-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MIt3JhFRQwn+q2qbbowosyF6TChFf1u/kQ28MOI6JBVWOtaCXAzz4QpJLkBM/FFa JhQIE/FYQL9PSu4EvbwWOQ== 0000898430-97-001334.txt : 19970401 0000898430-97-001334.hdr.sgml : 19970401 ACCESSION NUMBER: 0000898430-97-001334 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLACIER WATER SERVICES INC CENTRAL INDEX KEY: 0000883505 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-NONSTORE RETAILERS [5960] IRS NUMBER: 330493559 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11012 FILM NUMBER: 97570537 BUSINESS ADDRESS: STREET 1: 2261 COSMOS CT CITY: CARLSBAD STATE: CA ZIP: 92009 BUSINESS PHONE: 6199302420 MAIL ADDRESS: STREET 1: 2261 COSMOS CT CITY: CARLSBAD STATE: CA ZIP: 92009 10-K 1 FORM 10-K FOR FISCAL YEAR END 12/31/96 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended: December 31, 1996 Commission file number: 1-11012 GLACIER WATER SERVICES, INC. ---------------------------- (Exact name of registrant as specified in its charter) DELAWARE 33-0493559 ---------------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2261 Cosmos Court Carlsbad, CA 92009 ---------------------------------------- ----------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (760) 930-2420 ----------------------- Securities registered purusant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $.01 Par Value Per Share American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [x] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K of any amendment to this Form 10-K. [ ] As of March 14, 1997, the aggregate market value of the voting stock held by non-affiliates of the registrant was $42,370,738 (calculated at the closing price on the American Stock Exchange multiplied by outstanding shares held by non-affiliates). For purposes of the foregoing calculation, certain persons who have filed reports on Schedule 13D with the SEC with respect to their beneficial ownership of more than 5% of the registrant's outstanding common stock and directors and officers have been excluded from the group of stockholders deemed to be non-affiliates of the registrants. As of March 14, 1997, the registrants had 3,208,575 shares of common stock outstanding. The total number of pages in this Form 10-K is 28; the Index to Exhibits is located on page 27. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III (Items 10, 11, 12 and 13) is incorporated by reference to portions of the registrant's definitive proxy statement for the 1997 Annual Meeting of Stockholders which will be filed with the Securities and Exchange Commission within 120 days after the close of the 1996 year. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Statements in this Annual Report that are not purely historical are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements with respect to the financial condition and results of operations of the Company involve risks and ------- uncertainties including, but not limited to, trade relations, dependence on certain locations and competition, as described in Part I below, that could cause actual results to differ materially from those projected. PART I ITEM 1. BUSINESS INTRODUCTION - ------------ Glacier Water Services, Inc. ("Glacier" or the "Company") is a leading provider of high quality, low priced drinking water dispensed to consumers ------ through self-service vending machines that are designed, developed and assembled by the Company. The Company's machines, which are currently located in the --- states of California, Texas, Florida, Arizona, Nevada, Louisiana, New Mexico, - --------- Mississippi, Georgia, and Illinois, are placed at supermarkets and other retail locations in order to take advantage of the regular customer traffic at such locations and to provide easy access for consumers. The Company has grown from approximately 3,700 machines in operation as of December 31, 1992 to over 9,100 machines in operation as of December 31, 1996. This expansion in installed machines has resulted in significant growth in revenues, which have increased from $27 million in 1992 to $46 million in 1996. Other than the Company, the water vending market is comprised primarily of smaller independent operators. The Company's growth strategy includes the continued addition of machines in existing markets and selective expansion into new markets. Generally, the cost to the Company of adding new machines in existing markets is approximately $5,400 to $6,500 per machine, including manufacturing and installation costs. On March 28, 1997, the Company purchased substantially all of the assets of the Aqua-Vend division of McKesson Water Products Company. Glacier's vending machines are connected to municipal water sources at each retail location. The machines reduce impurities in the water through a combination of micron filtration, reverse osmosis, carbon absorption and ultraviolet sterilization. The Company generally charges $.25 to $.35 per gallon, which represents a significant discount to the price of water sold off- the-shelf in retail locations or sold through home delivery services. The Company's machines are clustered in close proximity to one another within the geographic areas served in order to assure cost-effective, quality service. Machines are serviced and tested weekly by technicians whose routes are structured to allow each technician to service approximately 70 machines per week. Glacier Water Services, Inc. was incorporated in Delaware on November 19, 1991. Substantially all of its operations are conducted by GW Services, Inc. (the "Subsidiary"), a California corporation and a wholly-owned subsidiary of Glacier. The Company conducts substantially all of its operations through the Subsidiary which was incorporated in California on April 12, 1983. The Company maintains its executive offices at 2261 Cosmos Court, Carlsbad, California 92009 and its telephone number is (760) 930-2420. BUSINESS BACKGROUND - ------------------- The Company commenced operations in 1983 in southern California. The Company then expanded into Arizona in 1984, Nevada in 1986, Florida and Texas in 1988, New Mexico in 1993, Louisiana and Mississippi in 1994, Georgia in 1995 and Illinois in 1996. The following table sets forth the number of machines installed annually from December 31, 1992: Total installed machines as of December 31, 1992... 3,666 Machines added during the year: 1993.......................................... 1,114 1994.......................................... 1,945 1995.......................................... 1,793 1996.......................................... 646 ----- Total installed machines as of December 31, 1996... 9,164 =====
1 Total machines installed as of December 31, 1996 are distributed by state as follows: California....................................... 5,121 Texas............................................ 1,564 Florida.......................................... 1,495 Arizona.......................................... 667 Nevada........................................... 142 Other............................................ 175 ----- 9,164 =====
The Company has continued its expansion strategy emphasizing a high quality, efficient water vending machine, low price to the consumer, a high level of service for its network of machines and the clustering of machines within a market area to realize significant operating economies of scale in the operation of its business. The Company competes with other marketers of nonsparkling water primarily on the basis of price, providing a product of comparable quality at a significantly lower price to the consumer. See "Retail Pricing" below. Glacier's internally developed water vending machines utilize micron filtration, reverse osmosis, carbon adsorption and ultraviolet sterilization in order to provide high quality drinking water. The design of the Company's machines provides a high degree of reliability and servicability through the use of interchangeable parts and a durable fiberglass cabinet. The machines are also designed to be easy for consumers to use, with clear and simple instructions. The Company provides frequent, regular and reliable service and support to its network of vending machines through an extensive route servicing system. The Company believes that its strong commitment to the maintenance of its network, ensuring cleanliness and operability, is a significant factor in the Company's ability to continue to build consumer usage. In order to provide this high level of service and support in a cost-effective manner, the Company has pursued a strategy of placing machines in close proximity to one another which fosters operating efficiencies and important economies of scale. See "Route Servicing System" below. TRADE RELATIONS - --------------- The Company arranges to place its water vending machines on the premises of supermarkets and other retail locations. The Company provides the machines and pays for all installation costs, while the retailer provides and pays for the required municipally supplied water and electricity. The Company generally pays monthly commissions to the retailers based upon a percentage of sales, typically ranging from 25% to 60%. The Company believes that retailers are increasingly cognizant of the benefits of vended water, which provides additional revenues to the retailers without occupying valuable and limited shelf space and without the related investment in inventory. Substantially all of the Company's arrangements with its retail trade accounts are evidenced by written contracts, some of which contain termination clauses as well as automatic renewal clauses. The terms of these agreements range from 30 days to five years, during which time the Company has the exclusive right to provide water vending machines at specified locations. In some cases, the Company provides marketing incentives in order to encourage certain retailers to promote the Company's products. The Company's most significant account in 1996 was Ralph's Grocery Company (Ralph's), a California-based chain of supermarkets. During the fiscal year ended December 31, 1996, approximately 10% of the Company's total revenues were derived from sales from machines located at Ralph's stores. Prior to 1996, the Company's most significant account was Vons Companies, Inc. (Vons), a California-based chain of supermarkets. During the fiscal years ended December 31, 1996, 1995, and 1994, approximately 9%, 10% and 13%, respectively, of the total revenues of the Company were derived from sales from machines located at Vons stores. The Company entered into a written contract with Ralph's in December 1996. This contract, which succeeds a previous contract with certain Ralph's locations, has a five-year term and is not terminable by Ralph's except in the event of a material breach of the contract by the Company. While the Company believes its relations with 2 Ralph's and its other accounts are good, any termination of the Company's contract with Ralph's or Vons would adversely affect the Company. LOCATION SELECTION - ------------------ In accordance with the Company's expansion strategy, the placement of the Company's vending machines at retail locations is based upon a thorough review of each site. Included in the site review is an analysis of the surrounding trade area in order to determine the neighborhood demographics, the level of overall retail activity, the level of direct competition and the proximity of the site to other vending machines operated by the Company. Further, the Company reviews each site in order to ensure high visibility and easy access for the consumer, along with appropriate access to the retailer's water supply and power source. Upon completion of this review, the Company makes a determination as to the viability of the location and whether a single machine or multiple machines are required at the time of initial installation. With large chains of supermarkets, the Company generally places machines at all of the chains' locations as part of its business agreements. To attain optimum efficiency, multiple vending machines may be installed at a site if the volume of sales so warrants. ROUTE SERVICING SYSTEM - ---------------------- The Company believes that providing frequent, regular and reliable service and support is one of the most important elements in the operation of its machine network. In order to maintain this level of service and support, the Company has implemented its route servicing system, utilizing well-trained technicians to perform the Company's regularly scheduled service procedures. A service technician has a route consisting of approximately 70 machines, each of which are visited and serviced on a weekly basis. The service technician tests the quality and quantity of the Company's processed water in order to assure compliance with all Company, federal, state and local standards. Records of these tests are prepared and maintained for the appropriate regulatory authorities. The other key components of the Company's route servicing system are regional service centers located in Glendale, California; Carlsbad, California; Pleasanton, California; Gilbert, Arizona; Houston, Texas; Orlando, Florida; and Riviera Beach, Florida, which are designed to support the activities of the service technicians. All coin collections are delivered to and verified by a service center for bank deposit preparation. Inventories of filters, supplies and machine parts are maintained at the service centers for the service technicians' use in making service calls. Finally, the Company maintains 24- hour, toll-free telephone support for responding to consumer calls regarding machine operation problems. Instructions and the toll-free number are posted on the machines. RETAIL PRICING - -------------- The Company's drinking water competes with nonsparkling water sold in containers inside retail outlets and with water sold in containers delivered directly to consumers' homes. As with many consumer products, the costs of packaging and distributing drinking water sold by these competing methods represent a significant portion of the total cost of the product, and these costs are reflected in the retail price to the consumer. Because the Company's water is processed on-site in its vending machines and the consumer provides the container for the Company's product, the Company is able to avoid certain costs incurred by its competitors. Accordingly, the Company passes on these savings to consumers by charging a retail price per gallon which represents a substantial discount from the price of bottled water sold by non-vending machine sources. In the Company's current market areas, it generally offers drinking water at a retail price of $.25 to $.35 per gallon, compared with retail prices ranging from $.69 to $.99 per gallon for water sold in containers in retail outlets. Nonsparkling water sold in containers delivered directly to consumers' homes generally sells at an effective price in excess of $1.00 per gallon, including the cost of renting the dispensing unit. CONSUMER MARKETING - ------------------ With respect to consumer marketing, the Company believes it benefits most from consumer awareness and trial usage and also believes that utilizing promotional activities at individual machine locations is the most cost- effective approach for achieving these objectives. To date, the Company has used point-of-purchase signage, 3 special introductory and promotional pricing, and promotional activities coinciding with the installation of new machines as its primary marketing tools. Since 1994, with the introduction of a new logo, the Company's marketing efforts have focused on the development and promotion of "Glacier" as a recognizable brand to the consumer and the supermarket industry. COMPETITION - ----------- The bottled water market is highly competitive. The Company competes in the nonsparkling segment of the bottled water market with companies which deliver water to the home, with off-the-shelf marketers and with other vending machine operators. The Company's primary competitive advantage over home delivery and off-the-shelf marketers is price. A substantial decline in the price of either home-delivered or off-the-shelf bottled water could adversely affect the demand for water dispensed from the Company's vending machines. The Company's principal competitor within the vended water sector has historically been Aqua-Vend, a division of McKesson Water Products Company, a wholly-owned subsidiary of McKesson Corporation. On March 28, 1997, the Company purchased substantially all of the assets of the Aqua-Vend division of McKesson Water Products Company, which acquisition will include approximately 2,600 machines at various locations. The Company's remaining competitors in the vended water sector are primarily smaller, independent operators, many of which the Company believes lack significant financial resources. The Company believes there are significant barriers to entry to new and existing competitors, including the substantial capital outlay required to purchase a sufficient number of machines to achieve competitive operating efficiencies and the time and cost involved in developing a sophisticated service network, obtaining locations at which to place vending machines, acquiring expertise in the industry and developing operating procedures. Certain of the Company's potential customers may use portable or permanent water filtration systems installed in their homes. These systems are relatively expensive to install and maintain, and the Company believes that these systems have not had and will not have a material effect on the Company's operations. SEASONALITY - ----------- The Company's revenues are subject to seasonal fluctuations, with decreased revenues during cold weather months and increased revenues during hot weather months. PATENTS AND TRADEMARKS - ---------------------- The Company does not hold any patents. The basic technologies used in the Company's water vending machines cannot be patented as they are in the public domain. The tradename and trademark "Glacier Water" used by the Company has the word "Glacier" in common with marks that have been used and registered by a number of other entities. To date, the Company has been unable to register the mark due principally to one party, which registered the trademark "Glacier". However, there can be no assurance that other entities might not assert superior or exclusive rights in the mark and seek or obtain damages from or injunctive relief against the Company. Additionally, there can be no assurance that the loss of the Company's mark would not affect sales. GOVERNMENT REGULATION - --------------------- The water vending industry is subject to various federal, state and local laws and regulations, which require the Company, among other things, to obtain licenses for its business and vending machines, to pay annual license and inspection fees, to comply with certain detailed design and quality standards regarding the vending machines and the vended water, and to continuously control the quality and quantity of the vended water. The Company believes that it is operating in substantial compliance with these laws and regulations. The Company's vending machines are subject to routine and random regulatory quality inspections. 4 INSURANCE - --------- The Company carries general and product liability insurance. Its combined coverage is $26,000,000 per occurrence and $27,000,000 in the aggregate, which amounts the Company believes to be adequate. Although the Company is not aware of any actions having ever been filed and believes that the technology contained in its machines makes unlikely any contamination of the products dispensed by its machines, any significant damage awards against the Company in excess of the Company's insurance coverage could result in a material loss to the Company. EMPLOYEES - --------- As of December 31, 1996, the Company had 282 employees, including 50 in administration and 232 in operations. The Company's employees are not represented by a labor union and the Company has experienced no work stoppages. The Company believes that its employee relations are good. ITEM 2. PROPERTIES The Company's principal facility, a 30,000-square-foot building in Carlsbad, California containing its executive offices, assembly shop and one area service center, is under lease through May 1999. The Company also leases various other facilities containing its remaining area service centers. These leases range in square footage from 2,100 to 5,900 square feet, and expire on various dates from March 1997 through October 2001. ITEM 3. LEGAL PROCEEDINGS The Company is not currently a party to any material legal proceeding. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders of the Company during the fourth quarter of 1996. 5 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock of Glacier is traded on the American Stock Exchange under the symbol "HOO." The following table sets forth the range of high and low sales prices on the American Stock Exchange for the Common Stock for the periods indicated.
High Low ------ ------ 1996 ---- First Quarter $19.50 $16.50 Second Quarter 20.00 18.13 Third Quarter 23.00 19.00 Fourth Quarter 23.25 19.63 1995 ---- First Quarter $21.38 $18.50 Second Quarter 19.88 18.75 Third Quarter 22.50 19.75 Fourth Quarter 21.88 18.63
The Company did not pay dividends on its Common Stock in 1996 and 1995 and presently intends to continue this policy. In addition, the Company's credit agreement contains a number of financial covenants, which may, among other things, limit the Company's ability to pay dividends. The Company had approximately 45 stockholders of record as of December 31, 1996. 6 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following sets forth selected financial data as of and for the periods presented. This data should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes thereto and other financial information appearing elsewhere in this Form 10-K.
Year Ended December 31, --------------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (in thousands, except shares and per share amounts) Consolidated Statements of Income Data: Revenues.............................................. $ 46,091 $ 42,409 $ 36,557 $ 30,636 $ 27,182 Costs and expenses: Operating expenses............................... 27,926 25,933 23,504 20,061 18,351 General and administrative expenses.............. 5,895 5,483 4,791 4,516 3,707 Depreciation and amortization.................... 6,769 5,756 3,662 2,692 1,995 ---------- ---------- ---------- ---------- ---------- Total costs and expenses.................... 40,590 37,172 31,957 27,269 24,053 ---------- ---------- ---------- ---------- ---------- Income from operations................................ 5,501 5,237 4,600 3,367 3,129 Other expenses: Interest expense, net............................ 783 723 317 38 182 Guaranty expense................................. -- -- -- -- 294 ---------- ---------- ---------- ---------- ---------- Total other expenses........................ 783 723 317 38 476 ---------- ---------- ---------- ---------- ---------- Income before provision for income taxes.............. 4,718 4,514 4,283 3,329 2,653 Provision for income taxes............................ 1,415 1,805 1,578 1,282 1,016 ---------- ---------- ---------- ---------- ---------- Net income............................................ $ 3,303 $ 2,709 $ 2,705 $ 2,047 $ 1,637 ========== ========== ========== ========== ========== Net income per share.................................. $ .98 $ .80 $ .80 $ .62 $ .54 ========== ========== ========== ========== ========== Weighted average common and common equivalent shares outstanding........................ 3,374,482 3,405,104 3,367,151 3,299,130 3,058,029 ========== ========== ========== ========== ==========
SELECTED BALANCE SHEET DATA - ---------------------------
As of December 31, --------------------------------------------------------------- 1996 1995 1994 1993 1992 ----- ----- ----- ----- ----- (in thousands) Working capital (deficit).................................. $ 1,070 $ 1,366 $ 61 $ (185) $ 1,648 Total assets............................................... $ 46,067 $ 40,638 $ 34,042 $ 23,415 $ 20,119 Long-term debt, including current portion.................. $ 15,820 $ 11,087 $ 8,199 $ 1,510 $ 880 Stockholders' equity....................................... $ 23,986 $ 24,087 $ 20,376 $ 17,265 $ 15,218
7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in conjunction with the information contained in the Consolidated Financial Statements and the accompanying Notes thereto of the Company appearing elsewhere in this Form 10-K. GENERAL - ------- The Company has continued to expanded its business by placing water vending machines in new and existing market areas. The number of machines in operation increased to 9,164 at the end of 1996 from 8,518 for 1995, and 6,725 for 1994. RESULTS OF OPERATIONS - --------------------- Revenues consist primarily of revenues generated from consumer use of the Company's water vending machines. Revenues in 1996 increased by 8.7% over 1995, to $46.1 million. Revenues in 1995 increased by 16.0% over 1994, to $42.4 million. The growth in revenues in both years is primarily attributable to the increase in the number of Company vending machines in operation. The following table sets forth, for the periods indicated, the percentage of revenues represented by certain items included in the Consolidated Statements of Income.
As Percentage of Revenues Year Ended December 31, --------------------------- 1996 1995 1994 ------ ------ ------ Revenues........................................ 100.0% 100.0% 100.0% Costs and expenses: Operating expenses......................... 60.6 61.2 64.3 General and administrative expenses........ 12.8 12.9 13.1 Depreciation and amortization.............. 14.7 13.6 10.0 ----- ----- ----- Total costs and expenses.............. 88.1 87.7 87.4 ----- ----- ----- Income from operations.......................... 11.9 12.3 12.6 Interest expense, net........................... 1.7 1.7 0.9 ----- ----- ----- Income before income taxes...................... 10.2% 10.6% 11.7% ===== ===== =====
Operating expenses and general and administrative expenses increased in absolute dollars from 1995 to 1996 and from 1994 to 1995 principally due to the increase in the number of Company vending machines in operation described above. Operating expenses decreased as a percentage of revenues to 60.6% in 1996, compared to 61.2% in 1995 and 64.3% in 1994. The decreases were due primarily to increased efficiencies in route servicing. General and administrative expenses decreased as a percentage of revenues to 12.8% in 1996, from 12.9% in 1995 and 13.1% in 1994. The decreases as a percentage of revenue in each year result from the Company's ability to more efficiently utilize its corporate infrastructure in supporting the growth in its installed base of machines. Depreciation and amortization increased 17.6% over 1995 to $6.8 million in 1996, and 57.2% over 1994 to $5.8 million in 1995. The increases are due primarily to the Company's continued investment in new vending machines. Net interest expense was 1.7% of revenues in both 1996 and 1995, compared to 0.9% in 1994. The increase is due to higher outstanding balances on the Company's bank loans during 1996 and 1995. The increased 8 borrowings were utilized to fund the increased installation of machines in both years, and in 1996 were also used to fund the Company's repurchase of 170,500 shares. The Company's effective income tax rate decreased to 30% in 1996 from 40% in 1995 as the Company realized the cumulative effect of certain income tax credits. The Company's effective rate in 1994 was approximately 37%. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Company's primary sources of liquidity and capital resources are cash flows from operations and funds available under the Company's bank credit agreement. As of December 31, 1996, the Company had a credit agreement with a bank which provides for long-term borrowings of up to $18.0 million. This credit agreement requires monthly interest payments at the bank's prime rate (8.25% at December 31, 1996) or the LIBOR plus 1.75% (7.4% at December 31, 1996). The credit agreement provides for a two year interest-only revolving period which converts to a five-year term note due and payable July 1, 2003. The agreement is collateralized by substantially all the Company's assets and provides, among other things, that the Company meets a debt coverage ratio, a debt to tangible net worth ratio, and other financial covenants, as set forth in the agreement. During 1996, net cash provided by operations was approximately $7.2 million, and the Company made capital expenditures for vending machines and other equipment aggregating approximately $8.5 million. As of December 31, 1996, the Company had working capital of approximately $1.1 million. Approximately $15.8 million of borrowings were outstanding, with $2.2 million of additional funds were available under the credit agreement. In March 1997, the Company's credit agreement was amended to provide for borrowings of up to $35.0 million. On March 28, 1997, the Company purchased substantially all of the assets of the Aqua-Vend division of McKesson Water Products Company, a wholly-owned subsidiary of McKesson Corporation. The purchase price of $9.0 million was financed with additional borrowings under the Company's credit agreement. The Company will finance any additional capital expenditures and operating costs related to the acquisition through cash flow generated from the operation of the acquired machines, as well as additional borrowings on the line of credit. The Company believes its cash balances, funds generated from operations, and borrowings available under its amended credit facility will be sufficient to meet its operating and capital requirements for at least the next twelve months. The ability of the Company to meet its debt service requirements and the ability of the Company to comply with the restrictive covenants will be dependent upon future performance, which is subject to financial, economic, competitive, regulatory and other factors affecting the Company, many of which are beyond its control. SEASONALITY - ----------- The revenues of the Company are subject to seasonal fluctuations, with decreased revenues during cold weather months and increased revenues during hot weather months. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's Consolidated Financial Statements together with accompanying Notes and the Report of Arthur Andersen LLP Independent Public Accountants are set forth on pages 14 through 26 after Part IV of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT There is incorporated herein by reference the information required by this Item in the Company's definitive proxy statement for the 1997 Annual Meeting of Stockholders which will be filed with the Securities and Exchange Commission no later than 120 days after the close of the year ended December 31, 1996. EXECUTIVE OFFICERS OF THE REGISTRANT ------------------------------------
Name Position Age - ---- -------- --- Jerry R. Welch Chairman of the Board, Chief Executive Officer 46 and Director Jerry A. Gordon President and Chief Operating Officer 51 Glen A. Skumlien Executive Vice President, Operations 47 Dane Seibert Senior Vice President, Marketing & Sales 48 John T. Vuagniaux Senior Vice President, Operations 48 Brenda K. Foster Vice President, Controller and Secretary 30 Dana B. Gilbert Vice President, National Accounts 48 Roger J. Gilchrist Vice President, Eastern Operations 48 Luz E. Gonzales Vice President, Human Resources 44 Brian T. Nakagawa Vice President, Technology & Information Systems 43
The executive officers are elected by and serve at the discretion of the Board of Directors until their successors are duly chosen and qualified. JERRY R. WELCH Mr. Welch has been a director of the Company since October 1991, has been the Chairman of the Board since April 1993 and was elected Chief Executive Officer in September 1994. He also served as Chairman of the Board from January 1992 through September 1992. From October 1991 until his resignation in September 1992, Mr. Welch served as the Company's Chief Executive Officer. Mr. Welch currently serves as a Senior Vice President of Kayne Anderson Investment Management and has served in such a capacity since January 1993. JERRY A. GORDON Mr. Gordon has served as the President and Chief Operating Officer of Glacier Water Services, Inc. since September 1994. Mr. Gordon joined the Company in June 1993 as Vice President of Marketing. From 1992 to 1993, Mr. Gordon was a business consultant specializing in management operations in start-up companies. GLEN A. SKUMLIEN Mr. Skumlien has served as Executive Vice President, Operations since September 1994. Prior to that, Mr. Skumlien served as Vice President-Operations from November 1991. Mr. Skumlien served as the Company's Director of Field Operations from 1989 to November 1991. DANE SEIBERT Mr. Seibert joined the Company in March 1995 as Senior Vice President of Marketing & Sales. From 1990 until joining the Company Mr. Seibert was Corporate Vice President - International Marketing for Miller/Zell Inc., a retail and merchandising consulting and design firm located in Atlanta, GA. 10 JOHN T. VUAGNIAUX Mr. Vuagniaux has served as Senior Vice President, Operations since November 1996, after joining the Company in January 1995 as Vice President, Service Support. From April 1994 to January 1995, Mr. Vuagniaux was owner of Logistics Solutions, a consulting firm specializing in logistics and operations management. From January 1992 to April 1994, Mr. Vuagniaux was Director of Distribution for Blockbuster Entertainment Corporation. BRENDA K. FOSTER Ms. Foster has served as Vice President, Controller since February 1996, after joining the Company as Controller in September 1995. Ms. Foster is a Certified Public Accountant, and worked for Ernst & Young LLP from 1988 to 1995. DANA B. GILBERT Mr. Gilbert has served as Vice President, National Accounts since February 1996. Mr. Gilbert joined the Company in January 1992 as a Sales Manager. From January 1994 to February 1996, Mr. Gilbert served as Regional Sales Manager for the Western Division. ROGER J. GILCHRIST Mr. Gilchrist has served as Vice President, Eastern Operations since February 1996. Mr. Gilchrist joined the Company in April 1988 as District Manager. In May 1993, Mr. Gilchrist assumed the position of Regional Sales Manager for the Eastern Division. LUZ E. GONZALES Mrs. Gonzales joined the Company in February 1995 as Vice President of Human Resources. From 1981 to February 1995, Mrs. Gonzales was Corporate Director of Human Resources for Southwest Water Company, a water service company. BRIAN T. NAKAGAWA Mr. Nakagawa has served as Vice President, Technology and Information Systems since February 1996, after joining the Company as Director of Technology and Information Systems in June 1995. Prior to joining the Company Mr. Nakagawa was the owner of New Frontier Technologies an information systems consulting company. ITEM 11. EXECUTIVE COMPENSATION There is incorporated herein by reference the information required by this Item in the Company's definitive proxy statement for the 1997 Annual Meeting of Stockholders which will be filed with the Securities and Exchange Commission no later than 120 days after the close of the year ended December 31, 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT There is incorporated herein by reference the information required by this Item in the Company's definitive proxy statement for the 1997 Annual Meeting of Stockholders which will be filed with the Securities and Exchange Commission no later than 120 days after the close of the year ended December 31, 1996. 11 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There is incorporated herein by reference the information required by this Item in the Company's definitive proxy statement for the 1997 Annual Meeting of Stockholders which will be filed with the Securities and Exchange Commission no later than 120 days after the close of the year ended December 31, 1996. 12 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents Filed with Report --------------------------- 1. Consolidated Financial Statements --------------------------------- The consolidated financial statements listed on the accompanying Index to Consolidated Financial Statements are filed as part of this report. The financial statement schedules have been omitted as they are either not required or not applicable. 2. Exhibits -------- The exhibits listed on the accompanying Index to Exhibits on page 27 are filed as part of this report. (b) Reports on Form 8-K ------------------- The registrant did not file any reports on Form 8-K during the last quarter for the year for which this report is filed. 13
INDEX ----- Page Number ------ Consolidated Financial Statements --------------------------------- Report of Independent Public Accountants................................................ 15 Consolidated Balance Sheets at December 31, 1996 and December 31, 1995.................. 16 Consolidated Statements of Income for the years ended December 31, 1996, December 31, 1995, and December 31, 1994.............................................. 17 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, December 31, 1995, and December 31, 1994.............................................. 18 Consolidated Statements of Cash Flows for the years ended December 31, 1996, December 31, 1995, and December 31, 1994.............................................. 19 Notes to Consolidated Financial Statements.............................................. 20
14 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors and Stockholders Glacier Water Services, Inc. We have audited the accompanying consolidated balance sheets of Glacier Water Services, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Glacier Water Services, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP San Diego, California January 23, 1997 15 GLACIER WATER SERVICES, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS ------
1996 1995 ---- ---- Current assets: Cash......................................................................... $ 11 $ 29 Accounts receivable.......................................................... 311 614 Inventories.................................................................. 2,946 2,200 Prepaid commissions and other................................................ 1,084 888 ------- ------- Total current assets........................................................ 4,352 3,731 Property and equipment, net of accumulated depreciation....................... 36,754 33,272 Other assets.................................................................. 4,961 3,635 ------- ------- Total assets.................................................................. $46,067 $40,638 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable............................................................. $ 640 $ 342 Accrued commissions.......................................................... 988 734 Accrued liabilities.......................................................... 1,654 1,289 ------- ------- Total current liabilities................................................... 3,282 2,365 Long-term debt................................................................ 15,820 11,087 Deferred income taxes......................................................... 2,979 3,099 Commitments and Contingencies Stockholders' equity: Preferred stock, $.01 par value, 100,000 shares authorized, no shares issued and outstanding............................... -- -- Common stock, $.01 par value, 10,000,000 shares authorized, 3,208,575 and 3,367,825 shares issued and outstanding in 1996 and 1995, respectively................................. 34 34 Additional paid-in capital................................................... 15,284 15,125 Retained earnings............................................................ 12,231 8,928 Treasury stock, 170,500 shares, at cost...................................... (3,563) -- ------- ------- Total stockholders' equity................................................. 23,986 24,087 ------- ------- Total liabilities and stockholders equity..................................... $46,067 $40,638 ======= =======
The accompanying notes are an integral part of these consolidated statements. 16 GLACIER WATER SERVICES, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995 1994 ---- ---- ---- Revenues........................................................... $ 46,091 $ 42,409 $ 36,557 Costs and expenses: Operating expenses............................................ 27,926 25,933 23,504 General and administrative expenses........................... 5,895 5,483 4,791 Depreciation and amortization................................. 6,769 5,756 3,662 ---------- ---------- ---------- Total costs and expenses.................................. 40,590 37,172 31,957 ---------- ---------- ---------- Income from operations............................................. 5,501 5,237 4,600 Interest expense, net.............................................. 783 723 317 ---------- ---------- ---------- Income before provision for income taxes........................... 4,718 4,514 4,283 Provision for income taxes......................................... 1,415 1,805 1,578 ---------- ---------- ---------- Net income......................................................... $ 3,303 $ 2,709 $ 2,705 ========== ========== ========== Net income per share............................................... $ .98 $ .80 $ .80 ========== ========== ========== Weighted average common and common equivalent shares outstanding..................................... 3,374,482 3,405,104 3,367,151 ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements. 17 GLACIER WATER SERVICES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL ------------------- PAID-IN RETAINED TREASURY SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL ---------- ------ ---------- -------- ------ ----- Balance, December 31, 1993....................... 3,236,986 $ $33 $ 13,718 $ 3,514 $ -- $ 17,265 Exercise of Stock Options........................ 57,108 -- 406 -- -- 406 Net Income....................................... -- -- -- 2,705 - 2,705 --------- ------ --------- -------- -------- -------- Balance, December 31, 1994....................... 3,294,094 33 14,124 6,219 -- 20,376 Exercise of Stock Options........................ 73,731 1 1,001 -- -- 1,002 Net Income....................................... -- -- -- 2,709 -- 2,709 --------- ------ --------- -------- -------- -------- Balance, December 31, 1995....................... 3,367,825 34 15,125 8,928 -- 24,087 Exercise of Stock Options........................ 11,250 -- 159 -- -- 159 Purchase of Treasury Stock....................... (170,500) -- -- -- (3,563) (3,563) Net Income....................................... -- -- -- 3,303 -- 3,303 --------- ------ --------- -------- -------- -------- Balance, December 31, 1996....................... 3,208,575 $ $34 $ 15,284 $ 12,231 $ (3,563) $ 23,986 ========= ====== ========= ======== ======== ========
The accompanying notes are an integral part of these consolidated statements. 18 GLACIER WATER SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS)
1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net income $ 3,303 $ 2,709 $ 2,705 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,769 5,756 3,662 Loss (gain) on disposal of assets 74 13 (46) Deferred tax provision (benefit) (120) 682 596 Change in operating assets and liabilities: Accounts receivable 303 105 (323) Inventories (746) (573) 11 Prepaid commissions and other (196) 99 (109) Payments for prepaid marketing incentives (2,966) (750) (2,144) Other assets (124) (201) (1,093) Accounts payable, accrued liabilities and accrued commissions 896 (455) 231 -------- -------- -------- Total adjustments 3,890 4,676 785 -------- -------- -------- Net cash provided by operating activities 7,193 7,385 3,490 -------- -------- -------- Cash flows from investing activities: Purchase of property and equipment (476) (182) (525) Net investment in vending equipment (8,064) (10,609) (10,874) Proceeds from sales of equipment -- -- 802 -------- -------- -------- Net cash used in investing (8,540) (10,791) (10,597) activities -------- -------- -------- Cash flows from financing activities: Proceeds from long-term debt 19,778 15,588 16,897 Principal payments on long-term debt (15,045) (12,700) (10,208) Proceeds from issuance of stock 159 474 406 Purchase of treasury stock (3,563) -- -- -------- -------- -------- Net cash provided by financing activities 1,329 3,362 7,095 -------- -------- -------- Net decrease in cash (18) (44) (12) Cash, beginning of year 29 73 85 -------- -------- -------- Cash, end of year $ 11 $ 29 $ 73 ======== ======== ======== SUPPLEMENTAL INFORMATION Cash paid for interest $ 748 $ 735 $ 235 ======== ======== ======== Cash paid for income taxes $ 1,010 $ 580 $ 793 ======== ======== ========
The accompanying notes are an integral part of these consolidated statements. 19 GLACIER WATER SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business The Company is primarily engaged in the operation of self-service vending machines that dispense drinking water to consumers. The machines are placed at supermarkets and other retail outlets under commission arrangements with the retailers. The Company's revenues are subject to seasonal fluctuations, with decreased revenues during cold weather months and increased revenues during hot weather months. The Company's machines are located in California, Nevada, Arizona, New Mexico, Texas, Louisiana, Mississippi, Georgia, Florida, and Illinois. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Glacier Water Services, Inc. and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires that management make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Inventories Inventories consist of raw materials, repair parts and vending machines in process of assembly, and are stated at the lower of cost (moving weighted average) or market. Costs associated with the assembly of vending machines are accumulated until finished machines are ready for installation at a retail location, at which time the costs are transferred to property and equipment. Inventories consist primarily of raw materials and repair parts at December 31, 1996 and 1995. Prepaid Commissions Prepaid commissions represent payments made to certain retailers based on a percentage of estimated monthly or quarterly vending machine revenues. Prepaid commissions at December 31, 1996 and 1995 were $490,000 and $371,000, respectively. Commission expense for the years ended December 31, 1996, 1995 and 1994 was $21,678,000, $19,643,000 and $17,320,000, respectively. Property and Equipment and Depreciation Property and equipment are recorded at cost and consist of the following at December 31 (in thousands):
1996 1995 ---- ---- Vending equipment................................. $ 51,433 $ 44,415 Equipment, furniture and fixtures................. 1,617 1,186 Leasehold improvements............................ 520 437 -------- -------- 53,570 46,038 Less: Accumulated depreciation and amortization... (16,816) (12,766) -------- -------- $ 36,754 $ 33,272 ======== ========
20 GLACIER WATER SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Depreciation is provided using the straight-line method over the estimated useful lives of the assets as follows: Vending equipment 10 years Equipment, furniture and fixtures 5 to 10 years Leasehold improvements Life of Lease The Company's vending equipment is depreciated to a 20% salvage value. Costs associated with installing vending equipment are capitalized and depreciated over five years. All maintenance, repair and refurbishment costs are charged to operations as incurred. Additions and major improvements are capitalized. Income Taxes Income taxes have been provided for using the liability method in accordance with FASB Statement No. 109, Accounting for Income Taxes. Net Income Per Share Net income per share of common stock is computed on the basis of the weighted average shares of common stock outstanding plus common equivalent shares arising from the effect of dilutive stock options, using the treasury stock method. Reclassifications Certain prior year amounts have been reclassified to conform to the current presentation. 2. SUPPLEMENTARY BALANCE SHEET INFORMATION Accounts Receivable Included in accounts receivable at December 31, 1996 is a $100,000 note receivable from Jerry A. Gordon, the Company's President and Chief Operating Officer. The note, issued during 1996, is non-interest bearing, and was repaid in full subsequent to December 31, 1996. Other Assets Other assets consist of the following at December 31 (in thousands):
1996 1995 ---- ---- Prepaid marketing incentives, net of accumulated amortization of $3,167 in 1996 and $2,867 in 1995........................... $4,606 $3,180 Other........................................................... 355 455 ------ ------ $4,961 $3,635 ====== ======
21 GLACIER WATER SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Prepaid marketing incentives consist of fees paid to retailers for future benefits associated with the ongoing placement of the Company's vending equipment at those locations. These fees are amortized over the life of the contract, generally ranging from three to five years. Accrued liabilities consist of the following at December 31 (in thousands):
1996 1995 ---- ---- Accrued compensation and related taxes................. $ 789 $ 570 Accrued income and other taxes......................... 639 500 Other accrued liabilities.............................. 226 219 ------ ------ $1,654 $1,289 ====== ======
3. LONG-TERM DEBT Long-term debt at December 31, 1996 and 1995 represents borrowings under the Company's bank credit agreement. The credit agreement provides for long-term borrowings of up to $18,000,000. Borrowings bear interest at the bank's prime rate (8.25% at December 31, 1996) or LIBOR plus 1.75% (7.4% at December 31, 1996), and the entire principal balance is due July 1, 2003. As of December 31, 1996, the Company had approximately $2,200,000 of funds available under the agreement. Borrowings under the agreement are secured by substantially all of the assets of the Company. The agreement provides, among other things, that the Company maintain certain debt coverage and other financial ratios, as defined in the agreement. The agreement also limits the payment of dividends and additional borrowings by the Company. 4. LEASES The Company leases certain vehicles, warehouse and office facilities under non-cancelable operating leases which expire on various dates through 2001. Future minimum lease payments under non-cancelable operating leases with initial terms of one or more years for the years ending December 31 are as follows (in thousands):
1997........................... $1,019 1998........................... 653 1999........................... 332 2000........................... 21 2001........................... 16 ------ Total minimum lease payments... $2,041 ======
Total lease expense for the years ended December 31, 1996, 1995 and 1994 was $1,284,000, $1,109,000, and $864,000, respectively. 22 GLACIER WATER SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. INCOME TAXES Significant components of the provision (benefit) for income taxes for the years ended December 31, 1996, 1995 and 1994 are as follows (in thousands):
1996 1995 1994 ---- ---- ---- Federal Income Taxes: Current........................................... $ 1,418 $ 934 $ 835 Deferred.......................................... (75) 460 507 ------- ------- ------- 1,343 1,394 1,342 State and Local Income Taxes and Other: Current............................................ 117 189 147 Deferred........................................... (45) 222 89 ------- ------- ------- 72 411 236 ------- ------- ------- Total $ 1,415 $ 1,805 $ 1,578 ======= ======= ======= Deferred tax liabilities and assets result from the following at December 31 (in thousands): 1996 1995 ---- ---- Deferred tax liabilities: Property and equipment....................................... $ 4,801 $ 4,431 Other........................................................ -- 43 ------- ------- Total deferred tax liabilities................................ 4,801 4,474 ------- ------- Deferred tax assets: Alternative minimum tax credit............................... (1,183) (1,091) Manufacturer's investment credit............................. (492) -- State deferred tax adjustment................................ (16) (238) Accruals and reserves........................................ (131) (46) ------- ------- Total deferred tax assets..................................... (1,822) (1,375) ------- ------- Net deferred tax liabilities.................................. $ 2,979 $ 3,099 ======= ======= The Company's effective income tax rate differs from the federal statutory rate as follows: 1996 1995 1994 ------- ------- ------- Federal statutory rate................................ 34.0% 34.0% 34.0% State and local taxes, net of federal benefit......... 6.7% 6.0% 2.8% Manufacturer's investment credit generated............ (10.7%) -- -- ------- ------- ------- Effective rate........................................ 30.0% 40.0% 36.8% ======= ======= =======
The Company is currently under examination by the Internal Revenue Service for the year ended December 31, 1992. Management does not anticipate that the results of such audit will have a material impact on the Company's financial statements. 23 GLACIER WATER SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. STOCKHOLDERS' EQUITY Preferred Stock The Company's Certificate of Incorporation authorizes the issuance of 100,000 shares of preferred stock, par value $.01 per share. The rights, preferences and privileges of the authorized shares (none of which have been issued) may be established by the Board of Directors without further action by the holders of the Company's common stock. Treasury Stock In December 1995, the Board of Directors authorized the purchase of up to 250,000 shares of the Company's common stock in the open market. During 1996, 170,500 shares were repurchased under this program. In December 1996, the Board of Directors authorized the additional purchase of up to 250,000 shares of the Company's common stock. As of December 31, 1996, the Company was authorized to repurchase 329,500 shares, approximately 10.3% of the Company's total shares outstanding. 7. STOCK OPTION PLANS The Company has two stock option plans, the 1992 Stock Option Plan, which was terminated in 1994, and the 1994 Stock Compensation Program. The Company accounts for these plans under APB Opinion No. 25, under which no compensation cost has been recognized. The following pro forma disclosures represent what the Company's net income and earnings per share would have been had the Company recorded compensation cost for these plans in accordance with the provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation." (Statement No. 123).
1996 1995 ---- ---- Pro Forma Net Income (in thousands) $2,984 $2,568 Pro Forma EPS $ .88 $ .75
Because the method of accounting required under Statement No. 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The Company has reserved 275,000 shares of common stock under the 1994 Stock Compensation Program, as amended, for issuance under a stock option plan that provides for the issuance of incentive and non-qualified stock options to key employees, including directors and consultants. Incentive stock options are granted at no less than the fair market value on the date of the grant. Non-qualified options may be granted at prices determined by the Board of Directors, but at no less than 85% of the fair market value on the date of the grant. Options generally have a term of 10 years and become exercisable at a rate of 25% per annum. The Program also allows directors to receive stock options in lieu of their annual directors' fees. Options granted under this provision (Deferral Options) have a term of five years and become exercisable one year following the date of grant. 24 GLACIER WATER SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company had reserved 360,000 shares of common stock under the 1992 Stock Option Plan for issuance under a stock option plan that provides for the issuance of incentive and non-qualified stock options to key employees, including directors and consultants. Incentive stock options are granted at no less than the fair market value on the date of the grant. Non-qualified options may be granted at prices determined by the Board of Directors, but at no less than 85% of the fair market value on the date of the grant. Options become exercisable at a rate of 25% per annum. The 1992 Stock Compensation Plan was terminated in 1994 with a balance of 42,250 shares of common stock available for grant which were transferred to the 1994 Stock Compensation Program. A summary of the status of the Company's two stock option plans at December 31, 1996 and activity during the year then ended follows:
Wtd. Avg. Exercise Shares Price --------- -------- Balance at December 31, 1995..................... 305,354 $15.08 Granted.......................................... 76,300 $19.45 Exercised........................................ (11,250) $ 9.88 Canceled......................................... (25,750) $19.63 -------- ------ Balance at December 31, 1996..................... 344,654 $15.88 Exercisable at December 31, 1996................. 153,604 $13.76 Weighted average fair value of options granted... $8.57
The 136,750 shares under the 1992 plan outstanding at December 31, 1996 have exercise prices between $8.25 and $13.63, with a weighted average exercise price of $11.39 and a weighted average remaining contractual life of 6.4 years. 98,500 of these options are exercisable; their weighted average exercise price is $11.08. The 207,904 shares under the 1994 plan outstanding at December 31, 1996 have exercise prices between $15.25 and $19.88, with a weighted average exercise price of $18.82 and a weighted average remaining contractual life of 7.5 years. 55,104 of these options are exercisable; their weighted average exercise price is $18.55. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1995 and 1996, respectively: risk-free interest rates of 7.2% and 5.8%; no expected dividend yield; expected lives of 7 years for regular options and 5 years for Deferral Options in both years; expected volatility of 30% in both years. 8. SIGNIFICANT CUSTOMERS The following table sets forth the percentage of the Company's total revenues that were derived from major customers for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994 ---- ---- ---- Company A 10.2% 5.8% -- Company B 9.0% 9.8% 13.3%
25 GLACIER WATER SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9. SUBSEQUENT EVENT (UNAUDITED) On March 28, 1997, the Company acquired substantially all of the assets of the Aqua-Vend division of McKesson Water Products Company, a wholly-owned subsidiary of McKesson Corporation, for $9.0 million. The transaction was accounted for under the purchase method of accounting, resulting in the valuation of the purchased assets at fair market value, with no resulting goodwill. In March 1997, the Company's bank line of credit was amended to provide for borrowings of up to $35 million. The asset purchase was funded with additional borrowing on this line of credit. 10. QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter Third Quarter Fourth Quarter ------------- -------------- ------------- -------------- (in thousands, except shares and per share amounts) Year Ended December 31, 1996: Net revenues $ 10,015 $ 12,036 $ 13,709 $ 10,331 Income from operations 794 1,516 2,295 896 Net income 360 799 1,556 588 Earnings per share .11 .24 .46 .18 Weighted average shares 3,406,797 3,389,589 3,398,650 3,327,953 Year Ended December 31, 1995: Net revenues $ 9,193 $ 10,470 $ 13,193 $ 9,553 Income from operations 925 1,309 2,264 739 Net income 472 661 1,233 343 Earnings per share .14 .20 .36 .10 Weighted average shares 3,419,851 3,385,400 3,397,746 3,405,572
26 INDEX TO EXHIBITS Exhibit No. - ------- 3.1 Certificate of Incorporation of Registrant (i.) 3.2 Bylaws of Registrant (i.) 4.1 Specimen Stock Certificate of Registrant (i.) 10.1 Amended and Restated 1992 Stock Incentive Plan (ii.) 10.2 Vending Machine Agreement between the Vons Companies, Inc. and BWVI (i.) 10.3 Location Agreement between Food 4 Less Supermarkets, Inc. and Services, Inc. (vii.) 10.4 Location Agreement between Ralph's Grocery Company, Cala Co., and Services, Inc. 10.5 Form of Indemnification Agreement with Officers and Director (i.) 10.6 Lease Agreement between Enterprise Leasing and GW Services, Inc. (iii.) 10.7 Lease Agreement between Robert N. and Jean K. Rindt and Glacier Water Services Inc. relating to the Carlsbad, CA facility (iv.) 10.8 1994 Stock Compensation Plan (v.) 10.8.1 Amendment No. 1 to 1994 Stock Compensation Plan (vi.) 10.8.2 Amendment No. 2 to 1994 Stock Compensation Plan 10.9 Asset Purchase Agreement by and between Glacier Water Services, Inc. and McKesson Corp. and McKesson Water Products Company 10.10 Credit Agreement between Tokai Bank of California and Glacier Water Services, Inc. and GW Services, Inc. (vi.) 10.10.1 Modification of Note and Credit Agreement between Tokai Bank of California and Glacier Water Services, Inc. and GW Services, Inc. effective February 6, 1996 (viii.) 10.10.2 Modification of Note and Credit Agreement between Tokai Bank of California and Glacier Water Services, Inc. and GW Services, Inc. effective June 20, 1996 10.10.3 Modification of Note and Credit Agreement between Tokai Bank of California and Glacier Water Services, Inc. and GW Services, Inc. effective March 28, 1997 10.10.4 Amendment to Guarantee 21.1 Subsidiaries of the Registrant 23.1 Consent of Arthur Andersen LLP Independent Public Accountants - -------------------- (i.) Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-45360) amendments thereto. (ii.) Incorporated by reference to the Company's Registration Statement on Form S-8 (File Number 33-61942) filed April 30, 1993. (iii. Incorporated by reference to the Company's Annual Report on Form 10-K and amendments thereto dated March 11, 1994 for the year ended December 31, 1993. (iv.) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 1994. (v.) Incorporated by reference to the Company's Registration Statement on Form S-8 (File Number 33-80016) filed June 8, 1994. (vi.) Incorporated by reference to the Company's Annual Report on Form 10-K dated March 15, 1995. (vii.) Incorporated by reference to the Company's proxy statement from the 1995 Annual Meeting of Stockholders filed May 1, 1995. (viii.) Incorporated by reference to the Company's Annual Report on Form 10-K dated March 15, 1996.
27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GLACIER WATER SERVICES, INC. By /s/Jerry A. Gordon -------------------------------------------- Jerry A. Gordon President and Chief Operating Officer By /s/Brenda K. Foster --------------------------------------------- Brenda K. Foster Vice President, Controller Date: March 31, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 31, 1997. Signature Title - --------- ----- Principal Executive Officer: /s/Jerry A. Gordon President, Chief Operating Officer - ---------------------------- Jerry A. Gordon /s/Jerry R. Welch Chairman of the Board, Chief Executive - ---------------------------- Jerry R. Welch Officer and Director /s/Timothy G. Clark Director - ---------------------------- Timothy G. Clark /s/Peter B. Foreman Director - ---------------------------- Peter B. Foreman /s/Richard A. Kayne Director - --------------------------- Richard A. Kayne /s/Robert V. Sinnott Director - ---------------------------- Robert V. Sinnott /s/Brenda K. Foster Vice President, Controller - --------------------------- Brenda K. Foster 28 EX-10.4 2 LOCATION AGREEMENT Exhibit 10.4 LOCATION AGREEMENT - -------------------------------------------------------------------------------- This Agreement is made as of December 13, 1996 by and between Ralph's Grocery Company, a California corporation ("Account"), and GW Services, Inc., a California corporation ("Glacier"). This Agreement constitutes the entire agreement between the parties with regard to the subject matter hereof. The Agreement supersedes and cancels the Agreement between Food-4-Less Supermarkets, Inc. and Glacier dated November 11, 1994. Glacier is the owner of vended self-serve water dispensing machines, both coin operated and non-coin operated ("Machines"), and desires to place its machines at all supermarket location now or hereafter owned or leased by Account (the "Locations"), including without limitation all Locations operating under the "Ralph's", "Food-4-Less", "Cala Foods", "Bell Markets" or "Foods Co" names, in order to sell processed water to the public. Account is agreeable to permitting the Machines to be placed at the Locations on terms and conditions set forth below: 1. Term. This Agreement shall commence December 13, 1996, and shall ---- remain in effect for a period of 60 months after all of the Machines have been installed at the Locations listed on Schedule A (the "Initial Term"). After the Initial Term, this Agreement shall automatically renew for successive one-year terms unless it is canceled by either party upon 60 days' written notice prior to the commencement of any such one-year term. Glacier will send to Account a reminder of impending termination date between 60 and 90 days prior to the end of this Agreement. 2. Placement of Machines. Account grants Glacier the exclusive right to --------------------- place Machines at such places as Glacier and Account shall mutually determine inside and/or outside the supermarket buildings located at all existing Locations owned or leased by Account, including but not limited to those Locations listed on Schedule A, and at any additional locations not previously listed on Schedule A owned or leased by Account during the term of the Agreement (a "New Location"). On or prior to the operation of any New Location by the Company, Account shall provide Glacier with written notice of the New Location, and the New Location shall be added to Schedule A. During the term of this Agreement, Account shall not authorize or permit the placement of any other water vending device inside or outside of any existing or New Location without obtaining the prior written consent of Glacier. If a new Location is acquired or operated after the date of this Agreement and Account reasonably determines that because of the format of such store that it does not desire to supply the new Location with machines under this Agreement, such new Location shall not be subject to this Agreement. 3. Costs. ----- (a) Account's Costs. Account shall incur the costs of providing --------------- electrical current and city tap water necessary for the operation of the Machines. (b) Glacier's Costs. Glacier shall incur the costs of water, electrical --------------- and drain connection improvements necessary for the operation of the Machines. Glacier shall secure and pay all permits, licenses, regulatory fees and inspections necessary for the proper maintenance of chemicals and equipment in connection with the operation of the Machines. Glacier shall incur the costs of the removal of its Machines from any Location and shall repair any damage caused by such removal. 4. Collection of Sales. Glacier shall be responsible for collecting sales ------------------- from coin operated Machines at each of the Locations. Account shall be responsible for collecting sales from non-coin operated Machines at each of the Locations. 5. Commissions. ----------- (a) Amount. Glacier agrees to pay Account a commission (the "Commission") ------ with respect to each Location in an amount equal to fifty-three percent (53%), multiplied by each month's sales from the Machines at such Locations, less taxes, fees (including without limitation permits, licenses, regulatory fees and inspections), and losses due to vandalism and theft relating to the operation of the Machines. (b) Payment. On or before the first day of each month during the term of this Agreement: (i) with respect to Locations where only coin operated Machines are located, Glacier Shall pay Account estimated Commissions based upon estimated sales for such month, (ii) with respect to Locations where only non-coin operated Machines are located, Account shall pay Glacier the amount by which estimated sales to be collected by Account for such month exceed estimated Commissions for such month, and (iii) with respect to Locations where both coin operated and non-coin operated Machines are located, (A) if estimated Commissions based upon estimated sales for the month exceed the amount of estimated sales to be collected by Account for such month, Glacier shall pay Account the net difference or (B) if estimated sales to be collected by Account for the such month exceed estimated Commissions for such month, Account shall pay Glacier the net difference. Payments for any subsequent month shall be adjusted by an amount equal to the difference between the estimated Commission paid for any previous month and the actual Commission for such month. (c) Accounting. Glacier shall provide Account with a monthly accounting ---------- of financial data on each Machine relating to the collection of sales and calculation of Commissions. 6. Compensation and Marketing Allowances. ------------------------------------- [Confidential information has been omitted from this section. The information that has been omitted has been filed with the Securities and Exchange Commission.] (a) Compensation Allowance. Upon the execution of this Agreement, Glacier ---------------------- agrees to pay Account a nonrefundable Compensation Allowance of _________________________________________ for such expenses as have been incurred to do feasibility studies, market research, financial analysis, stock surveys, set up and other activities. (b) Marketing Allowance. Upon the execution of this Agreement, Glacier ------------------- agrees to pay Account a pre-paid Marketing Allowance of_____________ (b) (c) Should this contract be terminated for any reason during the first seventeen (17) months of the initial term, Account shall pay Glacier _______________________. If Glacier is unable to operate its Machine(s) at any of the original ___ Locations during the remaining term of forty-three (43) months , Glacier shall be entitled to receive a refund (a "Refund") with respect to such Location in an amount equal to ______________________ multiplied by the number of months remaining on this contract; provided, however, that Glacier shall not be entitled to a Refund if Glacier's inability to operate its Machines(s) at such Location arises primarily from breach of Glacier's obligations hereunder. (d) Additional Marketing Allowance. So long as Glacier has installed and ------------------------------ continues to operate Machines at not less than ___ Locations, Glacier shall pay Account an additional marketing allowance ("Additional Marketing Allowance") equal to ______________ multiplied by the number of months remaining until the expiration of the Initial Term on the date one or more Machines are initially installed at any New Location. The Additional Marketing Allowance shall be paid on or prior to the date of such initial installation. If Glacier is unable to operate its Machine(s) at any new Location during the Initial Term, Glacier shall be entitled to receive a refund (a "Refund") with respect to such Location in an amount equal to ____________________ multiplied by the number of months remaining until the expiration of the Initial Term on the date Glacier first becomes unable to operate its Machine(s) at such Location; provided, however, that Glacier shall not be entitled to a Refund if Glacier's inability to operate its Machine(s) at such Location arises primarily from breach of Glacier's obligations hereunder. 7. Pricing. Glacier shall advise and consult with Account prior to ------- determining the vend price for water at any Location, taking into consideration the area and the competitive market. 8. Maintenance of Machines; Compliance with Laws. --------------------------------------------- (a) Glacier shall maintain its Machines in good condition and repair. Account shall promptly report to Glacier the theft or, damage to, or malfunction of any Machine. (b) Each party warrants and represents that it shall in every manner of its business related to this agreement obey and conform to all valid federal, state and local laws, regulations and directives. Any breach of said warranty and representation or claim of breach shall be the sole responsibility of the breaching party and the breaching party will, for said breach or claim of breach, hold the other party completely safe and harmless. 9. Insurance. Glacier shall at all times carry adequate insurance to --------- cover the products, equipment and materials supplied, used or consumed in connection with the operation of the Machines, including without limitation, the insurance described in Exhibit B. 10. No Conflicts. Account represents and warrants to Glacier that at all ------------ times during the term of this Agreement, (i) the transactions contemplated by this Agreement and the performance of the terms and provisions of this Agreement will not contravene, conflict with or result in any breach of, or constitute a default under, any agreement or instrument to which Account is a party or by which Account or any of its properties is bound and (ii) Account is not and will not become a party to any other agreement with respect to the products and services of the type covered by this Agreement. If a store is acquired in any manner after the date hereof and is subject to a supply agreement for products similar to products to be provided under this agreement, then such acquired store shall become subject to this agreement only upon the expiration of such other supply agreement. 11. Indemnification. --------------- (a) Indemnification of Account. Glacier shall indemnify and hold -------------------------- harmless Account and its directors, officers, parent corporations, sister corporations, subsidiaries, assigns, liability, damage, injury to property or person, death or expense (including reasonable attorney's fees and expenses) which directly or indirectly arise from Glacier's products, services, actions or omissions, including without limitation, any action or claim brought by Glacier's employees, agents and representatives, pertaining to or arising out of Glacier's performance under this Agreement at any Location or otherwise or alleging design, manufacture, marketing or distribution or a defective product or product liability matter; provided, however, that Glacier shall not be liable to Account for any claim, litigation, judgment, loss, liability, damage, injury to property or person, death or expense arising from or based upon the negligence of Account. (b) Indemnification of Glacier. Account shall indemnify and hold harmless -------------------------- Glacier and its directors, officers, parent corporations, sister corporations, subsidiaries, assigns, agents and employees from any claim, litigation, judgment, loss, liability, damage, injury to property or person, death or expense (including reasonable attorneys' fees and expenses) which directly or indirectly arise from Account's actions or omissions, including without limitation any action or claim brought by Account's employees, agents and representatives, pertaining to or arising out of Account's performance under this Agreement or arising out of or based upon the breach of any representation or warranty of Account contained in this Agreement' provided, however, that Account shall not be liable to Glacier for any claim, litigation, judgment, loss, liability, damage, injury to property or person, death or expense arising from or based upon the negligence of Glacier. 12. Termination. ----------- (a) Material Breach. This Agreement only may be terminated by a party, in --------------- the event of a material breach hereof by the non-terminating party that is not cured within twenty days (excluding Saturdays, Sundays and any days on which banks located in the State of California are authorized or obligated to close) following written notice thereof by the terminating party. Upon any termination of this Agreement by Glacier in the event of a material breach hereof by Account, Glacier shall be entitled to receive a Refund (calculated in accordance with Section 6(c) above) with respect to each Location. The obligation of Account to pay the Refund shall be unconditional, in addition to any liability Account may otherwise have to Glacier and may not be offset against any liability Glacier may have to Account. 13. Use, Control and Ownership. Glacier acknowledges that this Agreement -------------------------- constitutes only a license to use a portion of the property at each Location and shall not be construed as a lease, easement or any other interest in real property. Subject to Section 6(b), Account shall at all times retain the right to temporarily or permanently discontinue its supermarket operations at any Location. Account acknowledges that the Machines shall at all times remain the sole property of Glacier. Glacier shall have the right to remove Machines from any Location if, in Glacier's sole discretion, such Machines are not sufficiently profitable to merit continued operation at such Location. 14. Entry; Cooperation. ------------------ (a) Maintenance. Account shall allow Glacier's agents, contractors and ----------- employees to enter each Location for the purpose of maintaining and servicing the Machines during regular business hours. (b) Promotional Activities. Account shall cooperate with Glacier in ---------------------- promoting Glacier's products and services and shall not interfere with sales from or discourage the use of the Machines by any means whatsoever. Without limiting the foregoing, Account shall permit Glacier and its authorized agents and representatives to demonstrate Glacier's products and conduct other promotional activities or point of purchase programs at the Locations as Glacier shall deem appropriate, at no cost to Glacier. 15. Assignment. This Agreement shall be binding upon the parties hereto, ---------- as well as their respective legal representatives, successors and assigns. No assignment of this Agreement by Account shall be effective without the prior written consent of Glacier. Any assignment of this Agreement by Account in contravention of this Agreement shall constitute a material breach hereof by Account. 16. Confidentiality. Glacier and Account shall keep the terms and --------------- conditions of this Agreement strictly confidential, except as otherwise required by law, including the filing of this Agreement with any governmental agency pursuant to public reporting requirements. 17. Governing Law. This Agreement shall be governed by the laws of the ------------- State of California. 18. Independent Contractor. Nothing in this Agreement shall be construed ---------------------- as creating a joint venture or partnership between Account and Glacier. Account and Glacier agree that Glacier is an independent contractor and not an employee, agent or representative of Account. 19. Notices. Any notice which one party desires to give the other shall ------- be in writing and shall be wither delivered personally or sent by United States mail, postage prepaid, certified, return receipt requested to the current address of each party: If to Account: Ralphs Grocery Company 1100 W. Artesia Blvd. Compton, CA 90220 Attn: Legal Department If to Glacier: Glacier Water Services, Inc. 2261 Cosmos Court Carlsbad, CA 92009 Attn: Jerry Gordon 20. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. This Agreement is signed this 13th day of December, 1996. Ralphs Grocery Company By: /s/ Tom Dahlen ---------------------------------------- Name: Tom Dahlen Title: Senior Vice President, Marketing Cala Co. By: /s/ Tom Dahlen ---------------------------------------- Name: Tom Dahlen Title: Senior Vice President, Marketing GW Services, Inc. By: /s/ Jerry A. Gordon ---------------------------------------- Name: Jerry A. Gordon Title: President, Chief Operating Officer EXHIBIT A LOCATIONS --------- [Confidential information has been omitted from this section. The information that has been omitted has been filed with the Securities and Exchange Commission.] EXHIBIT B INSURANCE REQUIREMENTS ---------------------- 1. Glacier shall provide evidence of Public Liability and Broad Form Property Damage Insurance. The limits of said coverage shall be not less than $1,000,000 Combined Single Limit for Bodily Injury, Death and/or Property Damage. 2. Glacier shall provide evidence of Automobile Bodily Injury and Property Damage Insurance covering all vehicles moving under their own power and engaged in the work under contract. Coverage shall be no less than $1,000,000 Combined Single Limit for Bodily Injury, Death and/or Property Damage. 3. Glacier shall provide evidence of Workers' Compensation Insurance on its and subcontractor's employees in accordance with applicable law. 4. Seller shall submit to Account evidence of the above required insurance which shall contain certification by the insurance companies that such insurance shall not be canceled or materially changed without at least thirty (30) days prior notification to Account. 5. All insurance must be placed with the company rated by "Best" and have a "Best" rating of at least B+,VII AMENDMENT NO. 1 TO LOCATION AGREEMENT The Location Agreement ("Agreement"). Made as of the 13th day of December, 1996, in Los Angeles County, California, by and between GW Services, Inc., a California corporation (hereinafter referred to as "Glacier") and Ralphs Grocery Company, a Delaware corporation (hereinafter referred to as "Account") shall be amended as follows: 1. In the first paragraph, the first and second lines shall be deleted and in their place shall be: "This Agreement is made as of December 13, 1996 by and between Ralphs Grocery Company, a Delaware corporation ("Account") and GW Services, Inc., a California..." 2. In the first paragraph, Account shall include the following: "Cala Co., a Delaware corporation." 3. The second paragraph shall have the third, fourth and fifth lines deleted and in their place shall be: "...locations now or hereafter owned or leased by Account (the "Locations"), including without limitation all Locations operating under the "Ralphs", "Food 4 Less", "Cala Foods", "Bell Markets", or "Foods Co." names by Account or its subsidiaries in order to sell processed water to the public." 4. Paragraph 1, Term, shall have the first, second and third lines deleted and ---- in their place shall be: Term. This Agreement shall commence on the day, month and year first ---- hereinabove written and shall continue for a period of sixty (60) months (the "Initial Term"). After the Initial Term, this Agreement shall..." 5. Paragraph 1, Term, shall have the sixth and seventh lines deleted and in ---- their place shall be: "...Account a reminder of impending termination date between 80 and 90 days prior to the end of this Agreement; failure of Glacier to send such reminder notice will relieve Account of its obligation to give 60 days notice so the Account may the renewed Agreement at any time thereafter, at will and without cause, upon sixty (60) days' written notice." 6. Paragraph 2, Placement of Machines, shall have the third line deleted and in --------------------- its place shall be: "...outside the supermarket buildings located at all existing Locations owned or leased by Account, subject to any approvals required by the landlord(s) of Account..." 7. Paragraph 2, Placement of Machines, shall have the eighth line deleted and --------------------- in its place shall be: "...Location shall be added to Schedule A. However the term for such additions to Schedule A subsequent to execution hereof shall coincide with the terms set forth in Paragraph 1 above. During the term of this Agreement, Account shall not..." 8. Paragraph 2, Placement of Machines, shall have the twelfth line deleted and --------------------- in its place shall be: "...determines, in its sole discretion, that because of the format of such store it does not desire to supply the new..." 9. Paragraph 8, Maintenance of Machines; Compliance with Laws, Subparagraph --------------------------------------------- (a), shall have the second line deleted and in its place shall be: "...shall endeavor to promptly report to Glacier the theft of, damage to, or malfunction of any Machine." 10. Paragraph 10, No Conflicts, shall have the first line deleted and in its ------------ Place shall be: "10. No Conflicts. Account state that at all times..." ------------ 11. Paragraph 11, Indemnification, Subparagraph (b), Indemnification of Glacier, --------------- -------------------------- shall have the seventh and eighth lines deleted and in its place shall be: "...arising out of Account's performance under the Agreement provided..." 12. Paragraph 12, Termination, shall have the following Subparagraph (a) added ----------- and the present Subparagraph (s) shall be renumbered Subparagraph (b): "(a) Termination Provision. Should this Agreement terminate prior to the end --------------------- of the term hereof, Account agrees to repay any unearned portion of the Marketing Allowance received by Account in accordance with the provisions of Section 6(c) and 6(d) of the Agreement, which payment shall be Glacier's sole and exclusive remedy for such termination." 13. Paragraph 12, Termination, Subparagraph (b) [originally Subparagraph (a)], ----------- Material Breach, shall have the fourth line deleted and in its place shall have the fourth line deleted and in its place shall be: "..authorized or obligated to close) following receipt of written notice thereof by the terminating party, Upon..." 14. Paragraph 12, Termination, Subparagraph (b), Material Breach, shall have the ----------- --------------- seventh, eighth and ninth lines deleted and in its place shall be: "...with respect to each Location." 15. Paragraph 14, Entry; Cooperation, Subparagraph (b), Promotional Activities, ------------------ ---------------------- shall have the sixth line deleted and in its place shall be: "...appropriate, with the consent of Account, at no cost to Account." 16. Paragraph 15, Assignment, shall have the third line deleted and in its place ---------- shall be: "15. Assignment. This Agreement shall be binding upon the parties hereto, as ---------- well as their respective legal representatives, successors and assigns. No assignment of this Agreement by either party shall be effective without the prior written consent of the other. Any assignment of this Agreement in contravention of this Agreement shall constitute a material breach hereof." 17. Force Maleure. Neither party shall be liable for delay or failure to ------------- perform in whole or part any of the promises or responsibilities of this Agreement by reason of contingencies beyond it control, including lack or failure of raw materials, labor disturbances (including strikes and lockouts), ware, acts of God, hurricanes, fires, storms, accidents, government regulation or interference of any other cause whatever beyond its control. 18. Exhibit B, Insurance Requirements, shall have the first and second lines deleted and in their place shall be: 19. "5. Glacier shall submit to Account, before commencement of work, a certificate of insurance evidencing the above-required insurance which shall name Account as an additional insured and shall contain certification by the insurance companies that such insurance shall not be canceled or materially..." 20. All other terms and conditions of the Agreement by and between Glacier and Account shall remain the same. In the event of any conflict in the language of the Agreement and this Addendum relating to specific terms, conditions or obligations dealt with herein between the parties, the language of this Addendum shall supersede and shall prevail over those conflicting terms. 21. The Agreement (including this Addendum) may be amended only by a written instrument signed by all parties hereto. 22. The effective date of this Addendum and the Agreement of which it is a part shall be the same. 23. The Agreement with Addendum set forth the entire agreement between Glacier and Account relating to the subject matter hereof. Neither party relies upon any representation or warranty, express or implied, not expressly set forth therein. All of the terms and conditions of the location agreement and addendum are hereby fully agreed to by the parties. GW Services, Inc. Ralph's Grocery Company - ----------------- ----------------------- /s/ Jerry A. Gordon /s/ Tom Dahlen ------------------------------ -------------------------------- Jerry A. Gordon, Tom Dahlen, President & COO Senior Vice President, Marketing Cala Co. -------- /s/ Tom Dahlen -------------------------------- Tom Dahlen, Senior Vice President, Marketing EX-10.8.2 3 AMENDMENT NO. 2 TO 1994 STOCK COMPENSATION PLAN Exhibit 10.8.2 SECOND AMENDMENT TO GLACIER WATER SERVICES, INC. 1994 STOCK COMPENSATION PROGRAM 1. Purpose ------- The purpose of this Second Amendment to Glacier Water Services, Inc. 1994 Stock Compensation Program (the "Amendment") is to modify certain provisions pursuant to which members of the Board of Directors of Glacier Water Services, Inc. may elect to receive Deferral Election stock options in lieu of cash director fees. 2. Definitions ----------- Terms used in this Amendment and not defined herein shall have the meaning ascribed to them in the Glacier Water Services, Inc. 1994 Stock Compensation Program ( the "Program"). 3. Vesting ------- The last sentence of Paragraph 3 of the 1994 Non-Employee Directors Stock Option Plan is amended by deleting the text "10 years" and replacing it with the text "five (5) years". 4. Date of the Amendment --------------------- This Second Amendment is dated September 17, 1996, and shall be effective for all Deferral Election Stock Options granted prior to the date hereof or granted hereafter. EX-10.9 4 ASSET PURCHASE AGREEMENT Exhibit 10.9 ASSET PURCHASE AGREEMENT dated as of March 28, 1997 by and between GLACIER WATER SERVICES, INC. and MCKESSON CORPORATION and MCKESSON WATER PRODUCTS COMPANY with respect to the assets of its AQUA-VEND DIVISION TABLE OF CONTENTS ----------------- This Table of Contents is not part of the Agreement to which it is attached but is inserted for convenience only. ARTICLE I SALE OF ASSETS AND CLOSING
Page No. ---- 1.01 Assets........................................................ 1 1.02 Liabilities................................................... 4 1.03 Purchase Price; Allocation.................................... 5 1.04 Closing....................................................... 6 1.05 Prorations; Reimbursements.................................... 6 1.06 Further Assurances............................................ 7 1.07 Third-Party Consents.......................................... 8 ARTICLE II REPRESENTATIONS AND WARRANTIES OF MWP AND MCKESSON 2.01 Organization.................................................. 9 2.02 Authority..................................................... 9 2.03 No Conflicts.................................................. 10 2.04 Governmental Approvals and Filings............................ 10 2.05 Books and Records............................................. 11 2.06 Financial Statements.......................................... 11 2.07 No Undisclosed Liabilities.................................... 11 2.08 Tax........................................................... 11 2.09 Legal Proceedings............................................. 11 2.10 Compliance With Laws and Orders............................... 12 2.11 Benefit Plans; ERISA.......................................... 12 2.12 Real Property................................................. 12 2.13 Tangible Personal Property.................................... 13 2.14 Intellectual Property Rights.................................. 13 2.15 Business Contracts............................................ 14 2.16 Location Agreements........................................... 14 2.17 Licenses...................................................... 14 2.18 Employees; Labor Relations.................................... 15 2.19 Environmental Matters......................................... 15 2.20 Inventory..................................................... 16 2.21 Vehicles...................................................... 16 2.22 Entire Business............................................... 16 2.23 Brokers....................................................... 16 ARTICLE III REPRESENTATIONS AND WARRANTIES OF GLACIER
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Page No. ---- 3.01 Organization.................................................. 17 3.02 Authority..................................................... 17 3.03 No Conflicts.................................................. 17 3.04 Governmental Approvals and Filings............................ 18 3.05 Brokers....................................................... 18 ARTICLE IV COVENANTS OF MWP AND MCKESSON 4.01 Delivery of Books and Records, etc............................ 18 4.02 Noncompetition................................................ 18 4.03 Licenses...................................................... 20 ARTICLE V COVENANTS OF GLACIER 5.01 Nonsolicitation of Employees.................................. 21 5.02 Removal of Property........................................... 21 5.03 Use of Tradename.............................................. 22 5.04 Use of Toll-Free Telephone Number............................. 22 ARTICLE VI TAX MATTERS AND POST-CLOSING TAXES 6.01 Transfer Taxes............................................... 22 ARTICLE VII EMPLOYEE BENEFITS MATTERS 7.01 Offers........................................................ 23 7.02 Severance..................................................... 23 7.03 COBRA Continuation Coverage................................... 23 7.04 Benefit Plans................................................. 24 7.05 Welfare Benefit and Worker's Compensation Claims.............. 24 7.06 WARN; Certain Indemnities..................................... 25 ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES 8.01 Survival of Representations and Warranties.................... 25 ARTICLE IX INDEMNIFICATION 9.01 Indemnification............................................... 25
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Page No. ---- 9.02 Method of Asserting Claim..................................... 27 9.03 Tax Treatment of Indemnity Payments........................... 27 ARTICLE X DEFINITIONS 10.01 Definitions.................................................. 27 ARTICLE XI MISCELLANEOUS 11.01 Notices...................................................... 34 11.02 Entire Agreement............................................. 35 11.03 Expenses..................................................... 35 11.04 Confidentiality.............................................. 35 11.05 Waiver....................................................... 36 11.06 Amendment.................................................... 36 11.07 No Third Party Beneficiary................................... 36 11.08 No Assignment; Binding Effect................................ 36 11.09 Headings..................................................... 37 11.10 Governing Law................................................ 37 11.11 Counterparts................................................. 38
EXHIBITS Exhibit A General Assignment and Bill of Sale Exhibit B Assumption Agreement Exhibit C Secretary's Certificate of MWP Exhibit D Opinion of Counsel to MWP and McKesson Exhibit E Secretary's Certificate of Glacier -iii- This ASSET PURCHASE AGREEMENT dated as of March 28, 1997, is made and entered into by and between GLACIER WATER SERVICES, INC., a Delaware corporation ("Glacier"), and MCKESSON WATER PRODUCTS COMPANY, a California corporation ------- ("MWP") and a wholly-owned subsidiary of MCKESSON CORPORATION, a Delaware --- corporation ("McKesson"). Capitalized terms not otherwise defined herein have -------- the meanings set forth in Section 10.01. ------------- WHEREAS, MWP is engaged through its Aqua-Vend division in the business of manufacturing and operating coin-operated vending machines which filter and otherwise reduce impurities from "tap" water and dispense water ("Machines") to -------- customers (the "Business"); and -------- WHEREAS, MWP desires to sell, transfer and assign to Glacier, and Glacier desires to purchase and acquire from MWP, certain of the assets of MWP relating to the operation of the Business, and in connection therewith, Glacier has agreed to assume certain of the liabilities of MWP relating to the Business, all on the terms set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and suffi ciency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I SALE OF ASSETS AND CLOSING 1.01 Assets. (a) Assets Transferred. On the terms and subject to ------ ------------------ the conditions set forth in this Agreement, MWP will sell, transfer, convey, assign and deliver to Glacier, and Glacier will purchase and pay for, at the Closing, free and clear of all Liens, all of MWP's right, title and interest in, to and under the following Assets and Properties of MWP used or held for use in connection with the Business, except as otherwise provided in Section 1.01(b), --------------- as the same shall exist on the Closing Date (the "Assets"): ------ (i) Real Property Leases. The leases and subleases of real property -------------------- described in Section 1.01(a)(ii)(B) - Real Property LeasesSection ------- 1.01(a)(i) of the Disclosure Schedule leased in connection with the ------------------------------------- Business, including all "Water Stop" vending machine leases and subleases, to which MWP is the lessee or sublessee, together with any options to purchase the underlying property and leasehold improvements thereon, and in each case all other rights, subleases, licenses, permits, deposits and profits 1 appurtenant to or related to such leases and subleases (the "Real Property ------------- Leases"); ------ (ii) Inventory. All inventories of bottles, parts, coins in coin- --------- changing mechanisms in Machines (for which Glacier shall reimburse MWP pursuant to Section 1.05(c)), office and other supplies, demonstration equipment, pack aging materials and other accessories related thereto, in each case, which are used or held for use by MWP in the conduct of the Business, together with all rights of MWP against suppliers of such inventories (the "Inventory"); --------- (iii) Tangible Personal Property. All Machines (on location and in -------------------------- storage) and all furniture, fixtures, equipment, and other tangible personal property (other than Inventory and Vehicles) used or held for use by MWP solely in the conduct of the Business (including but not limited to the Machines and other items listed in Section 1.01(a)(iii) of the --------------------------- Disclosure Schedule) (the "Tangible Personal Property"); ------------------- -------------------------- (iv) Personal Property Leases. The leases of Tangible Personal ------------------------ Property (including but not limited to the leases described in Section ------- 1.01 (a) (iv) of the Disclosure Schedule as to which MWP is the lessee ---------------------------------------- or sublessee, together with any options to purchase the underlying property (the "Personal Property Leases"); ----------------------- (v) Business Contracts. The Contracts relating to the location and ------------------ placement of Machines and such other customer location agreements (the "Location Agreements"), Machine maintenance agreements, purchase orders, -------------------- and marketing, manufacturing and distribution arrangements described in Section 1.01(a)(v) of the Disclosure Schedule to which MWP is a party and --------------------------------------------- utilized in the conduct of the Business (the "Business Contracts"); ------------------ (vi) Prepaid Expenses. All fees, taxes and other prepaid expenses ---------------- (other than Trade Payments) paid by MWP relating to the Business or the Assets (the "Prepaid Expenses"); ---------------- (vii) Intangible Personal Property. All goodwill, rights, privileges, ---------------------------- claims, causes of action and options relating to the Business and the Assets, all of MWP's right, title and interest in, to and under the names "Aqua-Vend" or "The Water Stop" or any derivative thereof, and the Aqua- Vend logo, and all of MWP's trademarks, applications for trademarks, unregistered trademarks, Intellectual Property licenses, patents and applications for patents each as 2 described in Section 1.01(a)(vii) of the Disclosure Schedule (the ----------------------------------------------- "Intangible Personal Property"); ----------------------------- (viii) Licenses. All Licenses (including applications therefor) -------- utilized in the conduct of the Business (the "Business Licenses"); ----------------- (ix) Vehicles. The motor vehicles listed in Section 1.01(a)(ix) of -------- ---------------------- the Disclosure Schedule owned by MWP and used or held for use in the ----------------------- conduct of the Business (the "Vehicles"); -------- (x) Security Deposits. All utility, tenant and other security ----------------- deposits deposited by MWP relating or pertaining to the Business or the Assets (the "Security Deposits"); ----------------- (xi) Books and Records. The Books and Records listed in Section ----------------- ------- 1.01(a)(xi) of the Disclosure Schedule used or held for use by MWP in the -------------------------------------- conduct of the Business or otherwise relating to the Assets, other than the minute books, stock transfer books and corporate seal of MWP (the "Business -------- Books and Records"); ----------------- (xii) Trade Payments. All trade bonuses, slotting fees, machine -------------- placement fees and prepaid commissions paid by MWP relating to the Business or the Assets (the "Trade Payments"), including, without limitation, those -------------- listed in Section 1.01(a)(xii) of the Disclosure Schedule; and ----------------------------------------------- (xiii) Other Assets and Properties. All other Assets and Properties of --------------------------- MWP used or held for use solely in connection with the Business except as otherwise provided in Section 1.01(b) (the "Other Assets"). --------------- ------------ To the extent any of the Business Books and Records are items susceptible to duplication and are either (x) used in connection with any of MWP's businesses other than the Business or (y) are required by Law to be retained by MWP, MWP may deliver photostatic copies or other reproductions from which, in the case of Business Books and Records referred to in clause (xi), information solely concerning MWP's businesses other than the Business has been deleted. (b) Excluded Assets. Notwithstanding anything in this Agreement to --------------- the contrary, the following Assets and Properties of MWP (the "Excluded Assets") --------------- shall be excluded from and shall not constitute Assets: (i) Cash. Cash (including coins deposited into Machines for the ---- purchase of water prior to the Closing Date, but excluding coins in coin- changing mechanisms in the 3 Machines), commercial paper, certificates of deposit and other bank deposits, treasury bills and other cash equivalents; (ii) Insurance. Life insurance policies of officers and other --------- employees of MWP and all other insurance policies whether or not relating to the operation of the Business; (iii) Employee Benefit Plans. All assets owned or held by any trust or ---------------------- other funding vehicle established pursuant to any Benefit Plan; (iv) Tax Refunds. All refunds or credits, if any, of Taxes due to ----------- MWP; (v) Corporate Records. All Books and Records of MWP other than those ----------------- listed in Section 1.01(a)(xi) of the Disclosure Schedule. ---------------------------------------------- (vi) Litigation Claims. Any rights (including indemnification) and ----------------- claims and recoveries under litigation of MWP against third parties arising out of or relating to events prior to the Closing Date; (vii) Excluded Obligations. The rights of MWP in, to and under all -------------------- Contracts of any nature, the obligations of MWP under which expressly are not assumed by Glacier pursuant to Section 1.02(b); --------------- (viii) Leased Vehicles. The motor vehicles leased by MWP, whether or --------------- not used or held for use in connection with the Business (the "Leased ------ Vehicles"); -------- (ix) Regeneration Facility. All Assets and Properties used or held --------------------- for use by MWP solely in connection with the regeneration of resins. (x) Other Assets. The items described in Section 1.01(b)(viii) of the ------------ ---------------------------- Disclosure Schedule; and ------------------- (xi) Rights under this Agreement. MWP's rights under this Agreement. --------------------------- 1.02 Liabilities. (a) Assumed Liabilities. In connection with the ----------- ------------------- sale, transfer, conveyance, assignment and delivery of the Assets pursuant to this Agreement, on the terms and subject to the conditions set forth in this Agreement, at the Closing, Glacier will assume and agree to pay, perform and discharge when due the following obligations of MWP arising in connection with the operation of the Business, as the same shall 4 exist on the Closing Date (the "Assumed Liabilities"), and no others: ------------------- (i) Real Property Lease Obligations. All obligations of MWP under the ------------------------------- Real Property Leases arising and to be performed on or after the Closing Date, and excluding any such obligations arising or to be performed prior to the Closing Date; (ii) Personal Property Lease Obligations. All obligations of MWP ----------------------------------- under the Personal Property Leases arising and to be performed on or after the Closing Date, and excluding any such obligations arising or to be performed prior to the Closing Date; and (iii) Obligations under Contracts and Licenses. All obligations of MWP ---------------------------------------- under the Business Contracts and Business Licenses arising and to be performed on or after the Closing Date, and excluding any such obligations arising or to be performed prior to the Closing Date. (b) Retained Liabilities. Except for the Assumed Liabilities, Glacier -------------------- shall not assume by virtue of this Agreement or the transactions contemplated hereby, and shall have no liability for, any Liabilities of MWP (including, without limitation, those related to the Business) of any kind, character or description whatsoever (the "Retained Liabilities"). MWP shall discharge in a -------------------- timely manner or shall make adequate provision for all of the Retained Liabilities, provided that MWP shall have the ability to contest, in good faith, -------- any such claim relating to any of the Retained Liabilities asserted in respect thereof by any Person other than Glacier and its Affiliates. 1.03 Purchase Price; Allocation. (a) Purchase Price. The aggregate -------------------------- -------------- purchase price for the Assets and for the covenant of MWP contained in Section ------- 4.02 is $9,000,000 (the "Purchase Price") and is payable at the Closing in cash, - ---- -------------- in the manner provided in Section 1.04. ------------ (b) Allocation of Purchase Price. Glacier and MWP shall negotiate in ---------------------------- good faith to determine the allocation of the consideration paid by Glacier for the Assets, such allocation to be decided upon within 60 days after the Closing Date. Each party hereto agrees (i) that any such allocation shall be consistent with the requirements of Section 1060 of the Code and the regulations thereunder, (ii) to complete jointly and to file separately Form 8594 with its Federal income Tax Return consistent with such allocation for the tax year in which the Closing Date occurs and (iii) that no party will take a position on any income, transfer or gains Tax Return, before any Governmental or Regulatory Authority charged with the collection 5 of any such Tax or in any judicial proceeding, that is in any manner inconsistent with the terms of any such allocation without the consent of the other party. 1.04 Closing. The Closing will take place at the offices of Milbank, ------- Tweed, Hadley & McCloy, 601 South Figueroa Street, 30th Floor, Los Angeles, California, or at such other place as Glacier and MWP mutually agree, at 10:00 A.M. local time on the Closing Date. At the Closing, Glacier will deliver, among other things, the Purchase Price by wire transfer of immediately available funds to such account as MWP may reasonably direct by written notice delivered to Glacier. Simultaneously, (a) MWP will assign and transfer to Glacier good and valid title in and to the Assets (free and clear of all Liens) by delivery of (i) a General Assignment and Bill of Sale substantially in the form of Exhibit A hereto (the "General Assignment"), duly executed by MWP, (ii) an - --------- ------------------ assignment of the Intellectual Property in form and substance reasonably satisfactory to Glacier, (iii) such other good and sufficient instruments of conveyance, assignment and transfer, in form and substance reasonably acceptable to Glacier's counsel, as shall be effective to vest in Glacier good title to the Assets (the General Assignment and the other instruments referred to in clauses (ii) and (iii) being collectively referred to herein as the "Assignment ---------- Instruments"), and (b) Glacier will assume from MWP the due payment, performance - ----------- and discharge of the Assumed Liabilities by delivery of (i) an Assumption Agreement substantially in the form of Exhibit B hereto (the "Assumption --------- ---------- Agreement"), duly executed by Glacier, and (ii) such other good and sufficient - --------- instruments of assumption, in form and substance reasonably acceptable to MWP's counsel, as shall be effective to cause Glacier to assume the Assumed Liabilities as and to the extent provided in Sec tion 1.02(a) (the Assumption ---------------- Agreement and such other instruments referred to in clause (ii) being collectively referred to herein as the "Assumption Instruments"). At the ---------------------- Closing, there shall also be delivered to MWP and Glacier the opinions, certificates and other contracts, documents and instruments as reasonably requested by Glacier or MWP. 1.05 Prorations; Reimbursements. The following prorations relating -------------------------- to the Assets and the ownership and operation of the Business will be made as of the Closing Date, with MWP liable to the extent such items relate to any time period prior to the Closing Date and Glacier liable to the extent such items relate to periods beginning with and subsequent to the Closing Date: (a) rents, taxes and other items payable by MWP under the Real Property Leases; and (b) the amount of rents, taxes (including, without limitation, any personal property taxes) and charges for sewer, water, telephone, electricity and other utilities relating to the Business and the Assets. In addition, Glacier shall reimburse MWP for the following items as of the 6 Closing Date: (x) the unamortized portion of all Prepaid Expenses, (y) all refundable Security Deposits, and (z) coins in coin-changing mechanisms in the Machines being sold by MWP hereunder. Except as otherwise agreed by the parties, the net amount of all such prorations and reimbursements will be settled and paid as soon as reasonably practicable after the Closing Date and at such time as the amount of the expenses listed in (a) and (b) above are known to the parties. 1.06 Further Assurances; Post-Closing Cooperation. (a) At any time -------------------------------------------- or from time to time, at Glacier's request and without further consideration, MWP shall execute and deliver to Glacier such other instruments of sale, transfer, conveyance, assignment and confirmation, provide such materials and infor mation and take such other actions as Glacier may reasonably deem necessary or desirable in order more effectively to transfer, convey and assign to Glacier, and to confirm Glacier's title to, all of the Assets, and, to the full extent permitted by Law, to put Glacier in actual possession and operating control of the Business and the Assets and to assist Glacier in exercising all rights with respect thereto, and otherwise to cause MWP to fulfill its obligations under this Agreement and the Operative Documents. (b) MWP hereby agrees to fully cooperate and promptly assist Glacier and its Representatives in a commercially reason able manner: (i) to demand and receive from time to time any and all the Assets and to make endorsements and give receipts and releases for and in respect of the same and any part thereof; (ii) to institute, prosecute, compromise and settle any and all Actions or Proceedings that Glacier may deem proper in order to collect, assert or enforce any claim, right or title of any kind in or to the Assets; (iii) to defend or compromise any or all Actions or Proceedings in respect of any of the Assets; and (iv) to do all such acts and things in relation to the matters set forth in the preceding clauses (i) through (iii) as Glacier may reasonably request, including, without limitation, full and prompt cooperation and assistance with Glacier's efforts to dispute or reduce any property taxes assessed against the Business or the Assets by a Governmental or Regulatory Authority. Glacier hereby agrees to fully cooperate and promptly assist MWP and its counsel in a commercially reasonable manner to defend or compromise any or all Actions or Proceedings with respect to the Business. (c) Each party will afford the other party, its counsel and its accountants, during normal business hours, reasonable access to the books, records and other data relating to the Business in its possession with respect to periods prior to the Closing and the right to make copies and extracts there from, to the extent that such access may be reasonably required 7 by the requesting party in connection with (i) the preparation of Tax Returns, (ii) the determination or enforcement of rights and obligations under this Agreement, (iii) compliance with the requirements of any Governmental or Regulatory Authority, (iv) the determination or enforcement of the rights and obligations of any Indemnified Party or (v) in connection with any actual or threatened Action or Proceeding. Further each party agrees for a period extending six (6) years after the Closing Date not to destroy or otherwise dispose of any such books, records and other data unless such party shall first offer in writing to surrender such books, records and other data to the other party and such other party shall not agree in writing to take possession thereof during the ten (10) day period after such offer is made. (d) If, in order properly to prepare its Tax Returns, other documents or reports required to be filed with Governmental or Regulatory Authorities or its financial statements or to fulfill its obligations hereunder, it is necessary that a party be furnished with additional information, documents or records relating to the Business not referred to in paragraph (c) above, and such information, documents or records are in the possession or control of the other party, such other party shall use its best efforts to furnish or make available such information, documents or records (or copies thereof) at the recipient's request, cost and expense. Any information obtained by McKesson, MWP or Glacier in accordance with this paragraph shall be held confidential by such party in accordance with Section 11.04. ------------- (e) Notwithstanding anything to the contrary contained in this Section, if the parties are in an adversarial relation ship in litigation or arbitration, the furnishing of information, documents or records in accordance with paragraphs (c) or (d) of this Section shall be subject to applicable rules relating to discovery. (f) Glacier acknowledges that the listing of Assets in the Disclosure Schedule referenced in this Agreement has been prepared by MWP on the basis of the most recent compilation of data that was available to MWP at the time of preparation and is not necessarily correct in all respects as of the Closing Date. MWP agrees that the Disclosure Schedules shall be deemed to include all additions to such compilations from the date of the compilation through the Closing Date. To the best knowledge of MWP, since the date of such compilations there have been no material dispositions of Assets outside the ordinary course of the Business which are not included in such compilations. 1.07 Third-Party Consents. To the extent that any Real Property -------------------- Lease, Personal Property Lease, Business Contract or Business License is not assignable without the consent of another party, this Agreement shall not constitute an assignment 8 or an attempted assignment thereof if such assignment or attempted assignment would constitute a breach thereof. MWP and Glacier shall use their best efforts on a commercially reasonable basis to obtain the consent of such other party to the assignment of any such Real Property Lease, Personal Property Lease, Bus iness Contract or Business License to Glacier in all cases in which such consent is or may be required for such assignment. If any such consent shall not be obtained, MWP shall cooperate with Glacier in any reasonable arrangement designed to provide for Glacier the benefits intended to be assigned to Glacier under the relevant Real Property Lease, Personal Property Lease, Busi ness Contract or Business License, including (i) entering into a mutually satisfactory subcontracting or similar agreement with Glacier and (ii) enforcement at the cost and for the account of Glacier of any and all rights of MWP against the other party thereto arising out of the breach or cancellation thereof by such other party or otherwise. If and to the extent that such arrangement cannot be made, Glacier shall have no obligation pursuant to Section ------- 1.02 or otherwise with respect to any such Real Property Lease, Personal - ---- Property Lease, Business Contract or Business License. ARTICLE II REPRESENTATIONS AND WARRANTIES OF MWP AND MCKESSON MWP and McKesson, jointly and severally, hereby represent and warrant to Glacier as follows: 2.01 Organization. Each of MWP and McKesson is a corporation duly ------------ organized, validly existing and in good standing under the laws of its state of incorporation. MWP has full corporate power and authority to conduct the Business as and to the extent now conducted and to own, use and lease the Assets. MWP is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which it conducts the Business or holds any of the Assets except such jurisdictions, if any, in which the failure to be so qualified or in good standing would not have a material adverse effect upon the Business. 2.02 Authority. Each of MWP and McKesson has full corporate power --------- and authority to execute and deliver this Agreement and the Operative Documents to which it is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby, including without limitation to sell and transfer (pursuant to this Agreement) the Assets. The execution and delivery by each of MWP and McKesson of this Agreement and the Operative Documents to which it is a party, and the performance by each of MWP and McKesson of its obligations hereunder and thereunder, have been 9 duly and validly authorized by the Board of Directors of MWP and McKesson, respectively, no other corporate action on the part of MWP, McKesson or their respective stockholders being necessary. This Agreement has been duly and validly executed and delivered by each of MWP and McKesson and constitutes, and upon the exe cution and delivery by each of MWP and McKesson of the Operative Documents to which it is a party, such Operative Documents will constitute, legal, valid and binding obligations of MWP and McKesson enforceable against MWP and McKesson in accordance with their terms. 2.03 No Conflicts. The execution and delivery by each of MWP and ------------ McKesson of this Agreement do not, and the execution and delivery by each of MWP and McKesson of the Operative Docu ments to which it is a party, the performance by each of MWP and McKesson of its obligations under this Agreement and such Operative Documents and the consummation of the transactions contemplated hereby and thereby will not: (a) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the articles of incorporation or by-laws (or other comparable corporate charter documents) of MWP or McKesson; (b) subject to obtaining the consents, approvals and actions, making the filings and giving the notices disclosed in Section 2.04 of the Disclosure ------------------------------ Schedule, conflict with or result in a violation or breach of any term or - -------- provision of any Law or Order applicable to MWP, McKesson or any of their Assets and Properties, except where such conflict could not reasonably be expected to have a material adverse effect on the Business or the Assets; or (c) except as disclosed in Section 2.03 of the Disclosure Schedule, --------------------------------------- (i) conflict with or result in a violation or breach of, (ii) constitute (with or without notice or lapse of time or both) a default under, (iii) require MWP or McKesson to obtain any consent, approval or action of, make any filing with or give any notice to any Person as a result or under the terms of, or (iv) result in the creation or imposition of any Lien upon MWP, McKesson or any of their Assets and Properties under, any Contract or License to which MWP or McKesson is a party or by which any of their Assets and Properties is bound, except where such conflict, default, failure or result could not reasonably be expected to have a material adverse effect on the Business or the Assets. 2.04 Governmental Approvals and Filings. Except as disclosed in ---------------------------------- Section 2.04 of the Disclosure Schedule, no consent, approval or action of, - --------------------------------------- filing with or notice to any Governmental or Regulatory Authority on the part of MWP or McKesson is required in connection with the execution, delivery and per formance of this Agreement or any of the Operative Documents to 10 which it is a party or the consummation of the transactions contemplated hereby or thereby. 2.05 Books and Records. Except as set forth in Section 2.05 of the ----------------- ------------------- Disclosure Schedule, none of the Business Books and Records is recorded, stored, - ------------------- maintained, operated or otherwise wholly or partly dependent upon or held by any means (including any electronic, mechanical or photographic process, whether computerized or not) which (including all means of access thereto and therefrom) are not under the exclusive ownership and direct control of one or more Employees. 2.06 Financial Statements. All of the financial statements to be -------------------- delivered to Glacier pursuant to Section 4.04 of this Agreement (i) will be ------------ prepared from the Books and Records of MWP in accordance with GAAP, (ii) will fairly present the financial condition and results of operations of the Business as of the respective dates thereof and for the respective periods covered thereby, and (iii) will be compiled from Business Books and Records regularly maintained by management and used to prepare the financial statements of MWP in accordance with the principles stated therein. MWP has maintained the Business Books and Records in a manner sufficient to permit the preparation of such financial statements in accordance with GAAP, the Business Books and Records fairly reflect, in all material respects, the income, expenses, assets and liabilities of the Business and the Business Books and Records provide a fair and accurate basis for the preparation of the financial statements to be delivered to Glacier in accordance with Section 4.04. ------------ 2.07 No Undisclosed Liabilities. Except as disclosed in Section 2.07 -------------------------- ------------ of the Disclosure Schedule or any other Section of the Disclosure Schedule, - -------------------------- there are no Liabilities against, relating to or affecting the Business or any of the Assets, other than Liabilities incurred in the ordinary course of business consistent with past practice which in the aggregate are not material to the Condition of the Business. 2.08 Taxes. There are no Liens for Taxes upon any of the Assets and, ----- to the Knowledge of MWP and McKesson, no event has occurred which with the passage of time or the giving of notice, or both, could reasonably be expected to result in a Lien for Taxes on any of the Assets. Glacier will not assume or otherwise become liable for any Taxes relating to the Business or the Assets for any period ending on or before the Closing Date. 2.09 Legal Proceedings. Except as disclosed in Section 2.09 of the ----------------- ------------------- Disclosure Schedule (with paragraph references corresponding to those set forth - ------------------- below): 11 (a) there are no Actions or Proceedings pending or, to the Knowledge of MWP or McKesson, threatened against, relating to or affecting MWP or McKesson with respect to the Business or any of its Assets and Properties which (i) could reasonably be expected to result in the issuance of an Order restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement or any of the Operative Documents or otherwise result in a material diminution of the benefits contemplated by this Agreement or any of the Operative Documents to Glacier, or (ii) if determined adversely to MWP or McKesson, could reasonably be expected to result in any injunction or other equitable relief that would interfere in any material respect with the Business; (b) there are no facts or circumstances Known to MWP or McKesson that could reasonably be expected to give rise to any Action or Proceeding that would be required to be disclosed pursuant to clause (a) above; and (c) there are no Orders outstanding against MWP or McKesson with respect to the Business. 2.10 Compliance With Laws and Orders. Except as disclosed in Section ------------------------------- ------- 2.10 of the Disclosure Schedule, each of MWP and McKesson is not, nor has it at - ------------------------------- any time within the last five (5) years been, nor has it received any notice that it is or has at any time within the last five (5) years been, in violation of or in default under, in any material respect, any Law or Order applicable to the Business or the Assets, except where such violation or default could not reasonably be expected to have a material adverse effect on the Business or the Assets. 2.11 Benefit Plans; ERISA. MWP does not have an obligation to -------------------- contribute to a "multiemployer plan" within the meaning of Section 3(37) of ERISA with respect to any Employee or former Employee and no Employee is covered by a collective bargaining agreement. No transaction contemplated by this Agreement will result in liability to the Pension Benefit Guaranty Corporation under Section 4069 of ERISA with respect to Glacier, MWP, McKesson or any corporation or organization controlled by or under common control with any of the foregoing within the meaning of Section 4001 of ERISA, and no event, condition or set of circumstances exists or existed that could result in any such liability with respect to Glacier, MWP, McKesson or any such corporation or organization. 2.12 Real Property. (a) MWP has a valid and subsisting leasehold ------------- estate in and the right to quiet enjoyment of the real properties subject to the Real Property Leases described in Section 1.01(a)(i) of the Disclosure Schedule --------------------------------------------- for the full term thereof. Each Real Property Lease is a legal, 12 valid and binding agreement, enforceable in accordance with its terms, of MWP and of each other Person that is a party thereto, and except as set forth in Section 2.12(a) of the Disclosure Schedule, there is no, nor has MWP received - ------------------------------------------ any notice of any, default (or any condition or event which, after notice or lapse of time or both, would constitute a default) thereunder. MWP does not owe any brokerage commissions with respect to any such leased space. (b) MWP has delivered to Glacier prior to the execution of this Agreement true and complete copies of all Real Property Leases (including any amendments and renewal letters). (c) Except as disclosed in Section 2.12(c) of the Disclosure Schedule, ------------------------------------------ the improvements on the real properties subject to the Real Property Leases are in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted, are adequate and suitable for the purposes for which they are presently being used. 2.13 Tangible Personal Property. MWP is in possession of and has -------------------------- good title to, or has valid leasehold interests in or valid rights under Contract to use, all the Tangible Personal Property. All the Tangible Personal Property is free and clear of all Liens other than Liens disclosed in Section ------- 2.13 of the Disclosure Schedule, and is in good working order and condition, - ------------------------------- ordinary wear and tear excepted other than as disclosed in Section 1.01(a)(iii) -------------------- of the Disclosure Schedule, and its use complies in all material respects with - -------------------------- all applicable Laws. 2.14 Intellectual Property Rights. MWP has interests in or uses only ---------------------------- the Intellectual Property disclosed in Section 1.01(a)(vii) of the Disclosure -------------------------------------- Schedule in connection with the conduct of the Business, each of which MWP - -------- either has all right, title and interest in or a valid and binding rights under Contract to use. Except as disclosed in Section 2.14 of the Disclosure ------------------------------ Schedule, (i) MWP has the exclusive right to use the Intellectual Property - -------- disclosed in Section 1.01(a)(vii) of the Disclosure Schedule, (ii) all ----------------------------------------------- registrations with and applications to Governmental or Regulatory Authorities in respect of such Intellectual Property are valid and in full force and effect and are not subject to the payment of any Taxes or maintenance fees or the taking of any other actions by MWP to maintain their validity or effectiveness, (iii) MWP has taken reasonable security measures to protect the secrecy, confiden tiality and value of its trade secrets in respect of the Business and (iv) to the Knowledge of MWP and McKesson, no such Intellec tual Property is being infringed by any other Person. Except as disclosed in Section 2.14 of the Disclosure ------------------------------ Schedule, neither MWP nor McKesson has received notice that MWP is infringing - -------- any Intellectual Property of any other Person in connection with the 13 conduct of the Business, no claim is pending or, to the Knowledge of MWP and McKesson, has been made to such effect that has not been resolved and, to the Knowledge of MWP and McKesson, MWP is not infringing any Intellectual Property of any other Person in connection with the conduct of the Business. 2.15 Business Contracts. (a) Section 1.01(a)(v) of the Disclosure ------------------ ------------------------------------ Schedule contains a true and complete list of all material Business Contracts - -------- used or held for use in the Business. Each Business Contract is in full force and effect and constitutes a legal, valid and binding agreement, enforceable in accordance with its terms, of each party thereto; and except as disclosed in Section 2.15(a) of the Disclosure Schedule none of MWP, McKesson or, to the - ------------------------------------------ Knowledge of MWP and McKesson, any other party to such Business Contract is, or has received notice that it is, in violation or breach of or default under any such Business Contract (or with notice or lapse of time or both, would be in violation or breach of or default under any such Business Contract) in any material respect; and (b) Except as disclosed in Section 2.15(b) of the Disclosure Schedule, ------------------------------------------ (i) the execution, delivery and performance by each of MWP and McKesson of this Agreement and the Operative Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, will not (A) result in or give to any Person any right of termination, cancellation, acceleration or modification in or with respect to, (B) result in or give to any Person any additional rights or entitlement to increased, additional, accelerated or guaranteed payments under, or (C) result in the creation or imposition of any Lien upon MWP or McKesson or any of its Assets and Properties under, any Business Contract, and (ii) neither MWP nor McKesson is a party to or bound by any Business Contract that has been or could reasonably be expected to be, individually or in the aggregate with any other Business Contracts, materially adverse to the Condition of the Business. 2.16 Location Agreements. Except as disclosed in Section 2.16 of the ------------------- ------------------- Disclosure Schedule, the execution, delivery and performance by each of MWP and - ------------------- McKesson of this Agreement and the Operative Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, will not result in or give to any Person any right to retain any of the unamortized portion of the Trade Payments paid under each Location Agreement should any such Location Agreement be terminated prior to its term. 2.17 Licenses. Except as disclosed in Section 2.17 of the Disclosure -------- ------------------------------ Schedule, (with paragraph references corresponding to those set forth below): - -------- 14 (a) MWP owns or validly holds all Licenses that are material, individually or in the aggregate, to the Business; (b) Each Business License (other than pending applications therefor) is valid, binding and in full force and effect, except where a failure to maintain such License could not reasonably be expected to have a material adverse effect on the Business or the Assets. (c) MWP is not, nor has MWP or McKesson received any notice that MWP is, in default (or with the giving of notice or lapse of time or both, would be in default) under any Business License, except where such default could not reasonably be expected to have a material adverse effect on the Business or the Assets; and (d) the execution, delivery and performance by each of MWP and McKesson of this Agreement and the Operative Docu ments to which it is a party, and the consummation of the transactions contemplated hereby and thereby, will not (A) result in or give to any Person any right of termi nation, cancellation, acceleration or modification in or with respect to, (B) result in or give to any Person any additional rights or entitlement to increased, additional, accelerated or guaranteed payments under, or (C) result in the creation or imposition of any Lien upon MWP, McKesson or any of their Assets and Properties under, any Business License. 2.18 Employees; Labor Relations. Except as disclosed in Section 2.18 -------------------------- ------------ of the Disclosure Schedule, no Employee is presently a member of a collective - -------------------------- bargaining unit and, to the Knowledge of MWP and McKesson, there are no threatened or con templated attempts to organize for collective bargaining purposes any of the Employees. 2.19 Environmental Matters. (a) Except as disclosed in Section --------------------- ------- 2.19(a) of the Disclosure Schedule, to the knowledge of MWP or McKesson, neither - ---------------------------------- MWP, McKesson nor any previous owner, lessee, tenant, occupant or user of the real property which is subject to the Real Property Leases (the "Real Property") ------------- used, generated, manufactured, treated, handled, refined, processed, released, discharged, stored or disposed of any Hazardous Materials on or under the Real Property in violation of any Hazardous Materials Laws, or transported any Hazardous Materials to or from the Real Property in violation of any Hazardous Materials Laws. Except as disclosed in Section 2.19(a) of the Disclosure --------------------------------- Schedule, to the knowledge of MWP or McKesson, no underground tanks or - -------- underground deposits of Hazardous Materials exist on, under or in the Real Property, in each case except in compliance with all Hazardous Materials Laws. 15 (b) Except as disclosed in Section 2.19(b) to the Disclosure Schedule, ------------------------------------------ to the knowledge of MWP or McKesson, as of the Closing Date, there are no (i) enforcement, clean-up, removal, mitigation or other governmental or regulatory actions instituted or, to the knowledge of MWP or McKesson, contemplated or threatened pursuant to any Hazardous Materials Laws affecting the Real Property, (ii) claims made or threatened by any person or Governmental Body relating to the Real Property against the Real Property, MWP or McKesson relating to damage, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials nor (iii) any occurrence or condition on the Real Property that could subject to the Real Property to any material restrictions on occupancy, transferability or use under any Hazardous Materials Laws. 2.20 Inventory. All the Inventory consists of a quality and quantity --------- usable and salable in the ordinary course of business consistent with past practice, subject to normal and customary allowances in the industry for damage and outdated items. All items included in the Inventory are the property of MWP, free and clear of any Lien, have not been pledged as collateral, are not held by MWP on consignment from others and conform in all material respects to all standards applicable to such inventory or its use or sale imposed by Governmental or Regulatory Authorities. 2.21 Vehicles. Section 1.01(a)(ix) of the Disclosure Schedule -------- ---------------------------------------------- contains a true and complete list of all motor vehicles owned by MWP and used or held for use in the conduct of the Business (except for the Leased Vehicles included in the Excluded Assets). Except as disclosed in Section 2.21 of the ------------------- Disclosure Schedule, MWP has good and valid title to each Vehicle, free and - ------------------- clear of all Liens. 2.22 Entire Business. The sale of the Assets by MWP to Glacier --------------- pursuant to this Agreement will effectively convey to Glacier the entire Business and all of the tangible and intan gible property used by MWP (whether owned, leased or held under license by MWP, by any of MWP's Affiliates or by others) solely in connection with the conduct of the Business as heretofore conducted by MWP (except for the Excluded Assets). Except as disclosed in Section 2.22 of the Disclosure Schedule, there are no shared facilities or - --------------------------------------- services which are used in connection with the Business and any other business or operations of MWP or any of MWP's Affiliates. 2.23 Brokers. All negotiations relative to this Agreement and the ------- transactions contemplated hereby have been carried out by MWP and McKesson directly with Glacier without the intervention of any Person on behalf of MWP or McKesson in such manner as to give rise to any valid claim by any Person against 16 Glacier for a finder's fee, brokerage commission or similar payment. ARTICLE III REPRESENTATIONS AND WARRANTIES OF GLACIER Glacier hereby represents and warrants to MWP and McKesson as follows: 3.01 Organization. Glacier is a corporation duly organized, validly ------------ existing and in good standing under the Laws of the State of Delaware. Glacier has full corporate power and authority to enter into this Agreement and the Operative Documents to which it is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. 3.02 Authority. The execution and delivery by Glacier of this --------- Agreement and the Operative Documents to which it is a party, and the performance by Glacier of its obligations here under and thereunder, have been duly and validly authorized by the Board of Directors of Glacier, no other corporate action on the part of Glacier or its stockholders being necessary. This Agreement has been duly and validly executed and delivered by Glacier and constitutes, and upon the execution and delivery by Glacier of the Operative Documents to which it is a party, such Operative Documents will constitute, legal, valid and binding obligations of Glacier enforceable against Glacier in accordance with their terms. 3.03 No Conflicts. The execution and delivery by Glacier of this ------------ Agreement do not, and the execution and delivery by Glacier of the Operative Documents to which it is a party, the performance by Glacier of its obligations under this Agreement and such Operative Documents and the consummation of the transactions contemplated hereby and thereby will not: (a) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the certificate of incorporation or bylaws of Glacier; (b) conflict with or result in a violation or breach of any term or provision of any Law or Order applicable to Glacier or any of its Assets and Properties; or (c) (i) conflict with or result in a violation or breach of, (ii) constitute (with or without notice or lapse of time or both) a default under, (iii) require Glacier to obtain any consent, approval or action of, make any filing with or give 17 any notice to any Person as a result or under the terms of, or (iv) result in the creation or imposition of any Lien upon Glacier or any of its Assets or Properties under, any Contract or License to which Glacier is a party or by which any of its Assets and Properties is bound. 3.04 Governmental Approvals and Filings. No consent, approval or ---------------------------------- action of, filing with or notice to any Governmental or Regulatory Authority on the part of Glacier is required in connection with the execution, delivery and performance of this Agreement or the Operative Documents to which it is a party or the consummation of the transactions contemplated hereby or thereby. 3.05 Brokers. All negotiations relative to this Agreement and the ------- transactions contemplated hereby have been carried out by Glacier directly with MWP and McKesson without the intervention of any Person on behalf of Glacier in such manner as to give rise to any valid claim by any Person against MWP or McKesson for a finder's fee, brokerage commission or similar payment. ARTICLE IV COVENANTS OF MWP AND MCKESSON MWP and McKesson, jointly and severally, covenant and agree with Glacier that after, for the period specified herein or, if no period is specified herein, indefinitely, MWP and McKesson will comply with all covenants and provisions of this Article IV, except to the extent Glacier may otherwise ---------- consent in writing. 4.01 Delivery of Books and Records, etc. On the Closing Date, MWP ----------------------------------- and McKesson will deliver or make available to Glacier at the locations at which the Business is conducted all of the Business Books and Records and such other Assets as are in MWP's or McKesson's possession at other locations, and if at any time MWP or McKesson discovers in its possession or under its control any other Business Books and Records or other Assets, it will forthwith deliver such Business Books and Records or other Assets to Glacier. 4.02 Noncompetition. (a) Each of MWP and McKesson will, for a -------------- period of five (5) years from the Closing Date, refrain from, either alone or in conjunction with any other Person, or directly or indirectly through its present or future Affiliates: 18 (i) participating or engaging in (other than through the beneficial ownership of 5% or less of any class of securities registered under the Securities Exchange Act of 1934, as amended), or otherwise lending assistance (financial or otherwise) to any Person participating or engaged in, the business of manufacturing and/or operating vending machines which filter and otherwise reduce impuri ties from "tap" water and dispense such water to customers (the "Water Vending Business") in any jurisdiction ---------------------- within the United States; (ii) employing, engaging or seeking to employ or engage (other than through a general solicitation to which such employee independently responds) any Person who within the prior 12 months had been an employee of Glacier or any of its Affiliates engaged in the Business, unless such employee (A) resigns voluntarily (without any solicitation from MWP or any of its Affiliates) or (B) is terminated by Glacier or any of its Affiliates after the Closing Date; (iii) causing or attempting to cause (A) any client, customer or supplier of the Business to terminate or materially reduce its business with Glacier or any of its Affiliates or (B) any officer, employee or consultant of Glacier or any of its Affiliates engaged in the Business to resign or sever a relationship with Glacier or any of its Affiliates; or (iv) disclosing (unless compelled by judicial or administrative process) or using any confidential or secret information relating to the Business, Glacier or any customer or supplier of the Business or Glacier; provided, however, the foregoing shall not prohibit MWP, McKesson or any of - -------- ------- their Affiliates from (i) operating vending machines that dispense water exclusively in prefilled, prepackaged bot tles, (ii) supplying regenerated resin to other water companies within the United States, (iii) selling bottles that transport vended water or such other products that facilitate the sale of vended water, or (iv) purchasing all or substantially all of the stock or assets of (x) any other Person engaged in the Water Vending Business so long as the Water Vending Business is not the principal line of business of such other Person or (y) any other Person who operates a plant or facility that directly vends water through machines attached to a central purification facility. If MWP or any of its Affiliates purchase all or substantially all of the stock or assets of any other Person pursuant to the preceding clause (iv), MWP or McKesson shall, or shall cause such Affiliate to, promptly offer the assets comprising the Water Vending Business of such other Person to Glacier and, if Glacier is interested in purchasing such assets, the parties shall negotiate 19 in good faith to consummate a sale of such assets to Glacier for fair consideration. If Glacier determines that it is not interested in purchasing such assets, or if the parties cannot agree on a fair purchase price for the assets, MWP or any of its Affiliates may operate such business. (b) The parties hereto recognize that the Laws and public policies of the various states of the United States may differ as to the validity and enforceability of covenants similar to those set forth in this Section. It is the intention of the parties that the provisions of this Section be enforced to the fullest extent permissible under the Laws and policies of each jurisdiction in which enforcement may be sought, and that the unenforceability (or the modification to conform to such Laws or policies) of any provisions of this Section shall not render unenforceable, or impair, the remainder of the provisions of this Section. Accordingly, if any provision of this Section shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall be deemed to apply only with respect to the operation of such provision in the particular jurisdiction in which such determination is made and not with respect to any other provision or jurisdiction. (c) The parties hereto acknowledge and agree that any remedy at Law for any breach of the provisions of this Section would be inadequate, and MWP and McKesson hereby consent to the granting by any court of an injunction or other equitable relief, without the necessity of actual monetary loss being proved, in order that the breach or threatened breach of such provisions may be effectively restrained. 4.03 Licenses. MWP and McKesson will make available true and -------- complete copies of all material Licenses used or held for use in the Business (and all pending applications for any such Licenses), setting forth the grantor, the grantee, the function and the expiration and renewal date of each. 4.04 Financial Statements. MWP and McKesson agree to provide to -------------------- Glacier, within 60 days after the Closing Date and at MWP's sole cost and expense, true and complete copies of the following financial statements: (a) the audited balance sheets of the Business as of March 31, 1997, 1996, 1995 and 1994, and the related audited consolidated statements of operations, Stockholders' equity and cash flows for each of the fiscal years then ended, together with a true and correct copy of the report on such audited information by Deloitte & Touche LLP, and all letters from such accountants with respect to the results of such audits; and 20 (b) the unaudited balance sheets of the Business as of December 31, 1996, and the related unaudited consolidated statements of operations, stockholders' equity and cash flows for the nine months then ended; provided, however, that MWP may provide Glacier, in lieu of those items in - -------- ------- paragraphs (a) and (b) above, with the financial state ments of the Business for those periods and in such form as the Securities and Exchange Commission (the "Commission") deems necessary to allow Glacier to meet its obligation to file - ----------- such financial statements regarding the transaction contemplated hereby with the Commission, pursuant to the provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations related thereto. (c) MWP agrees to provide Glacier, within 30 days after the Closing Date and at MWP's sole cost and expense, (i) the unaudited internal monthly income statements of the Business for each of the monthly periods ending January 31, 1996 through March 28, 1997, and (ii) the unaudited quarterly income statements of the Business for each of the quarters ended March 31, June 30, September 30, and December 31, 1996. ARTICLE V COVENANTS OF GLACIER Glacier covenants and agrees with MWP and McKesson that Glacier will comply with all covenants and provisions of this Article V, except to the extent --------- MWP or McKesson may otherwise consent in writing. 5.01 Nonsolicitation of Employees. (a) Glacier will, for a period ---------------------------- of five (5) years from the Closing Date, refrain from, either alone or in conjunction with any other Person, or directly or indirectly through its present or future Affiliates, employing, engaging or seeking to employ or engage (other than through a general solicitation to which such employee indepen dently responds) any Person who within the prior 12 months had been an employee of McKesson or any of its Affiliates who have not been engaged in the Business, unless such employee (A) was transferred to Glacier at Closing in connection with the sale of the Business, (B) resigns voluntarily (without any solicitation from Glacier or any of its Affiliates), or (C) is terminated by McKesson or any of its Affiliates after the Closing Date. 5.02 Removal of Property. To the extent that MWP or McKesson retains ------------------- any facility or related real property lease that is used in connection with both the Business and the businesses of MWP or McKesson which are not being transferred to Glacier 21 under this Agreement, within sixty (60) days after the Closing Date, Glacier shall remove all Assets and Properties being sold to Glacier hereunder from such facilities. Such removal shall be at the sole cost and risk of Glacier, including risk of loss and damage to such Assets and Properties. MWP shall have no liabi lity to Glacier with respect to such removal and transportation. Glacier shall be responsible for any repairs to MWP's retained facilities that become necessary as a result of damage caused by Glacier, its employees or agents in connection with the removal of Glacier's Assets and Properties. 5.03 Use of Tradename. Within 60 days after the Closing Date, ---------------- Glacier shall remove the trade name "Sparkletts" or any reference thereto from the Assets. 5.04 Use of Toll-Free Telephone Number. Within 60 days after the --------------------------------- Closing Date, Glacier will use its best efforts to transfer to Glacier and assume operation of, with the commerci ally reasonably cooperation of MWP, the operation and maintenance of the toll-free, customer service telephone number that is currently displayed on the Machines (the "800 Numbers"). MWP shall maintain the 800 Numbers and the customer service personnel related thereto until such time as Glacier notifies MWP that the 800 Numbers have been transferred. Upon the receipt of appropriate documentation, Glacier shall promptly reimburse MWP for all reasonable costs incurred by MWP to maintain the 800 Numbers, including salaries of customer service personnel, through the date that Glacier notifies MWP of such transfer. ARTICLE VI TAX MATTERS AND POST-CLOSING TAXES 6.01 Transfer Taxes. McKesson and MWP, on the one hand, and Glacier, -------------- on the other hand, shall each pay one-half of all sales, use, transfer, real property transfer, recording, gains, stamp, duty, stock transfer and other similar taxes and fees or liability for such taxes or fees ("Transfer Taxes") arising out of or in connection with the transactions effected pursuant to this Agreement. Within 60 days after the Closing Date, each party shall provide to the other party copies of all Tax Returns and other documents required to be filed by such party with respect to Transfer Taxes that arise out of or in connection with the transactions effected pursuant to this Agreement, with evidence of payment thereof. McKesson and MWP, on the one hand, and Glacier, on the other hand, shall indemnify, defend, and hold harmless the other party on an after-Tax basis with respect to such party's portion of such Transfer Taxes, as provided in this Section 6.01. ------------ 22 ARTICLE VII EMPLOYEE BENEFITS MATTERS 7.01 Offers. Glacier intends to offer employment to the Employees ------ listed on Exhibit A hereto on an at-will basis on the Closing Date (a --------- "Probationary Offer"). Each Employee who accepts a Probationary Offer shall be - ------------------- compensated at the same salary paid by MWP immediately prior to the Closing Date, until such Employee is either terminated within the 90-day period or offered continued employment (a "Non-probationary Offer") with Glacier. Glacier ---------------------- shall have no obligation to (i) make any Non-probationary Offers to any of the Employees or (ii) offer compensation substantially the same as the compensation provided by MWP immediately prior to the Closing Date for Employees given a Non- probationary Offer. 7.02 Severance. MWP shall make available severance payments and --------- other benefits in accordance with the terms of MWP's severance plan, as it is in effect on the Closing Date (the "Severance Plan"), to any Employee who accepts -------------- a Probationary Offer if that Employee should cease to be employed by Glacier on or before the 90th day after the Closing Date for any reason other than voluntary termination by the Employee; provided, however, that MWP shall also ----------------- make available benefits under the Severance Plan for any Employee who voluntarily terminates employment with Glacier on or before the 90th day after the Closing Date if a Non-probationary Offer by Glacier (i) would require the Employeeto work at a location more than 50 surface miles farther from Employee's residence than was required when the Employee was employed by MWP, or (ii) would pay the Employee a salary that was less than 90% of the salary the Employee was being paid by MWP immediately prior to the Closing Date. 7.03 COBRA Continuation Coverage. MWP shall offer continued coverage --------------------------- under MWP's group health plan to the extent required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), to each Employee. MWP shall pay an amount equal to its current contribution for group health coverage on behalf of any Employee who accepts a Probationary Offer for such continued coverage until the 90th day following the Closing Date, provided that: (i) the -------- Employee has elected to continue coverage; (ii) the Employee pays an amount equal to the employee's rate of contribution in effect as of the Closing Date for such continued coverage; and (iii) the Employee remains in the employ of Glacier during the 90-day period. Glacier shall reimburse MWP for all amounts paid pursuant to this Section 7.03. MWP and McKesson shall indemnify and hold ------------ harmless Glacier and its Affiliates from and against any Liability, costs, and expenses, with respect to any obligation of MWP or McKesson to 23 provide health care continuation coverage under COBRA for any Employee who accepts a Non-Probationary Offer. 7.04 Benefit Plans. Any Employee who accepts a Non-probationary ------------- Offer and who begins active employment with Glacier (a "Transferred Employee"), -------------------- shall cease to participate in all Benefit Plans (except as otherwise stated herein or as may be required by any Laws or by the terms of any Benefit Plan) and shall be eligible to participate in Glacier's employee pension and welfare benefit plans, programs, policies and arrangements ("Glacier's Benefit Plans") ----------------------- as of the effective date of such Transferred Employee's hire date. Glacier shall provide a Transferred Employee with employee benefits based under Glacier's current employee benefit plan(s), giving each Transferred Employee credit for all periods of employment with MWP up to a maximum of 5 years of employment with MWP. MWP and McKesson shall indemnify and hold harmless Glacier and its Affiliates from any Liability, costs, and expenses, with respect to any Liability of MWP or McKesson that may arise under any Benefit Plan. 7.05 Welfare Benefit and Worker's Compensation Claims. (a) MWP shall ------------------------------------------------ retain sole responsibility for all dental, medical, life insurance and disability expenses and benefits for each Transferred Employee and covered dependents of such Transferred Employee with respect to claims incurred prior to the Closing Date by such person. Glacier shall have sole responsibility, in accordance with the terms of any of Glacier's welfare plans, for expenses and benefits with respect to claims incurred in respect of the Transferred Employeeof any Trans ferred Employee on or after the Closing Date. For purposes of this Section 7.05, a claim is deemed to be incurred when (A) with respect to ------------ medical or dental benefits, the medical or dental services giving rise to such claim are performed and (B) with respect to life or disability benefits, when the event giving rise to such claim occurs. (b) MWP shall retain all Liabilities covered by MWP's workers' compensation plan to the extent any such Liability arises out of or relates to work-related illnesses or injuries caused by events occurring prior to the Closing Date, even if such illnesses or injuries continue after the Closing Date. Glacier shall be responsible for any such Liability after the Closing Date, provided, however, that MWP shall reimburse Glacier for any Liability -------- ------- arising out of or relating to a stress-related claim by any Employee who accepts a Probationary Offer but does not receive a Non-probationary Offer. Glacier will reimburse MWP for MWP's costs of providing workers' compensation coverage for Liabilities that are Glacier's responsibility pursuant to this paragraph --------- 7.05(b). - ------- 24 (c) All Employees shall, as of the Closing Date, be covered by Glacier's workers' compensation plan. Any Employee who does not become a Transferred Employee shall continue to be covered by MWP's workers' compensation plan to the extent required by law. 7.06 WARN; Certain Indemnities. Without limiting the generality of ------------------------- the obligations of MWP and McKesson under Sec tion 7.03, MWP shall indemnify and ------------- hold harmless Glacier and its Affiliates from and against any and all Liability, costs and expenses that may arise (i) with respect to any obligations and liabilities under the Worker Adjustment and Retraining Notification Act of 1988, as amended, and any similar state law with respect to any Employees terminated by MWP (at any time after the Closing date) or by Glacier (if such termination is within 90 days after the Closing date), or (ii) by reason of the severance from the service of MWP of any Employee not offered, or continued in, employment by Glacier. ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES 8.01 Survival of Representations and Warranties. Notwithstanding any ------------------------------------------ right of Glacier (whether or not exercised) to investigate the Business, or any right of any party (whether or not exercised) to investigate the accuracy of the representations and warranties of the other party contained in this Agreement, Glacier, MWP and McKesson have the right to rely fully upon the representations and warranties of the other contained in this Agreement. The representations and warranties of Glacier, MWP and McKesson contained in this Agreement will survive the Closing until the first anniversary of the Closing Date; provided that any representation or warranty that would otherwise terminate in accordance with the foregoing will continue to survive with respect to a particular claim for indemnification if a written notice shall have been timely given under Article ------- IX on or prior to such termination date, until such claim for indemnification - -- has been satisfied or otherwise resolved. ARTICLE IX INDEMNIFICATION 9.01 Indemnification. --------------- 25 (a) MWP and McKesson shall indemnify the Glacier Indemnified Parties in respect of, and hold each of them harmless from and against, any and all Losses suffered, incurred or sustained by any of them or to which any of them becomes subject, resulting from, arising out of or relating to (i) any misrepresentation, breach of warranty or nonfulfillment of or failure to perform any covenant or agreement on the part of MWP or McKesson contained in this Agreement or (ii) a Retained Liability, up to an aggregate amount of $4,500,000; provided, however, that indemnification for any misrepresentation or breach of - ----------------- warranty under Section 2.08 or Section 2.19 of this Agreement shall not exceed ------------ ------------ an aggregate amount of $9,000,000, taking into account any other sums paid or to be paid pursuant to this Article XI under an indemnification claim. (b) Notwithstanding the foregoing paragraph (a), MWP and McKesson shall only be obligated to indemnify the Glacier Indemnified Parties for a misrepresentation or breach of warranty under Section 2.16 of this Agreement ------------ resulting from, arising out of or relating to a termination of any Location Agreement after the Closing Date, in an amount not to exceed the unamortized portion of the Trade Payment, only if (i) Glacier has not committed a material breach under such terminated Location Agreement after the Closing Date, (ii) Glacier does not enter into a new location contract with such terminating party relating to the Water Vending Business after the Closing Date and (iii) Glacier does not recover the unamortized portion of the Trade Payment from such terminating party. (c) No amounts of indemnity shall be payable in the case of a claim by a Glacier Indemnified Party under this Section 9.01, unless a Glacier ------------ Indemnified Party has suffered, incurred, sustained or become subject to Losses referred to in such Sections in excess of $90,000 in the aggregate, in which event a Glacier Indemnified Party shall be entitled to claim indemnity for the full amount of such Losses. (d) Glacier shall indemnify the MWP Indemnified Parties in respect of, and hold each of them harmless from and against, any and all Losses suffered, incurred or sustained by any of them or to which any of them becomes subject, resulting from, arising out of or relating to (i) any misrepresentation, breach of warranty or nonfulfillment of or failure to perform any covenant or agreement on the part of Glacier contained in this Agreement or (ii) an Assumed Liability. No amounts of indemnity shall be payable in the case of a claim by an MWP Indemnified Party under this Section 9.01, unless an MWP Indemnified Party has ------------ suffered, incurred, sustained or become subject to Losses referred to in such Sections in excess of $90,000 in the aggregate, in which event an MWP Indemnified Party shall be entitled to claim indemnity for the full amount of such Losses. 26 9.02 Method of Asserting Claim. In the event that any claim is ------------------------- asserted against any party hereto, or any party hereto is made a party defendant in any Action or Proceeding, and such claim, Action or Proceeding involves a matter which is the subject of a claim for indemnification under this Article, then such party (an "Indemnified Party") shall give written notice to Glacier or ----------------- MWP and McKesson, as the case may be (the "Indemnifying Party"), of such claim, ------------------ Action or Proceeding, and such Indemnifying Party shall have the right to join in the defense of said claim, Action or Proceeding at such Indemnifying Party's own cost and expense and, if the Indemnifying Party agrees in writing to be bound by and to promptly pay the full amount of any final judgment from which no further appeal may be taken and if the Indemnified Party is reasonably assured of the Indemnifying Party's ability to satisfy such agreement, then at the option of the Indemnifying Party, such Indemnifying Party may take over the defense of such claim, Action or Proceeding, except that, in such case, the Indemnified Party shall have the right to join in the defense of said claim, Action or Proceeding at its own cost and expense. 9.03 Tax Treatment of Indemnity Payments. Any indemnity payment made ----------------------------------- under this Agreement shall for all tax purposes be deemed as an adjustment to the Purchase Price. ARTICLE X DEFINITIONS 10.01 Definitions. (a) Defined Terms. As used in this Agreement, ----------- ------------- the following defined terms have the meanings indicated below: "Actions or Proceedings" means any action, suit, proceeding, ---------------------- arbitration or Governmental or Regulatory Authority investigation or audit. "Affiliate" means any Person that directly, or indirectly through one --------- of more intermediaries, controls or is controlled by or is under common control with the Person speci fied. For purposes of this definition, control of a Person means the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether by Contract or otherwise and, in any event and without limitation of the previous sentence, any Person owning ten percent (10%) or more of the voting securities of another Person shall be deemed to control that Person. 27 "Agreement" means this Asset Purchase Agreement and the Exhibits, the --------- Disclosure Schedule and the Schedules hereto, as the same shall be amended from time to time. "Assets" has the meaning ascribed to it in Section 1.01(a). ------ --------------- "Assets and Properties" of any Person means all assets and properties --------------------- of every kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible, whether absolute, accrued, contingent, fixed or otherwise and wherever situated), including the goodwill related thereto, operated, owned or leased by such Person, including without limitation cash, cash equivalents, investment assets, accounts and notes receivable, chattel paper, documents, instruments, general intangibles, real estate, equipment, inventory, goods and intellectual property. "Assignment Instruments" has the meaning ascribed to it in Section ---------------------- ------- 1.04. - ---- "Assumed Liabilities" has the meaning ascribed to it in Section ------------------- ------- 1.02(a). - ------- "Assumption Agreement" has the meaning ascribed to it in Section 1.04. -------------------- ------------ "Assumption Instruments" has the meaning ascribed to it in Section ---------------------- ------- 1.04. - ---- "Benefit Plan" means any Plan established by MWP, or any predecessor ------------ or Affiliate of MWP, existing at the Closing Date or prior thereto, to which MWP contributes or has contributed on behalf of any Employee, former Employee or director, or under which any Employee, former Employee or director of MWP or any beneficiary thereof is covered, is eligible for coverage or has benefit rights. "Books and Records" of any Person means all files, documents, ----------------- instruments, papers, books and records relating to the business, operations, condition of (financial or other), results of operations and Assets and Properties of such Person, including without limitation, financial statements, Tax Returns and related work papers and letters from accountants, budgets, pricing guidelines, ledgers, journals, deeds, title policies, minute books, stock certificates and books, stock transfer ledgers, Contracts, Licenses, customer lists, computer files and programs, retrieval programs, operating data and plans and environmental studies and plans. 28 "Business" has the meaning ascribed to it in the forepart of this -------- Agreement. "Business Books and Records" has the meaning ascribed to it in Section -------------------------- ------- 1.01(a)(xi). - ----------- "Business Combination" means with respect to any Person, any merger, -------------------- consolidation or combination to which such Person is a party, any sale, dividend, split or other disposition of capital stock or other equity interests of such Person or any sale, dividend or other disposition of all or substantially all of the Assets and Properties of such Person. "Business Contracts" has the meaning ascribed to it in Section ------------------ ------- 1.01(a)(v). - ---------- "Business Day" means a day other than Saturday, Sunday or any day on ------------ which banks located in the State of California are authorized or obligated to close. "Business Licenses" has the meaning ascribed to it in Section ----------------- ------- 1.01(a)(viii). - ------------- "Closing" means the closing of the transactions contemplated by ------- Section 1.04. - ------------ "Closing Date" means March 28, 1997. ------------ "Code" means the Internal Revenue Code of 1986, as amended, and the ---- rules and regulations promulgated thereunder. "Condition of the Business" means the business, condition (financial ------------------------- or otherwise), results of operations and Assets and Properties of the Business. "Contract" means any agreement, lease, license, evidence of -------- Indebtedness, mortgage, indenture, security agreement or other contract (whether written or oral). "Disclosure Schedule" means the record delivered to Glacier by MWP ------------------- herewith and dated as of the date hereof, containing all lists, descriptions, exceptions and other information and materials as are required to be included therein by MWP pursuant to this Agreement. "Employee" means, as at any time, each employee of MWP then engaged -------- solely in the operation of the Business. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended, and the rules and regulations promulgated thereunder. 29 "Excluded Assets" has the meaning ascribed to it in Section 1.01(b). --------------- --------------- "GAAP" means generally accepted accounting principles, consistently ---- applied throughout the specified period and in the immediately prior comparable period. "General Assignment" has the meaning ascribed to it in Section 1.04. ------------------ ------------ "Glacier" has the meaning ascribed to it in the forepart of this ------- Agreement. "Glacier Indemnified Parties" means Glacier and its officers, --------------------------- directors, employees, agents and Affiliates. "Governmental or Regulatory Authority" means any court, tribunal, ------------------------------------ arbitrator, authority, agency, commission, official or other instrumentality of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision. "Hazardous Materials" shall mean any flammable, explosive, radioactive ------------------- materials, asbestos, compounds known as polychlorinated biphenyls, chemicals now known to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic substances or related materials, including, without limitation, any substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," or "toxic substances" under the Hazardous Materials Laws. "Hazardous Materials Laws" means any and all present and future ------------------------ federal, state and local laws that relate to or impose liability or standards of conduct concerning the environment, as now or hereafter in effect and as have been or hereafter may be amended or reauthorized, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. 9601 et seq.), Hazardous Materials Transportation Act (42 U.S.C. 1802 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. 1251 et seq.), the Toxic Substances Control Act (14 U.S.C. 2601 et seq.), the Clean Air Act (42 U.S.C. 7901 et seq.), the National Environmental Policy Act (42 U.S.C. 4231 et seq.), the Refuse Act (33 U.S.C. 407 et seq.), the Safe Drinking Water Act (42 U.S.C. 300(f) et seq.), and all rules, regulations, codes, ordinances and guidance documents promulgated or published thereunder, and the provisions of any licenses, permits, orders and decrees issued pursuant to any of the foregoing. 30 "Indebtedness" of any Person means all obligations of such Person (i) ------------ for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for the deferred purchase price of goods or services (other than trade payables or accruals incurred in the ordinary course of business), (iv) under capital leases and (v) in the nature of guarantees of the obligations described in clauses (i) through (iv) above of any other Person. "Indemnified Party" has the meaning ascribed to it in Section 9.02. ----------------- ------------ "Indemnifying Party" has the meaning ascribed to it in Section 9.02. ------------------ ------------ "Intangible Personal Property" has the meaning ascribed to it in ---------------------------- Section 1.01(a)(vii). - -------------------- "Intellectual Property" means all patents and patent rights, --------------------- trademarks and trademark rights, trade names and trade name rights, service marks and service mark rights, service names and service name rights, brand names, inventions, processes, formulae, copyrights and copyright rights, trade dress, business and product names, logos, slogans, trade secrets, industrial models, processes, designs, methodologies, computer programs (including all source codes) and related documentation, technical information, manufacturing, engineering and technical drawings, know-how and all pending applications for and registrations of patents, trademarks, service marks and copyrights. "Inventory" has the meaning ascribed to it in Section 1.01(a)(ii). --------- ------------------- "Knowledge" or "Known" means, with respect to any corporation, the --------- ----- knowledge of any officer, director or employee of such corporation. "Laws" means all laws, statutes, rules, regulations, ordinances and ---- other pronouncements having the effect of law of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision or of any Governmental or Regulatory Authority. "Liabilities" means all Indebtedness, obligations and other ----------- liabilities of a Person (whether absolute, accrued, contingent, fixed or otherwise, or whether due or to become due). "Licenses" means all licenses, permits, certificates of authority, -------- authorizations, approvals, registrations, franchises and similar consents granted or issued by any Governmental or Regulatory Authority. 31 "Liens" means any mortgage, pledge, assessment, security interest, ----- lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or any conditional sale Contract, title retention Contract or other Contract to give any of the foregoing. "Loss" means any and all damages, fines, fees, penalties, ---- deficiencies, losses and expenses (including without limitation interest, court costs, fees of attorneys, accountants and other experts or other expenses of litigation or other proceedings or of any claim, default or assessment). "MWP" has the meaning ascribed to it in the forepart of this --- Agreement. "MWP Indemnified Parties" means MWP and its officers, directors, ----------------------- employees, agents and Affiliates. "Operative Documents" means, collectively, the General Assignment and ------------------- the other Assignment Instruments, and the Assumption Agreement and the other Assumption Instruments. "Order" means any writ, judgment, decree, injunction or similar order ----- of any Governmental or Regulatory Authority (in each such case whether preliminary or final). "Other Assets" has the meaning ascribed to it in Section 1.01(a)(xiv). ------------ -------------------- "Person" means any natural person, corporation, general partnership, ------ limited partnership, proprietorship, other business organization, trust, union, association or Governmental or Regulatory Authority. "Personal Property Leases" has the meaning ascribed to it in Section ------------------------ ------- 1.01(a)(iv). - ----------- "Plan" means any bonus, incentive compensation, deferred compensation, ---- pension, profit sharing, retirement, stock purchase, stock option, stock ownership, stock appreciation rights, phantom stock, leave of absence, layoff, vacation, day or dependent care, legal services, cafeteria, life, health, accident, disability, workmen's compensation or other insurance, severance, separation or other employee benefit plan, practice, policy or arrangement of any kind, whether written or oral, including, but not limited to, any "employee benefit plan" within the meaning of Section 3(3) of ERISA. "Prepaid Expenses" has the meaning ascribed to it in Section ---------------- ------- 1.01(a)(vi). - ----------- 32 "Purchase Price" has the meaning ascribed to it in Section 1.03(a). -------------- --------------- "Real Property Leases" has the meaning ascribed to it in Section -------------------- ------- 1.01(a)(i). - ---------- "Representatives" are the officers, directors, employees, agents, --------------- counsel, accountants, financial advisors, consultants and other representatives of a specified company. "Retained Liabilities" has the meaning ascribed to it in Section -------------------- ------- 1.02(b). - ------- "Security Deposits" has the meaning ascribed to it in Section ----------------- ------- 1.01(a)(x). - ---------- "Tangible Personal Property" has the meaning ascribed to it in Section -------------------------- ------- 1.01(a)(vii). - ------------ "Tax Returns" means all tax returns, reports, statements and other ----------- documents (including any amendments) required to be supplied to any Governmental or Regulatory Authority with respect to Taxes. "Taxes" means all taxes, charges, fees, levies or other assessments, ----- including but not limited to all net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, withholding, payroll, employment, social security, unemployment, excise, estimated, stamp, occupation, property or other taxes, fees, assessments or charges of any kind whatsoever, including all interest and penalties thereon, and additions to tax or additional amounts imposed by any taxing authority, domestic or foreign, upon a Person or its Assets and Properties. "Trade Payments" has the meaning ascribed to it in Section -------------- ------- 1.01(a)(xii). - ------------ "Vehicles" has the meaning ascribed to it in Section 1.01(a)(ix). -------- ------------------- (b) Construction of Certain Terms and Phrases. Unless the context of ----------------------------------------- this Agreement otherwise requires, (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; (iii) the terms "hereof," "herein," "hereby" and derivative or similar words refer to this entire Agreement; (iv) the terms "Article" or "Section" refer to the specified Article or Section of this Agreement; and (v) the phrases "ordinary course of business" and "ordinary course of business consistent with past practice" refer to the business and 33 practice of MWP in connection with the Business. Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified. All accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP. ARTICLE XI MISCELLANEOUS 11.01 Notices. All notices, requests and other communications ------- hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission or mailed (first class postage prepaid) to the parties at the following addresses or facsimile numbers: If to Glacier, to: Glacier Water Services, Inc. 2261 Cosmos Court Carlsbad, CA 92009 Facsimile No.: (619) 930-1206 Attn: Mr. Jerry R. Welch with a copy to: Milbank, Tweed, Hadley & McCloy 601 South Figueroa Street, 30th Floor Los Angeles, CA 90017 Facsimile No.: (213) 629-5063 Attn: Kenneth J. Baronsky, Esq. If to MWP, to: McKesson Water Products Company 3280 East Foothill Boulevard, Suite 400 Pasadena, CA 91107 Facsimile No.: (818) 585-9923 Attn: Mr. Charles Norris with a copy to: McKesson Corporation One Post Street, 34th Floor San Francisco, CA 94104-5296 Facsimile No.: (415) 983-9369 Attn: Vice President and General Counsel All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section, 34 be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section, be deemed given upon receipt,if delivered by mail in the manner described above to the address as provided in this Section, be deemed given upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice, request or other communication is to be delivered pursuant to this Section). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other party hereto. 11.02 Entire Agreement. This Agreement and the Operative Documents ---------------- and the other agreements contemplated hereby and thereby supersede all prior discussions and agreements between the parties with respect to the subject matter hereof and thereof between the parties, and contain the sole and entire agreement between the parties hereto with respect to the subject matter hereof and thereof. 11.03 Expenses. Except as otherwise expressly pro vided in this -------- Agreement, each party will pay its own costs and expenses incurred in connection with the negotiation, execution and closing of this Agreement and the Operative Documents and the transactions contemplated hereby and thereby. 11.04 Confidentiality. Each party hereto will hold, and will use its --------------- best efforts to cause its Affiliates, and their respective Representatives to hold, in strict confidence from any Person (other than any such Affiliate or Representative), unless (i) compelled to disclose by judicial or administrative process (including without limitation in connection with obtaining the necessary approvals of this Agreement and the transactions contemplated hereby of Governmental or Regulatory Authorities) or by other requirements of Law or (ii) disclosed in an Action or Proceeding brought by a party hereto in pursuit of its rights or in the exercise of its remedies hereunder, all documents and information concerning the other party or any of its Affiliates furnished to it by the other party or such other party's Representatives in connection with this Agreement or the trans actions contemplated hereby, except to the extent that such documents or information can be shown to have been (a) previously known by the party receiving such documents or information, (b) in the public domain (either prior to or after the furnishing of such documents or information hereunder) through no fault of such receiving party or (c) later acquired by the receiving party from another source if the receiving party is not aware that such source is under an obligation to another party hereto to keep such documents and information confidential; provided that following the Closing the -------- foregoing restrictions will not apply 35 to Glacier's use of documents and information concerning the Business, the Assets or the Assumed Liabilities furnished by MWP hereunder. In the event the transactions contemplated hereby are not consummated, upon the request of the other party, each party hereto will, and will cause its Affiliates and their respective Representatives to, promptly redeliver or cause to be redelivered all copies of documents and information furnished by the other party in connection with this Agreement or the transactions contemplated hereby and destroy or cause to be destroyed all notes, memoranda, summaries, analyses, compilations and other writings related thereto or based thereon prepared by the party furnished such documents and information or its Representatives. 11.05 Waiver. Any term or condition of this Agreement may be waived ------ at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by Law or otherwise afforded, will be cumulative and not alternative. 11.06 Amendment. This Agreement may be amended, supplemented or --------- modified only by a written instrument duly executed by or on behalf of each party hereto. 11.07 No Third Party Beneficiary. The terms and pro visions of this -------------------------- Agreement are intended solely for the benefit of each party hereto and their respective successors or permitted assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other Person other than any Person entitled to indemnity under Article IX. ---------- 11.08 No Assignment; Binding Effect. Neither this Agreement nor any ----------------------------- right, interest or obligation hereunder may be assigned by any party hereto without the prior written consent of the other party hereto and any attempt to do so will be void, except (a) for assignments and transfers by operation of Law and (b) that Glacier may assign any or all of its rights, interests and obligations hereunder (including without limitation its rights under Article IX) ---------- to a wholly-owned subsidiary, provided that any such subsidiary agrees in writing to be bound by all of the terms, conditions and provisions contained herein, but no such assignment shall relieve Glacier of its obligations hereunder. Subject to the preceding sentence, this Agreement is binding upon, inures to the benefit of and is enforceable by the parties hereto and their respective successors and assigns. 36 11.09 Headings. The headings used in this Agreement have been -------- inserted for convenience of reference only and do not define or limit the provisions hereof. 11.10 Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the Laws of the State of California applicable to a contract executed and performed in such State, without giving effect to the conflicts of laws principles thereof. 37 11.11 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, this Agreement has been duly exe cuted and delivered by the duly authorized officer of each party as of the date first above written. GLACIER WATER SERVICES, INC. By: /s/ Jerry R. Welch ___________________________ Jerry R. Welch Chief Executive Officer and Chairman of the Board MCKESSON WATER PRODUCTS COMPANY By: /s/ Charles A. Norris ___________________________ Charles A. Norris President MCKESSON CORPORATION By: /s/ Charles A. Norris ____________________________ Charles A. Norris Vice President 38 EX-10.10.2 5 MODIFICATION OF NOTE & CREDIT AGREEMENT 6/20/96 Exhibit 10.10.2 MODIFICATION OF NOTE AND CREDIT AGREEMENT ----------------------------------------- This Modification of Note and Credit Agreement ("Modification Agreement") is entered into effective on June 20, 1996 by and among TOKAI BANK OF CALIFORNIA, a California banking corporation, hereinafter referred to as "Lender," GW SERVICES, INC., a California corporation, hereinafter referred to as "Borrower," and GLACIER WATER SERVICES, INC., a Delaware corporation, hereinafter referred to as "Guarantor." RECITALS A. On or about February 14, 1994 Lender, Borrower and Guarantor entered into a Credit Agreement (hereinafter the "Credit Agreement") dated February 14, 1994. B. Pursuant to the terms of the Credit Agreement the Borrower executed a Promissory Note (hereinafter the "Note") dated February 28, 1994 payable to the order of the Lender in the full amount of $12,000,000.00. C. The Lender, the Borrower and the Guarantor executed those certain Modifications of Note and Credit Agreement dated February 13, 1995, amending certain terms and provisions of said Note and Credit Agreement, which includes the increase of the credit facility from $12,000,000.00 to $16,000,000.00. D. The Lender, the Borrower and the Guarantor executed that certain Modification of Note and Credit Agreement dated February 6, 1996, amending certain terms and provisions of said Note and Credit Agreement. E. All capitalized terms herein which are not otherwise defined herein shall have the meanings set forth in the Credit Agreement. F. The Lender and Guarantor have requested and the Lender has agreed to further modify the terms of the Note and Credit Agreement as set forth below. NOW THEREFORE, for valuable consideration and the mutual promises and agreements hereinafter contained, Lender, Borrower and Guarantor hereby amend as follows, the terms and provisions of the Note and Credit Agreement as previously amended: A. The Note, as previously amended, is modified as follows: 1. In the first paragraph of the Note the amount which was previously amended to read "Sixteen Million and No/100 Dollars ($16,000,000.00)" is amended to read "Eighteen Million and No/100 Dollars ($18,000,000.00)." 2. In paragraph (a.) on page one of the Note, as previously amended, the date which reads "June 1, 1997" is hereby further amended to read "July 1, 1998." B. The Credit Agreement, as previously amended, is modified as follows: 1. The definition of the following capitalized term in Section 1.1 is amended in entirety to read as follows: "Primary Maturity Date" means and refers to July 1, 1998. ----------------------- 2. In Section 2.1 the dollar amount which was previously amended to read "Sixteen Million and No/100 Dollars ($16,000,000.00)" is hereby amended to read "Eighteen Million and No/100 Dollars ($18,000,000.00)." 3. In Section 2.3 the dollar amount which was previously amended to read "Sixteen Million and No/100 Dollars ($16,000,000.00)" is hereby amended to read "Eighteen Million and No/100 Dollars ($18,000,000.00)." 4. In Section 2.4 the dollar amount which was previously amended to read "Sixteen Million and No/100 Dollars ($16,000,000.00)" is hereby amended to read "Eighteen Million and No/100 Dollars ($18,000,000.00)" and the date which was previously amended to read "June 1, 2002" is hereby amended to read "July 1, 2003." 5. In Section 2.7 the date which was previously amended to read "June 1, 2002" is hereby amended to read "July 1, 2003." 6. In Section 6.1(m) the dollar amount which reads "One Hundred Thousand Dollars ($100,000.00)" is hereby amended to read "Three Hundred Thousand Dollars ($300,000.00)." 7. In Section 6.16(f) the dollar amount which reads "One Hundred Thousand Dollars ($100,000.00)" is hereby amended to read "Three Hundred Thousand Dollars ($300,000.00)." 8. In Exhibit N-1 to the Credit Agreement the dollar amount which was previously amended to read "Sixteen -2- Million Dollars and No/100 ($16,000,000.00)" is hereby amended to read "Eighteen Million and No/100 Dollars ($18,000,000.00)." 9. In Exhibit N-2 to the Credit Agreement the dollar amount which was previously amended to read "Sixteen Million and No/100 Dollars ($16,000,000.00)" is hereby amended to read "Eighteen Million and No/100 Dollars ($18,000,000.00)." C. Borrower hereby represents and warrants to Lender and covenants and agrees with Lender as follows: 1. Borrower is a corporation, duly organized and validly existing and in good standing under the laws of the State of California. There have been no amendments to the Articles of Incorporation (Articles) of the Borrower subsequent to February 1, 1994. 2. Borrower has full legal right, power and authority to enter into and perform this Modification Agreement. The execution and delivery of this Modification Agreement by Borrower and the consummation by Borrower of the transactions contemplated hereby have been duly authorized by all necessary action on behalf of Borrower. This Modification Agreement is a valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms. 3. Neither the execution and delivery of this Modification Agreement by Borrower nor the consummation by Borrower of the transactions contemplated hereby conflicts with or constitutes a violation or a default under the Articles, any statute, law, regulation, order to decree applicable to Borrower, or any contract, commitment, agreement, arrangement or restriction of any kind to which Borrower is a party, by which Borrower is bound or to which any of Borrower's property or assets are subject. 4. There are no actions, suits or proceedings pending, or to the knowledge of Borrower, threatened against or affecting Borrower in relation to its obligations to Lender, or involving the validity and enforceability of this Modification Agreement, the Loan Documents, or the priority of any liens given by Borrower to Lender in accordance with the Loan Documents, at law or in equity, or before or by any governmental agency, or which could have material adverse effect on the financial condition, operations, properties, assets, liabilities or earning of Borrower, or the ability of Borrower to perform its obligations to Lender. D. This Modification Agreement is, in part, a reaffirmation of the obligations and indebtedness of Borrower to -3- Lender, as evidenced by the Loan Documents. Therefore, Borrower and Guarantor represent and warrant that, except as specified herein, all of the terms and conditions of the Loan Documents are and shall remain in full force an effect, without waiver or modification of any kind whatsoever, and are ratified and confirmed in all respects. E. This Modification Agreement shall be binding upon and inure to the benefit of successors and assignees of the parties hereto. F. Borrower and Guarantor, by execution of this Modification Agreement, hereby each declare that it has no set-offs, counterclaims, defenses or other causes of action against Bank arising out of the Loan, evidenced by the Note or any document executed in connection with the Loan. To the extent that any such set-offs, counterclaims, defenses or other causes of action may exist, such matters are hereby waived, released and forever discharged by Borrower and Guarantor. G. This Modification Agreement may only be modified or amended by written agreement duly executed by the party to be charged. H. This Modification Agreement constitutes the product of the negotiation of the parties hereto and the enforcement hereof shall be interpreted in a neutral manner, and not more strongly for or against any party based upon the source of the draftsmanship hereof. I. This Modification Agreement is not a novation, nor, except as provided for herein, it is to be construed as a release or modification of any of the terms, conditions, warranties, waivers, or rights set forth in the Loan Documents. Nothing contained in this Modification Agreement shall be deemed to constitute a waiver by Lender or any required performance by Borrower, or to require any forbearance or extension other than that which is specifically agreed to herein by Lender, and no other forbearance or extension is to be implied from the language used herein, by operations of law, or otherwise. -4- IN WITNESS WHEREOF, the parties hereto have executed this Agreement this 12th day of March, 1996. LENDER: BORROWER: TOKAI BANK OF CALIFORNIA, GW SERVICES, INC., a California banking a California corporation corporation By:/s/ Rick T. Beatty By:/s/ Jerry A. Gordon --------------------- ---------------------- Rick T. Beatty Jerry A. Gordon Vice President President San Diego Office By: By:/s/ John T. Vuagniaux --------------------- ---------------------- Flordeliza S. Herrera John T. Vuagniaux Assistant Vice President Vice President, Service Loan Documentation Support Department GUARANTOR: GLACIER WATER SERVICES, INC., a Delaware corporation By:/s/ Jerry A. Gordon ---------------------- Jerry A. Gordon President By:/s/ Brenda K. Foster ---------------------- Brenda K. Foster Vice President, Controller Secretary -5- EX-10.10.3 6 MODIFICATION OF NOTE & CREDIT AGREEMENT 3/28/97 Exhibit 10.10.3 MODIFICATION OF NOTE AND CREDIT AGREEMENT ----------------------------------------- This Modification of Note and Credit Agreement ("Modification Agreement") is entered into effective on March 28, 1997 by and among TOKAI BANK OF CALIFORNIA, a California banking corporation, hereinafter referred to as "Lender," GW SERVICES, INC., a California corporation, hereinafter referred to as "Borrower," and GLACIER WATER SERVICES, INC., a Delaware corporation, hereinafter referred to as "Guarantor." RECITALS A. On or about February 14, 1994 Lender, Borrower and Guarantor entered into a Credit Agreement (hereinafter the "Credit Agreement") dated February 14, 1994. B. Pursuant to the terms of the Credit Agreement the Borrower executed a Promissory Note (hereinafter the "Note") dated February 28, 1994 payable to the order of the Lender in the full amount of $12,000,000.00. C. The Lender, the Borrower and the Guarantor executed those certain Modifications of Note and Credit Agreement dated February 13, 1995, February 6, 1996 and June 20, 1996, amending certain terms and provisions of said Note and Credit Agreement, which included the increase of the credit facility from $12,000,000.00 to $18,000,000.00. D. All capitalized terms herein which are not otherwise defined herein shall have the meanings set forth in the Credit Agreement. E. The Lender and Guarantor have requested and the Lender has agreed to further modify the terms of the Note and Credit Agreement as set forth below. NOW THEREFORE, for valuable consideration and the mutual promises and agreements hereinafter contained, Lender, Borrower and Guarantor hereby amend as follows, the terms and provisions of the Note and Credit Agreement as previously amended: A. The Note, as previously amended, is modified as follows: 1. In the first paragraph of the Note the amount which reads "Eighteen Million Dollars ($18,000,000.00)" is amended to read "Thirty-Five Million Dollars ($35,000,000.00) on or before January 2, 1999 and thereafter $25,000,000.00." 2. In paragraph (a.) on page one of the Note, as previously amended, the date which reads "July 1, 1998" is hereby further amended to read "July 1, 1999." B. The Credit Agreement, as previously amended, is modified as follows: 1. The definition of the following capitalized term in Section 1.1 is amended in entirety to read as follows: "Primary Maturity Date" means and refers to July 1, 1999. --------------------- 2. Section 2.1 is amended to read as follows: 2.1 Primary Facility. So long as no Unmatured Event ---------------- of Default or Event of Default has occurred hereunder and subject to the terms and conditions of this Agreement, Bank agrees to make Primary Facility Loans to Borrower from the Closing Date to but not including the Primary Maturity Date, at such times and in such amounts as Borrower may request, which amounts may be borrowed, repaid and reborrowed subject to the lim itations set forth herein; provided, however, ----------------- that the aggregate principal amount of the obligations outstanding at any time including, without limitation, the Primary Facility Loans and Term Facility Loans made and requested to be made by Bank shall not exceed the sum of $35,000,000.00 on or before January 2, 1999 and thereafter shall not exceed $25,000,000.00. On or before Jan uary 2, 1999 an amount ("Reduction Amount") equal to the outstanding Loans less an amount equal to $25,000,000.00 shall be paid in full. No portion of the Reduction Amount shall bear interest at a LIBOR Rate for an Interest Period which extends beyond January 2, 1999. Notwithstanding anything to the contrary contained in this Agreement, no Primary Facility Loan bearing interest at a LIBOR Rate may be repaid or reborrowed until the expiration of the applicable Interest Period with respect thereto. Except as otherwise provided in Section 2.7 below, on the Primary Maturity Date, all of the Primary Facility Loans shall be immediately due and payable. -2- If, at any time or for any reason, the aggregate principal balance of the Primary Facility Loans exceeds the above limitation (an "Over Advance"), Borrower shall immedi- ately pay to Bank, in immediately available funds, the amount of such Over Advance. 3. In Section 2.3 the dollar amount which reads "Eighteen Million Dollars ($18,000,000.00)" is amended to read "Thirty-Five Million Dollars ($35,000,000.00)." 4. Section 2.4 is amended to read as follows: Term Facility. So long as no Unmatured Event of ------------- Default or Event of Default has occurred hereunder and subject to the terms and conditions of this Agreement, Bank agrees to make Term Facility Loans to Borrower from the Closing Date to but not including the Primary Maturity Date, at such times as Borrower may request and in an amount not less than One Million Dollars each, provided, however, that the aggregate principal amount at any time outstanding of all of the Obligations including, without limitation, the Primary Facility Loans and Term Facility Loans made and requested to be made by Bank shall not exceed the sum of $35,000,000.00 on or before January 2, 1999 and thereafter shall not exceed $25,000,000.00 and any aggregate principal amount at any time outstanding of Term Facility Loans shall not exceed $25,000,000.00. Except as to the Conversion Loans, each Term Facility Loan shall mature five years (a "Term Maturity Date") and be fully due and payable five years from the date of funding of such loan; provided no Term Maturity Date shall be no later than January 2, 2004. 5. Section 6.2 is amended in its entirety to read as follows: "Dividends. Borrower shall not make or declare any dividend or distribution without the prior written consent of Bank." 6. Section 6.3(a) is amended in its entirety to read as follows: (a) Ratio of Total Liabilities to Tangible Net Worth. ------------------------------------------------ Guarantor and its -3- Subsidiaries shall maintain on a consolidated basis a ratio of Total Liabilities less Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more than one and fifty one hundredths to one (1.50:1.00) to be measured as of December 31, 1997 and at all times thereafter. (b) Ratio of Debt to Cash Flow. At all times Guarantor -------------------------- and its Subsidiaries shall maintain on a consolidated basis a ratio of Debt to Cash Flow of not more than 3.0 to 1.0 through December 31, 1997 and not more than 2.5 to 1.0 thereafter. (c) Ratio of Cash Flow to Debt Service. At all times ---------------------------------- Guarantor and its Subsidiaries shall maintain on a consolidated basis a ratio of Cash Flow to Debt Service of not less than 1.5 to 1.0. (d) As of the end of each of Guarantor's fiscal years, Guarantor and its Subsidiaries shall show and demonstrate a positive profitability determined on a consolidated basis and in accordance with GAAP for the fiscal year just ended. For the purposes of this Section 6.3 the following terms shall have the meanings indicated: Cash Flow means the following for the preceding twelve (12) --------- months (on a rolling basis): net income (or net loss plus ---- the sum of (a) net interest expense; (b) income tax expense; (c) depreciation expense; (d) amortization expense less amortization of pre-marketing incentives; (e) rent expense under operating leases of real; personal or mixed property; and (f) non-cash write-downs or write-offs of assets, less ---- the sum of (i) net extraordinary gains included in net income; and (ii) net gains on the sale of assets other than asset sales in the ordinary course of business in each case determined in accordance with GAAP. Debt means Debt as defined in Section 1.1 but excluding all ---- accrued expenses incurred and trade payable arising in the ordinary course of business. -4- Debt Service means the sum of the following for the ------------ preceding twelve (12) months; (a) net interest expense on all Debt, other than Capitalized Leases, during such period, plus; (b) rent expense under operating leases or real or ---- personal, or mixed property during such period; plus (c) ---- payments made under Capitalized Leases during such period; plus (d) scheduled principal amounts of Debt payable during ---- such period. Subordinated Debt means loans which are subordinated to the ----------------- Loans in a manner acceptable to Lender. Total Liabilities means total liabilities as defined by ----------------- GAAP. 7. In Exhibit N-1 to the Credit Agreement the dollar amount which reads "Eighteen Million Dollars ($18,000,000.00)" is amended to read "Thirty-Five Million Dollars ($35,000,000.00) on or before January 2, 1999 and thereafter shall not exceed $25,000,000.00." 8. In Exhibit N-2 to the Credit Agreement the dollar amount which reads "Eighteen Million Dollars ($18,000,000.00)" is amended to read "Thirty-Five Million Dollars ($35,000,000.00) on or before January 2, 1999 and thereafter shall not exceed $25,000,000.00." C. Notwithstanding anything herein to the contrary in the event purchase of assets as set forth in the Asset Purchase Agreement dated March 1997 between Guarantor and McKesson Corp. and McKesson Water Products is not completed by March 31, 1997 the amount which reads "Thirty-Five Million Dollars ($35,000,000.00)" in A(1), B(2), B(3), B(7) and B(8) above shall be deemed amended to read "Twenty-Five Million Dollars." D. Borrower agrees to pay to Lender concurrently herewith a fee of $100,000.00 for this Modification Agreement. E. The parties hereto agree to execute such further agreements and instruments as may be deemed necessary by Lender to implement the intent of the parties as set forth above and to assure and perfect Lender's interest in the Collateral now or hereafter acquired by the Borrower or the Guarantor. F. Borrower hereby represents and warrants to Lender and covenants and agrees with Lender as follows: 1. Borrower is a corporation, duly organized and validly existing and in good standing under the laws of the State -5- of California. There have been no amendments to the Articles of Incorporation (Articles) of the Borrower subsequent to February 1, 1994. 2. Borrower has full legal right, power and authority to enter into and perform this Modification Agreement. The execution and delivery of this Modification Agreement by Borrower and the consummation by Borrower of the transactions contemplated hereby have been duly authorized by all necessary action on behalf of Borrower. This Modification Agreement is a valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms. 3. Neither the execution and delivery of this Modification Agreement by Borrower nor the consummation by Borrower of the transactions contemplated hereby conflicts with or constitutes a violation or a default under the Articles, any statute, law, regulation, order to decree applicable to Borrower, or any contract, commitment, agreement, arrangement or restric tion of any kind to which Borrower is a party, by which Borrower is bound or to which any of Borrower's property or assets are subject. 4. There are no actions, suits or proceedings pending, or to the knowledge of Borrower, threatened against or affecting Borrower in relation to its obligations to Lender, or involving the validity and enforceability of this Modification Agreement, the Loan Documents, or the priority of any liens given by Borrower to Lender in accordance with the Loan Documents, at law or in equity, or before or by any governmental agency, or which could have material adverse effect on the financial con dition, operations, properties, assets, liabilities or earning of Borrower, or the ability of Borrower to perform its obligations to Lender. G. This Modification Agreement is, in part, a reaffirmation of the obligations and indebtedness of Borrower to Lender, as evidenced by the Loan Documents. Therefore, Borrower and Guarantor represent and warrant that, except as specified herein, all of the terms and conditions of the Loan Documents are and shall remain in full force an effect, without waiver or mod ification of any kind whatsoever, and are ratified and confirmed in all respects. H. This Modification Agreement shall be binding upon and inure to the benefit of successors and assignees of the parties hereto. I. Borrower and Guarantor, by execution of this Modification Agreement, hereby each declare that it has no set-offs, counterclaims, defenses or other causes of action against Bank arising out of the Loan, evidenced by the Note or any -6- document executed in connection with the Loan. To the extent that any such set- offs, counterclaims, defenses or other causes of action may exist, such matters are hereby waived, released and forever discharged by Borrower and Guarantor. J. This Modification Agreement may only be modified or amended by written agreement duly executed by the party to be charged. K. This Modification Agreement constitutes the product of the negotiation of the parties hereto and the enforcement hereof shall be interpreted in a neutral manner, and not more strongly for or against any party based upon the source of the draftsmanship hereof. L. This Modification Agreement is not a novation, nor, except as provided for herein, it is to be construed as a release or modification of any of the terms, conditions, warranties, waivers, or rights set forth in the Loan Documents. Nothing contained in this Modification Agreement shall be deemed to constitute a waiver by Lender or any required performance by Borrower, or to require any forbearance or extension other than that which is specifically agreed to herein by Lender, and no other forbearance or extension is to be implied from the language used herein, by operations of law, or otherwise. -7- IN WITNESS WHEREOF, the parties hereto have executed this Agreement this 28th day of March, 1997. LENDER: BORROWER: TOKAI BANK OF CALIFORNIA, GW SERVICES, INC., a California banking a California corporation corporation By: /s/ Robert W. Bartlett By: /s/ Jerry A. Gordon ------------------------- ------------------------- Robert W. Bartlett Jerry A. Gordon Senior Vice President President By: /s/ Larry D. Freedman By: /s/ Brenda K. Foster ------------------------- ------------------------- Larry D. Freedman Brenda K. Foster Vice President V.P. Controller and Secretary GUARANTOR: GLACIER WATER SERVICES, INC., a Delaware corporation By: /s/ Jerry A. Gordon ------------------------- Jerry A. Gordon President By: /s/ Brenda K. Foster ------------------------- Brenda K. Foster V.P. Controller and Secretary -8- EX-10.10.4 7 AMENDMENT TO GUARANTEE Exhibit 10.4 AMENDMENT TO GUARANTY --------------------- The Amendment to Guaranty is made March 28, 1997 by Glacier Water Services, Inc. (Guarantor) in favor of Tokai Bank of California (Bank). RECITALS A. Guarantor has signed a Continuing Guaranty (Guaranty) dated February 28, 1994 with reference to Credit as defined in the Guaranty extended or to be extended by Bank to GW Services, Inc. (Debtor). B. Debtor has requested that Bank increase to $35,000,000.00 the line of credit available to Debtor and Bank has agreed to do so subject to terms and conditions agreed to by Debtor and subject to the dollar limit contained in section 2 of the Guaranty being increased to $35,000,000.00. C. Guarantor will benefit from the increase in the line of credit available to Debtor. TERMS For valuable consideration receipt of which is hereby acknowledged, Guarantor agrees as follows: 1. In section 2 of the Guaranty the amount which reads "Twelve Million Dollars" is hereby amended to read "Thirty-Five Million Dollars." 2. The Guaranty as amended by Section 1 above is in full force and effect and is hereby ratified and confirmed in all respects. Dated: March 28, 1997 "Guarantor" Glacier Water Services, Inc. a Delaware corporation By: /s/ Jerry A. Gordon --------------------- Jerry A. Gordon President By: /s/ Brenda K. Foster ---------------------- Brenda K. Foster V.P. Controller EX-21.1 8 SUBSIDIARIES OF THE REGISTRANT Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT
NAME OF STATE OF NAME UNDER WHICH SUBSIDIARY INCORPORATION SUBSIDIARY OPERATES - -------------------- ------------- ------------------- GW Services, Inc. California GW Services Inc., except for the state of Texas where DBA is Bottle Water Vending, Inc. and the State of Arizona where DBA is Glacier Water, Inc.
EX-23.1 9 CONSENT OF ARTHUR ANDERSEN Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in the Form 10K, into Glacier Water Services, Inc.'s previously filed Registration Statements File No. 33-61942 and File No. 33-80016. Arthur Anderson LLP San Diego, California March 28, 1997 EX-27 10 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 11 0 311 0 2,946 4,352 53,570 16,816 46,067 3,282 0 0 0 34 23,952 46,067 46,091 46,091 0 0 40,590 0 783 4,718 1,415 3,303 0 0 0 3,303 .98 .98
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