CERTAIN EXISTING OBLIGATIONS SALE-LEASEBACK ARRANGEMENT On June 30, 1989, the Company entered into an agreement for the sale-leaseback of its Irving and Houston, Texas production facilities. The net proceeds of the sale-leaseback transaction were $26.5 million, which were used to reduce the Company's outstanding borrowings under the term loan portion of the 1988 Credit Agreement. Under the sale-leaseback agreement, the initial term of the lease is twenty-five years, although the Company has the option to repurchase the leased properties on the tenth anniversary date of the agreement at the greater of the fair values of the properties at the option date or the original sales price. On the tenth anniversary date of the agreement, and at each the end of each successive five-year period for which the agreement is in effect, the monthly payments under the agreement are to be adjusted, using a formula based upon increases in the consumer price index. In addition, the agreement provides that, at the Company's option, the lease may be extended for successive five-year terms to 2034. The Company entered into an amendment to the lease agreement to conform the covenants contained therein to those set forth in the Senior Notes Indenture, to increase the rent payment thereunder by $500,000 per annum to $3,998,000 per annum commencing with the payment due on the first rent payment date following the closing of the offerings of the Senior Notes and the Discount Notes and to eliminate the consumer price index adjustment to the rent payment scheduled to be effected as of July 1, 1994. In connection therewith, DLJ Securities sold the note of the landlord (the "Landlord Note") under the Company's sale-leaseback arrangement on October 19, 1993 at a price of $17,698,500 (the "Sales Price") plus accrued interest of $95,985. DLJ Securities received a commission of $176,985 in connection with such sale (1% of the Sales Price) and reimbursement of $94,472 for expenses incurred in connection with such sale, both of which were paid out of the proceeds from such sale. The remaining proceeds from such sale in excess of the principal amount of the Landlord Note plus accrued interest ($1,227,043) were paid to the Company. See "Securities Ownership and Certain Transactions -- Certain Transactions -- Transactions with DLJ Capital and its Affiliates." The Company paid to the landlord's lender $3,825,000 in cash at the closing of the offerings of the Senior Notes and the Discount Notes in respect of such lender's (i) consent to the amendment to the lease agreement and (ii) grant of rights to DLJ Securities and the Company to effect the sale of the Landlord Note. 69 73 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following discussion is a summary of certain federal income tax considerations relevant to the purchase, ownership and disposition of the Senior Notes and the Discount Notes by holders acquiring Senior Notes and Discount Notes from prior holders for cash, but does not purport to be a complete analysis of all potential tax effects. The discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, Internal Revenue Service ("IRS") rulings and pronouncements and judicial decisions now in effect, all of which are subject to change at any time by legislative, judicial or administrative action. Any such changes may be applied retroactively in a manner that could adversely affect a holder of the Senior Notes or the Discount Notes. The succeeding discussion describes the material federal income tax consequences of the purchase, ownership, and disposition of the Senior Notes and the Discount Notes by holders who will acquire the Senior Notes and the Discount Notes from prior holders as "capital assets" within the meaning of section 1221 of the Code. The Company and Holdings will treat the Senior Notes and the Discount Notes as indebtedness for federal income tax purposes, and the balance of the discussion is based on the assumption that such treatment will be respected. The IRS has recently issued final Treasury Regulations interpreting the original issue discount provisions of sections 1271 through 1275 of the Code (the "OID Regulations"). Holders of Discount Notes are generally permitted to rely upon the OID Regulations, even though the Discount Notes were issued before the effective date of the OID Regulations. The discussion assumes, however, that it is reasonable for taxpayers to take positions which follow the Proposed Regulations. The discussion is not binding on the IRS or the courts. The Company and Holdings have not sought and will not seek any rulings from the IRS with respect to the positions of the Company and Holdings discussed below. There can be no assurance that the IRS will not take a different position concerning the tax consequences of the purchase, ownership or disposition of the Senior Notes or Discount Notes or that any such position would not be sustained. The tax treatment of a holder of Senior Notes or Discount Notes may vary depending on his particular situation or status. Certain holders (including S corporations, insurance companies, tax-exempt organizations, financial institutions, broker-dealers, taxpayers subject to alternative minimum tax, foreign corporations and persons who are not citizens or residents of the United States) may be subject to special rules not discussed below. In addition, the description does not consider the effect of any applicable foreign, state, local or other tax laws or estate or gift tax considerations. EACH PURCHASER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OF PURCHASING, HOLDING AND DISPOSING OF THE SENIOR NOTES OR THE DISCOUNT NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS. STATED INTEREST ON SENIOR NOTES A holder of a Senior Note will be required for federal income tax purposes to report stated interest on the Senior Note as income in accordance with the holder's method of accounting for tax purposes. STATED INTEREST ON DISCOUNT NOTES The taxation to a holder of stated interest on Discount Notes is discussed below in "Amount of Original Issue Discount on Discount Notes" and "Taxation of Original Issue Discount on Discount Notes." AMOUNT OF ORIGINAL ISSUE DISCOUNT ON DISCOUNT NOTES The Discount Notes were issued with original issue discount for federal income tax purposes. As a result, a holder who purchases a Discount Note generally will be required to include original issue discount in gross income, for federal income tax purposes, as it accrues in advance of the receipt of cash payments on Discount Notes (regardless of whether the holder is a cash or accrual basis taxpayer). See "Taxation of Original Issue Discount on Discount Notes" below. 70 74 The amount of original issue discount with respect to each Discount Note is the excess of the "stated redemption price at maturity" of such Discount Note over its "issue price." The "issue price" of a Discount Note equals the first price at which a substantial amount of the Discount Notes was sold for money (other than sales to bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The "stated redemption price at maturity" of each Discount Note under the OID Regulations includes all cash payments (including principal and interest) required to be made thereunder until maturity, and each Discount Note was therefore issued with a substantial amount of original issue discount. TAXATION OF ORIGINAL ISSUE DISCOUNT ON DISCOUNT NOTES Each holder of a Discount Note generally will be required to include in gross income an amount equal to the sum of the "daily portions" of the original issue discount of the Discount Note for all days during the taxable year in which he holds the Discount Note, including the purchase date and excluding the disposition date. The daily portions of original issue discount required to be included in a holder's gross income in a taxable year will be determined upon a constant interest rate basis by allocating to each day during the taxable year in which the holder holds the Discount Note a pro rata portion of the original issue discount thereon which is attributable to the "accrual period" in which such day is included. The amount of the original issue discount attributable to each full accrual period will be the product of the "adjusted issue price" of the Discount Note at the beginning of such accrual period multiplied by the "yield to maturity" of the Discount Note (as determined by semi-annual compounding). The adjusted issue price of a Discount Note at the beginning of an accrual period is the original issue price of the Discount Note plus the aggregate amount of original issue discount that accrued in all prior accrual periods, and less any cash payments on the Discount Note. The yield to maturity is the discount rate that, when used in computing the present value of all principal and interest payments to be made under a Discount Note, produces an amount equal to the issue price of the Discount Note. The "accrual periods" of a Discount Note are each of the six-month periods during the term of the Discount Note that end on February 15 and August 15 of each year. The initial accrual period of a Discount Note is the short period beginning on the issue date and ending on the day before the first day of the first full accrual period. The amount of original issue discount attributable to such initial accrual period may be computed under any reasonable method. Holdings is required to furnish certain information to the IRS, and will furnish annually to record holders of the Discount Notes, information with respect to original issue discount accruing during the calendar year (as well as interest paid during that year). Because this information will be based upon the adjusted issue price of the debt instrument as if the holder were the original holder of the debt instrument, subsequent holders who purchase Discount Notes for an amount other than the adjusted issue price and/or on a date other than the end of an accrual period will be required to determine for themselves the amount of original issue discount, if any, they are required to report. A subsequent purchaser of a Discount Note will be required to include annual accruals of original issue discount in gross income, for federal income tax purposes, in accordance with the rules described above, but the amount of the original issue discount or ordinary income required to be reported may vary depending upon the amount paid for the debt instrument by the subsequent purchaser. See "Acquisition Premium on Discount Notes," "Amortizable Bond Premium on Senior Notes and Discount Notes" and "Market Discount on Senior Notes and Discount Notes" below. EFFECT OF OPTIONAL REDEMPTION ON ORIGINAL ISSUE DISCOUNT OF DISCOUNT NOTES Holdings may redeem the Discount Notes at any time on or after February 16, 1998, although Holdings has no intention at this time to do so. The OID Regulations set forth special rules for determining the "maturity date" and the "stated redemption price at maturity" of a debt instrument that may be redeemed prior to its stated maturity date at the option of the issuer. These rules should not apply to the Discount Notes 71 75 and, hence, should not affect the determination of the maturity date or the yield to maturity of any Discount Note. ACQUISITION PREMIUM ON DISCOUNT NOTES If a subsequent purchaser purchases a Discount Note at a cost that is in excess of its "adjusted issue price" (i.e., its original issue price increased by the portion of original issue discount previously includable in the gross income of prior holders (determined without regard to any reduction of original issue discount attributable to any acquisition premium paid by prior holders) and decreased by all payments previously made on the Discount Note) immediately after the Discount Note's acquisition by the subsequent purchaser, the includable original issue discount (as otherwise determined) for a taxable period will be reduced by an amount equal to the sum of the daily portions of original issue discount (as otherwise determined to be includable) for such taxable period multiplied by a fraction (a) the numerator of which is such excess of cost over adjusted issue price and (b) the denominator of which is the excess of the sum of all amounts payable on the Discount Note after the purchase date over the Discount Note's adjusted issue price. AMORTIZABLE BOND PREMIUM ON SENIOR NOTES If a subsequent purchaser of a Senior Note purchases it at a cost that is in excess of the amount payable on maturity (which will be determined by reference to an earlier call date if the call price would reduce the amount of premium), the excess cost may be treated as "amortizable bond premium" that is allocated among the interest payments on the Senior Note using a constant interest rate method over the note's remaining term. Except as may be provided in future Treasury Regulations, the amount allocated to each interest payment would be applied against and reduce the amount of such interest payment (with a corresponding reduction in basis). This interest offset would be available only if an election under section 171 of the Code is made or is in effect and if the acquired Senior Note is held as a capital asset. This election would apply to all debt instruments held or subsequently acquired by the electing holder on or after the first day of the first taxable year to which the election applies and may not be revoked without the consent of the IRS. MARKET DISCOUNT ON SENIOR NOTES AND DISCOUNT NOTES Purchasers of Senior Notes and Discount Notes should be aware that the gain on sale with respect to such securities may be affected by the market discount provisions of the Code. The market discount rules generally provide that if a holder of a debt instrument purchases it at a "market discount" and thereafter realizes gain upon a disposition or a retirement of the debt instrument, the lesser of such gain or the portion of the market discount that has accrued on a straight-line basis (or on a constant interest rate basis, if such basis of accrual has been elected by the holder under section 1276(b) of the Code) while the debt instrument was held by such holder will be taxed as ordinary income at the time of such disposition. "Market discount" with respect to a Senior Note is the amount by which the principal amount of the Senior Note exceeds the holder's basis in the Senior Note immediately after acquisition (unless such excess is less than .25% of the principal amount of the Senior Note times the number of full years from acquisition by such holder to maturity, in which case there is no "market discount"). "Market discount" with respect to a Discount Note is the amount by which the "revised issue price" of a Discount Note (i.e., the issue price increased by the portion of original issue discount previously included in the gross income of prior holders (determined without regard to any reduction of original issue discount attributable to any acquisition premium) and decreased by all payments previously made on the Discount Note) exceeds the holder's basis in the Discount Note immediately after acquisition (unless such excess is less than .25% of the stated redemption price at maturity of the Discount Note times the number of complete years from acquisition by such holder to maturity, in which case there is no "market discount"). If a subsequent holder makes a gift of a Senior Note or a Discount Note, accrued market discount, if any, will be recognized as if such holder had sold such Senior Note or Discount Note for a price equal to its fair market value. The disposition of a Senior Note or Discount Note at the death of a holder, however, should not result in the recognition of income under the market discount rules. The market discount rules also provide that a holder who acquires a Senior Note or a Discount Note at a market discount may be required to defer a portion of any interest expense that otherwise may be deductible on any indebtedness 72 76 incurred or maintained to purchase or carry such Senior Note or Discount Note until the holder disposes of the Senior Note or Discount Note in a taxable transaction. The Senior Notes and Discount Notes provide for optional and (in the case of a Change in Control) mandatory redemption, in whole or in part, prior to maturity. If the Senior Notes or Discount Notes were redeemed, a holder generally would be required to include in gross income as ordinary income, for federal income tax purposes, the portion of the principal payment attributable to accrued market discount on the Senior Notes or Discount Notes, if any. In addition, it is possible that a portion of any payment with respect to Discount Notes may be includable as ordinary income upon receipt to the extent of any accrued market discount on such debt instruments. A holder of Senior Notes or Discount Notes acquired at a market discount may elect to include market discount in gross income, for federal income tax purposes, as the discount accrues either on a straight-line basis or on a constant interest rate basis. This current inclusion election, once made, applies to all market discount obligations acquired on or after the first day of the first taxable year to which the election applies, and may not be revoked without the consent of the IRS. If a holder of Senior Notes or Discount Notes makes such an election, the foregoing rules with respect to the recognition of ordinary income on sales and other dispositions of such debt instruments, and with respect to the deferral of interest deductions on indebtedness incurred or maintained to purchase or carry such debt instruments, would not apply. SALE, EXCHANGE, REDEMPTION, RETIREMENT OR OTHER DISPOSITION OF SENIOR NOTES AND DISCOUNT NOTES In general, the holder of a Senior Note or Discount Note will recognize gain or loss upon the sale, exchange, redemption, retirement or other disposition of such debt instrument measured by the difference between (a) the amount of cash and fair market value of property received (except to the extent attributable to the payment of accrued interest) in exchange therefor and (b) the holder's adjusted tax basis in such debt instrument. A holder's initial tax basis in a Senior Note or a Discount Note purchased by him will be equal to the price paid by such holder for such Senior Note or Discount Note, as the case may be. The holder's initial tax basis in Senior Notes will be increased, from time to time by the accruals of market discount, if any, which the holder has previously elected to include in gross income on an annual basis and decreased from time to time by the accrual of amortizable bond premium, if any, which the holder has previously elected to offset against interest on an annual basis. The holder's initial tax basis in Discount Notes will be increased from time to time by the portion of original issue discount previously included in gross income to the date of disposition (and the accruals of market discount, if any, which the holder has previously elected to include in gross income on an annual basis) and decreased from time to time to reflect the receipt of any payments on such Discount Notes (and the accrual of amortizable bond premium, if any, which the holder has previously elected to offset against interest on the Discount Notes on an annual basis). Any gain or loss on the sale, exchange, redemption, retirement, or other disposition of a Senior Note or Discount Note should be capital gain or loss (except as discussed below or in "Market Discount on Senior Notes and Discount Notes" above and except for payments for accrued interest not previously included in income). Any capital gain or loss will be long-term capital gain or loss if the debt instrument had been held for more than one year and otherwise will be short-term capital gain or loss. Currently, net capital gains and ordinary income of corporations are taxable at the same maximum rate (35%), whereas net long-term capital gains of individuals are taxable at a rate (28%) that is lower than the maximum rate applicable to ordinary income (39.6%). In the case of both individuals and corporations, capital losses generally may be used to offset only capital gains, subject to a de minimis $3,000 per annum exception in the case of individuals. Legislation has been proposed in Congress which would, if enacted, reduce the maximum rate of tax on long-term capital gains to 19.8% in the case of individuals and 25% in the case of corporations. There can be no assurance regarding whether such legislation will be enacted into law or, if enacted, the final form of such legislation. 73 77 BACKUP WITHHOLDING The backup withholding rules require a payor to deduct and withhold a tax if (a) the payee fails to furnish a taxpayer identification number ("TIN") to the payor, (b) the IRS notifies the payor that the TIN furnished by the payee is incorrect, (c) the payee has failed to report properly the receipt of "reportable payments" on several occasions and the IRS has notified the payor that withholding is required, or (d) there has been a failure of the payee to certify under the penalty of perjury that a payee is not subject to withholding under section 3406 of the Code. As a result, if any one of the events discussed above occurs, Holdings, the Company, its paying agent or other withholding agent will be required to withhold a tax equal to 31% of any "reportable payment" made in connection with the Senior Notes or the Discount Notes. A "reportable payment" includes, among other things, interest actually paid, original issue discount and amounts paid through brokers in retirement of securities. Any amounts withheld from a payment to a holder under the backup withholding rules will be allowed as a refund or credit against such holder's federal income tax, provided that the required information is furnished to the IRS. Certain holders (including, among others, corporations and certain tax exempt organizations) are not subject to the backup withholding and information reporting requirements. THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS DOES NOT CONSIDER THE FACTS AND CIRCUMSTANCES OF ANY PARTICULAR PROSPECTIVE PURCHASER'S SITUATION OR STATUS. THE SUMMARY IS BASED ON THE PROVISIONS OF THE CODE, REGULATIONS, RULINGS AND JUDICIAL DECISIONS NOW IN EFFECT, ALL OF WHICH ARE SUBJECT TO CHANGE, POSSIBLY ON A RETROACTIVE BASIS. EACH PURCHASER OF SENIOR NOTES OR DISCOUNT NOTES SHOULD CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO HIM, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE SENIOR NOTES OR DISCOUNT NOTES. PLAN OF DISTRIBUTION This Prospectus has been prepared for use by DLJ Securities in connection with offers and sales of Senior Notes and Discount Notes in market making transactions. DLJ Securities may act as principal or agent in such transactions. DLJ Securities has advised the Company and Holdings that it has made a market in the Senior Notes and the Discount Notes in the past, and that, subject to applicable laws and regulations, it currently intends to do so in the future. However, DLJ Securities is not obligated to do so and may discontinue any such market making at any time without notice. Accordingly, there can be no assurance that an active trading market will develop for, or as to the liquidity of, the Senior Notes or the Discount Notes. DLJ Securities has rendered financial advisory and investment banking services to the Company in the past and may do so in the future. DLJ Securities served as underwriter in the offerings of the Senior Notes and the Discount Notes and received total underwriter discounts and commissions of $6,907,000 in connection thereof. DLJ Securities also acted as dealer-manager in connection with the Tender Offer and Consent Solicitation. As dealer-manager, DLJ Securities received from the Company a fee equal to $5 per $1,000 principal amount of Old Discount Notes validly tendered and accepted for payment. The Company agreed to indemnify DLJ Securities and its controlling persons against liabilities and expenses, including liabilities under the Securities Act, incurred in connection with the Tender Offer and the Consent Solicitation. DLJ Capital, an affiliate of DLJ Securities, beneficially owns a significant number of shares of Class A Common Stock of Holdings. DLJ Capital is a party to the New Stockholders Agreement. In addition, DLJ Securities holds a significant number of shares of Class A Common Stock as custodian for the benefit of certain employees of Donaldson, Lufkin & Jenrette Inc. and its affiliates. Also, while William O. Hunt served as trustee under the Voting Trust Agreement described above, DLJ Capital paid to him an annual fee of $25,000, which fee was reimbursed by the Company. See "Securities Ownership and Certain Transactions." 74 78 LEGAL MATTERS The validity of the issuance of the Senior Notes and the Discount Notes offered hereby has been passed upon for the Company by Weil, Gotshal & Manges (a partnership including professional corporations), Dallas, Texas. EXPERTS The respective financial statements of the Company and Holdings as of December 31, 1993 and 1994, and for the years ended December 31, 1992, 1993 and 1994, included in this Prospectus and the related financial statement schedules included elsewhere in the Registration Statement of which this Prospectus is a part have been included herein and elsewhere in the Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, appearing herein and elsewhere in the Registration Statement and upon the authority of said Firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company and Holdings have filed with the Commission a Registration Statement on Form S-1 (the "Registration Statement") (which term includes any amendments thereto) under the Act, with respect to the securities offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto, to which reference is hereby made for further information with respect to the Company, Holdings and the securities offered hereby. Statements contained herein concerning the provisions of any document are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement for a more complete description of the matter involved and each such statement shall be deemed qualified in its entirety by such reference. The Registration Statement and the exhibits and schedules thereto filed by the Company and Holdings with the Commission may be inspected at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials may be obtained from the Public Reference Section of the Commission 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. 75 79 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
PAGE -------- DR PEPPER BOTTLING COMPANY OF TEXAS Independent Auditors' Report.................................................... F-2 Balance Sheets, December 31, 1993 and 1994...................................... F-3 Statements of Operations for the years ended December 31, 1992, 1993 and 1994... F-4 Statements of Stockholders' Deficit for the years ended December 31, 1992, 1993 and 1994..................................................................... F-5 Statements of Cash Flows for the years ended December 31, 1992, 1993 and 1994... F-6 Notes to Financial Statements................................................... F-7 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Independent Auditors' Report.................................................... F-19 Consolidated Balance Sheets, December 31, 1993 and 1994......................... F-20 Consolidated Statements of Operations for the years ended December 31, 1992, 1993 and 1994................................................................ F-21 Consolidated Statements of Stockholders' Deficit for the years ended December 31, 1992, 1993 and 1994............................................. F-22 Consolidated Statements of Cash Flows for the years ended December 31, 1992, 1993 and 1994................................................................ F-23 Notes to Consolidated Financial Statements...................................... F-24
F-1 80 INDEPENDENT AUDITORS' REPORT The Board of Directors Dr Pepper Bottling Company of Texas: We have audited the accompanying balance sheets of Dr Pepper Bottling Company of Texas (a wholly-owned subsidiary of Dr Pepper Bottling Holdings, Inc.) as of December 31, 1993 and 1994, and the related statements of operations, stockholders' deficit and cash flows for each of the years in the three-year period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dr Pepper Bottling Company of Texas as of December 31, 1993 and 1994, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Dallas, Texas March 8, 1995 F-2 81 DR PEPPER BOTTLING COMPANY OF TEXAS Balance Sheets December 31, 1993 and 1994 (in thousands, except share and per share amounts)
Assets (note 9) 1993 1994 --------------- ---- ---- Current assets: Cash and cash equivalents $ 16,930 7,769 Accounts receivable: Trade, less allowance for doubtful accounts of $305 in 1993 and $371 in 1994 20,156 24,479 Other 3,417 3,748 Inventories (note 4) 9,806 12,183 Prepaid expenses 3,420 5,671 ----------- --------- Total current assets 53,729 53,850 ----------- --------- Property, plant and equipment, net (notes 5 and 9) 64,523 65,946 Other assets, at amortized cost: Goodwill and other intangible assets (note 6) 116,668 111,149 Debt issuance costs 8,255 6,871 ----------- --------- $ 243,175 237,816 =========== ========= Liabilities and Stockholder's Deficit ------------------------------------- Current liabilities: Accounts payable $ 26,311 34,285 Accrued expenses 13,876 14,935 Current maturities of long-term debt and obligations under capital leases (note 9) 12,885 14,448 ----------- --------- Total current liabilities 53,072 63,668 ----------- --------- Long-term debt and obligations under capital leases, less current maturities (note 9) 227,696 199,261 Stockholder's deficit: Common stock, $.01 par value. Authorized 11,000,000 shares; issued and outstanding 100 shares 1 1 Additional paid-in capital 110,227 110,227 Consideration to continuing predecessor shareholders in excess of book value (33,948) (33,948) Deficit (113,873) (101,393) ----------- --------- Total stockholders' deficit (37,593) (25,113) Commitments and contingencies (notes 7, 11 and 12) ----------- --------- $ 243,175 237,816 =========== =========
See accompanying notes to financial statements. F-3 82 DR PEPPER BOTTLING COMPANY OF TEXAS Statements of Operations Years ended December 31, 1992, 1993 and 1994 (in thousands)
1992 1993 1994 ---- ---- ---- Net sales $ 288,271 310,881 332,204 Cost of sales (note 5) 185,783 195,957 214,376 --------- ------- ------- Gross profit 102,488 114,924 117,828 Marketing expense 6,036 9,418 7,618 Depreciation 5,371 5,577 5,765 Amortization of intangible assets 5,505 5,751 5,519 Administrative and general expenses 55,575 60,572 62,931 --------- ------- ------- Operating profit 30,001 33,606 35,995 --------- ------- ------- Other expense (income): Interest 30,830 23,957 22,392 Amortization of deferred debt issuance costs 1,107 1,337 1,384 Other, net (199) (2,617) (401) --------- ------- ------- 31,738 22,677 23,375 --------- ------- ------- Earnings (loss) before income taxes and extraordinary item (1,737) 10,929 12,620 Income taxes - - 140 --------- ------- ------- Earnings (loss) before extraordinary item (1,737) 10,929 12,480 Extraordinary item - loss on recapitalization (note 2) - (31,559) - --------- ------- ------- Net earnings (loss) $ (1,737) (20,630) 12,480 ========= ======= =======
See accompanying notes to financial statements. F-4 83 DR PEPPER BOTTLING COMPANY OF TEXAS Statements of Stockholder's Deficit Years ended December 31, 1992, 1993 and 1994 (in thousands, except per share amounts)
Consideration to continuing predecessor Preferred stock Common stock Additional stockholders --------------- ------------ paid-in in excess of Shares Amount Shares Amount capital book value Deficit Totals ------ ------ ------ ------ ------- ---------- ------- ------ Balance at December 31, 1991 2,908 $ 71,329 100 $ 1 11,990 (33,948) (72,529) (23,157) Stock dividends on senior exchangeable preferred stock 527 13,169 - - - - (13,169) - Cash dividends on senior exchangeable preferred stock - - - - - - (2) (2) Net loss - - - - - - (1,737) (1,737) ------ -------- --- --- ------- ------- --------- ------- Balance at December 31, 1992 3,435 84,498 100 1 11,990 (33,948) (87,437) (24,896) Stock dividends on senior exchangeable preferred stock 146 3,649 - - - - (3,649) - Cash dividends on senior exchangeable preferred stock - - - - - - (2,157) (2,157) Preferred shares retired (3,581) (88,147) - - - - - (88,147) Additional paid-in capital related to recapitalization - - - - 98,237 - - 98,237 Net loss - - - - - - (20,630) (20,630) ------ -------- --- --- ------- ------- --------- ------- Balance at December 31, 1993 - - 100 1 110,227 (33,948) (113,873) (37,593) Net earnings - - - - - - 12,480 12,480 ------ -------- --- --- ------- ------- --------- ------- Balance at December 31, 1994 - $ - 100 $ 1 110,227 (33,948) (101,393) (25,113) ====== ======== === === ======= ======= ========= =======
See accompanying notes to financial statements. F-5 84 DR PEPPER BOTTLING COMPANY OF TEXAS Statements of Cash Flows Years ended December 31, 1992, 1993 and 1994 (in thousands)
1992 1993 1994 ---- ---- ---- Cash flows from operating activities: Net earnings (loss) $ (1,737) (20,630) 12,480 --------- -------- ------- Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Loss on recapitalization - 31,559 - Depreciation of property, plant and equipment 8,658 9,593 9,273 Amortization of other assets 6,612 7,088 6,903 Loss (gain) on sale of assets (224) 32 (52) Changes in assets and liabilities, net of effects from acquisitions: Accounts receivable (1,228) (1,926) (4,654) Inventories (1,444) (346) (2,377) Prepaid expenses (1,159) 1,491 (2,251) Accounts payable 6,878 2,079 7,974 Accrued expenses (792) 4,949 1,059 --------- -------- ------- Total adjustments 17,301 54,519 15,875 --------- -------- ------- Net cash provided by operating activities 15,564 33,889 28,355 --------- -------- ------- Cash flows from investing activities: Additions to property, plant and equipment (7,833) (8,971) (10,838) Proceeds from the sale of property, plant and equipment 1,673 604 194 Cash paid for acquisitions, net of cash acquired - (8,965) - --------- -------- ------- Net cash used in investing activities (6,160) (17,332) (10,644) --------- -------- ------- Cash flows from financing activities: Payment of long-term debt (6,345) (198,713) (26,872) Debt issued - 218,819 - Deferred debt costs - (8,768) - Payment of costs related to recapitalization - (26,906) - Preferred stock retired - (88,147) - Additions to paid-in capital related to recapitalization - 98,237 - Payment of preferred stock dividends (2) (2,157) - --------- -------- ------- Net cash used in financing activities (6,347) (7,635) (26,872) --------- -------- ------- Net increase (decrease) in cash and cash equivalents 3,057 8,922 (9,161) Cash and cash equivalents at beginning of year 4,951 8,008 16,930 --------- -------- ------- Cash and cash equivalents at end of year $ 8,008 16,930 7,769 ========= ======== =======
See accompanying notes to financial statements. F-6 85 DR PEPPER BOTTLING COMPANY OF TEXAS Notes to Financial Statements December 31, 1992, 1993 and 1994 (in thousands, except share and per share amounts) (1) Organization and Business (a) Organization Dr Pepper Bottling Company of Texas ("Company") is a wholly-owned subsidiary of Dr Pepper Bottling Holdings, Inc. ("Holdings"). Holdings was formed expressly for the purpose of acquiring all of the common stock of the Company. Effective October 28, 1988, Holdings entered into an agreement with the Company providing for the acquisition of all issued and outstanding common stock of the Company. Stockholders' equity reflects such continuing Predecessor stockholders' proportionate interests in the adjusted historical book value of the Company, reduced by the net consideration paid by Holdings for common stock representing such interest. (b) Business The Company is principally engaged in producing, marketing and distributing carbonated soft drinks in Dallas/Fort Worth, Houston and Waco, Texas. Soft drink operations are conducted pursuant to franchise agreements with companies owning the rights to soft drink formulae. (2) Recapitalization During 1993, the Company completed a recapitalization plan (the "Recapitalization Plan"), the purpose of which was to reduce the aggregate amount of interest expense and preferred stock dividend requirements. The Recapitalization Plan is described in more detail in note 9. F-7 86 DR PEPPER BOTTLING COMPANY OF TEXAS Notes to Financial Statements (in thousands, except share and per share amounts) (a) 1993 Bank Credit Agreement Pursuant to the Recapitalization Plan, on February 18, 1993, the Company entered into a credit agreement (the "1993 Bank Credit Agreement") with certain banks providing for (i) a term loan facility in the aggregate amount of $100,000 and (ii) a revolving line of credit facility in the aggregate amount of $25,000. On March 22, 1993, as contemplated by the Recapitalization Plan, the Company borrowed $91,700 under the term loan facility of the 1993 Bank Credit Agreement to redeem all of the then outstanding Senior Exchangeable Preferred Stock of the Company. (b) Sale/Leaseback As part of the Recapitalization Plan, the Company entered into an amendment to the lease agreement in connection with the sale/leaseback of its Irving and Houston, Texas production facilities. The amendment to the lease agreement modified certain covenants and eliminated the consumer price index adjustment to the rent scheduled to be effected on July 1, 1994. In connection with the amendment, Donaldson Lufkin & Jenrette Securities Corporation ("DLJ") obtained the right to sell the note held by the lender under the lease agreement, and DLJ subsequently sold the note. The proceeds from such sale in excess of the principal amount of the note plus accrued interest, commissions and expenses ($1,227) were paid to the Company and are reflected as a reduction of the loss on recapitalization. (c) Senior Preferred Stock The Company redeemed all of the outstanding Senior Exchangeable Preferred Stock of the Company, in accordance with the Recapitalization Plan. (d) Loss on Recapitalization In 1993, the Company recorded an extraordinary loss of $31,600 in connection with the early retirement of a total of $192,200 principal amount of notes and debentures. The aggregate purchase price (including certain costs to extinguish the debt) of such indebtedness was $223,800, financed principally through newly issued debt and preferred stock. (Continued) F-8 87 DR PEPPER BOTTLING COMPANY OF TEXAS Notes to Financial Statements (in thousands, except share and per share amounts) (3) Summary of Significant Accounting Policies (a) Basis of Presentation The financial statements include the accounts of the Company's three operating branches: Dallas/Ft. Worth, Houston and Waco. All balances and transactions between branches have been eliminated. Certain amounts in the 1992 and 1993 financial statements have been reclassified to conform with 1994 presentation. (b) Cash Equivalents Cash equivalents consist of highly liquid debt instruments with original maturities of three months or less. The Company did not have any cash equivalents at December 31, 1993 or 1994. (c) Inventories Inventories are stated at the lower of first-in, first-out ("FIFO") cost or market. (d) Property, Plant and Equipment Property, plant and equipment are stated at cost. For financial reporting purposes, depreciation is provided on the straight-line method over the estimated useful lives of the assets. Accelerated depreciation methods are generally used for income tax purposes. Maintenance and repairs are charged to operations as incurred; renewals and betterments are capitalized and depreciated. The cost and accumulated depreciation of assets sold or disposed of are removed from the accounts. Resultant profit or loss on such transactions is credited or charged to earnings. (Continued) F-9 88 DR PEPPER BOTTLING COMPANY OF TEXAS Notes to Financial Statements (in thousands, except share and per share amounts) (e) Goodwill and Other Intangible Assets Excess of cost over estimated fair market value of tangible net assets of acquired businesses and costs of franchises are being amortized on a straight-line basis over 10 to 40 years. Debt issuance costs are being amortized over the terms of the related debt agreements (10 to 25 years). Covenants not to compete are amortized over the terms of the agreements (5 to 10 years). The Company continually evaluates the propriety of the carrying amount of goodwill and other intangibles as well as the amortization period to determine whether current events or circumstances warrant adjustments to the carrying value and/or revised estimates of useful lives. This evaluation consists of the projection of undiscounted operating income before depreciation, amortization, nonrecurring charges and interest for the Company over the remaining amortization periods of the related intangible assets. The projections are based on a historical trend line of actual results since the acquisitions of the respective assets and adjusted for expected changes in operating results. To the extent such projections indicate that the undiscounted operating income is not expected to be adequate to recover the carrying amounts of the related intangible assets, such carrying amounts are written down by charges to expense. At this time, the Company believes that no significant impairment of goodwill and other intangible assets has occurred and that no reduction of the estimated useful lives is warranted. (f) Self-insurance The Company is self-insured in these areas: (a) employer's excess indemnity with a $250 per occurrence limit on coverage, (b) automobile liability with a $250 per occurrence limit on coverage, (c) general liability with a $250 per occurrence limit on coverage, and (d) medical insurance with a $125 per person per year limit on coverage. The Company accrues for costs associated with its self-insured programs as incurred. Coverage in excess of the limits defined above is provided by third-party insurance companies. All other claims are covered through third-party insurance policies. (g) Financial Instruments and Credit Risk Concentrations Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash equivalents and trade receivables. The Company places its cash equivalents with high credit quality financial institutions; however, such amounts are generally in excess of federally insured limits. Although the Company (Continued) F-10 89 DR PEPPER BOTTLING COMPANY OF TEXAS Notes to Financial Statements (in thousands, except share and per share amounts) does not require collateral for trade receivables, the credit risk is limited due to the large number of customers. For the years ended December 31, 1992, 1993 and 1994, no customer accounted for more than 10% of net sales. At December 31, 1993 and 1994, no receivable from any customer exceeded 5% of stockholder's deficit. Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments" ("Statement 107"), requires that the Company disclose estimated fair values for its financial instruments. Fair value estimates are set forth below for the Company's financial instruments: . Cash, Accounts Receivable, Accounts Payable and Accrued Expenses - The carrying amounts approximate fair value because of the short maturity of these instruments. . Long-term Debt - The carrying amounts of the term loan and credit facility loan approximate market because of the variable interest rate which is based on the bank's alternative base rate. The fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. (h) Income Taxes In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Statement 109 requires a change from the deferred method of accounting for income taxes of APB Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on (Continued) F-11 90 DR PEPPER BOTTLING COMPANY OF TEXAS Notes to Financial Statements (in thousands, except share and per share amounts) deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Pursuant to the deferred method under APB Opinion 11, which was applied in 1992 and prior years, deferred income taxes are recognized for income and expense items that are reported in different years for financial reporting purposes and income tax purposes using the tax rate applicable for the year of the calculation. Under the deferred method, deferred taxes are not adjusted for subsequent changes in tax rates. Effective January 1, 1993, the Company adopted Statement 109 and the cumulative effect of the change in accounting for income taxes was immaterial. (4) Inventories Inventories consist of the following at December 31, 1993 and 1994:
1993 1994 ---- ---- Finished products $ 8,396 8,154 Raw materials and supplies 1,410 4,029 ------- ------ $ 9,806 12,183 ======= ======
(5) Property, Plant and Equipment Property, plant and equipment and accumulated depreciation at December 31, 1993 and 1994 are summarized as follows:
1993 1994 ---- ---- Land and improvements $ 17,540 17,589 Buildings 26,930 27,120 Machinery and other equipment 46,708 51,309 Vending equipment 29,105 32,084 --------- -------- 120,283 128,102 Accumulated depreciation (55,760) (62,156) --------- -------- Net property, plant and equipment $ 64,523 65,946 ========= ========
Depreciation expense on production facilities is included in cost of sales and totaled $3,287, $4,016 and $3,508 for the years ended December 31, 1992, 1993 and 1994, respectively. (Continued) F-12 91 DR PEPPER BOTTLING COMPANY OF TEXAS Notes to Financial Statements (in thousands, except share and per share amounts) (6) Goodwill and Other Intangible Assets Goodwill and other intangible assets at December 31, 1993 and 1994 are summarized as follows:
1993 1994 ---- ---- Goodwill, net of accumulated amortization of $12,790 and $15,363 $ 86,543 83,970 Franchise costs, net of accumulated amortization of $10,357 and $12,872 28,112 25,597 Other, net of accumulated amortization of $5,591 and $6,022 2,013 1,582 --------- -------- $ 116,668 111,149 ========= ========
(7) Lease Obligations The Company has operating leases principally for office, trucking fleet and vending equipment. Rent expense on operating leases was $3,197, $4,533 and $4,997 in 1992, 1993 and 1994, respectively. At December 31, 1994, future minimum rental payments under noncancellable operating leases are $2,183, $1,858, $1,521, $1,141, $713 and $238 for the years 1995 through 1999 and thereafter, respectively. (8) Acquisition On April 13, 1993, pursuing its operating strategy of acquiring contiguous bottling territories, the Company acquired all of the operating assets of Dr Pepper Bottling Company of Galveston, Inc. for $9,000 in cash and $1,000 payable in installments over five years under a noncompetition agreement. (Continued) F-13 92 DR PEPPER BOTTLING COMPANY OF TEXAS Notes to Financial Statements (in thousands, except share and per share amounts) (9) Long-term Debt and Obligations Under Capital Leases Long-term debt and obligations under capital leases at December 31, 1993 and 1994 is summarized as follows:
1993 1994 ---- ---- Senior notes due in 2000, interest at 10-1/4% (a) $ 125,000 117,000 Facility A Note, interest at LIBOR (6% at December 31, 1994) + 2%; due in varying installments through June 1999 (b) 86,111 68,069 Sale/leaseback borrowings, interest at 12.6%, due in monthly installments of $333 through June 2014 (c) 27,475 27,019 Covenant not to compete liabilities at present value of payments 1,944 1,617 Obligations under capital leases 51 4 --------- --------- 240,581 213,709 Less current portion 12,885 14,448 --------- --------- $ 227,696 199,261 ========= =========
(a) Senior Notes As contemplated by the Recapitalization Plan, on February 18, 1993, the Company issued and sold $125,000 aggregate principal amount of Senior Notes. The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time on or after February 16, 1998, at 101.708% of the principal amount, plus accrued interest, if any, if redeemed during the twelve-month period beginning February 16, 1998, and thereafter at 100% of the principal amount, plus accrued interest, if any, until maturity. In the event of a change in control of the Company or Holdings, the Company will be obligated to make an offer to purchase all outstanding Senior Notes at a redemption price of 101% of the principal amount plus accrued interest to the date of repurchase. Under the terms of the indenture governing the Senior Notes, aggregate dividend payments on capital stock subsequent to issuance of the Senior Notes are restricted to the sum of (i) 50% of aggregate net income subsequent to issuance of the Senior Notes (or in the case of a net loss, 100% of the aggregate net loss) plus (ii) the proceeds from the issuance of capital stock, warrants or options plus (iii) $7.5 million. (Continued) F-14 93 DR PEPPER BOTTLING COMPANY OF TEXAS Notes to Financial Statements (in thousands, except share and per share amounts) (b) Facility A Note The Facility A Note contains certain restrictive covenants and requires the Company, among other things, to satisfy certain financial ratios and restrict investments, capital expenditures, additional debts and payment of dividends. This loan is secured by substantially all assets of the Company. (c) Sale/Leaseback Borrowings Under the sale/leaseback agreement, the Company has the option to repurchase the property on the tenth anniversary date of the agreement at the greater of the fair value of the property at the option date or the original sales price. On the tenth anniversary of the amended agreement, and at the end of each successive five-year period for which the agreement remains in effect, the monthly payments are to be adjusted, using a formula based upon increases in the Consumer Price Index. In addition, the agreement provides for, at the option of the Company, an extension of the lease termination date for successive five-year terms to 2034. (d) Bank Credit Agreement As of December 31, 1994, the Company had no balance outstanding on the $25,000 revolving line of credit facility of the 1993 Bank Credit Agreement. The balance available for borrowing has been reduced by the outstanding letters of credit discussed below. The facility matures June 30, 1999. Interest on outstanding balances is payable at LIBOR (6% at December 31, 1994) plus 2%. The 1993 Bank Credit Agreement contains customary restrictive covenants and requires the Company, among other things, to satisfy certain financial ratios and restrict investments, capital expenditures, additional debt and payments of dividends. Amounts owed under the 1993 Bank Credit Agreement are the direct obligations of the Company and are unconditionally guaranteed by Holdings. This loan is secured by substantially all assets of the Company. (Continued) F-15 94 DR PEPPER BOTTLING COMPANY OF TEXAS Notes to Financial Statements (in thousands, except share and per share amounts) The maturities of long-term debt and obligations under capital leases at December 31, 1994 are as follows: 1995 - $14,448; 1996 - $16,244; 1997 - $18,058; 1998 - $18,014; 1999 - $5,177 and thereafter - $141,768. Interest paid for the years ended December 31, 1992, 1993 and 1994 totaled $30,830, $23,344 and $22,633, respectively. At December 31, 1994, the Company had outstanding letters of credit of $1,830 related to certain insurance policies. (10) Savings Plan The Company maintains a tax-qualified defined contribution 401(k) profit sharing plan (Savings Plan). All employees over age 21 with one year of service are eligible to participate in the Savings Plan. Participants may elect to defer up to fifteen percent of their compensation and have it contributed to the Savings Plan on a pre-tax basis. In addition, as long as it has sufficient net profits, the Company automatically matches fifty percent of each participant's salary deferral contributions up to three percent of each participant's salary. In accordance with the Internal Revenue Code of 1986, as amended, the amount which may be contributed annually to the Savings Plan by or on behalf of any participant is subject to the limitations imposed on defined contribution plan contributions. Amounts expensed under the Savings Plan were not significant in 1992, 1993 or 1994. (11) Income Taxes Income tax expense attributable to income from continuing operations was $140 for the year ended December 31, 1994 ($-0- in 1992 and 1993), and differed from the amount computed by applying the U.S. federal income tax rate of 34 percent to pretax income from continuing operations as a result of the following:
1992 1993 1994 ---- ---- ---- Computed "expected" tax expense $(591) (3,716) 4,291 Changes in income taxes resulting from: Addition to (utilization of) net operating loss carryforward 591 3,716 (4,634) Amortization of goodwill - - 165 Alternative minimum tax - - 140 Other - - 178 ----- ------ ------ Total income tax expense $ - - 140 ===== ====== ======
(Continued) F-16 95 DR PEPPER BOTTLING COMPANY OF TEXAS Notes to Financial Statements (in thousands, except share and per share amounts) The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 1994 are presented below:
1993 1994 ---- ---- Deferred tax assets: Net operating loss carryforwards $ 34,431 22,991 Obligations under capital leases 8,974 8,605 Other 1,961 2,254 -------- ------- Total gross deferred tax assets 45,366 33,850 Less valuation allowance (37,904) (26,116) -------- ------- Net deferred tax assets 7,462 7,734 -------- ------- 1993 1994 ---- ---- Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation $ (3,879) (3,586) Intangible assets due to differences in amortization (3,583) (4,148) -------- ------- Total gross deferred liabilities (7,462) (7,734) -------- ------- Net deferred tax assets (liabilities) $ - - ======== =======
For federal income tax purposes, the predecessor tax basis of assets and liabilities was retained following the Acquisition. At December 31, 1994, the Company has net operating loss carryforwards of approximately $67,619 which are available to offset future federal taxable income, if any, through 2008. At December 31, 1994, there were approximately $48,903 of net operating loss carryforwards available to offset future alternative minimum taxable income for federal income tax purposes. Net operating losses may not offset more than 90% of the Company's alternative minimum tax income. The valuation allowance for deferred tax assets as of January 1, 1993 was $19,744. The net change in the total valuation allowance for the years ended December 31, 1993 and 1994 was an increase (decrease) of $18,160 and ($11,788), respectively. The changes are primarily related to changes in net operating loss carryforwards during 1993 and 1994. (Continued) F-17 96 DR PEPPER BOTTLING COMPANY OF TEXAS Notes to Financial Statements (in thousands, except share and per share amounts) Income taxes paid for the year ended December 31, 1994 totaled $105,000 (none in 1992 and 1993). If the Company undergoes a more-than-50% ownership change within the meaning of section 382(g) of the Internal Revenue Code, then the Company will be limited in the use of its pre-ownership change net operating losses to offset future taxable income. A similar limitation would apply to any pre-ownership change tax credits. Also, to the extent that the taxable income of the Company for any future year exceeds the sum of any net operating losses arising after the date of the ownership change plus the amount of the annual limitation on the pre- ownership change net operating losses, the Company would be required to pay federal income tax on such excess. Although a more-than-50% ownership change within the meaning of section 382(g) of the Internal Revenue Code occurred with respect to the Company in October of 1988, the Company has determined that the annual limitation under section 382 of the Code on its pre-October 1988 net operating losses should be adequate to permit the full use of those net operating losses against future taxable income of the Company. Furthermore, although there can be no assurance that the Internal Revenue Service would not take a different position, the Company believes that a more-than-50% ownership change within the meaning of section 382(g) of the Internal Revenue Code has not occurred with respect to the Company after October 1988. (12) Other Contingencies The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position. F-18 97 [KPMG Peat Marwick LLP LOGO] INDEPENDENT AUDITORS' REPORT The Board of Directors Dr Pepper Bottling Holdings, Inc.: We have audited the accompanying consolidated balance sheets of Dr Pepper Bottling Holdings, Inc. and subsidiary as of December 31, 1993 and 1994, and the related statements of operations, stockholders' deficit and cash flows for each of the years in the three-year period ended December 31, 1994. These consolidated financial statements and 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 Dr Pepper Bottling Holdings, Inc. and subsidiary as of December 31, 1993 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Dallas, Texas March 8, 1995 F-19 98 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Consolidated Balance Sheets December 31, 1993 and 1994 (in thousands, except per share amounts)
Assets (note 9) 1993 1994 ---- ---- Current assets: Cash $ 16,955 7,794 Accounts receivable: Trade, less allowance for doubtful accounts of $305 in 1993 and $371 in 1994 20,156 24,479 Other 3,109 3,463 Inventories (note 4) 9,806 12,183 Prepaid expenses 3,421 5,671 --------- --------- Total current assets 53,447 53,590 --------- --------- Property, plant and equipment, net (notes 5 and 9) 64,523 65,946 Other assets, at amortized cost: Goodwill and other intangible assets (note 6) 116,668 111,149 Debt issuance costs 11,225 9,514 --------- --------- $ 245,863 240,199 ========= ========= Liabilities and Stockholders' Deficit Current liabilities: Accounts payable $ 26,311 34,285 Accrued expenses 13,877 14,935 Current maturities of long-term debt and obligations under capital leases (note 9) 12,885 14,448 --------- --------- Total current liabilities 53,073 63,668 --------- --------- Long-term debt and obligations under capital leases, less current maturities (note 9) 306,149 287,099 Cumulative, redeemable senior exchangeable preferred stock at $.01 par value. Authorized 2,150 shares; issued and outstanding 1,283 shares in 1993 and 1,430 in 1994; aggregate liquidation preference $35,750 (note 10) 29,635 33,502 Stockholders' deficit (note 11): Class A common stock, $.01 par value. Authorized 22,000 shares; issued and outstanding 13,642 shares in 1993 and 1994 136 136 Additional paid-in capital 14,383 14,383 Consideration to continuing predecessor shareholders in excess of book value (33,948) (33,948) Deficit (123,565) (124,641) --------- --------- Total stockholders' deficit (142,994) (144,070) Commitments and contingencies (notes 7, 13 and 14) --------- --------- $ 245,863 240,199 ========= =========
See accompanying notes to consolidated financial statements. F-20 99 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Consolidated Statements of Operations Years ended December 31, 1992, 1993 and 1994 (in thousands, except per share amounts)
1992 1993 1994 ---- ---- ---- Net sales $ 288,271 310,881 332,204 Cost of sales (note 5) 185,783 195,957 214,376 ------------- ---------- ---------- Gross profit 102,488 114,924 117,828 Marketing expense 6,036 9,418 7,618 Depreciation 5,371 5,577 5,765 Amortization of intangible assets 5,505 5,751 5,519 Administrative and general expenses 55,575 60,572 62,931 ------------- ---------- ---------- Operating profit 30,001 33,606 35,995 ------------- ---------- ---------- Other expense (income): Interest, including accretion of discount on discount notes of $7,340 and $9,385 in 1993 and 1994, respectively 30,830 31,304 31,777 Amortization of deferred debt issuance costs 1,107 1,610 1,711 Other, net (199) (2,624) (424) ------------- ---------- ---------- 31,738 30,290 33,064 ------------- ---------- ---------- Earnings (loss) before income taxes, extraordinary item and dividends on subsidiary's preferred stock (1,737) 3,316 2,931 Income taxes - - 140 ------------- ---------- ---------- Earnings (loss) before extraordinary item and dividends on subsidiary's preferred stock (1,737) 3,316 2,791 Dividends on subsidiary's preferred stock (13,171) (5,806) - ------------- ---------- ---------- Earnings (loss) before extraordinary item (14,908) (2,490) 2,791 Extraordinary item - loss on recapitalization (note 2) - (31,559) - ------------- ---------- ---------- Net earnings (loss) $ (14,908) (34,049) 2,791 ============= ========== ========== Net loss applicable to common stock (note 3(i)) $ (14,908) (36,128) (1,076) ============= ========== ========== Weighted average shares outstanding 13,333,000 13,543,000 13,642,000 ============= ========== ========== Loss per common share before extraordinary item $(1.12) (.34) (.08) Extraordinary item - (2.33) - ------------- ---------- ---------- Loss per common share $(1.12) (2.67) (.08) ============= ========== ==========
See accompanying notes to consolidated financial statements. F-21 100 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Consolidated Statements of Stockholders' Deficit Years ended December 31, 1992, 1993 and 1994 (in thousands)
Consideration Common stock to continuing --------------------------------- Predecessor Class A Class B Additional stockholders --------------- --------------- paid-in in excess of Shares Amount Shares Amount capital book value Deficit Totals ------ ------ ------ ------ ------- ---------- ------- ------ Balance at December 31, 1991 11,333 $ 113 2,000 $ 20 11,858 (33,948) (72,529) (94,486) Net loss - - - - - - (14,908) (14,908) ------ ------ ------ ------ ------ ------ ------- ------- Balance at December 31, 1992 11,333 113 2,000 20 11,858 (33,948) (87,437) (109,394) Warrant issued (note 11) - - - - 2,250 - - 2,250 Common shares issued 309 3 275 - - 278 Class B shares converted to Class A 2,000 20 (2,000) (20) - - - - Stock dividends on redeemable senior exchangeable preferred stock - - - - - - (2,079) (2,079) Net loss - - - - - - (34,049) (34,049) ------ ------ ------ ------ ------ ------ ------- ------- Balance at December 31, 1993 13,642 136 - - 14,383 (33,948) (123,565) (142,994) Stock dividends on redeemable senior exchangeable preferred stock - - - - - - (3,677) (3,677) Net earnings - - - - - - 2,791 2,791 Accretion of preferred stock - - - - - - (190) (190) ------ ------ ------ ------ ------ ------ ------- ------- Balance at December 31, 1994 13,642 136 - $ - 14,383 (33,948) (124,641) (144,070) ====== ====== ====== ====== ====== ====== ======= =======
See accompanying notes to consolidated financial statements. F-22 101 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Years ended December 31, 1992, 1993 and 1994 (in thousands)
1992 1993 1994 ---- ---- ---- Cash flows from operating activities: Net earnings (loss) $ (14,908) (34,049) 2,791 ---------- --------- -------- Adjustments to reconcile net loss to net cash provided by operating activities: Loss on recapitalization - 31,559 - Depreciation of property, plant and equipment 8,658 9,593 9,273 Amortization of other assets 6,612 7,361 7,230 Subsidiary's preferred stock dividends 13,171 5,806 - Accretion of discount on discount notes - 7,340 9,385 Loss (gain) on sale of assets (224) 32 (52) Changes in assets and liabilities, net of effects from acquisitions: Accounts receivable (1,228) (1,618) (4,677) Inventories (1,444) (346) (2,377) Prepaid expenses (1,159) 1,491 (2,250) Accounts payable 6,878 2,079 7,974 Accrued expenses (792) 4,949 1,058 ---------- --------- -------- Total adjustments 30,472 68,246 25,564 ---------- --------- -------- Net cash provided by operating activities 15,564 34,197 28,355 ---------- --------- -------- Cash flows from investing activities: Additions to property, plant and equipment (7,833) (8,971) (10,838) Proceeds from sale of property, plant and equipment 1,673 604 194 Cash paid for acquisitions, net of cash acquired - (8,965) - ---------- --------- -------- Net cash used in investing activities (6,160) (17,332) (10,644) ---------- --------- -------- Cash flows from financing activities: Payment of long-term debt (6,345) (198,713) (26,872) Debt issued - 289,932 - Deferred debt costs - (12,011) - Payment of costs related to recapitalization - (26,906) - Preferred stock issued - 27,556 - Preferred stock retired - (88,147) - Payment of dividends on subsidiary's preferred stock (2) (2,157) - Common stock issued - 278 - Warrant issued - 2,250 - ---------- --------- -------- Net cash used in financing activities (6,347) (7,918) (26,872) ---------- --------- -------- Net increase (decrease) in cash and cash equivalents 3,057 8,947 (9,161) Cash and cash equivalents at beginning of year 4,951 8,008 16,955 ---------- --------- -------- Cash and cash equivalents at end of year $ 8,008 16,955 7,794 ========== ========= ========
See accompanying notes to consolidated financial statements. F-23 102 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements December 31, 1992, 1993 and 1994 (in thousands, except share and per share amounts) (1) Organization and Business (a) Organization Dr Pepper Bottling Holdings, Inc. ("Holdings") is a corporation owned 41.5% (including 39% related to beneficial ownership pursuant to the terms of a voting trust agreement) by DLJ Capital Corporation ("DLJ Capital"), 21.2% by other new investors and 37.3% by certain continuing predecessor stockholders of Dr Pepper Bottling Company of Texas ("Company"). Holdings was formed expressly for the purpose of acquiring all of the common stock of the Company. Effective October 28, 1988, Holdings entered into an agreement with the Company providing for the acquisition of all issued and outstanding common stock of the Company. Stockholders' equity reflects such continuing Predecessor stockholders' proportionate interests in the adjusted historical book value of the Company, reduced by the net consideration paid by Holdings for common stock representing such interest. (b) Business The Company is principally engaged in producing, marketing and distributing carbonated soft drinks in Dallas/Fort Worth, Houston and Waco, Texas. Soft drink operations are conducted pursuant to franchise agreements with companies owning the rights to soft drink formulae. (2) Recapitalization In 1993, the Company and Holdings completed a recapitalization plan (the "Recapitalization Plan"), the purpose of which was to reduce the aggregate amount of interest expense and preferred stock dividend requirements. The Recapitalization Plan is described in more detail in notes 9, 10 and 11. (a) 1993 Bank Credit Agreement Pursuant to the Recapitalization Plan, on February 18, 1993, the Company entered into a credit agreement (the "1993 Bank Credit Agreement") with certain banks providing for (i) a term loan facility in the aggregate amount of $100,000 and (ii) a revolving line of credit facility in the aggregate amount of $25,000. On March 22, 1993, as contemplated by the Recapitalization Plan, the Company borrowed $91,700 under the term loan facility of the 1993 Bank Credit Agreement to redeem all of the then outstanding Senior Exchangeable Preferred Stock of the Company. (Continued) F-24 103 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (in thousands, except share and per share amounts) (b) Sale/Leaseback As part of the Recapitalization Plan, the Company entered into an amendment to the lease agreement in connection with the sale/leaseback of its Irving and Houston, Texas production facilities. The amendment to the lease agreement modified certain covenants and eliminated the consumer price index adjustment to the rent scheduled to be effected on July 1, 1994. In connection with the amendment, Donaldson Lufkin & Jenrette Securities Corporation ("DLJ") obtained the right to sell the note held by the lender under the lease agreement, and DLJ subsequently sold the note. The proceeds from such sale in excess of the principal amount of the note plus accrued interest, commissions and expenses ($1,227) were paid to the Company and are reflected as a reduction of the loss on recapitalization. (c) Loss on Recapitalization In 1993, Company recorded an extraordinary loss of $31,600 in connection with the early retirement of a total of $192,200 principal amount of notes and debentures. The aggregate purchase price (including certain costs to extinguish the debt) of such indebtedness was $223,800, financed principally through newly issued debt and preferred stock. (3) Summary of Significant Accounting Policies (a) Basis of Presentation The consolidated financial statements include the accounts of Holdings and its wholly-owned subsidiary, Dr Pepper Bottling Company of Texas. Certain amounts in the 1992 and 1993 financial statements have been reclassified to conform with 1994 presentation. (b) Cash Equivalents Cash equivalents consist of highly liquid debt instruments with original maturities of three months or less. The Company did not have any cash equivalents at December 31, 1993 or 1994. (c) Inventories Inventories are stated at the lower of first-in, first-out ("FIFO") cost or market. (d) Property, Plant and Equipment Property, plant and equipment are stated at cost. For financial reporting purposes, depreciation is provided on the straight-line method over the estimated useful lives of the assets. Accelerated depreciation methods are generally used for income tax purposes. Maintenance and repairs are charged to operations as incurred; renewals and betterments are capitalized and depreciated. The cost and accumulated depreciation of (Continued) F-25 104 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (in thousands, except share and per share amounts) assets sold or disposed of are removed from the accounts. Resultant profit or loss on such transactions is credited or charged to earnings. (e) Goodwill and Other Intangible Assets Excess of cost over estimated fair market value of tangible net assets of acquired businesses and costs of franchises are being amortized on a straight-line basis over 10 to 40 years. Debt issuance costs are being amortized over the terms of the related debt agreements (10 to 25 years). Covenants not to compete are amortized over the terms of the agreements (5 to 10 years). The Company continually evaluates the propriety of the carrying amount of goodwill and other intangibles as well as the amortization period to determine whether current events or circumstances warrant adjustments to the carrying value and/or revised estimates of useful lives. This evaluation consists of the projection of undiscounted operating income before depreciation, amortization, nonrecurring charges and interest for the Company over the remaining amortization periods of the related intangible assets. The projections are based on a historical trend line of actual results since the acquisitions of the respective assets and adjusted for expected changes in operating results. To the extent such projections indicate that the undiscounted operating income is not expected to be adequate to recover the carrying amounts of the related intangible assets, such carrying amounts are written down by charges to expense. At this time, the Company believes that no significant impairment of goodwill and other intangible assets has occurred and that no reduction of the estimated useful lives is warranted. (f) Self-insurance The Company is self-insured in these areas: (a) employer's excess indemnity with a $250 per occurrence limit on coverage, (b) automobile liability with a $250 per occurrence limit on coverage, (c) general liability with a $250 per occurrence limit on coverage, and (d) medical insurance with a $125 per person per year limit on coverage. The Company accrues for costs associated with its self-insured programs as incurred. Coverage in excess of the limits defined above is provided by third-party insurance companies. All other claims are covered through third-party insurance policies. (g) Financial Instruments and Credit Risk Concentrations Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash equivalents and trade receivables. The Company places its cash equivalents with high credit quality financial institutions; however, such amounts are generally in excess of federally insured limits. Although the Company does not require collateral for trade receivables, the credit risk is limited due to the large number of customers. For the years ended December 31, 1992, 1993 and 1994, no customer accounted for more than 10% of net sales. At December 31, 1993 and 1994, no receivable from any customer exceeded 5% of stockholders' deficit. Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments" ("Statement 107"), requires that the Company disclose (Continued) F-26 105 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (in thousands, except share and per share amounts) estimated fair values for its financial instruments. Fair value estimates are set forth below for the Company's financial instruments: -- Cash, Accounts Receivable, Accounts Payable and Accrued Expenses - The carrying amounts approximate fair value because of the short maturity of these instruments. -- Long-term Debt - The carrying amounts of the term loan and credit facility loan approximate market because of the variable interest rate which is based on the bank's alternative base rate. -- Senior Discount Notes - The fair value is based on the amount of discounted future cash flows associated with the notes using the Company's current borrowing rate for similar debt instruments of comparable maturity. The estimated fair value of the Company's senior discount notes at December 31, 1994 was $98,125. The fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. (h) Income Taxes In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Statement 109 requires a change from the deferred method of accounting for income taxes of APB Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, 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. Pursuant to the deferred method under APB Opinion 11, which was applied in 1992 and prior years, deferred income taxes are recognized for income and expense items that are reported in different years for financial reporting purposes and income tax purposes using the tax rate applicable for the year of the calculation. Under the deferred method, deferred taxes are not adjusted for subsequent changes in tax rates. Effective January 1, 1993, Holdings adopted Statement 109 and the cumulative effect of the change in accounting for income taxes was immaterial. (Continued) F-27 106 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (in thousands, except share and per share amounts) (i) Loss Per Common Share Net loss per common share is based on the weighted average number of Class A and Class B common shares outstanding and is adjusted for dividends on Holdings' preferred stock and accretion of preferred stock for the difference between the carrying value and liquidation preference. Shares assumable upon exercise of stock options and warrants are antidilutive and are excluded from the calculation. (4) Inventories Inventories consist of the following at December 31, 1993 and 1994:
1993 1994 ---- ---- Finished products $ 8,396 8,154 Raw materials and supplies 1,410 4,029 ------- ------- $ 9,806 12,183 ======= =======
(5) Property, Plant and Equipment Property, plant and equipment and accumulated depreciation at December 31, 1993 and 1994 are summarized as follows:
1993 1994 ---- ---- Land and improvements $ 17,540 17,589 Buildings 26,930 27,120 Machinery and other equipment 46,708 51,309 Vending equipment 29,105 32,084 ---------- ---------- 120,283 128,102 Accumulated depreciation (55,760) (62,156) ---------- ---------- Net property, plant and equipment $ 64,523 65,946 ========== ==========
Depreciation expense on production facilities is included in cost of sales and totaled $3,287, $4,016 and $3,508 for the years ended December 31, 1992, 1993 and 1994, respectively. (6) Goodwill and Other Intangible Assets Goodwill and other intangible assets at December 31, 1993 and 1994 are summarized as follows:
1993 1994 --------- --------- Goodwill, net of accumulated amortization of $12,790 and $15,363 $ 86,543 83,970 Franchise costs, net of accumulated amortization of $10,357 and $12,872 28,112 25,597 Other net of accumulated amortization of $5,591 and $6,022 2,013 1,582 --------- --------- $ 116,668 111,149 ========= =========
(Continued) F-28 107 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (in thousands, except share and per share amounts) (7) Lease Obligations The Company has operating leases principally for office, trucking fleet and vending equipment. Rent expense on operating leases was $3,197, $4,533 and $4,997 in 1992, 1993 and 1994, respectively. At December 31, 1994, future minimum rental payments under noncancellable operating leases are $2,183, $1,858, $1,521, $1,141, $713 and $238 for the years 1995 through 1999 and thereafter, respectively. (8) Acquisition On April 13, 1993, pursuing its operating strategy of acquiring contiguous bottling territories, the Company acquired all of the operating assets of Dr Pepper Bottling Company of Galveston, Inc. for $9,000 in cash and $1,000 payable in installments over five years under a noncompetition agreement. (9) Long-term Debt and Obligations Under Capital Leases Long-term debt and obligations under capital leases at December 31, 1993 and 1994 is summarized as follows:
1993 1994 ---- ---- Senior notes due in 2000, interest at 10-1/4% (a) $ 125,000 117,000 Facility A Note, interest at LIBOR (6% at December 31, 1994) + 2%; due in varying installments through June 1999 (b) 86,111 68,069 Senior discount notes due in 2003 (c) 78,453 87,838 Sale/leaseback borrowings, interest at 12.6%, due in monthly installments of $333 through June 2014 (d) 27,475 27,019 Covenant not to compete liabilities at present value of payments 1,944 1,617 Obligations under capital leases 51 4 --------- --------- 319,034 301,547 Less current portion 12,885 14,448 --------- --------- $ 306,149 287,099 ========= =========
(a) Senior Notes As contemplated by the Recapitalization Plan, on February 18, 1993, the Company issued and sold $125,000 aggregate principal amount of Senior Notes. The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time on or after February 16, 1998, at 101.708% of the principal amount, plus accrued interest, if any, if redeemed during the twelve-month period beginning February 16, 1998, and thereafter at 100% of the principal amount, plus accrued interest, if any, until maturity. In the event of a change in control of the Company or Holdings, the (Continued) F-29 108 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (in thousands, except share and per share amounts) Company will be obligated to make an offer to purchase all outstanding Senior Notes at a redemption price of 101% of the principal amount plus accrued interest to the date of repurchase. Under the terms of the indenture governing the Senior Notes, aggregate dividend payments on capital stock subsequent to issuance of the Senior Notes are restricted to the sum of (i) 50% of aggregate net income subsequent to issuance of the Senior Notes (or in the case of a net loss, 100% of the aggregate net loss) plus (ii) the proceeds from the issuance of capital stock, warrants or options plus (iii) $7,500. (b) Facility A Note The Facility A Note contains certain restrictive covenants and requires the Company, among other things, to satisfy certain financial ratios and restrict investments, capital expenditures, additional debts and payment of dividends. This loan is secured by substantially all assets of the Company. (c) Senior Discount Notes As contemplated by the Recapitalization Plan, on February 18, 1993, Holdings issued and sold $125,000 aggregate principal amount of Discount Notes. The notes will mature on February 15, 2003. The Discount Notes were issued at a substantial discount from their principal amount. Commencing February 16, 1998, interest will accrue until maturity on the Discount Notes at a rate of 11-5/8% per annum. Interest on the Discount Notes is payable semiannually on February 15 and August 15 of each year, commencing August 15, 1998. The Discount Notes are redeemable, in whole or in part, at the option of Holdings, on or after February 16, 1998, at amounts decreasing from 104.359% of the principal amount, plus accrued interest, at February 16, 1998 to 100% of the principal amount, plus accrued interest, at February 16, 2001, until maturity. In the event of a change in control of Holdings, Holdings will be obligated to make an offer to purchase all outstanding Discount Notes at a redemption price of 101% of the accreted value on any repurchase date prior to February 16, 1998, or 101% of the principal amount thereof plus accrued interest to any repurchase date on or after February 16, 1998. Under the terms of the indenture governing the Senior Discount Notes, aggregate dividend payments on capital stock subsequent to issuance of the Senior Discount Notes are restricted to the sum of (i) 50% of aggregate net income subsequent to issuance of the Senior Discount Notes (or in the case of a net loss, 100% of the aggregate net loss) plus (ii) the proceeds from the issuance of capital stock, warrants or options plus (iii) $7,500. (d) Sale/Leaseback Borrowings Under the sale/leaseback agreement, the Company has the option to repurchase the property on the tenth anniversary date of the agreement at the greater of the fair value of the property at the option date or the original sales price. On the tenth anniversary of the agreement, and at the end of each successive five-year period for which the agreement remains in effect, the monthly payments are to be adjusted, using a formula (Continued) F-30 109 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (in thousands, except share and per share amounts) based upon increases in the Consumer Price Index. In addition, the agreement provides for, at the option of the Company, an extension of the lease termination date for successive five-year terms to 2034. (e) Bank Credit Agreement As of December 31, 1994, the Company had no balance outstanding on the $25,000 revolving line of credit facility of the 1993 Bank Credit Agreement. The balance available for borrowing has been reduced by the outstanding letters of credit discussed below. The facility matures June 30, 1999. Interest on outstanding balances is payable at discussed below LIBOR (6% at December 31, 1994) plus 2%. The 1993 Bank Credit Agreement contains customary restrictive covenants and requires the Company, among other things, to satisfy certain financial ratios and restrict investments, capital expenditures, additional debt and payments of dividends. Amounts owed under the 1993 Bank Credit Agreement are the direct obligations of the Company and are unconditionally guaranteed by Holdings. This loan is secured by substantially all assets of the Company. The maturities of long-term debt and obligations under capital leases at December 31, 1994 are as follows: 1995 - $14,448; 1996 - $16,244; 1997 - $18,058; 1998 - $18,014; 1999 - $5,177 and thereafter - $229,606. Interest paid for the years ended December 31, 1992, 1993 and 1994 totaled $30,830, $23,344 and $26,633, respectively. At December 31, 1994, the Company had outstanding letters of credit of $1,830 related to certain insurance policies. (10) Redeemable Preferred Stock As part of the Recapitalization Plan, Holdings sold, for an aggregate purchase price of $30,000, 1,200,000 shares of redeemable senior cumulative exchangeable preferred stock, par value $.01 per share, of Holdings (the "Preferred Stock") and a warrant to purchase up to 15% of the common stock of Holdings on a fully diluted basis. The Company redeemed all of the outstanding Senior Exchangeable Preferred Stock of the Company, in accordance with the Recapitalization Plan. Each share of Preferred Stock has a liquidation preference of $25.00 per share, plus accrued and unpaid dividends. Dividends are payable quarterly at the rate of $2.75 per annum per share. Dividends on the Preferred Stock are cumulative and, at the option of Holdings, may be paid through the issuance of additional shares of Preferred Stock on each dividend payment date through April 1, 1998. During 1993 and 1994, dividends on the redeemable preferred stock were paid through the issuance of additional shares of preferred stock. The Preferred Stock is optionally redeemable, in whole or in part, at $25.00 per share, plus accrued and unpaid dividends thereon on or after April 1, 1998, provided that Holdings is also entitled to optionally redeem Preferred Stock with all or a portion of the proceeds from an initial offering of Holdings common stock consummated on or before the third anniversary of the issuance of the Preferred Stock. (Continued) F-31 110 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (in thousands, except share and per share amounts) On each of April 1, 2005 and 2006, Holdings is required to redeem 25% of the number of shares of Preferred Stock that is outstanding as of March 31, 2005, at $25.00 per share. On April 1, 2007, Holdings must redeem the remaining shares of Preferred Stock then outstanding at $25.00 per share. Shares redeemed by Holdings prior to the mandatory redemption dates are credited toward the mandatory redemption requirements on a pro rata basis. The Preferred Stock is exchangeable, in whole or in part, at the option of Holdings on any dividend payment date for 11% Junior Subordinated Exchange Debentures due 2006 of Holdings (the "Holdings Exchange Debentures"). Each share of Preferred Stock will be exchanged for $25.00 in principal amount of Holdings Exchange Debentures in denominations of $1,000 or integral multiples thereof. Differences between the carrying value of the Preferred Stock and redemption price ($25.00 per share) will be recognized through adjustments in the carrying value by charges to accumulated deficit prior to the mandatory redemption dates. Upon the occurrence of a change in control, at the election of the holders of the Preferred Stock, Holdings will be required to purchase for cash all shares of Preferred Stock at $25.25 per share, plus accrued and unpaid dividends to the date of repurchase. (11) Stockholders' Deficit (a) Common Stock On November 1, 1993, each share of Class B common stock outstanding was converted to Class A common stock. (b) Stock Purchase Warrant In connection with the issuance of Senior Preferred Stock, the Company entered into an agreement providing for issuance of warrants to purchase 2,525,000 shares of common stock at $.01 per share. In consideration for granting the warrant, the Company received $2,250 which was recorded as additional paid-in capital. (c) Stock Option Plan In 1989, Holdings adopted the Dr Pepper Bottling Holdings, Inc. 1989 Stock Option Plan (the Stock Option Plan). Options granted under the Stock Option Plan will be exercisable for the Class A common stock, $0.01 par value per share, of Holdings. The maximum number of shares of the Class A common stock to be issued pursuant to the exercise of options granted under the Stock Option Plan is 666,665. Options granted under the Stock Option Plan may be either qualified (incentive options) or nonqualified (nonstatutory options) under Section 422A of the Internal Revenue Code. Options may be granted to consultants, employees, officers and directors of the Company. Options granted under the Stock Option Plan will be exercisable at such times, in such amounts, and at such exercise prices as shall be determined; provided, however, that the exercise price for incentive options granted under the Stock Option (Continued) F-32 111 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (in thousands, except share and per share amounts) Plan will be not less than the fair market value of the Class A common stock on the date of grant and the exercise price for nonstatutory options granted under the Stock Option Plan will be not less than 50% of the fair market value of the common stock on the date of grant. At December 31, 1993 and 1994, 666,165 options remained unexercised. (12) Savings Plan The Company maintains a tax-qualified defined contribution 401(k) profit sharing plan ("Savings Plan"). All employees over age 21 with one year of service are eligible to participate in the Savings Plan. Participants may elect to defer up to fifteen percent of their compensation and have it contributed to the Savings Plan on a pre-tax basis. In addition, as long as it has sufficient net profits, the Company automatically matches fifty percent of each participant's salary deferral contributions up to three percent of each participant's salary. In accordance with the Internal Revenue Code of 1986, as amended, the amount which may be contributed annually to the Savings Plan by or on behalf of any participant is subject to the limitations imposed on defined contribution plan contributions. Amounts expensed under the Savings Plan were not significant in 1992, 1993 or 1994. (13) Income Taxes Income tax expense attributable to income from continuing operations was $140 for the year ended December 31, 1994 ($-0- in 1992 and 1993), and differed from the amount computed by applying the U.S. federal income tax rate of 34 percent to pretax income from continuing operations as a result of the following:
1992 1993 1994 ---- ---- ---- Computed "expected" tax expense $(591) (1,127) 997 Changes in income taxes resulting from: Addition to (utilization) of net operating loss carryforward 591 1,127 (1,340) Amortization of goodwill - - 165 Alternative minimum tax - - 140 Other - - 178 ----- ------ ------ Total income tax expense $ - - 140 ===== ====== ======
The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 1994 are presented below:
1993 1994 ---- ---- Deferred tax assets: Net operating loss carryforwards $ 34,431 28,784 Obligations under capital leases 8,974 8,605 Other 1,961 2,457 -------- -------- Total gross deferred tax assets 45,366 39,846 Less valuation allowance (37,904) (32,112) -------- -------- Net deferred tax assets $ 7,462 7,734 -------- --------
(Continued) F-33 112 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (in thousands, except share and per share amounts)
1993 1994 ---- ---- Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation $ (3,879) (3,586) Intangible assets due to differences in amortization (3,583) (4,148) --------- --------- Total gross deferred liabilities (7,462) (7,734) --------- --------- Net deferred tax assets (liabilities) $ - - ========= =========
For federal income tax purposes, the predecessor tax basis of assets and liabilities was retained following the Acquisition. At December 31, 1994, the Company has net operating loss carryforwards of approximately $84,658 which are available to offset future federal taxable income, if any, through 2008. At December 31, 1994, there were approximately $64,973 of net operating loss carryforwards available to offset future alternative minimum taxable income for federal income tax purposes. Net operating losses may not offset more than 90% of the Company's alternative minimum tax income. The valuation allowance for deferred tax assets as of January 1, 1993 was $19,744. The net change in the total valuation allowance for the years ended December 31, 1993 and 1994 was an increase (decrease) of $18,160 and ($5,792), respectively. The changes are primarily related to changes in net operating loss carryforwards during 1993 and 1994. Income taxes paid for the year ended December 31, 1994 totaled $105,000 (none in 1992 and 1993). If the Company undergoes a more-than-50% ownership change within the meaning of section 382(g) of the Internal Revenue Code, then the Company will be limited in the use of its pre-ownership change net operating losses to offset future taxable income. A similar limitation would apply to any pre-ownership change tax credits. Also, to the extent that the taxable income of the Company for any future year exceeds the sum of any net operating losses arising after the date of the ownership change plus the amount of the annual limitation on the pre-ownership change net operating losses, the Company would be required to pay federal income tax on such excess. Although a more-than-50% ownership change within the meaning of section 382(g) of the Internal Revenue Code occurred with respect to the Company in October of 1988, the Company has determined that the annual limitation under section 382 of the Code on its pre-October 1988 net operating losses should be adequate to permit the full use of those net operating losses against future taxable income of the Company. Furthermore, although there can be no assurance that the Internal Revenue Service would not take a different position, the Company believes that a more-than-50% ownership change within the meaning of section 382(g) of the Internal Revenue Code has not occurred with respect to the Company after October 1988. (Continued) F-34 113 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (in thousands, except share and per share amounts) (14) Other Contingencies The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position. F-35 114 PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses payable by the Registrants in connection with this Post-Effective Amendment No. 3 to the Registration Statement. All of such expenses are estimates. Fees and Expenses of Counsel............................................... $10,000 Fees and Expenses of Accountants........................................... 6,000 Printing and Engraving Expenses............................................ 12,000 Miscellaneous Expenses..................................................... 5,000 ------- Total............................................................ $33,000 =======
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Dr Pepper Bottling Company of Texas (the "Company") is incorporated in Texas. Under Article 2.02-1 of the Texas Business Corporation Act, a Texas corporation has the power, under specified circumstances, to indemnify its directors, officers, employees, and agents in connection with actions, suits, or proceedings, brought or threatened against them by a third party or in the right of the corporation, by reason of the fact that they were or are such directors, officers, employees, or agents, against expenses incurred in any such action, suit, or proceeding. Article Ten of the Company's Articles of Incorporation provides for mandatory indemnification of directors and officers to the maximum extent permitted by the Texas Business Corporation Act as now in force or hereafter amended. Reference is made to the Articles of Incorporation of the Company, filed as Exhibit 3.1 hereto. Article 1302-7.06(B) of Title 32 of the Texas Civil Statutes provides that a corporation's articles of incorporation may contain a provision eliminating the personal liability of a director to the corporation or its shareholders for monetary damages for an act or omission in the director's capacity as a director, except that such a provision shall not eliminate or limit the liability of a director for (a) a breach of a director's duty of loyalty to the corporation or its shareholders, (b) an act or omission not in good faith that constitutes a breach of duty of the director to the corporation, or an act or omission or that involves intentional misconduct or a knowing violation of the law, (c) a transaction from which a director received an improper benefit, whether or not the benefit resulted from an action taken within the scope of the director's office, or (d) an act or omission for which the liability of a director is expressly provided for by statute. Article Sixteen of the Company's Articles of Incorporation contains such a provision. Dr Pepper Bottling Holdings, Inc. ("Holdings") is incorporated in Delaware. Under Section 145 of the General Corporation Law of the State of Delaware, a Delaware corporation has the power, under specified circumstances, to indemnify its directors, officers, employees, and agents in connection with actions, suits, or proceedings brought against them by a third party or in the right of the corporation, by reason of the fact that they were or are such directors, officers, employees, or agents, against expenses incurred in any such action, suit, or proceeding. Article 10 of the Certificate of Incorporation of Holdings provides for mandatory indemnification of directors and officers to the fullest extent permitted by the General Corporation Law of the State of Delaware. Reference is made to the Certificate of Incorporation of Holdings filed as Exhibit 3.3 hereto. Section 102(b)(7) of the General Corporation Law of the State of Delaware provides that a certificate of incorporation may contain a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 (relating to liability for unauthorized acquisitions or redemptions of, or dividends on, capital stock) of the Delaware General II-1 115 Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. Article 11 of Holdings' Certificate of Incorporation contains such a provision. Insofar as the indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act"), may be permitted to directors, officers and controlling persons of the Company and Holdings pursuant to the foregoing provisions, or otherwise, the Company and Holdings have 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 Company or Holdings of expenses incurred or paid by a director, officer or controlling person thereof in the successful defense of any action, suit or proceeding) is asserted by a director, officer or controlling person in connection with the securities being registered, the Company and Holdings will, unless in the opinion of counsel the matter has been settled by controlling precedent, submit to a court of appropriate 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. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. On May 29, 1992, Holdings sold 500 shares of its Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), to Regis Curl upon the exercise of employee stock options. Such sale was not registered under the Act in reliance upon the exemption from registration contained in Section 3(b) of the Act and Rule 701 promulgated by the Commission thereunder. As part of the recapitalization plan completed by the Company and Holdings in 1993 (the "Recapitalization Plan"), on February 18, 1993 Holdings issued and sold to Crown, Cork & Seal Company, Inc. Master Retirement Trust $30 million liquidation preference of Holdings' senior exchangeable preferred stock and a warrant to purchase up to 15% of the common stock of Holdings on a fully diluted basis for a total consideration of $30 million in cash. Such sale was not registered under the Act in reliance upon the exemption from registration contained in Section 4(2) of the Act. As part of the Recapitalization Plan, in April 1993, Holdings issued and sold 308,335 shares of Class A Common Stock to Mr. Jim L. Turner, Chairman of the Board, President and Chief Executive Officer of the Company and Holdings, at a purchase price of $.90 per share, or $277,501.50 in the aggregate. The purchase price was paid by the delivery by Mr. Turner to Holdings of $3,083.35 in cash and a promissory note in the aggregate principal amount of $274,418.15 which has a term of five years and bears a rate of interest at Texas Commerce Bank's prime rate. Such sale was not registered under the Act in reliance upon the exemption from registration contained in Section 4(2) of the Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits 1.1 -- Underwriting Agreement, dated as of February 10, 1993, among Dr Pepper Bottling Company of Texas, Dr Pepper Bottling Holdings, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation.(1) 3.1* -- Articles of Incorporation, as amended, of Dr Pepper Bottling Company of Texas. 3.2* -- Bylaws of Dr Pepper Bottling Company of Texas. 3.3 -- Certificate of Incorporation of Dr Pepper Bottling Holdings, Inc.(1) 3.4* -- By-laws of Dr Pepper Bottling Holdings, Inc. 4.1 -- # 4.2 -- # 4.3 -- # 4.4 -- # 4.5 -- Indenture, dated February 18, 1993, between Dr Pepper Bottling Company of Texas and U.S. Trust Company of Texas, N.A. with respect to the 10 1/4% Senior Notes due 2000.(1)
II-2 116 4.6 -- Form of 10 1/4% Senior Notes due 2000 (included in Exhibit 4.5).(1) 4.7 -- Form of Indenture, dated February 18, 1993, between Dr Pepper Bottling Holdings, Inc. and United States Trust Company of New York with respect to the 11 5/8% Senior Discount Notes due 2003.(1) 4.8 -- Form of 11 5/8% Senior Discount Notes due 2003 (included in Exhibit 4.7).(1) 5 -- Opinion of Weil, Gotshal & Manges (a partnership including professional corporations), as to the validity of the issuance of the 10 1/4% Senior Notes due 2000 of Dr Pepper Bottling Company of Texas and the 11 5/8% Senior Discount Notes due 2003 of Dr Pepper Bottling Holdings, Inc.(1) 9* -- Voting Trust Agreement dated as of October 28, 1988, between DLJ Capital Corporation and William O. Hunt, Trustee. 10.1 -- # 10.2 -- # 10.3 -- # 10.4 -- # 10.5 -- # 10.6 -- # 10.7 -- # 10.8 -- # 10.9 -- # 10.10 -- # 10.11 -- # 10.12 -- # 10.13 -- # 10.14 -- # 10.15 -- # 10.16 -- # 10.17 -- # 10.18 -- # 10.19 -- # 10.20 -- # 10.21 -- # 10.22 -- # 10.23 -- # 10.24 -- # 10.25 -- # 10.26 -- # 10.27 -- # 10.28 -- # 10.29 -- # 10.30 -- # 10.31 -- # 10.32 -- # 10.33 -- # 10.34 -- # 10.35 -- #
II-3 117 10.36 -- # 10.37 -- # 10.38 -- # 10.39 -- # 10.40 -- # 10.41 -- # 10.42 -- # 10.43 -- # 10.44 -- # 10.45 -- # 10.46 -- # 10.47 -- # 10.48 -- # 10.49 -- # 10.50 -- # 10.51 -- # 10.52 -- # 10.53 -- # 10.54 -- # 10.55 -- # 10.56 -- # 10.57 -- # 10.58 -- # 10.59 -- # 10.60 -- # 10.61 -- # 10.62 -- # 10.63 -- # 10.64 -- # 10.65 -- # 10.66 -- # 10.67 -- # 10.68 -- # 10.69 -- # 10.70 -- # 10.71 -- # 10.72 -- # 10.73 -- Franchise Agreements of varying dates between Dr Pepper Company and Dr Pepper Bottling Company of Texas.(1) 10.74 -- Franchise Agreements of varying dates between The Seven-Up Company and Dr Pepper Bottling Company of Texas.(1) 10.75 -- Franchise Agreements of varying dates between A & W Brands, Inc. and Dr Pepper Bottling Company of Texas.(1) 10.76 -- Franchise Agreements of varying dates between Cadbury Beverages North America, Inc. and Dr Pepper Bottling Company of Texas.(1)
II-4 118 10.78** -- Lease Agreement dated as of June 28, 1989, by and between Corporate Property Associates 8, L.P., a Delaware Limited Partnership, and Corporate Property Associates 9, L.P., a Delaware Limited Partnership, and Dr Pepper Bottling Company of Texas. 10.79** -- Tenant Agreement dated as of June 28, 1989, among Corporate Property Associates 8, L.P., a Delaware Limited Partnership, Corporate Property Associates 9, L.P., a Delaware Limited Partnership, and Dr Pepper Bottling Company of Texas. 10.80** -- Guaranty and Suretyship Agreement dated as of June 28, 1989, by Dr Pepper Bottling Holdings, Inc. for the benefit of Corporate Property Associates 8, L.P., a Delaware Limited Partnership, and Corporate Property Associates 9, L.P., a Delaware Limited Partnership. 10.81 -- # 10.82 -- # 10.83** -- Amendment to 7UP Franchise Agreement dated as of January 12, 1990, between The Seven-Up Company and Dr Pepper Bottling Company of Texas. 10.84** -- Fountain Syrup Agreement dated January 22, 1990, between The Seven-Up Company and Dr Pepper Bottling Company of Texas. 10.85** -- 7UP Franchise Agreement dated as of January 12, 1990, between The Seven-Up Company and Dr Pepper Bottling Company of Texas. 10.86 -- # 10.87** -- Dr Pepper Bottling Holdings, Inc. 1989 Stock Option Plan. 10.88 -- # 10.89 -- # 10.90 -- # 10.91 -- # 10.92 -- # 10.93 -- Securities Purchase Agreement, dated February 18, 1993, among Dr Pepper Bottling Holdings, Inc., Dr Pepper Bottling Company of Texas and Crown Cork & Seal Master Retirement Trust, with exhibits thereto.(1) 10.94 -- Tax Sharing Agreement, dated as of February 18, 1993, between Dr Pepper Bottling Holdings, Inc. and Dr Pepper Bottling Company of Texas.(1) 10.95 -- Amended and Restated Credit Agreement, dated as of February 18, 1993, Between Dr Pepper Bottling Company of Texas and Texas Commerce Bank National Association, as Agent.(1) 10.96 -- Amended and Restated Guarantee, dated February 18, 1993, by Dr Pepper Bottling Holdings, Inc. to Texas Commerce Bank National Association pursuant to that certain Amended and Restated Credit Agreement of even date.(1) 10.97 -- Amended and Restated General Security Agreement, dated February 18, 1993, between Dr Pepper Bottling Company of Texas and Texas Commerce Bank National Association, as Agent, pursuant to that certain Amended and Restated Credit Agreement of even date.(1) 10.98 -- Amended and Restated Collateral Assignment of Deposit Accounts, Pledge and Security Agreement, dated February 18, 1993, between Dr Pepper Bottling Company of Texas and Texas Commerce Bank National Association, as Agent, pursuant to that certain Amended and Restated Credit Agreement of even date.(1) 10.99 -- Amended and Restated Pledge and Security Agreement, dated February 18, 1993, between Dr Pepper Bottling Holdings, Inc. and Texas Commerce Bank National Association, as Agent, pursuant to that certain Amended and Restated Credit Agreement of even date.(1)
II-5 119 10.100 -- First Amendment to Agreement and Landlord's Waiver, dated February 10, 1993, among Dr Pepper Bottling Company of Texas, Dr Pepper Bottling Holdings, Inc., Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P., The New England Mutual Life Insurance Company and Donaldson Lufkin & Jenrette Securities Corporation.(1) 10.101 -- Second Amendment to Lease Agreement, dated February 18, 1993, among Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P. and Dr Pepper Bottling Company of Texas.(1) 10.102 -- Letter Agreement, dated February 10, 1993, among Dr Pepper Bottling Company of Texas, Dr Pepper Bottling Holdings, Inc., Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P. and Donaldson, Lufkin & Jenrette Securities Corporation and The New England Mutual Life Insurance Company, relating to the sale/leaseback arrangements.(1) 10.103 -- Letter Agreement, effective February 18, 1993, among Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P. and Dr Pepper Bottling Company of Texas, relating to the sale/leaseback arrangements.(1) 10.104 -- Letter Agreement, effective February 18, 1993, among Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P., Dr Pepper Bottling Company of Texas and Dr Pepper Bottling Holdings, Inc., relating to the sale/leaseback arrangements.(1) 10.105 -- Letter Agreement, dated February 10, 1993, between Dr Pepper Bottling Company of Texas and Donaldson Lufkin & Jenrette Securities Corporation relating to the sale of a mortgage note in connection with the sale/leaseback arrangements.(1) 10.106 -- Employment Agreement, dated as of February 18, 1993, between Dr Pepper Bottling Company of Texas and Jim L. Turner.(1) 10.107 -- # 10.108*** -- Third Amendment to Lease, dated as of April 15, 1993, among Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P. and Dr Pepper Bottling Company of Texas. 10.109*** -- Amended and Restated Second Amendment to Lease Agreement, dated as of October 15, 1993, among Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P. and Dr Pepper Bottling Company of Texas. 10.110*** -- Agreement and Amendment to Loan Documents, dated as of October 15, 1993, among Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P., Dr Pepper Bottling Company of Texas, Dr Pepper Bottling Holdings, Inc., New York Life Insurance Company and Donaldson, Lufkin & Jenrette Securities Corporation. 10.111 -- First Amendment to Amended and Restated Credit Agreement, dated as of July 29, 1994, between Dr Pepper Bottling Company of Texas and Texas Commerce Bank National Association, as Agent.(2) 12.1 -- Computation of Ratio of Earnings to Fixed Charges of Dr Pepper Bottling Company of Texas.(3) 12.2 -- Computation of Ratio of Earnings to Fixed Charges of Dr Pepper Bottling Holdings, Inc.(3) 23.1 -- Consent of Weil, Gotshal & Manges (a partnership including professional corporations), to use of their opinion filed as Exhibit 5 (incorporated in their opinion filed as Exhibit 5).(1) 23.2 -- Independent Auditors' Consent dated May 5, 1995, re Dr Pepper Bottling Company of Texas.(3) 23.3 -- Independent Auditors' Consent dated May 5, 1995, re Dr Pepper Bottling Holdings, Inc.(3) 24 -- Powers of Attorney (see pages II-11 and II-12 of the Registration Statement as filed with the Securities and Exchange Commission on December 24, 1992).(1)
II-6 120 25.1 -- Form T-1 of U.S. Trust Company of Texas, N.A., as Trustee (bound separately).(1) 25.2 -- Form T-1 of United States Trust Company of New York, as Trustee (bound separately).(1) 27.1 -- Financial Data Schedule of Dr Pepper Bottling Company of Texas.(4) 27.2 -- Financial Data Schedule of Dr Pepper Bottling Holdings, Inc. and Subsidiary.(4)
- --------------- * Previously filed as an Exhibit to the Registrants' Registration Statement on Form S-1 (File No. 33-28349) and incorporated herein by reference. ** Previously filed as an exhibit to the Form 10-K for the fiscal year ended December 31, 1989, of Dr Pepper Bottling Holdings, Inc. and Dr Pepper Bottling Company of Texas, and incorporated by reference herein. *** Previously filed as an exhibit to the Form 10-K for the fiscal year ended December 31, 1993, of Dr Pepper Bottling Company of Texas and Dr Pepper Bottling Holdings, Inc., and incorporated by reference herein. (1) Previously filed as an exhibit to this Registration Statement. (2) Previously filed as an exhibit to the Form 10-Q for the fiscal quarter ended June 30, 1994, of Dr Pepper Bottling Holdings, Inc. and Dr Pepper Bottling Company of Texas, and incorporated by reference herein. (3) Filed herewith. (4) Previously filed as an exhibit to the Form 10-K for the fiscal year ended December 31, 1994, of Dr Pepper Bottling Company of Texas and Dr Pepper Bottling Holdings, Inc., and incorporated by reference herein. # Intentionally left blank. (b) The following financial statement schedules of Dr Pepper Bottling Company of Texas are included in this Registration Statement: Schedule II -- Valuation and Qualifying Accounts The following financial statement schedules of Dr Pepper Bottling Holdings, Inc. are included in this Registration Statement: Schedule I -- Condensed Financial Information of Dr Pepper Bottling Holdings, Inc. Schedule II -- Valuation and Qualifying Accounts Schedules other than those listed above are omitted as not required or inapplicable. ITEM 17. UNDERTAKINGS. (a) The undersigned registrants hereby undertake that: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement;" (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) See Item 14. II-7 121 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Post-Effective Amendment No. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Dallas and the State of Texas, on the 5th day of May, 1995. DR PEPPER BOTTLING COMPANY OF TEXAS By: /s/ JIM L. TURNER ---------------------------- Jim L. Turner President Each person whose signature to this Registration Statement appears below hereby appoints Jim L. Turner as his attorney-in-fact to sign on his behalf individually and in the capacity stated below and to file all amendments and post-effective amendments to this Registration Statement, which amendments may make such changes in and additions to this Registration Statement as such attorney-in-fact may deem necessary or appropriate. Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 3 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE - --------------------------------------------- ----------------------------- ------------- /s/ JIM L. TURNER Chairman of the Board of May 5, 1995 - --------------------------------------------- Directors, President and Jim L. Turner Chief Executive Officer (Principal Executive Officer of the Registrant) C. MARVIN MONTGOMERY* Vice President -- Finance May 5, 1995 - --------------------------------------------- (Principal Financial and C. Marvin Montgomery Accounting Officer of the Registrant) THOMAS O. HICKS* Director May 5, 1995 - --------------------------------------------- Thomas O. Hicks *By: /s/ JIM L. TURNER ----------------------------------------- Jim L. Turner Attorney-in-Fact
II-8 122 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Post-Effective Amendment No. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Dallas and the State of Texas, on the 5th day of May, 1995. DR PEPPER BOTTLING HOLDINGS, INC. By: /s/ JIM L. TURNER --------------------------- Jim L. Turner President Each person whose signature to this Registration Statement appears below hereby appoints Jim L. Turner as his attorney-in-fact to sign on his behalf individually and in the capacity stated below and to file all amendments and post-effective amendments to this Registration Statement, which amendments may make such changes in and additions to this Registration Statement as such attorney-in-fact may deem necessary or appropriate. Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 3 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE - --------------------------------------------- ----------------------------- ------------- /s/ JIM L. TURNER Chairman of the Board of May 5, 1995 - --------------------------------------------- Directors, President and Jim L. Turner Chief Executive Officer (Principal Executive Officer of the Registrant) C. MARVIN MONTGOMERY* Vice President -- Finance May 5, 1995 - --------------------------------------------- (Principal Financial and C. Marvin Montgomery Accounting Officer of the Registrant) THOMAS O. HICKS* Director May 5, 1995 - --------------------------------------------- Thomas O. Hicks WILLIAM O. HUNT* Director May 5, 1995 - --------------------------------------------- William O. Hunt J. KENT SWEEZEY* Director May 5, 1995 - --------------------------------------------- J. Kent Sweezey *By: /s/ JIM L. TURNER ---------------------------------------- Jim L. Turner Attorney-in-Fact
II-9 123 SCHEDULE II DR PEPPER BOTTLING COMPANY OF TEXAS VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT BALANCE AT BEGINNING COSTS AND END OF OF PERIOD EXPENSES DEDUCTIONS PERIOD ---------- --------- ---------- ---------- ALLOWANCE FOR DOUBTFUL ACCOUNTS Year ended December 31, 1992........................ $ 179 $ 190 $ 156(A) $ 213 ======== ======= ======== ======== Year ended December 31, 1993........................ $ 213 $ 561 $ 469(A) $ 305 ======== ======= ======== ======== Year ended December 31, 1994........................ $ 305 $ 167 $ 101 $ 371 ======== ======= ======== ======== ACCUMULATED AMORTIZATION OF INTANGIBLE ASSETS Year ended December 31, 1992: Goodwill and other intangible assets.............. $ 17,482 $ 5,505 $ -- $ 22,987 Debt issuance costs............................... 3,642 1,107 -- 4,749 -------- ------- -------- -------- $ 21,124 $ 6,612 $ -- $ 27,736 ======== ======= ======== ======== Year ended December 31, 1993: Goodwill and other intangible assets.............. 22,987 5,751 -- 28,738 Debt issuance costs............................... 4,749 1,609 4,653(B) 1,705 -------- ------- -------- -------- $ 27,736 $ 7,360 $4,653 $ 30,443 ======== ======= ======== ======== Year ended December 31, 1994: Goodwill and other intangible assets.............. 28,738 5,519 -- 34,257 Debt issuance costs............................... 1,705 1,384 -- 3,089 -------- ------- -------- -------- $ 30,443 $ 6,903 $ -- $ 37,346 ======== ======= ======== ========
- --------------- (A) Accounts receivable written off (B) Deferred debt costs related to retired debt S-1 124 SCHEDULE I DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT BALANCE SHEETS DECEMBER 31, 1993 AND 1994 (IN THOUSANDS)
1993 1994 --------- --------- Excess of equity in loss of subsidiary over investment............... $ (37,593) $ (25,113) Other assets......................................................... 2,687 2,383 --------- --------- (34,906) (22,730) ========= ========= Long term debt....................................................... 78,453 87,838 Preferred stock...................................................... 29,635 33,502 Stockholders' deficit: Common stock....................................................... 136 136 Additional paid in capital......................................... 14,383 14,383 Consideration to continuing predecessor stockholders in excess of book value...................................................... (33,948) (33,948) Deficit............................................................ (123,565) (124,641) --------- --------- Total stockholders' deficit................................ (142,994) (144,070) --------- --------- $ (34,906) $ (22,730) ========= =========
S-2 125 STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 (IN THOUSANDS)
1992 1993 1994 -------- -------- ------- Equity in net earnings (loss) of subsidiary................... $ (1,737) $(20,630) $12,480 Accretion of discount on discount notes....................... -- 7,340 9,385 Other expense................................................. -- 273 304 -------- -------- ------- Earnings (loss) before dividends on subsidiary's preferred stock.................................................... (1,737) (28,243) 2,791 Dividends on subsidiary's preferred stock..................... (13,171) (5,806) -- -------- -------- ------- Net earnings (loss)................................. $(14,908) $(34,049) $ 2,791 ======== ======== =======
- --------------- Note: Dr Pepper Holdings, Inc. (Holdings) is essentially a holding company which was formed solely to acquire the outstanding common stock of Dr Pepper Bottling Company of Texas (Company). Holdings issued senior discount notes in the aggregate principal amount of $125,000 and preferred stock and warrant totaling $30,000. Other than these transactions and related costs, Holdings does not have any commitments other than those of the Company. S-3 126 SCHEDULE II DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT BALANCE AT BEGINNING COSTS AND END OF OF PERIOD EXPENSES DEDUCTIONS PERIOD ---------- --------- ---------- ---------- ALLOWANCE FOR DOUBTFUL ACCOUNTS Year ended December 31, 1992........................ $ 179 $ 190 $ 156(A) $ 213 ======== ======= ======== ======== Year ended December 31, 1993........................ $ 213 $ 561 $ 469(A) $ 305 ======== ======= ======== ======== Year ended December 31, 1993........................ $ 305 $ 167 $ 101 $ 371 ======== ======= ======== ======== ACCUMULATED AMORTIZATION OF INTANGIBLE ASSETS Year ended December 31, 1992: Goodwill and other intangible assets.............. 17,482 5,505 -- 22,987 Debt issuance costs............................... 3,642 1,107 -- 4,749 -------- ------- -------- -------- $ 21,124 $ 6,612 $ -- $ 27,736 ======== ======= ======== ======== Year ended December 31, 1993: Goodwill and other intangible assets.............. 22,987 5,751 -- 28,738 Debt issuance costs............................... 4,749 1,609 4,653(B) 1,705 -------- ------- -------- -------- $ 27,736 $ 7,360 $4,653 $ 30,443 ======== ======= ======== ======== Year ended December 31, 1994: Goodwill and other intangible assets.............. 28,738 5,519 -- 34,257 Debt issuance costs................................. 1,705 1,711 -- 3,416 -------- ------- -------- -------- $ 30,443 $ 7,230 $ -- $ 37,673 ======== ======= ======== ========
- --------------- (A) Accounts receivable written off (B) Deferred debt costs related to retired debt S-4 127 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER EXHIBIT PAGE - ----------------------------------------------------------------------------------------------- 1.1 -- Underwriting Agreement, dated as of February 10, 1993, among Dr Pepper Bottling Company of Texas, Dr Pepper Bottling Holdings, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation.(1) 3.1* -- Articles of Incorporation, as amended, of Dr Pepper Bottling Company of Texas. 3.2* -- Bylaws of Dr Pepper Bottling Company of Texas. 3.3 -- Certificate of Incorporation of Dr Pepper Bottling Holdings, Inc.(1) 3.4* -- By-laws of Dr Pepper Bottling Holdings, Inc. 4.1 -- # 4.2 -- # 4.3 -- # 4.4 -- # 4.5 -- Indenture, dated February 18, 1993, between Dr Pepper Bottling Company of Texas and U.S. Trust Company of Texas, N.A. with respect to the 10 1/4% Senior Notes due 2000.(1) 4.6 -- Form of 10 1/4% Senior Notes due 2000 (included in Exhibit 4.5).(1) 4.7 -- Form of Indenture, dated February 18, 1993, between Dr Pepper Bottling Holdings, Inc. and United States Trust Company of New York with respect to the 11 5/8% Senior Discount Notes due 2003.(1) 4.8 -- Form of 11 5/8% Senior Discount Notes due 2003 (included in Exhibit 4.7).(1) 5 -- Opinion of Weil, Gotshal & Manges (a partnership including professional corporations), as to the validity of the issuance of the 10 1/4% Senior Notes due 2000 of Dr Pepper Bottling Company of Texas and the 11 5/8% Senior Discount Notes due 2003 of Dr Pepper Bottling Holdings, Inc.(1) 9* -- Voting Trust Agreement dated as of October 28, 1988, between DLJ Capital Corporation and William O. Hunt, Trustee. 10.1 -- # 10.2 -- # 10.3 -- # 10.4 -- # 10.5 -- # 10.6 -- # 10.7 -- # 10.8 -- # 10.9 -- # 10.10 -- # 10.11 -- # 10.12 -- # 10.13 -- # 10.14 -- # 10.15 -- # 10.16 -- # 10.17 -- # 10.18 -- #
128
SEQUENTIALLY EXHIBIT NUMBERED NUMBER EXHIBIT PAGE - ---------- ------------------------------------------------------------------------ ----------- 10.19 -- # 10.20 -- # 10.21 -- # 10.22 -- # 10.23 -- # 10.24 -- # 10.25 -- # 10.26 -- # 10.27 -- # 10.28 -- # 10.29 -- # 10.30 -- # 10.31 -- # 10.32 -- # 10.33 -- # 10.34 -- # 10.35 -- # 10.36 -- # 10.37 -- # 10.38 -- # 10.39 -- # 10.40 -- # 10.41 -- # 10.42 -- # 10.43 -- # 10.44 -- # 10.45 -- # 10.46 -- # 10.47 -- # 10.48 -- # 10.49 -- # 10.50 -- # 10.51 -- # 10.52 -- # 10.53 -- # 10.54 -- # 10.55 -- # 10.56 -- # 10.57 -- # 10.58 -- # 10.59 -- # 10.60 -- # 10.61 -- #
129
SEQUENTIALLY EXHIBIT NUMBERED NUMBER EXHIBIT PAGE - ---------- ------------------------------------------------------------------------ ----------- 10.62 -- # 10.63 -- # 10.64 -- # 10.65 -- # 10.66 -- # 10.67 -- # 10.68 -- # 10.69 -- # 10.70 -- # 10.71 -- # 10.72 -- # 10.73 -- Franchise Agreements of varying dates between Dr Pepper Company and Dr Pepper Bottling Company of Texas.(1) 10.74 -- Franchise Agreements of varying dates between The Seven-Up Company and Dr Pepper Bottling Company of Texas.(1) 10.75 -- Franchise Agreements of varying dates between A & W Brands, Inc. and Dr Pepper Bottling Company of Texas.(1) 10.76 -- Franchise Agreements of varying dates between Cadbury Beverages North America, Inc. and Dr Pepper Bottling Company of Texas.(1) 10.78** -- Lease Agreement dated as of June 28, 1989, by and between Corporate Property Associates 8, L.P., a Delaware Limited Partnership, and Corporate Property Associates 9, L.P., a Delaware Limited Partnership, and Dr Pepper Bottling Company of Texas. 10.79** -- Tenant Agreement dated as of June 28, 1989, among Corporate Property Associates 8, L.P., a Delaware Limited Partnership, Corporate Property Associates 9, L.P., a Delaware Limited Partnership, and Dr Pepper Bottling Company of Texas. 10.80** -- Guaranty and Suretyship Agreement dated as of June 28, 1989, by Dr Pepper Bottling Holdings, Inc. for the benefit of Corporate Property Associates 8, L.P., a Delaware Limited Partnership, and Corporate Property Associates 9, L.P., a Delaware Limited Partnership. 10.81 -- # 10.82 -- # 10.83** -- Amendment to 7UP Franchise Agreement dated as of January 12, 1990, between The Seven-Up Company and Dr Pepper Bottling Company of Texas. 10.84** -- Fountain Syrup Agreement dated January 22, 1990, between The Seven-Up Company and Dr Pepper Bottling Company of Texas. 10.85** -- 7UP Franchise Agreement dated as of January 12, 1990, between The Seven-Up Company and Dr Pepper Bottling Company of Texas. 10.86 -- # 10.87** -- Dr Pepper Bottling Holdings, Inc. 1989 Stock Option Plan. 10.88 -- # 10.89 -- # 10.90 -- # 10.91 -- # 10.92 -- #
130
SEQUENTIALLY EXHIBIT NUMBERED NUMBER EXHIBIT PAGE - ---------- ------------------------------------------------------------------------ ----------- 10.93 -- Securities Purchase Agreement, dated February 18, 1993, among Dr Pepper Bottling Holdings, Inc., Dr Pepper Bottling Company of Texas and Crown Cork & Seal Master Retirement Trust, with exhibits thereto.(1) 10.94 -- Tax Sharing Agreement, dated as of February 18, 1993, between Dr Pepper Bottling Holdings, Inc. and Dr Pepper Bottling Company of Texas.(1) 10.95 -- Amended and Restated Credit Agreement, dated as of February 18, 1993, Between Dr Pepper Bottling Company of Texas and Texas Commerce Bank National Association, as Agent.(1) 10.96 -- Amended and Restated Guarantee, dated February 18, 1993, by Dr Pepper Bottling Holdings, Inc. to Texas Commerce Bank National Association pursuant to that certain Amended and Restated Credit Agreement of even date.(1) 10.97 -- Amended and Restated General Security Agreement, dated February 18, 1993, between Dr Pepper Bottling Company of Texas and Texas Commerce Bank National Association, as Agent, pursuant to that certain Amended and Restated Credit Agreement of even date.(1) 10.98 -- Amended and Restated Collateral Assignment of Deposit Accounts, Pledge and Security Agreement, dated February 18, 1993, between Dr Pepper Bottling Company of Texas and Texas Commerce Bank National Association, as Agent, pursuant to that certain Amended and Restated Credit Agreement of even date.(1) 10.99 -- Amended and Restated Pledge and Security Agreement, dated February 18, 1993, between Dr Pepper Bottling Holdings, Inc. and Texas Commerce Bank National Association, as Agent, pursuant to that certain Amended and Restated Credit Agreement of even date.(1) 10.100 -- First Amendment to Agreement and Landlord's Waiver, dated February 10, 1993, among Dr Pepper Bottling Company of Texas, Dr Pepper Bottling Holdings, Inc., Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P., The New England Mutual Life Insurance Company and Donaldson Lufkin & Jenrette Securities Corporation.(1) 10.101 -- Second Amendment to Lease Agreement, dated February 18, 1993, among Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P. and Dr Pepper Bottling Company of Texas.(1) 10.102 -- Letter Agreement, dated February 10, 1993, among Dr Pepper Bottling Company of Texas, Dr Pepper Bottling Holdings, Inc., Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P. and Donaldson, Lufkin & Jenrette Securities Corporation and The New England Mutual Life Insurance Company, relating to the sale/leaseback arrangements.(1) 10.103 -- Letter Agreement, effective February 18, 1993, among Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P. and Dr Pepper Bottling Company of Texas, relating to the sale/leaseback arrangements.(1) 10.104 -- Letter Agreement, effective February 18, 1993, among Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P., Dr Pepper Bottling Company of Texas and Dr Pepper Bottling Holdings, Inc., relating to the sale/leaseback arrangements.(1) 10.105 -- Letter Agreement, dated February 10, 1993, between Dr Pepper Bottling Company of Texas and Donaldson Lufkin & Jenrette Securities Corporation relating to the sale of a mortgage note in connection with the sale/leaseback arrangements.(1) 10.106 -- Employment Agreement, dated as of February 18, 1993, between Dr Pepper Bottling Company of Texas and Jim L. Turner.(1) 10.107 -- #
131
SEQUENTIALLY EXHIBIT NUMBERED NUMBER EXHIBIT PAGE - ---------- ------------------------------------------------------------------------ ----------- 10.108*** -- Third Amendment to Lease, dated as of April 15, 1993, among Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P. and Dr. Pepper Bottling Company of Texas. 10.109*** -- Amended and Restated Second Amendment to Lease Agreement, dated as of October 15, 1993, among Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P. and Dr Pepper Bottling Company of Texas. 10.110*** -- Agreement and Amendment to Loan Documents, dated as of October 15, 1993, among Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P., Dr Pepper Bottling Company of Texas, Dr Pepper Bottling Holdings, Inc., New York Life Insurance Company and Donaldson, Lufkin & Jenrette Securities Corporation. 10.111 -- First Amendment to Amended and Restated Credit Agreement, dated as of July 29, 1994, between Dr Pepper Bottling Company of Texas and Texas Commerce Bank National Association, as Agent.(2) 12.1 -- Computation of Ratio of Earnings to Fixed Charges of Dr Pepper Bottling Company of Texas.(3) 12.2 -- Computation of Ratio of Earnings to Fixed Charges of Dr Pepper Bottling Holdings, Inc.(3) 23.1 -- Consent of Weil, Gotshal & Manges (a partnership including professional corporations), to use of their opinion filed as Exhibit 5 (incorporated in their opinion filed as Exhibit 5).(1) 23.2 -- Independent Auditors' Consent dated May 5, 1995, re Dr Pepper Bottling Company of Texas.(3) 23.3 -- Independent Auditors' Consent dated May 5, 1995, re Dr Pepper Bottling Holdings, Inc.(3) 24 -- Powers of Attorney (see pages II-11 and II-12 of the Registration Statement as filed with the Securities and Exchange Commission on December 24, 1992).(1) 25.1 -- Form T-1 of U.S. Trust Company of Texas, N.A., as Trustee (bound sepa- rately).(1) 25.2 -- Form T-1 of United States Trust Company of New York, as Trustee (bound separately).(1) 27.1 -- Financial Data Schedule of Dr Pepper Bottling Company of Texas.(4) 27.2 -- Financial Data Schedule of Dr Pepper Bottling Holdings, Inc. and Subsidiary.(4)
- --------------- * Previously filed as an Exhibit to the Registrants' Registration Statement on Form S-1 (File No. 33-28349) and incorporated herein by reference. ** Previously filed as an exhibit to the Form 10-K for the fiscal year ended December 31, 1989, of Dr Pepper Bottling Holdings, Inc. and Dr Pepper Bottling Company of Texas, and incorporated by reference herein. *** Previously filed as an exhibit to the Form 10-K for the fiscal year ended December 31, 1993, of Dr Pepper Bottling Company of Texas and Dr Pepper Bottling Holdings, Inc., and incorporated by reference herein. (1) Previously filed as an exhibit to this Registration Statement. (2) Previously filed as an exhibit to the Form 10-Q for the fiscal quarter ended June 30, 1994, of Dr Pepper Bottling Holdings, Inc. and Dr Pepper Bottling Company of Texas, and incorporated by reference herein. (3) Filed herewith. (4) Previously filed as an exhibit to the Form 10-K for the fiscal year ended December 31, 1994, of Dr Pepper Bottling Company of Texas and Dr Pepper Bottling Holdings, Inc., and incorporated by reference herein. # Intentionally left blank. EX-12.1 2 COMPUTATION OF RATIO DR PEPPER BOTTLING COMPANY 1 EXHIBIT 12.1 DR PEPPER BOTTLING COMPANY OF TEXAS COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS, EXCEPT RATIOS)
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1990 1991 1992 1993 1994 ------------ ------------ ------------ ------------ ------------ Earnings: Earnings (loss) before income taxes and extraordinary item....................... $(13,229) $ (8,430) $ (1,737) $ 10,929 $ 12,620 Add -- fixed charges(a)....... 32,862 33,227 31,937 25,294 23,776 ---------- ---------- ---------- ---------- ---------- $ 19,633 $ 24,797 $ 30,200 $ 36,223 $ 36,396 ========== ========== ========== ========== ========== Fixed charges: Interest on indebtedness...... 11,948 12,758 30,797 23,929 22,389 Interest portion of rental and lease expense.............. 59 36 33 28 3 Amortization of debt issuance costs...................... 974 1,433 1,107 1,337 1,384 Accretion of bond discount.... 19,881 19,000 -- -- -- ---------- ---------- ---------- ---------- ---------- $ 32,862 $ 33,227 $ 31,937 $ 25,294 $ 23,776 ========== ========== ========== ========== ========== Deficiency of earnings available to cover fixed charges........ $ 13,229 $ 8,430 $ 1,737 $ -- $ -- ========== ========== ========== ========== ========== Ratio of earnings to fixed charges....................... -- -- -- 1.43x 1.53x ========== ========== ========== ========== ==========
- --------------- (a) See note (e) under "Prospectus Summary -- Company Summary Financial Data" in the Prospectus which defines "fixed charges." EX-12.2 3 COMPUTATION OF RATIO DR PEPPER BOTTLING HOLDINGS 1 EXHIBIT 12.2 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS, EXCEPT RATIOS)
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1990 1991 1992 1993 1994 ------------ ------------ ------------ ------------ ------------ Earnings: Earnings (loss) before income taxes and extraordinary item....................... $(22,671) $(19,582) $(14,908) $ (2,490) $ 2,791 Add -- fixed charges(a)....... 32,865 33,230 31,939 35,071 33,488 ---------- ---------- ---------- ---------- ---------- $ 10,194 $ 13,648 $ 17,031 $ 32,581 $ 36,279 ========== ========== ========== ========== ========== Fixed charges: Interest on indebtedness...... 11,948 12,757 30,797 23,936 22,389 Interest portion of rental and lease expense.............. 59 36 33 28 3 Dividends on preferred stock of subsidiary.............. 3 4 2 2,157 -- Amortization of debt issuance costs...................... 974 1,433 1,107 1,610 1,711 Accretion of bond discount.... 19,881 19,000 -- 7,340 9,385 ---------- ---------- ---------- ---------- ---------- $ 32,865 $ 33,230 $ 31,939 $ 35,071 $ 33,488 ========== ========== ========== ========== ========== Deficiency of earnings available to cover fixed charges........ $ 22,671 $ 19,582 $ 14,908 $ 2,490 $ -- ========== ========== ========== ========== ========== Ratio of earnings to fixed charges....................... -- -- -- -- 1.08x ========== ========== ========== ========== ==========
- --------------- (a) See note (e) under "Prospectus Summary -- Holdings Summary Financial Data" in the Prospectus which defines "fixed charges." EX-23.2 4 ACCOUNTANTS CONSENT DR PEPPER BOTTLING CO. 1 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT The Board of Directors Dr Pepper Bottling Company of Texas: The audits referred to in our report dated March 8, 1995, included the related financial statement schedule as of December 31, 1994, and for each of the years in the three-year period ended December 31, 1994, included in the registration statement. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to the use of our reports included herein and to the reference to our firm under the headings "Selected Historical Financial Data" and "Experts" in the prospectus. KPMG PEAT MARWICK LLP Dallas, Texas May 5, 1995 EX-23.3 5 ACCOUNTANTS CONSENT DR PEPPER HOLDINGS, INC. 1 EXHIBIT 23.3 INDEPENDENT AUDITORS' CONSENT The Board of Directors Dr Pepper Bottling Holdings, Inc.: The audits referred to in our report dated March 8, 1995, included the related financial statement schedules as of December 31, 1994, and for each of the years in the three-year period ended December 31, 1994, included in the registration statement. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. We consent to the use of our reports included herein and to the references to our firm under the headings "Selected Historical Financial Data" and "Experts" in the prospectus. KPMG PEAT MARWICK LLP Dallas, TX May 5, 1995 -----END PRIVACY-ENHANCED MESSAGE-----