Initial Public Offering (IPO): Registration Statement (General Form) — Form S-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-1 Registration Statement 80 390K
2: EX-3.2 Amended and Restated By-Laws of the Compan 33 94K
3: EX-4.2 Registration and Holdback Agreement 6 26K
4: EX-10.1 Termination Agreement 3 14K
11: EX-10.10 Agreement of Lease 25 58K
12: EX-10.11 Agreement of Lease 1 10K
13: EX-10.12 Letter Agreement 4 17K
14: EX-10.13 Agreement 12 40K
15: EX-10.14 Water Agreement 17 37K
16: EX-10.15 Amended and Restated Lease Agreement 23 57K
17: EX-10.16 Water Contract 12 30K
18: EX-10.17 Agreement and Plan of Merger 38 212K
19: EX-10.18 1992 Stock Option Plan 26 52K
5: EX-10.2 1996 Employee Stock Purchase Plan 4 22K
6: EX-10.3 Form of Warrant 18 53K
7: EX-10.4 Employment Agreement 7 20K
8: EX-10.5 Change in Control Agreement 7 21K
9: EX-10.6 Change in Control Agreement 9 27K
10: EX-10.7 Change in Control Agreement 9 26K
20: EX-21 Subsidiaries of the Company 1 7K
21: EX-23.1 Consent of Kpmg Peat Marwick LLP 1 8K
22: EX-27 FDS --Financial Data Schedule 1 11K
As filed with the Securities and Exchange Commission on October 24, 1997
Registration No. 333-________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
AQUAPENN SPRING WATER COMPANY, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 5149 25-1541772
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)
One AquaPenn Drive
Milesburg, Pennsylvania 16853
(814) 355-5556
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Edward J. Lauth, III
One AquaPenn Drive
Milesburg, Pennsylvania 16853
(814) 355-5556
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------
Copies to:
Brian D. Doerner, Esq. Gregory M. Shaw, Esq.
Ballard Spahr Andrews & Ingersoll Cravath, Swaine & Moore
1735 Market Street, 51st Floor Worldwide Plaza
Philadelphia, PA 19103-7599 825 Eighth Avenue
(215) 665-8500 New York, NY 10019-7475
(212) 474-1000
----------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. |_| _________
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering.
| |-----------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|__________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|__________
----------------
CALCULATION OF REGISTRATION FEE
================================================================================
Title of Each Class Proposed Maxim Proposed Maximum Amount of
of Securities Amount to Offering Price Aggregate Registration
to Be Registered Be Registered Per Share (1) Offering Price Fee
--------------------------------------------------------------------------------
Common Stock 4,437,850 $16.00 $71,005,600 $21,517
(no par value) shares (2)
================================================================================
(1) Estimated solely for the purpose of calculation of the registration
fee in accordance with Rule 457 under the Securities Act of 1933, as
amended.
(2) Includes 578,850 shares which the Underwriters have the option to
purchase to cover over-allotments, if any.
-----------------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1997
(LOGO)
Shares
AQUAPENN SPRING WATER COMPANY, INC.
Common Stock
Of the Common Stock offered hereby, 2,000,000 shares are being sold by
AquaPenn Spring Water Company, Inc. ("AquaPenn" or the "Company") and
1,859,000 shares are being sold by Weis Markets, Inc. and its subsidiaries
(the "Selling Shareholder"). See "Principal Shareholders and Selling
Shareholder." The Company will not receive any proceeds from the sale of
Common Stock by the Selling Shareholder.
Prior to this offering (the "Offering"), there has been no public market
for the Common Stock. It is currently estimated that the Offering price
will be between $14.00 and $16.00 per share. See "Underwriting" for certain
factors to be considered in determining the Offering price. The Company
intends to apply for listing of the Common Stock on the New York Stock
Exchange ("NYSE") under the symbol "___."
The shares of Common Stock offered hereby involve a high degree of risk.
See "Risk Factors" beginning on page 7 of this Prospectus for a discussion
of certain factors that should be considered by prospective investors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
===============================================================================
Price to Underwriting Proceeds to Proceeds to Selling
Public Discounts and Company(2) Shareholder(2)
Commissions(1)
-------------------------------------------------------------------------------
Per Share........ $ $ $ $
-------------------------------------------------------------------------------
Total............ $ $ $ $
-------------------------------------------------------------------------------
Total Assuming Full
Exercise of Over-
Allotment
Option (3)....... $ $ $ $
===============================================================================
(1) See "Underwriting."
(2) Before deducting expenses estimated at an aggregate of $750,000, which
are payable by the Company and the Selling Shareholder.
(3) Assuming exercise in full of the 30-day option granted by the Company to
the Underwriters to purchase up to 578,850 additional shares, on the same
terms, solely to cover over-allotments. See "Underwriting."
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters,
and subject to their right to reject any order in whole or in part. It is
expected that delivery of the Common Stock will be made in New York City,
on or about , 1997.
PaineWebber Incorporated
Lazard Freres & Co. LLC
Parker/Hunter
Incorporated
The date of this Prospectus is , 1997
[Photographs with the following captions:]
1. (Lauth & Paterno)
AquaPenn President and founder Edward J. Lauth, III with Joe
Paterno, Head Coach of the football team at The Pennsylvania State
University and AquaPenn spokesperson and stockholder. (Mr. Paterno
makes no representation, recommendation or guarantee to investors
with regard to the common stock of AquaPenn offered hereby.)
2. (Krones Bloc Equipment)
The Krones Bloc rinses, fills and caps AquaPenn's PET (polyethylene
terephthalate) bottles at the rate of up to 600 bottles per minute.
AquaPenn's Milesburg Facility has two units installed and a third
scheduled for delivery in October 1997.
3. (Pure American 20 oz. Case)
Pure American(R) Spring Water is AquaPenn's leading name brand.
AquaPenn's PET bottle designs in 8 oz., 20.0 oz., 24.9 oz., 1 liter
and 1.5 liter sizes are proprietary.
4. (Young Child With 8 oz. Bottle)
AquaPenn's innovative 8 oz. PET bottle is popular with parents of
young children because of its ease of handling. Introduced in
January 1997, the "single serve solution" is also served in-flight
on two major United States airlines.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF
THE COMMON STOCK, INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS,
EFFECTING SYNDICATE COVERING TRANSACTIONS, AND IMPOSING PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
PROSPECTUS SUMMARY
Unless otherwise indicated, all information in this Prospectus assumes
that the Underwriters' over-allotment option will not be exercised and
gives effect to (a) the 0.6008-for-1 reverse stock split (the "Reverse
Stock Split") of each outstanding share of Common Stock of the Company that
will occur immediately prior to this Offering, (b) an Offering price of
$15.00 per share of Common Stock, (c) no exercise of outstanding options to
purchase 832,108 shares of Common Stock, (d) the exercise of a warrant for
135,180 shares of Common Stock held by the Selling Shareholder (the "Weis
Markets Warrant") and no exercise of remaining warrants to purchase 105,140
shares of Common Stock issuable pursuant to the Company's warrant
agreements, (e) no purchase of the 76,254 shares of Common Stock subscribed
for under the Company's 1996 Employee Stock Purchase Plan (the "Stock
Purchase Plan") and (f) no conversion of the outstanding shares of Series A
Non-Voting Convertible Preferred Stock (the "Convertible Preferred Stock")
into 1,022,862 shares of Common Stock. Fiscal year references are to the
fiscal year ended September 30. Unless otherwise provided, references to
shares outstanding and to 1997 fiscal year results do not give effect to
the acquisition on October 15, 1997 of Dunsmuir Bottling Company d/b/a
Castle Rock Spring Water ("Castle Rock"). All references to the "Company"
or "AquaPenn" refer to AquaPenn Spring Water Company, Inc. and its
subsidiaries.
The Company
AquaPenn produces, bottles and sells non-sparkling natural spring water
products to regional and national customers under both retailers' and other
customers' private labels and its proprietary brands Pure American(R),
Great American(R), AquaPenn(R) and Castle Rock. The Company, founded in
1986, is one of the largest producers of private label natural spring water
products in the United States; private label products accounted for
approximately 50% of the Company's 1997 fiscal year net revenues. The
Company's private label and branded customers include, among others, Delta
Air Lines, Inc., Gerber Products Company, Sam's Club and Walgreen Co. The
Company's net revenues have grown from $9.3 million in fiscal 1993 to $38.0
million in fiscal 1997, representing a compounded annual growth rate of
42.3%. Over the same time period, the Company's net income has grown from
approximately $400,000 to approximately $2.8 million, representing a
compounded annual growth rate of 62.4%.
According to Beverage Marketing, the total U.S. market for bottled water
has grown from 1.6 billion gallons sold in 1987 to over 3.1 billion gallons
in 1996, and accounted for approximately $3.6 billion in wholesale sales
during 1996. Non-sparkling water comprises over 87% of the U.S. bottled
water market and generated $2.7 billion of wholesale sales in 1996, and is
expected to continue to grow in the future. PET (an acronym for
polyethylene terephthalate, a premium clear plastic) packaged products
comprise approximately 39% of the domestically produced non-sparkling water
market and have grown from approximately 83 million gallons in 1987 to
approximately 580 million gallons in 1996, representing a compounded annual
growth rate of approximately 24%. PET-packaged products accounted for
approximately $921 million of wholesale sales in 1996. Approximately 81% of
the Company's 1997 net revenues was generated by products packaged in PET
containers. According to Beverage Marketing, PET bottled water is among the
fastest growing beverage categories in the United States. Contributing to
the growth in consumption of non-sparkling water are consumer trends
including health and fitness awareness, municipal tap water quality concern
and maturing soft drink demand, as well as consumer demand for convenience
and innovative packaging.
The Company has adopted a strategy of producing regionally and selling
its natural spring water products to both national and regional customers.
By producing both private label and branded products in a full line of
sizes and packaging, the Company can offer its customers
"one-stop-shopping" supply arrangements. The Company's advanced packaging
capability allows it to bottle natural spring water products in a variety
of innovative packages. The Company maintains state-of-the-art production
facilities, allowing it to achieve cost efficiencies, produce superior
quality products, create innovative packaging and rapidly respond to
customer shipment and production
-3-
demands. The Company's sales and marketing staff aims to provide its
customers with exceptional customer service and market responsiveness.
AquaPenn's growth strategy includes increasing sales to existing
customers, broadening its current customer base, adding new distribution
channels and expanding its product line. The Company's active acquisition
program includes obtaining the rights to additional spring water sites and
acquiring natural spring water companies. In accordance with this strategy,
the Company recently acquired the rights to natural spring water from
Ginnie Springs, a spring located in north central Florida ("Ginnie
Springs"), adjacent to which a new production facility is expected to be
constructed and completed by the Spring of 1998. In addition, on October
15, 1997, the Company acquired Castle Rock, a bottler and distributor of
natural spring water products located in northern California. The
acquisition of the right to Ginnie Springs spring water and the acquisition
of Castle Rock will allow the Company to serve its customers more
efficiently.
The Company's executive offices are located at One AquaPenn Drive,
Milesburg, Pennsylvania 16853. The Company's telephone number is (814)
355-5556 and its web site is www.aquapenn.com.
The Offering
Common Stock Offered by:
the Company..................... 2,000,000 shares (1)
the Selling Shareholder......... 1,859,000 shares
Common Stock to be Outstanding after 6,555,888 shares (1)(2)
Use of Proceeds.................... For capital expenditures, including
funding a portion of the expansion
of the Company's Milesburg,
Pennsylvania facility and a portion
of the construction of the Ginnie
Springs facility, repayment of debt
associated with the acquisition of
Castle Rock, repayment of
outstanding balances under the
Company's credit facilities and for
other general corporate purposes.
See "Use of Proceeds."
Proposed NYSE symbol............... "___"
--------------------
(1) Excludes the Underwriters' over-allotment option to purchase 578,850
shares of Common Stock.
(2) Excludes 2,036,364 shares of Common Stock reserved for issuance upon
exercise of outstanding options, warrants, subscriptions under the
Stock Purchase Plan and conversion of the Convertible Preferred Stock.
See "Management -- Employment Agreements," "Management -- Stock Plans"
and "Description of Capital Stock."
-4-
Summary Financial Information
The following summary financial information should be read in conjunction
with the Consolidated Financial Statements of the Company and the notes
thereto, "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
[Enlarge/Download Table]
Years Ended September 30,
1993 1994 1995 1996 1997
Statement of Operations Data:
Net revenues......... $9,275,537 $13,011,744 $22,956,053 $28,240,741 $38,015,315
Gross profit......... 2,136,846 3,032,276 4,802,698 6,969,428 9,698,377
Selling, general and administrative 1,389,220 1,994,812 3,290,609 4,313,480 5,126,583
Income from operations 747,626 1,037,464 1,512,089 2,655,948 4,571,794
Net income........... $ 400,562 $ 688,995 $ 638,350 $ 1,485,228 $ 2,786,755
Net income per common share (1).... $ 0.12 $ 0.18 $ 0.16 $ 0.26 $ 0.47
Weighted average number of common
shares outstanding. 3,417,391 3,785,102 3,884,708 5,620,741 5,951,844
Other Operations Data:
EBITDA (2).......... $1,260,940 $ 1,606,457 $ 2,888,231 $ 4,613,823 $ 7,285,186
September 30, 1997
Actual As Adjusted (3)
Consolidated Balance Sheet Data:
Working capital ......... $ 3,096,318 $ 28,281,318
Total assets............. 26,580,185 51,765,185
Notes payable, including 4,817,467 1,817,467
current portion
Shareholders' equity..... 18,064,347 46,249,347
--------------------
(1) For information concerning the number of shares used in the computation
of net income per common share, see Note 1 to the Consolidated
Financial Statements.
(2) "EBITDA" represents earnings before interest expense, income tax
expense, depreciation and amortization, including amortization of
leasehold improvements, acquisition and development costs, and debt
expense and discount or premium relating to any indebtedness. EBITDA is
not presented herein as an alternative measure of operating results (as
determined in accordance with generally accepted accounting principles
("GAAP")) or cash flow (as determined in accordance with GAAP).
(3) As adjusted to give effect to the sale of 2,000,000 shares of Common
Stock offered by the Company hereby assuming an Offering price of
$15.00 per share and the receipt of proceeds from the exercise of the
Weis Markets Warrant for 135,180 shares of Common Stock and after
deducting estimated underwriting discounts and commissions and Offering
expenses and the application of the estimated net proceeds therefrom.
See "Use of Proceeds" and "Capitalization."
----------------------------------
The preceding summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and Consolidated
Financial Statements of the Company and the notes thereto appearing
elsewhere in this Prospectus. This Prospectus contains forward-looking
statements that involve risks and uncertainties. Discussions containing
such forward-looking statements may be found in the material set forth
under "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
Actual events or results could differ materially from those discussed
herein. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed under "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
-5-
Unless otherwise noted, the source of statistical information relating to
the bottled water industry included in this Prospectus is Beverage
Marketing Corporation of New York, "Bottled Water In The United States",
1997 Edition, as updated periodically (referred to herein as "Beverage
Marketing").
--------------------
Pure American(R), Great American(R) and AquaPenn(R) are registered
trademarks of the Company. All other trademarks appearing in this
Prospectus are the property of their respective holders.
-6-
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a
high degree of risk. Prospective investors should carefully consider the
following risk factors, in addition to the other information set forth in
this Prospectus, before purchasing any of the shares of Common Stock
offered hereby.
Competition
The bottled water industry is highly competitive. Many of the Company's
competitors have more experience in the U.S. bottled water market, have
greater financial and management resources and have more established
proprietary trademarks and distribution networks than the Company. The
Company currently competes with respect to bottled water with established
national companies such as The Perrier Group of America, Inc. (whose brands
include Arrowhead Mountain Spring Water, Poland Spring, Ozarka Spring
Water, Great Bear, Deer Park, Ice Mountain and Zephyrhills Natural Spring
Water) and Great Brands of Europe (whose brands include Evian Natural
Spring Water and Dannon Natural Spring Water), as well as numerous regional
bottled water companies located in the United States and Canada. The
Company competes not only with other bottled water producers, but also with
producers of other beverages, including, but not limited to, soft drinks,
coffee, juices, beer, liquor and wine. The bottled water industry also
competes for the same consumer who may, when choosing to drink water, drink
tap water or use a home filtration system to filter tap water for drinking.
There can be no assurance that the Company can compete successfully. See
"Business -- Competition."
Ability to Manage Growth
In order to achieve continued growth in its bottled water business, the
Company must meet its strategic objectives of expanding its current
capacity to produce high quality spring water products, expanding its
customer base, expanding its product line and adding new distribution
channels. The Company's ability to meet these objectives depends upon (a)
the successful development and construction of a facility adjacent to
Ginnie Springs, (b) the successful integration and operation of the
Company's recent acquisition, Castle Rock, (c) the successful expansion of
its Milesburg, Pennsylvania facility (the "Milesburg Facility"), (d) the
securing of new sources of spring water in strategic locations and
identifying and successfully acquiring and integrating existing water
companies, (e) the degree to which the Company loses sales to competing
water suppliers, (f) the availability of capital and (g) general economic
and other factors beyond the Company's control. The Company has never
operated multiple facilities in multiple states and has never completed and
integrated an acquisition of a significant existing company; the Company
may encounter unexpected difficulties operating multiple facilities or
integrating Castle Rock or other acquisitions. No assurance can be given as
to the future growth in the Company's business or as to its profitability.
Further growth of the Company will require employment and training of new
personnel, expansion of facilities and expansion of management information
systems. If the Company is unable to manage its growth effectively, the
Company's profitability and its ability to achieve its strategic objectives
may likely be materially adversely affected.
Fluctuations in Quarterly Operating Results
The Company's revenues are subject to several factors which may result
in fluctuations in the Company's operating results. The Company's business
is highly seasonal, with increased sales during warmer months. In the last
three fiscal years, an average of 41.5% of the Company's net revenues have
occurred during June, July and August. Inclement weather may negatively
impact the Company's business, particularly summers which are unusually
cool or rainy. Fluctuations in retail prices and raw material prices may
produce corresponding fluctuations in the Company's profits. See "Risk
Factors -- Raw Material Prices." In addition, the Company expects to make
significant investments from time to time in capital improvements to, among
other things, increase capacity. Costs associated with such improvements
may cause an immediate reduction in profit margins unless and until sales
volume increases. The Company's product and packaging mix may change from
time to time and, depending on certain factors, may negatively
-7-
impact profit margins. The Company is subject to competitive pricing
pressures which may affect its financial results. Due to all the foregoing
factors, it is possible that in some future quarter or quarters, the
Company's operating results would likely be below the expectations of
securities analysts and investors. In such event, the price of the Common
Stock would likely be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Dependence on Key Personnel
The continued success of the Company is largely dependent on the
personal efforts and abilities of senior management, including Edward J.
Lauth, III, Chairman, President and Chief Executive Officer of the Company,
and Geoffrey F. Feidelberg, Executive Vice President, Chief Operating
Officer and Chief Financial Officer of the Company. Although the Company
has entered into employment agreements with Messrs. Lauth and Feidelberg,
the employment agreements may be terminated by either party effective at
the end of each one-year term upon six months prior notice. The employment
agreements contain a non-compete provision which extends for two years
beyond termination of the employment agreements. The loss of either
executive's services could have a material adverse effect on the Company.
See "Management -- Employment Agreements."
Dependence upon Natural Spring Sources
The Company currently obtains the natural spring water bottled at its
Milesburg Facility from a spring located in Graysville, Pennsylvania (the
"Graysville Spring"). A natural spring located in Dunsmuir, California (the
"Castle Rock Spring") provides the natural spring water for the Company's
west coast operations based in Dunsmuir and Redding, California. The loss
of the Graysville Spring, which generated 83.0% of the Company's fiscal
1997 pro forma net revenues, or the Castle Rock Spring, which generated
17.0% of the Company's fiscal 1997 pro forma net revenues, would have a
material adverse effect on the business of the Company. The Company expects
to begin bottling water from Ginnie Springs in 1998. In addition, the
Company has acquired the right to purchase natural spring water from the
Bellefonte Big Spring (the "Big Spring") located in Bellefonte,
Pennsylvania, in order to supplement or replace the Graysville Spring.
Subject to completion by the Borough of Bellefonte of a covering over the
spring and the permitting and approval process, the Company expects to
begin bottling Big Spring water in 1999. Occurrences beyond the control of
the Company including, but not limited to, drought, which prevents natural
springs from recharging themselves, and other occurrences, such as
contamination of the springs, geological changes which could interfere with
operation of the springs or failure of the water supply to comply with all
applicable governmental requirements for mineral and chemical
concentration, could have a material adverse effect on the business of the
Company. The Company believes that adequate supplemental commercial sources
of spring water exist, but there is no assurance that such commercial
sources will be available in sufficient amounts or if available, obtainable
on commercially reasonable terms. See "Business -- Spring Water Sources."
Agreements for Water Sources
The Company leases the land on which the Graysville Spring is located.
The Company has an agreement pursuant to which it has access to the source
and purchases the natural spring water it bottles under the Castle Rock
label, and has entered into similar agreements for access and purchase at
Ginnie Springs and the Big Spring. See "Business -- Spring Water Sources."
These arrangements result in the Company exercising less control over its
operations than if the Company had ownership of these assets. If the lessor
of the Graysville Spring or the owners of the Castle Rock Spring were to
become bankrupt or fail to observe the terms of its lease with the Company,
such event could have a material adverse effect on the business of the
Company, particularly with respect to the Company's Pennsylvania operations
in the period prior to the time the Big Spring becomes operational for the
Company. Castle Rock has an agreement with the City of Dunsmuir,
California, pursuant to which the City of Dunsmuir sells natural spring
water from the Castle Rock Spring to Castle Rock. The City of Dunsmuir is
not the owner of the land on which the Castle Rock Spring is located. The
deed in the chain of title that enables the City of Dunsmuir to sell
natural spring water to Castle Rock limits the City of Dunsmuir's water
rights to certain specified uses. A third party has questioned
-8-
whether the sale of natural spring water by the City of Dunsmuir to Castle
Rock is a proper use as defined in the deed. Castle Rock's agreement with
the City of Dunsmuir provides that the City will indemnify Castle Rock for
losses it sustains as a result of any claim or challenge regarding the
ability of the City to sell water to Castle Rock. While the Company intends
to vigorously oppose any challenge to the City of Dunsmuir's rights to sell
water to Castle Rock under the agreement, there can be no assurance that
such a claim would not have a material adverse effect on the Company.
Dependence on Key Suppliers
The majority of the Company's natural spring water products are offered
in premium PET bottles. PET bottles are manufactured by a limited number of
suppliers. While the Company believes that its relationships with its
suppliers are good, there can be no assurance that the Company will be able
to obtain PET bottles from its suppliers on commercially reasonable terms,
particularly at periods of peak demand. Failure to obtain the necessary
packaging materials could have a material adverse effect on the business of
the Company. In order to ensure its supply of PET bottles, the Company has
entered into an exclusive supply agreement with Schmalbach-Lubeca Plastic
Containers USA, Inc. ("Schmalbach-Lubeca") pursuant to which the Company
leases space in its Milesburg facility to Schmalbach-Lubeca for the on-site
production of PET bottles. Schmalbach-Lubeca has agreed to provide 100% of
the Company's PET bottle requirements, except for the bottle requirements
of its Castle Rock operation. Castle Rock has entered into a requirements
contract with Containers Northwest Corporation pursuant to which Castle
Rock will purchase 100% of its bottle requirements from Containers
Northwest Corporation. In the event that the agreements with
Schmalbach-Lubeca and Containers Northwest Corporation were terminated or
the Company's requirements were not met under the agreements, there may be
a material adverse effect on the Company until alternative supplies of PET
bottles are found.
Raw Material Prices
Due to the wide range of beverages available to consumers, including
bottled water products, the Company has limited ability to raise prices for
its products. From time to time, the Company has been affected by higher
prices for raw materials including PET resin and corrugated boxes. In the
past, the Company generally has not passed such higher costs on to its
customers and it generally would be unlikely to do so in connection with
any future price increases. As a result, the Company's future profitability
may be adversely affected by future increases in raw material prices.
Product Liability
The bottling and distribution of bottled water products entails a risk
of product liability, including liability due to the presence of
contaminants in its products. The Company maintains insurance coverage
against the risk of product liability and product recall. However, the
amount of the insurance carried by the Company is limited, the insurance is
subject to certain exclusions and may or may not be adequate. In addition
to direct losses resulting from product liability and product recall, the
Company may suffer adverse publicity and damage to its reputation in the
event of contamination which could have a material adverse effect on sales
and profitability.
Dependence on Trademarks
The Company owns federal registrations for many of the trademarks it
uses. The Company believes that its registered and common law trademarks
have significant value and goodwill and that some of these trademarks are
instrumental in its ability to create demand for and to market its
products. There can be no assurance that the Company's trademarks do not or
will not violate the proprietary rights of others, that they would be
upheld if challenged or that the Company would, in such an event, not be
prevented from using the trademarks, any of which could have a material
adverse effect on the Company.
-9-
Government Regulation
The Company's operations are subject to numerous federal, state and
local laws and regulations relating to its bottling operations, including
the identity, quality, packaging and labeling of its bottled water. These
laws and regulations and their interpretation and enforcement are subject
to change. There can be no assurance that additional or more stringent
requirements will not be imposed on the Company's operations in the future.
Failure to comply with such laws and regulations could result in fines
against the Company, a temporary shutdown of production, recalls of the
product, loss of certification to market the product or, even in the
absence of governmental action, loss of revenue as a result of adverse
market reaction to negative publicity. Any such event could have a material
adverse effect on the Company. See "Business -- Regulation."
Lack of Inventory
The Company maintains a limited amount of finished product inventory. An
event causing the Company's Pennsylvania or California facilities to shut
down, even for a short period, would result in an inability to fill
customer orders and accordingly would have a material adverse effect on the
Company's revenues and customer relations.
Consumer Preferences
The Company believes that the most important factor in the growth of
natural spring water products has been a change in consumer preferences.
Consumer preferences may be influenced, however, by the availability and
appeal of alternative beverages or packaging as well as general economic
conditions, among other things. No assurance can be given that consumer
demand for natural spring water will continue to grow or will not diminish
in the future.
Immediate and Substantial Dilution
Purchasers of the Common Stock offered hereby will experience immediate
and substantial dilution in the pro forma net tangible book value per share
at September 30, 1997 of $7.95 at an assumed Offering price of $15.00 per
share, after deducting estimated underwriting discounts and commissions and
after giving effect to the exercise of the Weis Markets Warrant. In
addition, as of September 30, 1997, the Company had issued warrants to
purchase 105,140 shares of Common Stock, options to purchase 832,108 shares
of Common Stock, Convertible Preferred Stock convertible into 1,022,862
shares of Common Stock and 76,254 shares of Common Stock subscribed for
under the Company's Stock Purchase Plan. If such warrants and options are
exercised in full and such Convertible Preferred Stock is converted into
Common Stock, and assuming that all shares subscribed for under the Stock
Purchase Plan are purchased and all shares issued into escrow in the Castle
Rock acquisition are released, purchasers of the Common Stock offered
hereby would experience an immediate and substantial dilution in the pro
forma net tangible book value per share of $9.43. See "Dilution."
Arbitrary Determination of Offering Price; Possible Volatility of Stock Price
The Offering price of the Common Stock has been determined by negotiation
between the Company and the Underwriters and does not necessarily bear any
relationship to the Company's assets, book value, financial condition or
any other recognized criterion of value. There can be no assurance that the
market price of the Common Stock will not decline below the Offering price.
The market price of the Common Stock could be subject to wide fluctuations
in response to actual or anticipated quarterly operating results of the
Company, announcements of the Company or its competitors as well as other
factors. In addition, the stock market has experienced from time to time
extreme price and volume fluctuations that may be unrelated to the
operating performance of particular companies.
-10-
No Prior Public Market
Prior to this Offering, there has been no public trading market for the
Common Stock. Accordingly, there can be no assurance that an active trading
market in the Common Stock will develop, or if such a trading market
develops, that it will be sustained.
No Cash Dividends
Since the Company commenced operations in 1986, the Company has not paid
any cash dividends on its capital stock. The Company anticipates that its
future earnings, if any, will be retained for use in the business, or for
other corporate purposes, and it is not anticipated that any cash dividends
on the Common Stock will be paid in the foreseeable future. See "Dividend
Policy" and "Description of Capital Stock."
Control by Current Shareholders; Anti-Takeover Devices
Upon the consummation of this Offering, including the sale of Common
Stock by the Selling Shareholder, the Company's shareholders as of
September 30, 1997 will own 41.1% of the outstanding shares of Common Stock
(39.3% if the Underwriters' over-allotment option is exercised in full).
Accordingly, such persons, acting in concert, may be able to elect all of
the Company's directors, increase the Company's authorized capital,
dissolve, merge or sell the assets of the Company and generally direct the
affairs of the Company. In addition, the Board of Directors and officers of
the Company will own 18.4% of the outstanding shares of Common Stock (33.4%
upon the exercise of currently exercisable options and warrants and
conversion of the Convertible Preferred Stock owned by the Board of
Directors and officers). See "Principal Shareholders and Selling
Shareholder."
In addition, certain provisions in the Company's Articles of
Incorporation and certain provisions of applicable Pennsylvania law may,
under certain circumstances, have the effect of discouraging, delaying or
preventing a change in control of the Company. See "Description of Capital
Stock -- Preferred Stock" and "Description of Capital Stock -- Pennsylvania
Corporate Law Provisions."
Shares Eligible for Future Sale
After the completion of this Offering, 6,555,888 shares of Common
Stock will be outstanding. Of such shares, the shares sold pursuant to this
Offering will be tradable without restriction by persons other than
"affiliates" of the Company. The remaining 2,696,888 shares of Common Stock
to be outstanding after this Offering are "restricted securities" within
the meaning of Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be publicly resold, except in compliance
with the registration requirements of the Securities Act or pursuant to an
exemption from registration, including that provided by Rule 144
promulgated under the Securities Act. shares of Common Stock will be
available for immediate resale upon the consummation of this Offering
without restriction pursuant to the exemption provided by Rule 144(k). The
directors and executive officers of the Company and other shareholders of
the Company, who collectively hold shares, or approximately % of the
outstanding shares of Common Stock prior to this Offering, have agreed not
to offer to sell, sell, contract to sell, grant any option to sell,
encumber, pledge or otherwise dispose of, or exercise any demand rights
with respect to, any Common Stock or securities convertible into or
exercisable or exchangeable for Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of
PaineWebber Incorporated. Upon expiration of the 180-day period, shares
of Common Stock will be eligible for immediate resale under the Securities
Act, subject, in certain cases, to certain volume, manner of sale and other
requirements of Rule 144 promulgated under the Securities Act. The Company
may file one or more Registration Statements on Form S-8 immediately
following this Offering, registering under the Securities Act shares of
Common Stock covered by the Company's stock option and stock purchase
plans. No prediction can be made as to the effect, if any, that future
sales of shares, or the availability of shares for future sale, will have
on the market price of the Common Stock prevailing from time to time. Sales
of substantial amounts of Common Stock, or the perception that such sales
could occur, could adversely affect the prevailing market
-11-
price of the Common Stock. See "Principal Shareholders and Selling
Shareholder," "Shares Eligible for Future Sale" and "Underwriting."
-12-
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby are estimated to be
approximately $27.5 million, after deducting underwriting discounts and
commissions and estimated Offering expenses, and, together with $675,000
from the exercise of the Weis Markets Warrant, result in total proceeds of
$28.2 million. The Company intends to use $19.1 million of such proceeds to
fund a portion of the capital expenditures associated with the expansion of
the Milesburg Facility (the total estimated cost of which is $17.8 million)
and the construction of the Ginnie Springs bottling facility (the total
estimated cost of which is $6.6 million). The Company intends to use
approximately $6.0 million of the net proceeds to repay borrowings under
its credit facilities used to fund a portion of the purchase price and
repay certain liabilities associated with the acquisition of Castle Rock.
Net proceeds of $3.1 million are expected to be used to repay certain
borrowings under the Company's credit facilities which incur interest at
rates between LIBOR plus 1.0% and LIBOR plus 1.7%. At September 30, 1997,
the Company had approximately $3.1 million of such borrowings outstanding,
$2.9 million of which will begin to amortize in February 1999 and $200,000
of which is due upon demand. In connection with the acquisition of Castle
Rock, the Company made additional borrowings under its credit facilities.
The balance, if any, of the net proceeds from this Offering will be used
for working capital and general corporate purposes. Pending such uses, the
total proceeds will be invested in short-term, interest-bearing investment
grade securities or commercial paper.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common
Stock. The Company currently intends to retain its earnings, if any, to
provide funds for the operation and expansion of its business and,
therefore, does not anticipate declaring or paying cash dividends in the
foreseeable future. Any payment of future dividends will be at the
discretion of the Board of Directors and will depend upon, among other
things, the Company's earnings, financial condition, capital requirements,
level of indebtedness, contractual restrictions with respect to the payment
of dividends and other relevant factors. Further, pursuant to the terms of
its existing credit facilities, the Company is restricted in its ability to
pay cash dividends on its Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
-13-
DILUTION
The difference between the Offering price per share of Common Stock and
the adjusted net tangible book value per share of Common Stock after this
Offering constitutes the dilution to investors in this Offering. Net
tangible book value per share on any given date is determined by dividing
the net tangible book value (total tangible assets less total liabilities)
of the Company on such date by the number of shares of Common Stock
outstanding on such date.
The net tangible book value of the Company at September 30, 1997 was
approximately $18.1 million, or $4.09 per share of outstanding Common
Stock, excluding net tangible book value attributable to, and shares issued
in connection with, the acquisition of Castle Rock. After giving effect to
the sale of the 2,000,000 shares of Common Stock being offered by the
Company, the exercise of the Weis Markets Warrant and the application of
the net proceeds therefrom, the pro forma net tangible book value of the
Company at September 30, 1997 would have been $46.2 million, or $7.05 per
share. This represents an immediate increase in net tangible book value of
$2.96 per share to existing shareholders and an immediate dilution of $7.95
per share to new shareholders purchasing shares of Common Stock in this
Offering. The following table illustrates this per share dilution:
Assumed Offering price per share.............................. $15.00
Net tangible book value per share at September 30, 1997..... $ 4.09
Increase per share attributable to this Offering............ 2.96
------
Net tangible book value per share after this Offering......... 7.05
------
Dilution per share to new shareholders........................ $ 7.95
======
The following table sets forth the number of shares of Common Stock
purchased from the Company, the total consideration paid to the Company
(including proceeds from the exercise of the Weis Markets Warrant) and the
average price per share paid by existing shareholders, and by purchasers of
the shares offered hereby, at an assumed Offering price of $15.00 per
share, before deducting underwriting discounts and commissions and Offering
expenses, and as if this Offering had occurred as of September 30, 1997.
The following table excludes shares issued in connection with the
acquisition of Castle Rock.
Shares Purchased(1) Total Consideration Average Price
Number Percent Amount Percent Per Share
Existing shareholders... 4,555,888 69.5% $12,866,269 30.0% $ 2.82
New shareholders........ 2,000,000 30.5% 30,000,000 70.0% 15.00
--------- ----- ----------- -----
6,555,888 100.0% $42,866,269 100.0%
========= ===== =========== =====
---------------
(1) If the Underwriters' over-allotment option is exercised in full, the
total number of shares outstanding after this Offering held by new
investors would increase to 2,578,850 shares, or approximately 36.1%
of the total number of shares outstanding after this Offering.
The above tables exclude (i) 937,248 shares of Common Stock issuable
upon exercise of outstanding options and warrants, (ii) 1,022,862 shares of
Common Stock reserved for issuance upon conversion of the Convertible
Preferred Stock and (iii) 76,254 shares of Common Stock currently
subscribed for under the Company's Stock Purchase Plan. The exercise and
purchase of the total 2,036,364 shares would result in further dilution of
$1.48 per share to new shareholders. See "Management -- Employment
Agreements," "Management -- Stock Plans", "Certain Transactions" and
"Description of Capital Stock."
-14-
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 on an actual basis and on an as adjusted basis, giving
effect to the sale of 2,000,000 shares of Common Stock offered by the
Company hereby at an assumed Offering price of $15.00 per share, the
exercise of the Weis Markets Warrant and the application of the estimated
net proceeds therefrom after deducting estimated underwriting discounts and
commissions and Offering expenses. This table should be read in conjunction
with the Consolidated Financial Statements of the Company and the notes
thereto included elsewhere in this Prospectus. See "Description of Capital
Stock."
September 30, 1997
Actual As Adjusted
Notes payable:
Notes payable, current................. $ 298,966 $ 89,944
Notes payable, excluding current
portion.............................. 4,518,501 1,727,523
--------- ---------
Total notes payable.................. 4,817,467 1,817,467
Shareholders' equity:
Series A Non-Voting Convertible Preferred
Stock, $1 par value, 2,000,000 shares
authorized, 1,713,750 shares issued;
1,713,750 shares issued,
as adjusted.......................... 1,713,750 1,713,750
Common Stock, no par value,
100,000,000 shares authorized,
4,423,712 shares issued; 6,555,888 shares
issued, as adjusted (1)................ -- --
Additional paid-in capital............. 12,196,269 40,381,269
Retained earnings...................... 4,242,456 4,242,456
Less 11,250 shares of preferred
stock in treasury, at cost............ ( 11,250) ( 11,250)
Less 3,004 shares of common stock
in treasury, at cost.................. ( 5,000) ( 5,000)
Subscriptions receivable............... ( 71,878) ( 71,878)
Total shareholders' equity........... 18,064,347 46,249,347
---------- ----------
Total capitalization.............. $22,881,814 $48,066,814
=========== ===========
---------------
(1) Excludes (i) 937,248 shares of Common Stock issuable upon exercise of
outstanding options and warrants, (ii) 1,022,862 shares of Common
Stock reserved for issuance upon conversion of the Convertible
Preferred Stock and (iii) 76,254 shares of Common Stock currently
subscribed for under the Stock Purchase Plan. See "Management --
Employment Agreements," "Management -- Stock Plans," "Certain
Transactions" and "Description of Capital Stock."
-15-
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of and for
the years ended September 30, 1993, 1994, 1995, 1996 and 1997 have been
derived from the Company's financial statements, which have been audited by
KPMG Peat Marwick LLP, independent certified public accountants. The
consolidated financial statements of the Company for each of the three
years in the period ended September 30, 1997 and the related balance sheets
at September 30, 1996 and 1997, which have been audited by KPMG Peat
Marwick LLP, have been included elsewhere in this Prospectus. The selected
consolidated financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements of the
Company and the notes thereto included elsewhere in this Prospectus.
[Enlarge/Download Table]
Years Ended September 30,
-----------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Statement of Operations Data:
Net revenues................ $9,275,537 $13,011,744 $22,956,053 $28,240,741 $38,015,315
Cost of goods sold.......... 7,138,691 9,979,468 18,153,355 21,271,313 28,316,938
--------- ----------- ----------- ----------- -----------
Gross profit................ 2,136,846 3,032,276 4,802,698 6,969,428 9,698,377
Selling, general and
administrative............ 1,389,220 1,994,812 3,290,609 4,313,480 5,126,583
--------- ---------- ----------- ----------- -----------
Income from operations ..... 747,626 1,037,464 1,512,089 2,655,948 4,571,794
Non-operating income
(expense), net............ (228,664) (226,469) (738,739) (180,720) 119,713
--------- ---------- ----------- ----------- -----------
Income before income taxes
and cumulative effect of
change in accounting
principle ................ 518,962 810,995 773,350 2,475,228 4,691,507
Income tax expense. ........ 69,400 122,000 135,000 990,000 1,904,752
--------- ---------- ----------- ----------- -----------
Income before cumulative
effect of change in
accounting principle ..... 449,562 688,995 638,350 1,485,228 2,786,755
Cumulative effect of change in
accounting for income taxes
in accordance with FASB 109 49,000 -- -- -- --
--------- ---------- ----------- ----------- ----------
Net income.................. $ 400,562 $ 688,995 $ 638,350 $1,485,228 $2,786,755
========= ========== ========== ========== ==========
Net income per common
share (1)................. $ 0.12 $ 0.18 $ 0.16 $ 0.26 $ 0.47
========== ========== ========== ========== ==========
Weighted average number of
common shares outstanding. 3,417,391 3,785,102 3,884,708 5,620,741 5,951,844
Other Operations Data:
EBITDA (2)................. $1,260,940 $1,606,457 $2,888,231 $4,613,823 $7,285,186
-16-
[Enlarge/Download Table]
September 30,
---------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Consolidated Balance Sheet Data:
Working capital............... $ 901,761 $1,498,399 $ 2,068,414 $ 2,304,684 $ 3,096,318
Total assets.................. 6,101,103 7,098,447 17,916,037 19,516,355 26,580,185
Notes payable, including
current portion............. 2,220,062 2,836,604 2,830,872 1,808,464 4,817,467
Shareholders' equity.......... 2,779,804 3,507,290 12,796,169 14,649,421 18,064,347
---------------
(1) For information concerning the number of shares used in the
computation of net income per common share, see Note 1 to the
Consolidated Financial Statements.
(2) "EBITDA" represents earnings before interest expense, income tax
expense, depreciation and amortization, including amortization of
leasehold improvements, acquisition and development costs, and debt
expense and discount or premium relating to any indebtedness. EBITDA
is not presented herein as an alternative measure of operating results
(as determined in accordance with GAAP) or cash flow (as determined in
accordance with GAAP).
-17-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with the
Consolidated Financial Statements and the related notes thereto included
elsewhere in this Prospectus. This Prospectus contains forward-looking
statements regarding matters that involve risks and uncertainties. The
Company's actual results may differ materially from those anticipated by
the forward-looking statements as a result of certain factors, including,
but not limited to, those set forth in Risk Factors and elsewhere in this
Prospectus.
Overview
AquaPenn produces, bottles and sells non-sparkling natural spring
water. The Company has adopted a strategy of producing regionally and
selling its natural spring water products to national and regional
customers, offering both private label and branded products to allow its
customers "one-stop-shopping," creating innovative packaging, maintaining
state-of-the-art production facilities which allow it to achieve cost
effectiveness and producing superior quality products. Part of the
Company's strategy includes acquiring the rights to additional spring water
sites and acquiring natural spring water companies.
History. The Company commenced operations in fiscal 1987 as a
distributor of 5 gallon containers of natural spring water to the home and
office market, and in fiscal 1988 the Company commenced manufacturing and
selling spring water ice to supermarkets and other customers. In fiscal
1989, the Company began to refocus its product and distribution strategies
by bottling natural spring water in containers for sale directly or through
wholesalers to the off-premise retail market in 1 gallon and 2 1/2 gallon
sizes. In fiscal 1991, the Company sold assets used in its 5 gallon home
and office delivery business, and in fiscal 1994 the Company sold assets
used in its ice business. In August 1990, the Company commenced shipping
premium PET products, and since that time the Company has primarily focused
its efforts on premium PET natural spring water products, which accounted
for approximately 81% of the Company's net revenues in fiscal 1997. During
fiscal 1995 and 1996, the Company completed a private placement of Common
Stock, with proceeds of $8.9 million, which were used to build the
Milesburg Facility. This facility was expanded in February 1997, and, as
part of the use of net proceeds from this Offering, the Company expects to
spend an additional $17.8 million to add additional production capacity and
warehouse space. The current expansion is expected to be completed by the
end of the Spring of 1998.
Factors Affecting Operating Results. Because the Company has limited
ability to change the price of its products, the Company's profits are
based on generating sufficient sales volume to exceed its costs, including
its relatively high fixed costs of production. As the Company completes its
capital expenditures in the near term, its profit margins will likely be
negatively impacted until sales volumes increase. The Company's largest
variable cost is packaging, principally PET bottles, caps and corrugated
boxes. Variations in raw materials prices may cause the Company's results
to fluctuate. The Company maintains a relatively low level of raw material
and finished goods inventory averaging $1.5 million in fiscal 1997. This
inventory consists primarily of raw materials, which the Company finds cost
effective to purchase in bulk. The Company maintains a limited product
inventory because the Company tailors much of its production specifically
to customer orders. The Company's PET bottle supplier, Schmalbach-Lubeca,
produces PET bottles as needed for the Company on site at the Milesburg
Facility. Disruptions in supplies of certain raw materials may negatively
impact the Company's ability to deliver finished products to its customers.
Competitive pricing pressures may also negatively impact the Company's
performance. Finally, the mix of products and packaging sizes sold by the
Company may change, particularly as new distribution channels are obtained.
Changes in these aspects of the Company's sales profile may impact profit
margins. The Company does not believe that inflation has had a material
effect on the Company's operating results during the past three fiscal
years.
Seasonality. The Company's business is highly seasonal, with a
concentration of sales in summer months. In the past, inclement weather has
negatively impacted the Company's net revenues, particularly in summers
which are unusually cool or rainy. In the last three fiscal years, an
average of 41.5% of the Company's sales have occurred during June, July and
August.
-18-
Results of Operations
The following table sets forth for the periods indicated certain
financial data as a percentage of net revenues.
Years Ended September 30,
-------------------------
1995 1996 1997
---- ---- ----
Net revenues.................... 100.0% 100.0% 100.0%
Cost of goods sold.............. 79.1 75.3 74.5
---- ---- ----
Gross profit.................... 20.9 24.7 25.5
Selling, general and administrative 14.3 15.3 13.5
---- ---- ----
Income from operations.......... 6.6 9.4 12.0
Other income (expense).......... (3.2) (0.6) 0.3
---- ---- ----
Income before income tax expense 3.4 8.8 12.3
Income tax expense.............. 0.6 3.5 5.0
---- ---- ----
Net income...................... 2.8% 5.3% 7.3%
==== ==== ====
Fiscal 1997 Compared with Fiscal 1996
Net Revenues. The Company's net revenues increased from $28.2 million
in fiscal 1996 to $38.0 million in fiscal 1997, an increase of $9.8
million, or 34.6%. This increase resulted principally from increased sales
volume to the Company's existing customer base as well as from sales to new
customers. This increase also resulted from the introduction of the
Company's new 8 ounce product which accounted for 33.0% of the Company's
fiscal 1997 growth. During the fourth quarter of fiscal 1997, the Company
experienced a decrease in net revenues from the prior quarter which, in
part, was a result of unseasonably cool weather in select markets and the
loss of net revenues from two customers which were acquired by other
entities.
Gross Profit. Gross profit increased from $7.0 million in fiscal 1996
to $9.7 million in fiscal 1997. The gross margin increased from 24.7% in
fiscal 1996 to 25.5% in fiscal 1997. Cost of goods sold includes direct
materials, direct labor, overhead, depreciation, amortization and
transportation. This percentage increase was largely attributable to a new
bottle supply contract which went into effect on April 1, 1996. In
addition, the Company's direct labor costs and overhead were spread over a
greater sales volume, decreasing the cost per unit produced. Transportation
expenses, which represent outbound delivery costs, remained relatively
unchanged as a percentage of net revenues. Depreciation and amortization
was $1.8 million in fiscal 1996 compared to $2.4 million in fiscal 1997,
and decreased from 6.5% of net revenues in fiscal 1996 to 6.3% in fiscal
1997. During the fourth quarter of fiscal 1997, the Company experienced a
decrease in gross margins. Factors impacting this decrease included a
disproportionate increase in certain expenses in addition to a shift in
product mix. In particular, higher transportation expenses reflected, in
part, an increase in deliveries to the West and Southwest, direct labor
expenses were higher due to more labor-intensive requirements for certain
packaging and higher raw material expenses resulted from PET resin and
corrugated box price increases. Product mix shifts occurred as the Company
obtained new customers in different distribution channels, introduced new
product sizes and sold a different mix of products to existing customers.
Selling, General and Administrative. Selling, general and
administrative expenses increased from $4.3 million in fiscal 1996 to $5.1
million in fiscal 1997 but decreased from 15.3% of net revenues in fiscal
1996 to 13.5% in fiscal 1997. This decrease was primarily attributable to a
greater percentage increase in net revenues.
Other Income (Expense). Other income increased from $116,484 in fiscal
1996 to $328,180 in fiscal 1997. Other income consists primarily of rental
income from the lease of the Company's former State College location and
the lease of space in the Milesburg Facility to Schmalbach-Lubeca for
production of blow-molding products.
-19-
Interest Expense, Net. Interest expense, net decreased from $297,204
in fiscal 1996 to $208,467 in fiscal 1997. This decrease was due to a lower
average outstanding revolver balance and more favorable interest rate
terms.
Income Tax Expense. The Company's effective tax rate was 40.0% for
fiscal 1996 and 40.6% for fiscal 1997.
Fiscal 1996 Compared with Fiscal 1995
Net Revenues. The Company's net revenues increased from $23.0 million
in fiscal 1995 to $28.2 million in fiscal 1996, an increase of $5.2
million, or 23.0%. This increase resulted principally from increased sales
volume to existing customers as well as from sales to new customers.
Gross Profit. Gross profit increased from $4.8 million in fiscal 1995
to $7.0 million in fiscal 1996. The gross margin increased from 20.9% in
fiscal 1995 to 24.7% in fiscal 1996. This percentage increase was largely
due to a decrease in cost of direct materials attributable to the new
bottle supply contract which went into effect on April 1, 1996.
Depreciation and amortization increased from $1.4 million in fiscal 1995 to
$1.8 million in fiscal 1996, and increased from 5.9% of net revenues in
fiscal 1995 to 6.5% in fiscal 1996. Substantially all of this increase is
attributable to the Milesburg Facility which opened in May 1995.
Selling, General and Administrative. Selling, general and
administrative expenses increased from $3.3 million in fiscal 1995 to $4.3
million in fiscal 1996, and increased from 14.3% of net revenues in fiscal
1995 to 15.3% in fiscal 1996. This increase resulted primarily from a
larger percentage increase of sales volume being sold through food brokers,
a greater percentage of net revenues attributable to sales rebates and
accruals, and an increase in personnel expenses.
Other Income (Expense). Other income increased from $7,090 in fiscal
1995 to $116,484 in fiscal 1996. This increase is the result of
commencement of the lease of the Company's former State College location
and rental income therefrom.
Interest Expense, Net. Interest expense, net decreased from $745,829
in fiscal 1995 to $297,204 in fiscal 1996 as a result of the repayment of
an $8.0 million interim loan from the proceeds of the Company's private
placement of Common Stock in fiscal 1995.
Income Tax Expense. The Company's effective tax rate was 17.5% in
fiscal 1995 and 40.0% in fiscal 1996. The effective tax rate in fiscal 1995
differed from the statutory tax rate primarily due to the use of net
operating loss carryforwards. As of September 30, 1995, substantially all
of the Company's federal net operating loss carryforwards were fully
utilized.
Quarterly Results
The following table sets forth certain quarterly information for the
Company's two most recent years. This unaudited quarterly information has
been prepared on the same basis as the audited Consolidated Financial
Statements included elsewhere in this Prospectus, and, in the opinion of
the Company, reflects a fair presentation of the financial results for the
period covered. The table should be read in conjunction with the
Consolidated Financial Statements of the Company and the notes thereto. The
operating results for any quarter may not necessarily be indicative of
results for any future periods.
-20-
[Enlarge/Download Table]
Quarters Ended
-----------------------------------------------------------------------------------------------
Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
1995 1996 1996 1996 1996 1997 1997 1997
--------- --------- --------- --------- --------- --------- ---------- ----------
Net revenues. $3,413,572 $5,788,242 $9,173,126 $9,865,801 $5,002,521 $7,419,815 $12,889,053 $12,703,926
Cost of goods sold 3,267,086 4,999,297 6,388,573 6,616,357 4,025,163 5,712,637 9,209,757 9,369,381
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit. 146,486 788,945 2,784,553 3,249,444 977,358 1,707,178 3,679,296 3,334,545
Selling, general and
administrative 832,406 876,453 1,258,246 1,346,375 943,952 1,050,679 1,504,633 1,627,319
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations.. (685,920) (87,508) 1,526,307 1,903,069 33,406 656,499 2,174,663 1,707,226
Non-operating
expense (income),
net......... 71,361 49,211 46,163 13,985 (38,670) (21,247) (19,302) (40,494)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes (757,281) (136,719) 1,480,144 1,889,084 72,076 677,746 2,193,965 1,747,720
Income tax expense
(benefit)... (302,000) (54,000) 591,000 755,000 32,400 272,600 878,717 721,035
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) $(455,281) $ (82,719) $ 889,144 $1,134,084 $ 39,676 $ 405,146 $1,315,248 $1,206,685
========= ========= ========== ========== ========== ========== ========== ==========
Net income (loss) per
common share $ (0.$1) $ (0.02) $ 0.16 $ 0.20 $ 0.01 $ 0.17 $ 0.22 $ 0.17
========= ========= ========== ========== ========== ========== ========== ==========
Weighted average
number of common
shares outstanding(1) 4,226,985 4,259,071 5,624,606 5,642,211 5,806,796 5,811,092 5,919,765 5,951,844
========= ========= ========== ========== ========== ========== ========== ==========
----------------------------------
(1) The weighted average number of common shares outstanding in loss
periods does not include the Convertible Preferred Stock or
Common Stock options or warrants under the treasury stock method
as outstanding since these securities have an anti-dilutive
effect on per share information.
Liquidity and Capital Resources
The Company's primary capital needs have been to fund its working
capital requirements and capital expenditures necessitated by its
growth. The Company's net cash provided by operating activities was
$2.1 million, $3.6 million and $4.8 million in fiscal 1995, 1996 and
1997, respectively.
The Company's capital expenditures totaled $7.9 million in fiscal
1997, primarily incurred for the expansion of the Milesburg Facility,
including the purchase of and progress payments on new equipment.
The Company's capital expenditures totaled $2.9 million in fiscal
1996, primarily incurred for the completion of the Milesburg Facility
and for the purchase of new box-forming and shrink-wrapping equipment.
The Company's capital expenditures totaled $10.4 million in fiscal
1995 for the purchase of property, plant and equipment, primarily
related to the opening of the Milesburg Facility in May.
-21-
The Company utilized bridge debt financing as well as other debt
borrowings to finance the construction of the Milesburg Facility and the
procurement of new equipment. During September 1995 and the beginning of
fiscal 1996, the Company privately placed 1.8 million shares of its Common
Stock in exchange for an aggregate of $8.9 million (net of $171,042 of
aggregate offering costs). The Company used the proceeds of the private
placement, together with operating cash flow, to repay substantially all of
the debt borrowings used to finance the Milesburg Facility. In addition,
the Company borrowed $1.8 million from the Pennsylvania Industrial
Development Authority, through which the Commonwealth of Pennsylvania
provides low cost financing to job-creating enterprises. This financing
bears an annual fixed rate of interest of 5%, payable monthly, and
amortizes over a 15 year period.
The Company's future capital requirements include $6.6 million to
procure land and spring water sources and construct a new bottled water
facility in Florida, $17.8 million to expand the Milesburg Facility, to
build additional warehouse and blow-molding space, to purchase additional
production lines and equipment, to install a pipeline from Big Spring to
its facility and to purchase other equipment. In addition, the Company's
future capital requirements will require the financing and growth of
working capital items such as accounts receivable and inventories. The
Company anticipates that the funds available from this Offering should
support the Company's existing operations at least through fiscal 1998.
Long-term capital expenditures are expected to be funded through additional
debt borrowings and operating cash flow.
The Company has $22 million in revolving credit facilities, lines of
credit and demand notes which incur interest at annual rates between LIBOR
plus 1.0% and LIBOR plus 1.7%. At September 30, 1997, the Company had $3.1
million of such borrowings outstanding which are expected to be repaid with
the proceeds of this Offering.
Lease of Spring Water Sources and Acquisitions. On July 10, 1995, the
Company entered into an agreement with the Borough of Bellefonte,
Pennsylvania to purchase natural spring water from the Big Spring. The term
of the Company's agreement with the Borough of Bellefonte is 50 years with
a five year, automatic renewal unless prior notice of termination is given.
Subject to the Borough of Bellefonte obtaining certain permits,
construction of a cover over the spring and all other permits and approvals
being obtained, the Company expects to begin bottling Big Spring water in
the Spring of 1999. On July 30, 1997, the Company entered into an agreement
with Seven Springs Water Company ("Seven Springs") to purchase natural
spring water from Ginnie Springs, and to purchase land adjacent to Ginnie
Springs to construct a new bottling facility. The Company expects that the
construction of this state-of-the-art facility will require approximately
$6.6 million of capital expenditures and production will be concluded
during the Spring of 1998. On October 15, 1997, the Company acquired Castle
Rock, providing a West Coast production facility, natural spring water
source and brand name. The purchase price for all of the outstanding common
stock of Castle Rock was $3.0 million, subject to certain post-closing
adjustments, consisting of approximately $1.45 million in cash and
approximately $1.55 million in Common Stock to be valued at 75.0% of the
Offering price. One half of the cash consideration and one half of the
Common Stock consideration were paid into escrow pending adjustments based
on a final determination of Castle Rock's liabilities and the determination
of Offering price. As part of the acquisition of Castle Rock, the Company
agreed to pay down a substantial portion of the liabilities of Castle Rock.
The acquisition will be accounted for as a purchase.
Recent Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of and SFAS No. 123, Accounting for
Stock- Based Compensation during fiscal 1997. SFAS No. 121 was adopted in
the beginning of fiscal 1997 and there was no impact on the consolidated
statements of operations upon the adoption of this statement. The Company
elected to adopt the disclosure requirements of SFAS No. 123 as allowed by
the Statement.
In February 1997, SFAS No. 128, Earnings Per Share, was issued and
requires dual presentation of basic and diluted earnings per share for
complex capital structures on the face of the consolidated statement of
operations. According
-22-
to SFAS No. 128, basic earnings per share, which replaces primary earnings
per share, is calculated by dividing net income available to common
stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share, which replaces fully diluted
earnings per share, reflects the potential dilution for the exercise or
conversion of securities into common stock. SFAS No. 128 is required to be
adopted for the Company's fiscal 1998 year end financial statements and it
is expected to have no significant impact on the Company's financial
position or results of operations.
In June 1997, SFAS No. 130, Reporting Comprehensive Income, and SFAS
No. 131, Disclosures about Segments of an Enterprise and Related
Information were issued. SFAS No. 130 establishes standards for reporting
and display of comprehensive income and its components including revenues,
expenses, gains and losses in a full set of general-purpose financial
statements and requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements. SFAS No. 130 is required to be
adopted for the Company's fiscal 1999 year end financial statements.
SFAS No. 131 establishes standards for the way that public companies
report information about operating segments in annual financial statements
and requires that those enterprises report selected information about
operating segments in interim financial reports issued to stockholders. It
also establishes standards for related disclosures about products and
services, geographic areas, and major customers. SFAS No. 131 is required
to be adopted for the Company's fiscal 1999 financial statements. The
Company is currently evaluating the impact, if any, of the adoption of this
pronouncement on the Company's existing disclosures.
-23-
BUSINESS
The Company
AquaPenn produces, bottles and sells non-sparkling natural spring
water products to regional and national customers under both retailers' and
other customers' private labels and its proprietary brands Pure American,
Great American, AquaPenn and Castle Rock. The Company, founded in 1986, is
one of the largest producers of private label natural spring water products
in the United States; private label products accounted for over 50% of the
Company's 1997 fiscal year net revenues. The Company's private label and
branded customers include, among others, Delta Air Lines, Inc., Gerber
Products Company, Sam's Club and Walgreen Co. The Company's net revenues
have grown from $9.3 million in fiscal 1993 to $38.0 million in fiscal
1997, representing a compounded annual growth rate of 42.3%. Over the same
time period, the Company's net income has grown from approximately $400,000
to approximately $2.8 million, representing a compounded annual growth rate
of 62.4%.
Industry Overview
Market Overview. The U.S. bottled water market is comprised of three
segments: domestically produced non-sparkling water, domestically produced
sparkling water and imported water, which constituted approximately 65%,
21% and 14%, respectively, of 1996 U.S. bottled water wholesale sales,
according to Beverage Marketing. The domestically produced non-sparkling
water category includes natural spring water obtained from naturally
occurring springs, well water, distilled water and purified water. Unlike
other beverages, bottled water serves both as a tap water substitute and a
refreshment beverage.
According to Beverage Marketing, the total U.S. market for bottled
water has grown from 1.6 billion gallons sold in 1987 to over 3.1 billion
gallons in 1996, and accounted for approximately $3.6 billion in wholesale
sales during 1996. Non-sparkling water comprises over 87% of the U.S.
bottled water market and generated $2.7 billion of wholesale sales in 1996,
and is expected to continue to grow in the future. PET-packaged products
comprise approximately 39% of the domestically produced non-sparkling water
market and have grown from approximately 83 million gallons in 1987 to
approximately 580 million gallons in 1996, representing a compounded annual
growth rate of approximately 24%. PET-packaged products accounted for
approximately $921 million of wholesale sales in 1996. Approximately 81% of
the Company's 1997 net revenues was generated by products packaged in PET
containers. According to Beverage Marketing, PET bottled water is among the
fastest growing beverage categories in the United States.
Consumer Trends. Contributing to the growth in consumption of
non-sparkling water are consumer trends including health and fitness
awareness, municipal tap water quality concern and maturing soft drink
demand, as well as consumer demand for convenience and innovative
packaging. Bottled water, particularly when packaged in premium PET bottles
with sport caps, appeals to consumers who are sports enthusiasts or whose
lifestyles are oriented to health and fitness. According to Beverage
Marketing, consumers' concern over the quality of municipal water supplies
has contributed to an increase in bottled water consumption.
Bottled water has also become an alternative to other beverages,
including soft drinks. According to Information Resources, Inc. ("IRI"),
total U.S. gallons sold of soft drinks through food store channels has
increased approximately 10% from 1994 through 1996. Over the same time
period, gallons sold of ready-to-drink juices have increased approximately
1%. In contrast, non-sparkling bottled water gallons sold have increased
approximately 21% from 1994 to 1996, according to Beverage Marketing.
Bottled spring water is natural and caffeine and additive free. These
attributes and the increased availability of convenient packaging for
natural spring water have contributed to the increase in bottled water
consumption.
-24-
Distribution Channels. Non-sparkling bottled water is generally sold
to end users through four channels. According to Beverage Marketing, the
total share of the bottled water market for each channel is as follows: (i)
off-premise retail, which consists of supermarket, convenience store and
drug store chains and other similar retail outlets (44.9%); (ii) home and
office delivery which primarily consists of 5 gallon containers (39.0%);
(iii) on-premise retail, which includes restaurants, delicatessens and
other similar sites (8.3%); and (iv) vending (7.8%).
Non-sparkling bottled water is generally delivered to customer
locations through direct-store-delivery ("DSD") or warehouse distribution
systems. DSD involves delivery of the product directly to the store's
location where consumers may purchase the product. Warehouse distribution
systems involve the delivery of truckloads of palletized products to the
warehouses of regional customers which, in turn, deliver the product
directly to the customer's retail sales locations.
Private Label. Private label products have become increasingly popular
among retailers and other customers. For example, supermarket sales of
private label products grew 8.5% in 1996 versus 1.4% growth among branded
products, according to IRI. Retailers benefit from having a range of
private label and branded products as well as from the customer affinity
developed from the reinforcement of the retailer's own brand. Other
non-retailing customers find it more efficient to source products from a
private label manufacturer than to produce the products themselves. Both
types of customers often choose private label bottled water producers on
the basis of price, consistent product quality, packaging capability,
distribution capability and customer service.
Consolidation. The trend toward consolidation in the bottled water
industry is evidenced by the reduction in the number of bottled water
filling locations and the corresponding increase in volume produced at most
locations over the past ten years. According to Beverage Marketing, in 1996
there were approximately 350 filling locations in the United States versus
approximately 425 in 1986, a decrease of 17.6%. The number of filling
locations with sales over $75 million doubled to eight from 1995 to 1996.
Larger companies are seeking to expand their share within a market, obtain
broader distribution and achieve economies of scale with larger volume
production.
Strategy
The Company's objective is to be the leading producer and bottler of
natural spring water for customers on a national basis. Aspects of the
Company's strategy include the following:
Focus on Premium PET Packaging. While the Company uses numerous types
of packaging, it is focused on bottling its natural spring water products
in premium PET plastic bottles which accounted for approximately 81% of its
net revenues in fiscal 1997. According to Beverage Marketing, PET is the
fastest growing segment of the bottled water market, having grown at a
compounded annual rate of approximately 24% from 1987 to 1996, representing
$921 million of wholesale sales in 1996. The Company currently offers eight
premium PET bottle sizes to its customers, with five of those sizes offered
in the Company's proprietary bottle designs.
Produce Regionally and Sell to National and Regional Customers. With
the acquisition of Castle Rock and the Ginnie Springs source, the Company
is implementing its strategy of developing regional production capacity to
provide bottled water products to national and regional customers
throughout the United States. The ability to provide products to its
customers from multiple sites allows the Company to service more
effectively national customers such as supermarket chains, drug stores,
convenience stores, hotel chains, airlines and restaurant chains, while
reducing distribution costs.
Invest in State-of-the-Art Production Facilities. The Company has
invested in state-of-the-art production facilities which it believes are
comparable or superior in sophistication to those used by its competitors.
These facilities allow the Company to produce high quality natural spring
water products in a cost efficient manner while also providing the
flexibility to respond rapidly to the changing shipment and production
demands of its customers.
-25-
Create Innovative Packaging. The Company incorporates innovative
packaging into its natural spring water products in order to differentiate
its products from those offered by its competitors and to better meet its
customers' demands. The Company is a package design leader, having been one
of the first to offer premium PET bottles with sport caps; tamper-evident
shrink wrap bands; 20 ounce sports bottles; 8 ounce bottles designed for
airlines, food service and other distribution channels; and 24.9 ounce
bottles designed to compete with the 24 ounce bottle.
Provide "One-Stop-Shopping" to Customers. By producing both private
label and branded products in a full line of sizes and packages, the
Company can offer to its customers "one-stop-shopping" supply arrangements.
Customers are able to stock their shelves with a variety of branded water
products, while also strengthening their own customer affinity with private
label. Private label customers are able to design their own packaging to
their specifications. Additionally, because the Company distributes its
products throughout the continental United States, the Company's customers
need not rely on multiple regional suppliers.
Provide Superior Customer Service. The Company is focused on providing
the highest level of service to its customers. The Company provides
flexibility to its customers in terms of order size, delivery timing and
method, and, in the case of private label, label design. The Company
believes that, by remaining responsive to its customers' needs, it will
encourage further sales penetration with existing and new customers.
Growth Strategy. AquaPenn's growth strategy is to increase sales to
existing customers, broaden its current customer base, add new distribution
channels and expand its product line. The Company's active acquisition
program includes obtaining the rights to additional spring water sites and
acquiring natural spring water companies. In accordance with this strategy,
the Company recently acquired the rights to natural spring water from
Ginnie Springs, adjacent to which a new production facility is expected to
be constructed and completed by the Spring of 1998. In addition, the
Company acquired Castle Rock, a bottler and distributor of natural spring
water products located in northern California. The acquisition of the right
to Ginnie Springs spring water and the acquisition of Castle Rock will
allow the Company to serve its customers more efficiently.
Product Categories
The Company offers both proprietary brands and private label products
in each of the categories described below. The Company estimates that
approximately 50% of fiscal 1997 net revenues were derived from its private
label business and approximately 50% of net revenues were derived from its
proprietary brands.
Natural Spring Water. The Company's natural spring water is sodium and
chlorine free. The Company estimates that natural spring water products
accounted for approximately 86% of its net revenues in fiscal 1997.
Distilled Water. The AquaPenn and Great American branded and private
label distilled water is primarily used by consumers as a water source for
batteries, humidifiers and irons, and for drinking. The Company estimates
that distilled water accounted for approximately 5% of its net revenues in
fiscal 1997.
Fluoridated Spring Water. The Company has developed spring water
products containing fluoride. AquaPenn currently packages fluoridated
spring water for Beech-Nut Nutrition Corporation under the name
Beech-Nut(R) Spring Water and for Gerber Products Company under the name
Gerber(R) Baby Water with Fluoride, which is marketed primarily to infants
and children. Fluoride-related products accounted for approximately 9% of
the Company's net revenues in fiscal 1997.
Distribution
The Company distributes nearly all of its products from its Milesburg
Facility by shipping to the regional warehouses of its customers. Unlike a
DSD distribution system in which products are delivered via a company's
local delivery
-26-
trucks to individual outlets, AquaPenn distributes to warehouses that
service its customers. This approach to distribution results in reduced
distribution costs compared to DSD distribution costs, while providing
those companies that distribute via warehouse systems, according to
Beverage Marketing, access to nearly 80% of all off-premise retail
channels. The Company's Castle Rock subsidiary utilizes primarily a DSD
distribution system. The Company intends to continue to distribute natural
spring water products under the Castle Rock label through the DSD
distribution system and private label and other proprietary brands through
the warehouse distribution system. In fiscal 1997, sales to Sam's Club and
Walgreen Co. accounted for approximately 15% and 11% of net revenues,
respectively; no other customer accounted for more than 10% of the
Company's net revenues. As of September 30, 1997, the Company believes its
products were sold in all 50 states.
Marketing
The Company advertises at the wholesale level and participates in
approximately 20 trade shows annually. The Company's products are also
marketed through food wholesalers, which deliver to single and chain stores
such as convenience stores and delicatessens, and through food brokers,
which receive commissions based on a percentage of net revenues for
products sold. When possible, the Company attempts to cross-market its
private label and branded products.
The Company has full Electronic Data Interchange ("EDI") capability.
EDI is a system which permits customers to place orders and receive
invoices electronically. EDI reduces the administrative costs of the
Company's customers such as drug store chains and warehouse retailers by
eliminating paperwork and reducing processing time. Certain customers and
potential customers will only order products from EDI-capable suppliers.
The Company currently receives 21.3% of its orders via EDI. The Company
believes that its EDI capability permits it to compete better on a national
level.
Spring Water Sources
The geographical distribution of the Company's natural spring water
sources is essential to its strategy of producing regionally and selling to
national and regional customers. By developing sources in the Northeast,
Southeast and West, the Company will be able to distribute more efficiently
to the most significant population areas in the United States. The Company
believes that these sources provide high quality natural spring water.
"Spring water" is defined by the FDA as water derived from an underground
formation from which water flows naturally to the surface of the earth.
Under FDA guidelines, bottled water must contain fewer than 500 parts per
million ("ppm") in total dissolved solids. Varying amounts of solids
provide different "tastes" to water.
Graysville Spring. The Company's sources include the Graysville Spring
with an estimated flow of over 500,000 gallons per day, well in excess of
the Company's current and anticipated requirements for the Milesburg
Facility. The Company has exclusive use of the leased premises and may draw
the full amount of the flow for its bottling needs, except a minimal amount
drawn for use by two existing residences. The total dissolved solids of the
water from this spring is approximately 120 ppm. The Company leases the
spring from the owner of the land on which the spring is located pursuant
to a 20 year lease expiring in the year 2017. The Company also has the
right of first refusal to buy or lease the land expiring in the year 2026.
The land abuts state game lands which reduces the risk of contamination or
pollution from external sources. The Graysville Spring is approximately 32
miles from the Milesburg Facility and water is transported from the spring
to the facility in the Company's stainless steel tanker trucks.
Big Spring. The Company has entered into an agreement with the Borough
of Bellefonte, Pennsylvania to purchase natural spring water from the Big
Spring. The estimated total flow of the Big Spring is approximately 14
million gallons per day, and the Company has rights to purchase up to one
million gallons per day. The total dissolved solids of the water from this
spring is approximately 140 ppm. The term of the Company's agreement with
the Borough of Bellefonte is 50 years with a five year automatic renewal
unless prior notice of termination is given. The Company's rights to draw
water from the Big Spring are subject to the satisfaction of the water
demands of the Borough of Bellefonte water system. There is no restriction
on sale by the Borough of Bellefonte of Big Spring water to other
-27-
purchasers. The Company is working with the Borough of Bellefonte to obtain
the necessary permits and approvals to carry out the agreement and enable
the Company to construct an approximately five-mile pipeline to transport
water from the Big Spring to the Milesburg Facility. As part of the
process, the Borough of Bellefonte must obtain a new water allocation
permit to reflect an increase in the draw on Big Spring for both the
Borough's own needs and for the sale of spring water to the Company. In
addition, subsequent to the signing of the agreement with the Company, the
Borough of Bellefonte has been directed by the Pennsylvania Department of
Environmental Protection to construct a permanent cover over Big Spring.
Although there can be no assurance that the Borough of Bellefonte will
obtain all necessary permits or approvals, or obtain them in a timely
manner, the Company believes that such permits and approvals are
obtainable, and if obtained, the pipeline will be built and bottling of Big
Spring water will commence in the Spring of 1999.
Ginnie Springs. The Company has entered into an agreement with Seven
Springs to purchase natural spring water from Ginnie Springs. Pursuant to
the agreement, Seven Springs will sell 40 acres of land adjacent to Ginnie
Springs to the Company for the construction of a water bottling facility.
The Company also has a ten year option to purchase an additional 40 acres.
The estimated total daily flow of Ginnie Springs is 25 million gallons, and
pursuant to state regulations Seven Springs is permitted to sell an annual
average of up to 1.15 million gallons per day. The total dissolved solids
of the water from Ginnie Springs is approximately 140 ppm. The term of the
agreement between the Company and Seven Springs is 99 years. The Company
has obtained the necessary permits from the water management district and
Gilchrist County and is expected to begin construction of the new bottling
facility in the near future. The Company intends to pipe natural spring
water from Ginnie Springs to the new bottling facility and begin bottling
water in the Spring of 1998.
Castle Rock. The Company's wholly owned subsidiary, Castle Rock, has
an agreement with the City of Dunsmuir, California, pursuant to which
Castle Rock purchases natural spring water from the City of Dunsmuir's
spring source. The estimated total daily flow from the Castle Rock Spring
is approximately one million gallons per day and the total dissolved solids
of the water is approximately 95 ppm. The agreement permits Castle Rock to
capture water from the source, and then pipe it approximately 1,800 feet to
Castle Rock's bottling facility. The term of the agreement is 25 years
(until 2015) and Castle Rock has an option to renew for an additional 25
years. The Company may purchase not more than 50 million gallons per year,
provided that any daily amount drawn by the Company does not interfere with
the domestic use of the City's current and future residential users. The
deed in the chain of title that enables the City of Dunsmuir to sell
natural spring water to Castle Rock contains limiting language that may
restrict the City's ability to sell water to the Company. See "Risk
Factors."
Production
The Company has fully equipped, highly automated state-of-the-art
production facilities in Pennsylvania and California and intends to
construct a state-of-the-art facility in Florida which is scheduled for
completion in the Spring of 1998. The Company continuously upgrades and
improves its production facilities to provide high speed, flexible bottling
capabilities which permit the Company to be responsive to customers'
shipment and production demands, and to supply a premium quality product.
Spring Water Treatment and Bottling. Upon delivery to the Company's
Milesburg and Castle Rock facilities, the spring water is filtered through
0.2 micron filters and then ozonated during storage in stainless steel
storage tanks. Ozone is an unbalanced form of oxygen which, unlike regular
oxygen, kills bacteria and micro-organisms 3,000 times faster than
chlorine. Unlike chlorine, ozone naturally breaks down to simple oxygen in
a few hours and leaves no traces or residues. At the Milesburg Facility,
when the spring water leaves the storage tanks it is filtered through a one
micron absolute filter and then run through an ultraviolet (UV) light
disinfection unit. After exposure to UV light, the water is treated with
ozone again. The ozonated water is then piped to the clean room bottling
area where the various products are filled and capped. The residual ozone
in the bottled products sanitizes the containers as well as the water,
making certain the water is pure. The clean room is filled and pressurized
with air from two high-volume HEPA (High-Efficiency Particulate Air) air
handlers that filter 99.97% of particulates out of the air.
-28-
Packaging. The Company's 160,000 square foot Milesburg bottling
facility is equipped with stainless steel equipment and has several
bottling lines. The large space provides the Company with the flexibility
to operate existing bottling lines at high speeds. The Company has
equipment for multi-packing and is adding multi-pack shrink wrap equipment.
The Company's products come in a wide range of bottle sizes including PET
bottles in 8 ounce, 12 ounce, .5 liter, 20 ounce, 24.9 ounce, 1 liter, 1.5
liter and 2.0 liter sizes, and .5 gallon, 1 gallon, 2.5 gallon and 5 gallon
sizes. The Company believes that it is an industry leader and innovator in
packaging.
The manufacturing process is highly automated. Bottles are
mechanically de-palletized, cleaned, rinsed, filled and capped. The bottles
are automatically labeled, tamper banded, assembled and packed in cases.
After palletizing and stretch wrapping, the product is either loaded
directly onto a truck for immediate shipment or is stored in a warehouse
for future shipment. Most products are shipped within 48 to 72 hours after
production via outside carriers.
Quality Control. The Company maintains exacting internal quality
control standards. Each batch of bottled natural spring water is tested for
at least nine chemical and physical parameters as well as five
microbiological parameters. The Graysville Spring source and critical
points in the Milesburg Facility bottling process are evaluated weekly.
Water from the Castle Rock spring is tested daily and the spring source is
inspected weekly. In addition, the Company's spring water is tested
annually for over 140 contaminants by an independent testing laboratory.
The Company uses stainless steel equipment in order to maximize quality
control and cleanliness and maintains an in-house microbiological
laboratory at both its Milesburg and Castle Rock facilities. The Company
believes that its quality control standards are equal or superior to the
standards of most bottled water producers.
The Company's products are certified by the National Sanitation
Foundation (the "NSF"), an independent agency serving industry, government
and consumers in areas relating to public health and the environment. The
NSF conducts annual unannounced inspections and extensive product and raw
material testing. The Company was awarded the "excellence in manufacturing"
award by the International Bottled Water Association, an award which
recognizes the Company's commitment to quality and purity.
Competition
The bottled water industry is highly competitive. According to
Beverage Marketing, there are approximately 350 bottled water filling
locations in the United States with sales increasingly concentrated among
the larger firms. According to Beverage Marketing, the ten largest bottled
water companies accounted for approximately 58.4% of wholesale dollar sales
in 1996. Many of the Company's competitors are more experienced, have
greater financial and management resources and have more established
proprietary trademarks and distribution networks than the Company. On a
national basis, the Company competes with bottled water companies such as
The Perrier Group of America, Inc. (which includes Arrowhead Mountain
Spring Water, Poland Spring, Ozarka Spring Water, Zephyrhills Natural
Spring Water, Deer Park, Great Bear and Ice Mountain) and Great Brands of
Europe (which includes Evian Natural Spring Water and Dannon Natural Spring
Water). The Company also competes with numerous regional bottled water
companies located in the United States and Canada. AquaPenn has chosen to
compete by focusing on innovative packaging, customer service and pricing.
Facilities
The Company's Pennsylvania bottling facility, opened in May 1995 and
expanded in February 1997, is located in Milesburg, Pennsylvania, on a
30-acre parcel of land owned by the Company. The February 1997 addition
expanded the Company's facility by 52,000 square feet for a total facility
of 160,000 square feet. This addition has been used for the manufacture of
both PET and high density polyethylene (1 gallon) bottles. The Company is
currently increasing the size of the Milesburg Facility to 345,000 square
feet. Two new sections measuring 115,000 square feet and 70,000 square feet
will be added to each end of the existing facility. These additions are
scheduled to be completed by February 1998. The Company also leases
approximately 11,000 square feet of warehouse space located in Boggs
Township, Pennsylvania pursuant to a lease expiring on January 15, 1998.
-29-
The Company's wholly owned subsidiary, Castle Rock, leases a 26,000
square foot office and warehouse in Redding, California pursuant to a lease
expiring November 30, 1999. In addition, Castle Rock owns a 20,000 square
foot bottling facility in Dunsmuir, California. Castle Rock also separately
leases a 2,000 square foot storage space.
The Company intends to construct, own and operate a 52,500 square foot
expandable state-of-the-art water bottling facility on 40 acres adjacent to
Ginnie Springs. The new facility will feature all stainless steel
production equipment and computerized systems similar to those in place at
the Milesburg Facility. The Company expects the facility to be completed in
the Spring of 1998.
Management Information Systems
The Company utilizes a software package which runs on an IBM platform
and integrates all financial, reporting, warehousing, production, and other
applications including EDI ordering. The Company believes that its
management information systems are adequate to handle the Company's current
growth plans.
Trademarks
The Company has registrations in the U.S. Patent and Trademark Office
for many of the trademarks that it uses, including Pure American, Great
American and AquaPenn. The Company believes that its common law and
registered trademarks have significant value and goodwill and that some of
these trademarks are instrumental in its ability to create demand for and
market its products. There can be no assurance that the Company's common
law or registered trademarks do not or will not violate the proprietary
rights of others, that they would be upheld if challenged or that the
Company would, in such an event, not be prevented from using the
trademarks, any of which could have an adverse effect on the Company.
Regulation
The Company's operations are subject to numerous federal, state and
local laws and regulations relating to its bottling operations, including
the identity, quality, packaging and labeling of its bottled water. The
Company's bottled water must satisfy FDA standards, which may be
periodically revised, for chemical and biological purity. The Company's
bottling operations must meet FDA "good manufacturing practices," and the
labels affixed to the Company's products are subject to FDA restrictions on
health and nutritional claims. In addition, bottled water must originate
from an "approved source" in accordance with federal and state standards.
State health and environmental agencies also regulate water quality
and the manufacturing practices of producers. The Pennsylvania Department
of Environmental Protection ("DEP") requires the Company to submit one
finished product sample and one source sample of water from the Graysville
Spring each week to DEP from a certified microbiological lab for certified
bacteriological analysis. In California, the Department of Health Services
("DHS") is the principal agency with regulatory authority over bottled
water producers, and DHS regulations generally incorporate FDA
requirements.
The Company is a member of the International Bottled Water
Associations ("IBWA"), a trade organization which promulgates regulations
regarding the quality of water which its members may market. The Company is
currently in compliance with the IBWA regulations; however, there can be no
assurance that the spring water sourced by the Company will continue to
meet IBWA regulations.
The Company has satisfied applicable state and federal requirements
and therefore is permitted to sell its bottled water in all 50 states.
These laws and regulations are subject to change, however, and there can be
no assurance that additional or more stringent requirements will not be
imposed on the Company's operations in the future. Although the Company
believes that its water supply, products and bottling facilities are in
substantial compliance with all
-30-
applicable governmental regulations, failure to comply with such laws and
regulations could have a material adverse effect on the Company.
Legal Proceedings
The Company is not a party to any material legal proceedings.
Employees
The Company currently employs approximately 225 full-time employees,
including Castle Rock employees, none of whom are covered by collective
bargaining agreements. During peak production periods, the Company
supplements its full-time work force with part-time employees. The Company
believes that its relations with its employees are good.
-31-
MANAGEMENT
Executive Officers and Directors
The officers and directors of the Company, together with their ages
and business backgrounds, are as follows:
Name Age Position with Company
---- --- ---------------------
Edward J. Lauth, III ..... 43 Chairman, President, Chief Executive
Officer and Director
Geoffrey F. Feidelberg ... 42 Executive Vice President, Chief Operating
Officer and Chief Financial Officer and
Director
Dennis B. Nisewonger ..... 49 Controller and Assistant Secretary
Calvin J. Wagner, Jr.(1) . 38 Secretary and Director
Walter Bruce(2)........... 58 Director
Nancy Jean Davis.......... 45 Director
Richard F. DeFluri(1) .... 47 Director
John H. Gutfreund......... 68 Director
James D. Hammond(1)....... 63 Director
Robert E. Poole, Jr.(1)... 46 Director
Norman S. Rich(2)......... 59 Director
Henry S. Shatkin.......... 69 Director
Matthew J. Suhey.......... 39 Director
---------------
(1) A member of the Compensation Committee.
(2) Assuming that the Selling Shareholder sells all of its shares of
Common Stock in this Offering, the Selling Shareholder shall cause
Messrs. Bruce and Rich to resign from the Board effective immediately
thereafter.
Edward J. Lauth, III is the founder of the Company and has been
Chairman, President, Chief Executive Officer and a director of the Company
since the Company's founding in 1986. Prior to founding the Company, Mr.
Lauth spent several years developing and selling commercial real estate, in
addition to founding and selling two businesses in State College,
Pennsylvania. Mr. Lauth received a B.S. from Rollins College. Mr. Lauth is
also a member of the Regional Board of Directors of Mid-State Bank and
Trust Company ("Mid-State Bank"), a subsidiary of Keystone Financial, Inc.
Mr. Lauth is responsible for sales, marketing and strategic planning of the
Company.
-32-
Geoffrey F. Feidelberg has been Executive Vice President and Chief
Financial Officer since 1989 and Chief Operating Officer and a director of
the Company since 1993. Prior thereto, Mr. Feidelberg was a Senior Manager
in the Fort Lauderdale office of Price Waterhouse. Mr. Feidelberg received
a B.S. in Accounting from the State University of New York at Binghamton
and is a Certified Public Accountant. Mr. Feidelberg is also currently the
President and a director of SPE Federal Credit Union. Mr. Feidelberg is
responsible for the Company's administration, finance, manufacturing and
strategic planning.
Dennis B. Nisewonger has been Controller of the Company since 1993 and
Assistant Secretary since 1995. Prior to joining the Company, Mr.
Nisewonger was the fiscal officer for Dauphin County. From 1982 to 1989,
Mr. Nisewonger was controller of Murata Electronics, Inc. Mr. Nisewonger is
responsible for the Company's internal accounting and auditing function.
Calvin J. Wagner, Jr. has been Secretary and a director of the Company
since 1988. Mr. Wagner is a Certified Public Accountant and is currently a
partner in the accounting firm of Seligman, Friedman & Co., P.C. From 1991
to 1994, Mr. Wagner was a partner in the accounting firm of Wagner, Mock
and Martella.
Walter Bruce has been a director of the Company since 1995. Mr. Bruce
has been the Vice President-Private Label for Weis Markets, Inc., a
publicly owned supermarket chain, since 1976.
Nancy Jean Davis has been a director of the Company since 1987. Since
1986, Ms. Davis has been the President and Chairman of McArthur Farms,
Inc., a corporation engaged in the distribution of dairy, citrus, beef and
feed ingredient commodities.
Richard F. DeFluri has been a director of the Company since 1987. Mr.
DeFluri has been a Senior Associate of the Pennsylvania Financial Group
since 1974. In addition, Mr. DeFluri is a director of The Abbey Company,
Aris Corporation, Nittany Health Care, Inc., Joyner Sports Medicine, Inc.
and PFG Capital.
John H. Gutfreund, former Chairman and Chief Executive Officer of
Salomon Brothers, Inc. from 1984 to 1991, has been a director of the
Company since 1995. Since 1993, Mr. Gutfreund has been President of
Gutfreund & Company, a New York-based financial consulting firm. Mr.
Gutfreund is also a director of LCA Vision, Inc.
James D. Hammond, Ph.D. has been a director of the Company since 1994.
Since 1988, Mr. Hammond has been Dean of the Smeal College of Business
Administration at Pennsylvania State University. Mr. Hammond is a director
of Atlantic Mutual Insurance Company and a trustee of the Scudder Variable
Life Fund, the Scudder Pathway Funds and the Scudder Institutional Fund.
Robert E. Poole, Jr. has been a director of the Company since 1994. He
has been the Chief Executive Officer and President of S&A Custom Built
Homes, Inc., one of the 100 largest homebuilders in the United States,
since 1992. Mr. Poole is also on the Advisory Board of PNC Bank of Central
Pennsylvania.
Norman S. Rich, a director of the Company since 1989, has been
President of Weis Markets, Inc. since 1995. He has served on Weis Markets'
Board of Directors since 1990. From 1980 to 1995 Mr. Rich was Vice
President of Operations for Weis Markets, Inc.
Henry S. Shatkin has been a director of the Company since 1995. Mr.
Shatkin has been the Chief Executive Officer of Shatkin, Arbor, Karlov, a
commodities firm in Chicago, since 1992.
Matthew J. Suhey has been a director of the Company since 1993. Mr.
Suhey has been an independent commodities trader at the Chicago Board of
Trade since 1990. In addition, Mr. Suhey has been an independent food
broker on behalf of the Company since 1992.
-33-
The directors of the Company are elected at the annual meeting of
shareholders and each director so elected holds office until his or her
successor is elected and shall qualify, or until his or her earlier
resignation or removal. The executive officers of the Company are elected
by the Board of Directors and serve at the discretion of the Board of
Directors. There are no family relationships among any of the directors or
executive officers of the Company.
Committees of the Board of Directors; Compensation Committee Interlocks
The Board of Directors will elect an Audit Committee and has a
standing Compensation Committee. Among other functions, the Audit Committee
will make recommendations to the Board of Directors regarding the selection
of independent auditors, review the results and scope of the audit and
other services provided by the Company's independent auditors, review the
Company's financial statements and review and evaluate the Company's
internal control functions. The Compensation Committee periodically reviews
and evaluates the compensation of the Company's officers and establish
guidelines for compensation and benefits for the Company's personnel. The
Compensation Committee is comprised of Messrs. DeFluri, Poole, Hammond and
Wagner. Mr. Wagner has a stock subscription payable to the Company in the
amount of $71,878.
Compensation of Directors
Each director receives 901 shares of Common Stock per year plus
reimbursement of reasonable expenses incurred to attend meetings of the
Board of Directors.
-34-
Executive Compensation
The following table sets forth a summary of certain information
regarding the compensation paid or to be paid by the Company for services
rendered to the Company during the fiscal year ended September 30, 1997
with respect to the Company's Chief Executive Officer and all other
executive officers whose total annual salary and bonus exceeded $100,000
for such period (the "Named Executives").
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------- ------------
Securities
Underlying All Other
Name and Principal Position Year Salary(1) Options(2) Compensation
--------------------------- ---- --------- ------------ ------------
Edward J. Lauth, III 1997 $201,250 30,040 $ 41,789(3)
Chairman, President and
Chief Executive Officer
Geoffrey F. Feidelberg, 1997 $161,000 30,040 $ 27,192(4)
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
--------------
(1) Includes deferred income of 15% of each officer's base annual salary.
(2) Granted pursuant to employment agreements which provide for such
grants each fiscal year in which the Company's after-tax profits
exceed $1 million.
(3) Includes the following amounts: $3,960 (matching 401(k) contribution);
$5,753 (life insurance premiums); $1,000 (award for annual service for
10 years); $21,711 (health insurance coverage); $5,850 (value of
shares received for Board membership); and $3,515 (long-term
disability insurance).
(4) Includes the following amounts: $3,209 (matching 401(k) contribution);
$4,739 (life insurance premium); $700 (award for annual service for 7
years); $7,537 (health insurance coverage); $5,850 (value of shares
received for Board membership); and $5,157 (long-term disability
insurance).
Option Grants in Last Fiscal Year
The following table summarizes certain information with respect to
Company stock options granted to the Named Executives during the fiscal
year ended September 30, 1997.
[Enlarge/Download Table]
Individual Grants
------------------------------------------------------
Percent of
Total Potential Realizable
Number of Options Value at Assumed
Securities Granted to Exercise Annual Rates of Stock
Underlying Employees or Base Price Price Appreciation for
Options in Fiscal Per Option Term(1)
Name Granted Year 1997 Share Expiration Date 5% 10%
---- ---------- ----------- ------------- --------------- ---------- ----------
Edward J. Lauth, III 30,040(2) 50% $7.07 9/30/2007 $133,757 $338,787
Geoffrey F. Feidelberg 30,040(3) 50% $7.07 9/30/2007 $133,757 $338,787
-----------------------
-35-
(1) This column shows the hypothetical gains on the options granted based
on assumed annual compound stock appreciation rates of 5% and 10% over
the full ten-year term of the options. The assumed rates of
appreciation are mandated by the rules of the Securities and Exchange
Commission (the "Commission") and do not represent the Company's
estimate or projection of future Common Stock prices.
(2) Granted pursuant to an Employment Agreement dated September 16, 1994
between the Company and Mr. Lauth which provides for a grant of an
option to purchase 30,040 shares of Common Stock to Mr. Lauth for each
fiscal year in which after-tax profits of the Company exceed $1
million.
(3) Granted pursuant to an Employment Agreement dated September 16, 1994
between the Company and Mr. Feidelberg which provides for a grant of
an option to purchase 30,040 shares of Common Stock to Mr. Feidelberg
for each fiscal year in which after-tax profits of the Company exceed
$1 million.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information concerning the number and
value of exercisable and unexercised options to purchase Common Stock held
by the Named Executives as of September 30, 1997. No Named Executive
exercised any options for Company Stock during fiscal 1997.
Aggregated Option Exercises in the Fiscal Year ended September 30, 1997
and Option Values at September 30, 1997
[Enlarge/Download Table]
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at September 30, 1997 Options at September 30,1997(1)
----------------------------- -------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Edward J. Lauth, III 90,120 -- $ 939,300 $ --
Geoffrey F. Feidelberg 330,440 -- $4,081,100 $ --
-----------------------
(1) Value determined based on the difference between an assumed fair
market value on September 30, 1997 of $15.00 per share (equal to the
assumed Offering price per share) and the option exercise price for
each above-stated option.
Employment Agreements
Edward J. Lauth, III. In September 1994, the Company and Mr. Lauth
entered into an employment agreement pursuant to which Mr. Lauth receives a
salary, adjusted as of September 1996, of $175,000 per year and deferred
compensation in the amount of 15.0% of his annual salary. The employment
agreement also provides for Mr. Lauth to receive options to purchase 30,040
shares of Common Stock for each fiscal year in which AquaPenn's after-tax
profits exceed $1 million. Such after-tax profits were attained for the
fiscal years ended September 30, 1996 and 1997. Such options are
immediately exercisable, have a term of ten years and an exercise price
equal to the fair market value of the Common Stock on the date of grant.
The initial term of the employment agreement ended December 31, 1995, but
the employment agreement automatically renews for an unlimited number of
successive one-year terms unless six months written notice of termination
is given by either party. The employment agreement contains a non-compete
provision which extends for two years beyond termination of the employment
agreement.
-36-
The Company and Mr. Lauth also entered into a change in control
agreement in September 1994, which provides that if, within one year of a
"change in control" (as defined in the agreement) of AquaPenn, Mr. Lauth is
terminated or resigns because his responsibilities have diminished or been
significantly changed or his salary has been reduced by more than 15.0%,
Mr. Lauth shall be entitled to receive one year's salary and benefits and
all outstanding stock options held by Mr. Lauth shall become immediately
exercisable. The change in control agreement terminates if Mr. Lauth ceases
to be employed by the Company prior to a change in control.
Geoffrey F. Feidelberg. In September 1994, the Company and Mr.
Feidelberg entered into an employment agreement, pursuant to which Mr.
Feidelberg receives a salary, adjusted as of September 1996, of $140,000
per year and deferred compensation in the amount of 15.0% of his annual
salary. The employment agreement also provides for Mr. Feidelberg to
receive options to purchase 30,040 shares of Common Stock for each fiscal
year in which AquaPenn's after-tax profits exceed $1 million. Such
after-tax profits were attained for the fiscal years ended September 30,
1996 and 1997. Such options are immediately exercisable, have a term of ten
years and an exercise price equal to the fair market value of the Common
Stock on the date of grant. The initial term of the employment agreement
ended December 31, 1995, but the employment agreement automatically renews
for an unlimited number of successive one-year terms unless six months
written notice of termination is given by either party. The employment
agreement contains a non-compete provision which extends for two years
beyond termination of the employment agreement.
The Company and Mr. Feidelberg have also entered into a change in
control agreement in September 1994 on substantially the same terms as the
change in control agreement entered into with Mr. Lauth.
Stock Plans
The Company's 1992 Stock Option Plan (the "Option Plan") was adopted
by the Company's Board of Directors in November 1992 and approved by its
shareholders in March 1993. Options exercisable for a total of 300,400
shares of Common Stock are issuable under the Option Plan. The Option Plan
provides for the grant to employees of either "incentive stock options"
within the meaning of Sections 421 and 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or nonqualified stock options. Under the
Option Plan, only employees (including officers) of the Company are
eligible to receive options under the Option Plan. The exercise price of
incentive stock options must at least equal the fair market value for the
underlying shares on the date of grant or, in the case of options granted
to holders of 10.0% or more of the outstanding Common Stock, 110.0% of the
fair market value on the date of grant. The exercise price of nonqualified
stock options must not be less than the fair market value of the underlying
shares on the date of grant. To date, no stock options have been granted
under the Option Plan.
The Option Plan is administered by a committee of four persons
appointed by the Board of Directors of the Company which determines the
terms of options granted under the Option Plan, including the exercise
price and the number of shares subject to the option. The Option Plan
provides the Board of Directors with the discretion to determine when
options granted thereunder shall become exercisable. Generally, for options
granted to employees, such options may be exercised at any time prior to
expiration, so long as the optionee continues to be employed by the
Company. No option granted under the Option Plan is transferable by the
optionee other than by will or the laws of descent and distribution, and
each option is exercisable during the life of the optionee only by the
optionee.
The Company's Stock Purchase Plan was adopted by the Company's Board
of Directors in February 1996 and approved by its shareholders in April
1996. A total of one million shares of Common Stock are issuable under the
Stock Purchase Plan. No employee will be granted an option if, immediately
after the option is granted, such employee will own 5.0% or more of the
total voting power or value of all classes of the Company's stock. In
addition, no employee will be granted an option if such employee's rights
to purchase shares exceeds $25,000 of the fair market value of such shares
for such calendar year.
-37-
Under the terms of the Stock Purchase Plan, eligible employees may
purchase shares of the Company's Common Stock at 85% of the fair market
value at the offering date. Payment for the shares must be made within one
year of the offering date. An employee may cancel his or her subscription
any time prior to payment in full for the shares. No rights under the Stock
Purchase Plan are assignable or transferrable by the employee other than by
will or the laws of descent and distribution, and only the employee may
exercise such rights during his or her lifetime. The employee's rights
under the Stock Option Plan terminate immediately in the event the
employment of the employee is terminated for any reason other than death,
temporary layoff or retirement with the consent of the Company. Upon
termination due to death or retirement with consent of the Company the
employee or the employee's estate has one year to pay any amounts due for
purchase of shares. If the employee is subjected to temporary layoff and is
subsequently rehired within six months, the employee may continue to pay
for shares subscribed to by such employee.
At September 30, 1997, approximately 76,254 shares were subscribed for
by eligible employees under the Stock Purchase Plan.
-38-
CERTAIN TRANSACTIONS
The Company and Matthew J. Suhey, a director of the Company, have
entered into an agreement pursuant to which Mr. Suhey acts as an
independent food broker with the Company. Mr. Suhey received compensation
of $250,000 in fiscal year 1997 for his services as an independent food
broker on behalf of the Company. In addition, accrued commissions to Mr.
Suhey as of September 30, 1997, were $20,833. In September 1995, the Board
of Directors of the Company resolved to grant to Mr. Suhey options to
purchase 30,040 shares of Common Stock of the Company for each year in
which AquaPenn's after-tax profits exceed $1 million. Such after-tax
profits have been achieved for fiscal years 1996 and 1997.
Norman S. Rich, a Director of the Company, is the President of Weis
Markets, Inc., the ultimate parent of Aqua Works, Inc., a 42.0% shareholder
of the Company. Weis Markets, Inc., which owns and operates supermarkets,
purchases natural spring water products from the Company at market prices.
Such purchases constituted approximately 2% of the Company's total net
revenues in fiscal 1997.
On August 29, 1997 the Company entered into a Credit Agreement with
Mid-State Bank, pursuant to which Mid-State Bank has extended a $10.0
million revolving credit line and a $6.0 million line of credit to the
Company. Edward J. Lauth, III, President and a director of the Company, is
on the Regional Board of Directors of Mid-State Bank.
As of September 30, 1997, Calvin J. Wagner, Jr., a director of the
Company, had a stock subscription payable to the Company in the amount of
$71,878.
-39-
PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDER
The table below sets forth as of October 24, 1997 certain information
regarding the beneficial ownership of shares of Common Stock (i) by each
director and executive officer of the Company, (ii) by all the directors
and officers as a group, (iii) by each person who is known by the Company
to be the owner (or beneficial owner) of 5.0% or more of the Company's
outstanding shares of Common Stock and (iv) by one of the Company's current
shareholders who is offering to sell shares in this Offering.
[Enlarge/Download Table]
Beneficial Ownership(1) Beneficial Ownership(1)
Prior to the Offering After the Offering
----------------------- Shares to -----------------------
Shares Percent be sold Shares Percent
------ ------- ------- ------ -------
Directors and Officers(2):
Norman S. Rich..... 1,867,587(3)(14) 42.2% 1,859,000 8,587 * %
Edward J. Lauth, III 1,249,592(4) 27.2 -- 1,249,592 18.6
Matthew J. Suhey .. 361,231(5) 7.6 -- 361,231 5.2
Geoffrey F. Feidelberg 356,876(6) 7.5 -- 356,876 5.2
Nancy Jean Davis .. 249,615(7) 5.6 -- 249,614 3.8
Calvin J. Wagner, Jr. 127,129(8) 2.9 -- 127,129 1.9
Henry S. Shatkin .. 85,013(9) 1.9 -- 85,013 1.3
Robert E. Poole ... 38,451(10) * -- 38,451 *
Richard F. DeFluri 36,048(11) * -- 36,048 *
James D. Hammond .. 24,107(12) * -- 24,107 *
John H. Gutfreund . 23,431 * -- 23,431 *
Walter Bruce ...... 1,802(13) * -- 1,802 *
All Directors and Officers as
a Group (13 persons) 4,426,144 79.8% -- 2,567,145 33.4
Other Principal and Selling
Shareholder:
Aqua Works, Inc. (14) 1,859,476(14) 42.0% 1,859,000 476 *
---------------------
* Less than one percent.
(1) A person is deemed to be the beneficial owner of securities that can
be acquired by such person within 60 days from the date of this
Prospectus upon the exercise of options or warrants. Each beneficial
owner's percentage ownership is determined by assuming that options or
warrants that are held by such person (but not those held by any other
person) and that are exercisable within 60 days from the date of this
Prospectus have been exercised. Unless otherwise noted, the Company
believes that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock
beneficially owned by them. For purposes of the table, shares of
Common Stock are considered beneficially owned by a person if such
person has or shares voting or investment power with respect to such
stock. As a result, the same security may be beneficially owned by
more than one person and, accordingly, in some cases, the same shares
are listed opposite more than one name in the table.
(2) Address is c/o One AquaPenn Drive, Milesburg, Pennsylvania, 16853.
(3) Mr. Rich is the President of Aqua Works, Inc. and Weis Markets, Inc.,
the ultimate parent of Aqua Works, Inc., the holder of 1,859,476
shares of Common Stock. Because as President of Aqua Works, Inc. and
Weis
-40-
Markets, Inc. Mr. Rich controls the voting and investment power of
such shares, for purposes of computing beneficial ownership, Mr. Rich
is considered to be the beneficial owner of the 1,859,476 shares of
Common Stock held by Aqua Works, Inc. Mr. Rich disclaims beneficial
ownership of any shares held by Aqua Works, Inc.
(4) Includes 30,653 shares held by the Lauth Family Limited Partnership,
13,067 shares in a Rabbi Trust for the benefit of Mr. Lauth, options
and warrants to purchase 165,220 shares of Common Stock and 114,512
shares of Common Stock held by ASW Investors, a Pennsylvania general
partnership which has granted Mr. Lauth a proxy to vote all of its
shares.
(5) Includes options to purchase 330,440 shares of Common Stock and 15,020
shares of Common Stock held through ASW Investors, in which Mr. Suhey
has a 13.1% general partner interest.
(6) Includes 10,814 shares in a Rabbi Trust for the benefit of Mr.
Feidelberg, 180 shares held in trusts for which Mr. Feidelberg is
trustee, 6,008 shares held by his spouse and 330,440 shares
exercisable pursuant to options.
(7) Includes 39,334 shares and warrants for 21,028 shares of Common Stock
held by the Nancy Jean Davis Trust and 189,252 shares of Convertible
Preferred Stock held by the Nancy Jean Davis Trust.
(8) Includes 12,617 shares of Convertible Preferred Stock and 114,512
shares of Common Stock held through ASW Investors, in which Mr. Wagner
has a 0.3% general partner interest and, as managing partner, has the
power to sell all of the shares.
(9) Includes 10,814 shares of Common Stock held by M-S Capital Fund and
15,020 shares of Common Stock held through ASW Investors, in which Mr.
Shatkin has a 13.1% general partner interest.
(10) Includes 10,814 shares of Common Stock and 24,032 shares of
Convertible Preferred Stock held jointly by Mr. Poole with his spouse.
(11) Includes 9,012 shares of Common Stock held by Adicus, L.P. and 27,036
shares of Convertible Preferred Stock held by Adicus, L.P.
(12) Includes warrants for 9,012 shares of Common Stock, and 4,731 shares
of Common Stock and 6,759 shares of Convertible Preferred Stock held
jointly by Mr. Hammond with his spouse.
(13) Mr. Bruce is a Vice President of Weis Markets, Inc., the ultimate
parent of Aqua Works, Inc., the holder of 1,859,476 shares of Common
Stock. Mr. Bruce disclaims beneficial ownership of any shares held by
Aqua Works, Inc.
(14) Includes warrants for 135,180 shares of Common Stock. The address of
Aqua Works, Inc. is 1000 S. Second Street, Sunbury, Pennsylvania,
17801-0471. Weis Markets, Inc. is the ultimate parent of Aqua Works,
Inc.
-41-
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock does not
purport to be complete and is subject in all respects to applicable
Pennsylvania law and to the provisions of the Company's Articles of
Incorporation, as amended, and By-laws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
The authorized capital stock of the Company consists of 100,000,000
shares of Common Stock, no par value, and 2,000,000 shares of Convertible
Preferred Stock, par value $1.00 per share. Immediately following the
completion of this Offering, the Company estimates that there will be
outstanding an aggregate of 6,555,888 shares of Common Stock and 1,702,500
shares of Convertible Preferred Stock which are convertible into 1,022,862
shares of Common Stock.
Common Stock
Holders of the Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Holders of Common Stock do
not have cumulative voting rights, and therefore holders of a majority of
the shares voting for the election of directors can elect all of the
directors. In such event, the holders of the remaining shares will not be
able to elect any directors.
Holders of the Common Stock are entitled to receive such dividends as
may be declared from time to time by the Board of Directors out of funds
legally available therefor, subject to the terms of the agreements
governing the Company's long-term debt. The Company does not anticipate
paying cash dividends in the foreseeable future. See "Dividend Policy." In
the event of the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and payments to holders of the
Convertible Preferred Stock.
Holders of the Common Stock have no preemptive, conversion or
redemption rights and are not subject to further calls or assessments by
the Company. Immediately upon consummation of this Offering, all of the
then outstanding shares of Common Stock will be validly issued, fully paid
and nonassessable.
The Transfer Agent and Registrar for the Common Stock is
______________.
Preferred Stock
The Board of Directors has the authority, without any vote or action
by the shareholders, to issue Preferred Stock in one or more series and to
fix the designations, preferences, rights, qualifications, limitations and
restrictions thereof, including the voting rights, dividend rights,
dividend rate, conversion rights, terms of redemption (including sinking
fund provisions), redemption price or prices, liquidation preferences and
the number of shares constituting any series. In addition, the issuance of
Preferred Stock by the Board of Directors could be utilized, under certain
circumstances, as a method of preventing a takeover of the Company at a
premium above the then prevailing market price.
Convertible Preferred Stock
The Convertible Preferred Stock is convertible at the option of the
holder at any time into shares of Common Stock at the rate of one share of
Convertible Preferred Stock into 0.6008 shares of Common Stock. The number
of shares of Common Stock into which the Convertible Preferred Stock is
converted shall be adjusted to take into account increases or reductions in
the number of shares of outstanding Common Stock by reason of a split,
share
-42-
dividend, merger or consolidation. The Convertible Preferred Stock has no
redemption features, but does have a preference in liquidation.
Pennsylvania Corporate Law Provisions
The Company's Articles of Incorporation and By-laws contain certain
provisions which may have the effect of deterring or discouraging, among
other things, a non-negotiated tender or exchange offer for Company stock,
a proxy contest for control of the Company, the assumption of control of
the Company by a holder of a large block of the Company's stock and the
removal of the Company's management. These provisions empower the Board of
Directors, without shareholder approval, to issue Preferred Stock the terms
of which, including voting power, are set by the Board.
The Pennsylvania Business Corporation law contains certain provisions
applicable to the Company which may have similar effects. These provisions,
among other things: (1) require that, following any acquisition by any
person or group of 20% of a public corporation's voting power, the
remaining shareholders have the right to receive payment for their shares,
in cash, from such person or group in an amount equal to the "fair value"
of the shares, including an increment representing a proportion of any
value payable for control of the corporation; (2) prohibit for five years,
subject to certain exceptions, a "business combination" (which includes a
merger or consolidation of the corporation or a sale, lease or exchange of
assets) with a shareholder or group of shareholders beneficially owning 20%
or more of a public corporation's voting power; (3) suspend the voting
rights of the shares acquired by a person or group acquiring 20% or more of
the voting power of the corporation; (4) require that a person or group who
acquired, offered to acquire or publicly disclosed the intention of
acquiring at least 20% of the voting power of the corporation disgorge
"greenmail" profits or profits realized from the disposition of the
corporation's securities within 18 months after acquiring at least 20% of
the voting power if the security had been acquired by such person or group
within 24 months before or 18 months after such person or group acquired
20% of the voting power of the corporation; (5) allow the corporation to
adopt shareholders' rights plans with discriminatory provisions (sometimes
referred to as "poison pills") whereby options to acquire shares of
corporate assets are created and issued which contain terms that limit
persons owning or offering to acquire a specified percentage of outstanding
shares from exercising, converting, transferring or receiving options and
allow the exercise of options to be limited to shareholders or triggered
based upon control transactions; (6) shareholders of a corporation would no
longer have a statutory right to call special meetings of shareholders or
to propose amendments to the articles of incorporation; and (7) in
discharging the duties of their respective positions, the board of
directors, committees of the board and individual directors may, in
considering the best interests of the corporation, consider to the extent
they deem appropriate, (i) the effects of any action upon shareholders,
employees, suppliers, customers and creditors of the corporation and upon
the communities in which offices or other establishments of the corporation
are located, (ii) the short-term and long-term interests of the
corporation, including benefits that may accrue to the corporation from its
long-term plans and the possibility that these interests may be best served
by the continued independence of the corporation, (iii) the resources,
intent and conduct (past, stated and potential) of any person seeking to
acquire control of the corporation, (iv) and all other pertinent factors.
Further, the board of directors, committees of the board and individual
directors are not required, in considering the best interests of the
corporation or the effects of any action, to regard any corporate interest
or the interests of any particular group affected by such action as a
dominant or controlling interest or factor. The consideration of the
foregoing factors shall not constitute a violation of the board's
applicable standard of care.
Amendment of Articles of Incorporation. The Pennsylvania Business
Corporation Law provides that the Articles of Incorporation of a
Pennsylvania corporation may be amended by the affirmative vote of a
majority of the outstanding voting stock of such corporation, except as
otherwise provided by such corporation's Articles of Incorporation.
-43-
General Effect of Anti-Takeover Provisions. The overall effect of
these provisions and the existing change in control agreements (see
"Management--Employment Agreements") may be to deter a future tender offer
or other takeover attempt that some shareholders might view to be in their
best interests as the offer might include a premium over the market price
of the Common Stock at that time. In addition, these provisions may have
the effect of assisting the Company's current management in retaining its
position and place it in a better position to resist changes which some
shareholders may want to make if dissatisfied with the conduct of the
Company's business.
-44-
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 6,555,888
shares of Common Stock issued and outstanding (assuming the Underwriters'
over-allotment option is not exercised). Of these shares, all 3,859,000 of
the shares sold in this Offering (plus any additional shares sold upon the
exercise of the Underwriters' over-allotment option) will be freely
tradable under the Securities Act, except for shares purchased by
"affiliates" of the Company within the meaning of the rules and regulations
under the Securities Act.
The remaining 2,696,888 outstanding shares (the "Restricted Shares"),
which were issued by the Company in reliance upon the "private placement"
exemption provided by Section 4(2) of the Securities Act, will be deemed
restricted securities within the meaning of Rule 144. Restricted Shares may
not be sold unless they are registered under the Securities Act or are sold
pursuant to an applicable exemption from registration, including an
exemption under Rule 144.
In general, Rule 144 permits any person who has beneficially owned
shares of Common Stock for at least one year to sell without registration,
within any three-month period, a number of such shares not exceeding the
greater of one percent of the then outstanding shares of Common Stock or
the average weekly trading volume in the Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 also are subject
to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. After they
have been paid for and held for more than two years, Restricted Shares held
by persons who are not affiliates of the Company may be sold without
limitation.
Certain current shareholders of the Company who in the aggregate hold
shares of Common Stock have agreed that they will not sell shares of Common
Stock prior to the expiration of 180 days from the date of this Prospectus
except with the written consent of the Representatives of the Underwriters.
See "Underwriting." Commencing , 1997, shares of Common Stock
held by such current shareholders will be eligible for sale in accordance
with Rule 144, subject to the volume limitations thereof.
Options and warrants (excluding the Weis Markets Warrant) to purchase
a total of 937,248 shares of Common Stock have been granted to certain
officers, directors and shareholders under pre-existing agreements. A total
of 300,400 shares of Common Stock are reserved for issuance under the
Option Plan, of which none will have been issued on the date of this
Prospectus. A total of 600,800 shares of Common Stock has been reserved for
issuance under the Stock Purchase Plan and as of , 1997, shares
have been purchased by employees. See "Management -- Stock Plans." The
Company may file one or more registration statements on Form S-8
immediately following this Offering, registering under the Securities Act
shares issued or to be issued pursuant to these options or the Stock
Purchase Plan. The holders of the options referred to in this paragraph
have also agreed that they will not sell any shares of Common Stock
acquired by them upon the exercise of their options during the 180 day
period following the date of this Prospectus except with the written
consent of the Representatives of the Underwriters. Thereafter, shares
issued upon exercise of outstanding stock options generally may be sold in
the open market.
Prior to this Offering, there has been no market for the Common Stock,
and no precise prediction can be made of the effect, if any, that market
sales of shares or the availability of shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock in the public market could
adversely affect prevailing market prices and limit the Company's ability
to raise additional capital. See "Risk Factors -- Arbitrary Determination
of Offering Price; Possible Volatility of Stock Price" and "Risk Factors --
No Prior Public Market."
-45-
UNDERWRITING
The Underwriters named below, acting through PaineWebber Incorporated,
Lazard Freres & Co. LLC and Parker/Hunter Incorporated (the
"Representatives"), have severally agreed, subject to the terms and
conditions set forth in the Underwriting Agreement by and among the
Company, the Selling Shareholder and the Representatives (the "Underwriting
Agreement"), to purchase from the Company and the Selling Shareholder, and
the Company and the Selling Shareholder have agreed to sell to the
Underwriters, the number of shares of Common Stock set forth opposite the
names of such Underwriters below:
Number
Underwriter of Shares
------------- ---------
PaineWebber Incorporated.................
Lazard Freres & Co. LLC..................
Parker/Hunter Incorporated............... _________
Total............................... =========
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase all of the shares of Common Stock are subject to
certain conditions. The Underwriters are committed to purchase, and the
Company and the Selling Shareholder are obligated to sell, all shares of
Common Stock offered by this Prospectus if any of the shares of Common
Stock being sold pursuant to the Underwriting Agreement are purchased.
The Company has been advised by the Representatives that the
Underwriters propose to offer the shares of Common Stock to the public
initially at the Offering price set forth on the cover page of this
Prospectus and to certain securities dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per share. After
the Offering, the Offering price and the concessions and discounts may be
changed by the Representatives.
The Company has granted an option to the Underwriters, exercisable
during the 30-day period after the date of this Prospectus, to purchase up
to 578,850 additional shares of Common Stock at the Offering price less the
underwriting discount and commissions set forth on the cover page of this
Prospectus. The Underwriters may exercise such option only to cover
over-allotments in the sale of the shares that the Underwriters have agreed
to purchase. To the extent that the Underwriters exercise such option, each
of the Underwriters will become obligated, subject to certain conditions,
to purchase approximately the same percentage of such additional shares as
is approximately the percentage of shares of Common Stock that it is
obligated to purchase of the total number of the shares under the
Underwriting Agreement as shown in the table set forth above. The
Underwriters may exercise the option only for the purposes of covering
over-allotments, if any, made in connection with the distribution of the
shares of Common Stock to the public.
The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act or to contribute payments that the Underwriters may be
required to make in respect thereof.
The Company, its directors and executive officers and certain
shareholders, including the Selling Shareholder, have agreed not to offer,
sell, contract to sell or grant any option to purchase or otherwise dispose
of any shares of Common Stock owned by them prior to the expiration of 180
days from the date of this Prospectus, except: (i) for shares of Common
Stock offered hereby; (ii) with the prior written consent of PaineWebber
Incorporated; and
-46-
(iii) in the case of the Company, for the issuance of shares of Common
Stock upon the exercise of options or the grant of options to purchase
shares of Common Stock.
Prior to this Offering, there has been no public market for the Common
Stock of the Company. Accordingly, the Offering price will be determined by
negotiations among the Company, the Selling Shareholder and the
Representatives of the Underwriters. Among the factors to be considered in
determining the Offering price will be the Company's record of operations,
its current financial condition, its future prospects, the market for its
products, the experience of its management, the economic conditions of the
Company's industry in general, the general condition of the equity
securities market, the demand for similar securities of companies
considered comparable to the Company and other relevant factors.
In order to facilitate this Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot in connection
with this Offering, creating a short position in the Common Stock for their
own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase,
shares of the Common Stock in the open market. The Underwriters may also
reclaim selling concessions allowed to an underwriter or a dealer for
distributing the Common Stock in transactions to cover their short
positions, in stabilization transactions or otherwise. Finally, the
Underwriters may bid for, and purchase, shares of the Common Stock in
market-making transactions and impose penalty bids. These activities may
stabilize or maintain the market price of the Common Stock above market
levels that may otherwise prevail. The Underwriters are not required to
engage in these activities, and may end any of these activities at any
time.
The Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
LEGAL MATTERS
The legality of the shares offered hereby will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania.
Certain legal matters will be passed upon for the Underwriters by Cravath,
Swaine & Moore, New York, New York.
EXPERTS
The audited consolidated financial statements of AquaPenn Spring Water
Company, Inc. as of September 30, 1996 and 1997, and for each of the years
in the three-year period ended September 30, 1997, included in the
Prospectus and in the Registration Statement have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-1 (together with all amendments thereto, the "Registration
Statement") under the Securities Act, with respect to the shares of Common
Stock offered hereby. This Prospectus, filed as part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain
portions of which
-47-
have been omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the
Common Stock offered hereby, reference is hereby made to the Registration
Statement and the exhibits and schedules thereto, which may be inspected
and copied at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549, and at the
regional offices of the Commission located at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300,
New York, New York 10048. Copies of such material may be obtained from the
Public Reference Section of the Commission located at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 at prescribed rates. The Commission
maintains a web site (http://www.sec.gov) that contains material regarding
issuers that file electronically with the Commission.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to herein or therein, are not
necessarily complete, and in each such instance reference is made to the
copy of such contract, agreement or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all
respects by such reference.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent accountants and with
quarterly reports containing updated summary financial information for each
of the first three quarters of each fiscal year.
-48-
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Consolidated Financial Statements of AquaPenn Spring
Water Company, Inc. and Subsidiaries
Independent Auditors' Report........................ F-2
Consolidated Balance Sheets......................... F-3
Consolidated Statements of Operations............... F-4
Consolidated Statements of Shareholders' Equity..... F-5
Consolidated Statements of Cash Flows............... F-6
Notes to Consolidated Financial Statements.......... F-7
F-1
Independent Auditors' Report
To the Board of Directors and Shareholders of
AquaPenn Spring Water Company, Inc.:
We have audited the accompanying consolidated balance sheets of AquaPenn
Spring Water Company, Inc. and subsidiaries as of September 30, 1996 and
1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
September 30, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
AquaPenn Spring Water Company, Inc. and subsidiaries as of September 30,
1996 and 1997, and the results of their operations and their cash flows for
each of the years in the three-year period ended September 30, 1997 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
State College, Pennsylvania
October 21, 1997, except for note 15
which is as of October 24, 1997
F-2
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30,
-------------------------
1996 1997
ASSETS
Current Assets:
Cash and cash equivalents........... $ 185,535 $ 687,035
Accounts receivable, net............ 2,794,776 3,604,524
Inventories......................... 1,331,388 1,533,617
Prepaid expenses and other current
assets 278,595 425,279
Deferred income taxes............... 326,900 243,400
----------- -----------
Total current assets.............. 4,917,194 6,493,855
Property, plant, and equipment, net.. 14,554,929 20,030,909
Other................................ 44,232 55,421
----------- ----------
Total assets...................... $19,516,355 $26,580,185
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable.... $ 90,840 $ 298,966
Accounts payable and accrued
liabilities 2,521,670 3,098,571
----------- ----------
Total current liabilities......... 2,612,510 3,397,537
Notes payable........................ 1,717,624 4,518,501
Deferred income taxes................ 536,800 599,800
----------- ----------
Total liabilities................. 4,866,934 8,515,838
----------- -----------
Stockholders' Equity:
Series A, non-voting convertible
preferred stock, $1 par value;
2,000,000 shares authorized,
1,713,750 shares issued............ 1,713,750 1,713,750
Common stock, no par value,
100,000,000 shares authorized;
4,283,760, and 4,423,712 shares
issued, respectively .............. -- --
Additional paid-in capital.......... 11,560,834 12,196,269
Retained earnings .................. 1,455,701 4,242,456
Less 11,250 shares of preferred stock
in treasury, at cost............... (11,250) (11,250)
Less 3,004 shares of common stock in
treasury, at cost.................. (5,000) (5,000)
Less stock subscriptions receivable. (64,614) (71,878)
----------- -----------
Total stockholders' equity........ 14,649,421 18,064,347
----------- -----------
Total liabilities and stockholders'
equity$ 19,516,355 $26,580,185
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended September 30,
1995 1996 1997
---- ---- ----
Revenues:
Product sales................. $22,617,746 $27,931,308 $37,526,028
Other sales................... 338,307 309,433 489,287
----------- ----------- -----------
Net revenues.................... 22,956,053 28,240,741 38,015,315
Cost of goods sold.............. 18,153,355 21,271,313 28,316,938
----------- ---------- ----------
Gross profit.................... 4,802,698 6,969,428 9,698,377
Selling, general and
administrative 3,290,609 4,313,480 5,126,583
----------- ---------- ----------
Income from operations.......... 1,512,089 2,655,948 4,571,794
Other income (expense):
Other income.................. 7,090 116,484 328,180
Interest expense, net......... (745,829) (297,204) (208,467)
----------- ---------- ----------
(738,739) (180,720) 119,713
----------- ---------- ----------
Income before income tax expense 773,350 2,475,228 4,691,507
Income tax expense.............. 135,000 990,000 1,904,752
----------- ---------- ----------
Net income...................... $ 638,350 $1,485,228 $2,786,755
=========== ========== ==========
Net income per common share..... $ .16 $ .26 $ .47
=========== ========== ==========
Weighted average number of
common shares
outstanding..................... 3,884,708 5,620,741 5,951,844
=========== ========== ==========
See accompanying notes to consolidated financial statements.
F-4
[Enlarge/Download Table]
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Number of
Shares of
Series A Common Additional Retained
Preferred Stock Paid-In Earnings Treasury Subscription
Stock Issued Capital (Deficit) Stock Receivable Total
---------- --------- ---------- ---------- -------- ------------ ----------
BALANCE, SEPTEMBER 30,
1994........................ $1,713,750 2,424,886 $2,529,881 $(667,877) $(16,250) $(52,214) $3,507,290
Issuance of Common Stock for
services rendered by the
Company's Board of Directors -- 10,814 54,000 -- -- -- 54,000
Common Stock Options
Exercised....... -- 24,032 40,000 -- -- -- 40,000
Issuance of Common Stock
for Private Placement -- 1,748,328 8,562,384 -- -- -- 8,562,384
Interest Accrued on
Subscription Receivable -- -- -- -- -- (5,855) (5,855)
Net Income........ -- -- -- 638,350 -- -- 638,350
---------- --------- --------- ---------- ------- --------- ----------
BALANCE, SEPTEMBER
30, 1995.......... 1,713,750 4,208,060 11,186,265 (29,527) (16,250) (58,069) 12,796,169
Issuance of Common Stock for
services rendered by the
Company's Board of Directors -- 10,814 54,000 -- -- -- 54,000
Issuance of Common Stock
in Private Placement -- 64,886 320,569 -- -- -- 320,569
Interest Accrued on
Subscription Receivable -- -- -- -- -- (6,545) (6,545)
Net Income........ -- -- -- 1,485,228 -- -- 1,485,228
---------- --------- --------- ---------- ------- --------- ----------
BALANCE, SEPTEMBER
30, 1996.......... 1,713,750 4,283,760 11,560,834 1,455,701 (16,250) (64,614) 14,649,421
Issuance of Common Stock for
services rendered by the
Company's Board of Directors -- 10,814 70,200 -- -- -- 70,200
Issuance of Common Stock
for Employee Stock
Purchase Plan... -- 105,256 445,985 -- -- -- 445,985
Issuance of Common Stock
for Rabbi Trust. -- 23,882 119,250 -- -- -- 119,250
Interest Accrued on
Subscription Receivable -- -- -- -- -- (7,264) (7,264)
Net Income........ -- -- -- 2,786,755 -- -- 2,786,755
---------- --------- --------- ---------- ------- --------- ----------
BALANCE, SEPTEMBER
30, 1997.......... $1,713,750 4,423,712 $12,196,269 $4,242,456 $(16,250) $(71,878) $18,064,347
See accompanying notes to consolidated financial statements
F-5
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 30,
1995 1996 1997
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $638,350 $1,485,228 $2,786,755
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ......... 1,352,826 1,831,626 2,385,212
Provision for doubtful accounts ....... 15,000 25,000 --
Provision for deferred income taxes, net (194,500) 372,000 146,500
Issuance of common stock for services . 54,000 54,000 70,200
(Increase) in accounts receivable ..... (413,298) (663,986) (809,748)
(Increase) decrease in inventories .... (959,287) 373,407 (202,229)
(Increase) decrease in prepaid expenses
and other current assets............. 107 (141,482) (146,684)
(Increase) in other assets............. (13,520) (4,615) (11,189)
Decrease in certificates of deposit -
pledged.............................. 15,814 -- --
Increase in accounts payable
and accrued liabilities.............. 1,566,843 232,674 576,901
--------- ---------- ----------
Net cash provided by operating
activities ....................... 2,062,335 3,563,852 4,795,718
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and
equipment ........................... (10,430,942) (2,949,010) (7,861,192)
----------- ---------- ----------
Net cash used in investing
activities ...................... (10,430,942) (2,949,010) (7,861,192)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable............ 10,925,000 4,913,536 7,301,460
Repayments of notes payable............ (10,930,732) (5,935,944) (4,292,457)
Proceeds from exercise of stock options 40,000 -- --
Proceeds from issuance of common stock -- -- 565,235
Proceeds from private stock offering, net 8,562,384 320,569 --
Interest accrued on stock subscriptions
receivable .......................... (5,855) (6,545) (7,264)
----------- ---------- ----------
Net cash provided by (used in)
financing activities ............ 8,590,797 (708,384) 3,566,974
----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ 222,190 (93,542) 501,500
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR ................................. 56,887 279,077 185,535
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $279,077 $185,535 $687,035
======== ======== ========
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest,
net of $101,923 in capitalized interest
in 1995 ............................. $762,055 $307,720 $192,299
Cash paid during the year for income taxes 68,342 174,568 1,627,100
See accompanying notes to consolidated financial statements.
F-6
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Background of Business
AquaPenn Spring Water Company, Inc. (the Company), was formed as a
Pennsylvania corporation during November 1986. The Company bottles and
distributes non-sparkling natural spring water.
The Company's water products are sold to both regional and national
customers under retailers' and other customers' private labels and
under its proprietary brand labels.
Principles of Consolidation
The consolidated financial statements include the financial statements
of the Company and its wholly-owned subsidiaries.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market with cost
determined using the first-in first-out (FIFO) method.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost. Depreciation and
amortization on property, plant, and equipment are provided utilizing
the straight-line method over the estimated useful lives of the
related assets.
Repairs and maintenance are charged to expense and betterments are
capitalized; any gain or loss on dispositions is recognized currently.
The Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" (Statement No. 121) in the
beginning of fiscal 1997. There was no impact on the consolidated
statements of operations upon the adoption of Statement No. 121.
Revenue Recognition
Revenue is recognized when products are shipped.
F-7
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Continued
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the recorded amounts of
revenues and expenses during the reporting period. Actual results
could differ from these estimates.
Net Income Per Share
Net income per share is based on the weighted average number of shares
of common stock outstanding during the periods increased by
convertible preferred stock and dilutive common stock equivalents
using the treasury stock method. Common shares issued and stock
options granted within one year prior to the Offering have been
included in the calculation of shares used in computing net income per
common share as if they were outstanding for all periods presented.
Reclassification
Certain prior year amounts have been reclassified to conform with
current year presentations.
(2) Related Party Transactions
The Company has entered into the following transactions with related
parties:
o The Company sold product to a corporate investor in the Company
at normal sales prices in the amount of approximately $625,000,
$696,000 and $738,000 in fiscal 1995, 1996, and 1997,
respectively. Accounts receivable from this investor at September
30, 1996 and 1997 were approximately $75,000 and $68,000,
respectively.
o The Company recorded compensation expense to a director of
$208,305, $214,981 and $250,000 in fiscal 1995, 1996, and 1997,
respectively, for his services as an independent food broker.
Accrued commissions to this director at September 30, 1996 and
1997 were $20,833 each year.
o The Company had stock subscriptions receivable from a director of
$64,614 and $71,878 at September 30, 1996 and 1997, respectively.
In addition, the Company recorded $23,625 in fees
F-8
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Continued
relating to this director's services associated with the
Company's private placement transaction (see note 13) during
fiscal 1995.
o In April 1995, the Company borrowed $8,000,000 from a corporate
investor in the Company. The loan was repaid in September 1995
out of the proceeds of the private placement transaction (see
note 13). In addition, interest expense of $292,000 was incurred
and paid by the Company on this loan. In connection with this
loan, 135,180 common stock warrants were issued to this corporate
investor exercisable at $4.99 per warrant. These warrants may be
exercised in part or in whole at any time. None of these warrants
were exercised in fiscal 1996 or 1997.
o The Company issued 105,140 common stock warrants to the President
exercisable at $4.99 per warrant. These warrants may be exercised
in part or in whole at any time. These warrants were issued as
consideration for the President's personal guarantee given on a
portion of the $8,000,000 borrowing. During fiscal 1996, 30,040
of those warrants were sold to two Directors of the Company by
the President.
(3) Accounts Receivable
Accounts receivable consist of the following:
September 30,
1996 1997
Accounts receivable - trade......... $2,868,525 $3,676,555
Other............................... 26,251 27,969
---------- ----------
2,894,776 3,704,524
Less allowance for doubtful accounts 100,000 100,000
---------- ----------
$2,794,776 $3,604,524
========== ==========
(4) Inventories
Inventories consist of the following:
September 30,
---------------------------
1996 1997
---- ----
Raw materials................... $ 910,988 $1,087,507
Finished goods.................. 420,400 446,110
---------- ----------
$1,331,388 $1,533,617
========== ==========
F-9
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Property, Plant, and Equipment
Major classifications of these assets are summarized as follows:
Estimated
useful
lives in September 30,
years -----------------------------
--------- 1996 1997
---- ----
Land................... - $ 1,140,850 $ 1,190,850
Land improvements...... 20 129,819 154,121
Buildings.............. 30 5,565,101 7,729,748
Machinery and equipment 3-10 9,532,609 13,941,998
Transportation equipment 3-5 497,943 497,943
Construction in progress - 1,664,776 2,877,630
----------- -----------
18,531,098 26,392,290
Less accumulated depreciation
and amortization...... 3,976,169 6,361,381
----------- -----------
$14,554,929 $20,030,909
=========== ===========
Property held for rental is classified as property, plant, and
equipment. This property relates to the Company's former manufacturing
facility in State College, Pennsylvania which has a net book value of
approximately $1,184,000, which is net of approximately $483,000 in
accumulated depreciation at September 30, 1997.
Interest costs for the construction and purchase of certain long-term
assets relating to the Company's new facility in Milesburg,
Pennsylvania, were capitalized and are being amortized over the
related assets' estimated useful lives. The Company capitalized net
interest costs of $101,923 in fiscal 1995 and $0 in fiscal 1996 and
1997.
Total depreciation and amortization expense was $1,352,826, $1,831,626
and $2,385,212 in fiscal 1995, 1996, and 1997, respectively.
F-10
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Notes Payable
September 30,
-----------------------------
1996 1997
---- ----
Unsecured note payable to a bank,
$10,000,000 revolving credit note -
interest at London Interbank Offered
Rate (LIBOR) plus 1.7% (7.325% at
September 30, 1997), requires
interest only through February 1999
with principal and interest due
monthly thereafter with maturity in
2004 -- $2,900,000
Mortgage funding payable in monthly
installments of principal and interest
to the Pennsylvania Industrial
Development Authority at 5%, due
through May 2011................ 1,785,950 1,700,383
Note payable to a bank, $6,000,000
line of credit at LIBOR plus 1.0%
(6.6875% at September 30, 1997),
payable on demand and requires a
negative pledge on the
Company's accounts receivable
and inventories -- 200,000
Various installment loan obligations
at interest rates between 9% and 10%,
due through September 1999, payable
to various companies, secured by
machinery and equipment......... 22,514 15,624
Unsecured note payable to a bank,
$6,000,000 line of credit, interest
at LIBOR plus 1.2% (6.825%
at September 30,1997), and is due
February 1998 -- 1,460
1,808,464 4,817,467
Less portion due within one year 90,840 298,966
---------- ---------
$1,717,624 $4,518,501
========== ==========
Interest expense was $762,055, $306,970 and $208,467 in 1995, 1996,
and 1997, respectively, and is recorded in other income (expense) in
the consolidated statements of operations.
F-11
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Continued
Based on current payment terms, the required principal reduction of
the above debt is as follows:
Year ending
September 30, Amount
------------- ------
1998 $ 298,966
1999 237,000
2000 313,000
2001 335,000
2002 358,000
Thereafter 3,275,501
----------
$4,817,467
==========
(7) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
September 30,
-------------------------------
1996 1997
---- ----
Accounts payable................ $ 868,436 $1,021,471
Accrued expenses................ 874,093 860,825
Accrued payroll................. 96,513 142,224
Income taxes payable............ 595,319 822,322
Other........................... 87,309 251,729
----------- -----------
$2,521,670 $3,098,571
========== ==========
(8) Employee Benefit Plan
Effective March 1, 1994, the Company adopted a deferred 401(k) Salary
Savings Plan for the benefit of its employees and their beneficiaries.
Generally, any employee who has completed six months of service and is
over 21 years of age is eligible to participate in the Plan. Each
eligible employee may elect to contribute up to 15% of his or her
compensation for services rendered in any year. The Company matches
employee contributions in an amount equal to 100% of the first 1%, 75%
of the second 1%, and 50% of the third 1% of each participant's
contributions. The Company contributed approximately $10,000, $24,000
and $52,000 in fiscal 1995, 1996, and 1997, respectively.
F-12
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) Sales to Major Customers
During fiscal 1995 and 1996, sales to one customer accounted for
approximately 17% and 23%, respectively, of net revenues. During
fiscal 1997, sales to two customers accounted for approximately 15%
and 11% of net revenues. Accounts receivable from these customers
totaled approximately $665,000 and $459,000, respectively, at
September 30, 1997.
(10) Income Taxes
The provision for income taxes attributable to income from operations
consists of the following:
Years ended September 30,
1995 1996 1997
---- ---- ----
Currently payable:
Federal................... $ 254,500 $ 483,900 $1,452,000
State..................... 75,000 134,100 306,252
--------- ------- ---------
329,500 618,000 1,758,252
--------- ------- ---------
Deferred (benefit):
Federal................... (153,700) 274,600 108,100
State..................... (40,800) 97,400 38,400
--------- ------- ----------
(194,500) 372,000 146,500
--------- ------- ----------
$ 135,000 $ 990,000 $1,904,752
========= ======= ==========
Total income tax expense was $135,000, $990,000 and $1,904,752 for the
years ended September 30, 1995, 1996, and 1997, respectively, and
differed from the amounts computed by applying the U.S. federal income
tax rate of 35 percent to pretax income as a result of the following:
Years ended September 30,
1995 1996 1997
---- ---- ----
Computed "expected" tax expense $ 270,500 $ 866,000 $1,642,000
State income tax, net of federal
benefit 60,000 153,000 227,000
Change in valuation allowance (262,500) (27,000) --
Other, net............ 67,000 (2,000) 35,752
--------- --------- ----------
$ 135,000 $ 990,000 $1,904,752
========= ========= ==========
F-13
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 1996 and 1997 are presented below:
September 30,
-----------------------
1996 1997
---- ----
Deferred tax assets:
Accounts receivable, due to
allowance for doubtful
accounts .................... $ 40,600 $40,600
Inventories.................... 78,800 70,100
Deferred compensation.......... 44,000 62,500
Net operating loss carryforwards 39,000 5,300
Alternative minimum tax credit
carryforwards 104,500 --
Other, principally due to accruals
for financial reporting
purposes..................... 72,100 131,500
------- -------
Total gross deferred tax assets. 379,000 310,000
Less valuation allowance........ -- --
------- -------
Total deferred tax assets....... 379,000 310,000
------- -------
Deferred tax liabilities:
Plant and equipment, principally
due to differences in
depreciation.................. 580,800 662,400
Other.......................... 8,100 4,000
------- -------
Total gross deferred tax liabilities 588,900 666,400
------- -------
Net deferred tax liability...... $ 209,900 $356,400
========= ========
Deferred tax assets and liabilities are reported net within deferred
income taxes on the consolidated balance sheets at September 30, 1996
and 1997.
Under Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" (Statement 109), a valuation allowance is recognized
if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax asset will not be
recognized. Based on the weight of all available evidence, the Company
concludes that a valuation allowance is not needed.
At September 30, 1997, the Company has Pennsylvania net operating loss
carryforwards for state income tax purposes of approximately $89,000
which are available to offset future Pennsylvania taxable income, if
any, through the fiscal year ending September 30, 1998 subject to
limitation.
F-14
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Commitments
The Company rents certain land, office equipment, and transportation
equipment under noncancellable operating leases. Rent expense for
these leases amounted to approximately $127,000, $152,000 and $138,000
for fiscal 1995, 1996, and 1997, respectively. The future minimum
annual rent commitments under these leases are approximately as
follows:
Year ending
September 30, Amount
------------- ------
1998 $110,000
1999 63,000
2000 41,000
2001 15,000
2002 16,000
Thereafter 37,000
--------
$282,000
========
At September 30, 1997, the Company has entered into a commitment to
purchase land and construct a production facility in North Central
Florida. The facility, which is expected to be completed in fiscal
1998, is estimated to cost approximately $6,588,000.
In addition, the Company has made certain commitments to expand the
Milesburg Facility. These commitments are for buildings, building
improvements and equipment. As of September 30, 1997, the open
commitments relating to this facility are approximately $8,250,000.
(12) Shareholders' Equity
Common Stock
The Company maintains various stock option agreements and plans. Stock
options have been granted at prices at or above the fair market value
as of the date of the grant. Options vest and expire according to
terms established at the grant date.
In fiscal year 1997, the Company adopted the disclosure requirements
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (Statement No. 123). As allowed by Statement No. 123,
the Company has chosen to continue to account for stock based
compensation using Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the
Company's stock at the grant date over the amount employees must pay
to acquire the stock. Accordingly, no compensation cost has been
recognized. Had compensation cost for the Company's Plans been
determined under Statement No. 123, the Company's net income and net
income per share would have been reduced to the pro forma amounts
indicated below:
F-15
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) Continued
September 30,
-----------------------
1996 1997
---- ----
Net income as reported...... $1,485,000 $2,787,000
Pro forma............. 1,104,000 2,396,000
Net income per share as reported $0.26 $0.47
Pro forma............. 0.20 0.40
The 1996 and 1997 pro forma amounts include the effect of the common
shares issued under the Stock Purchase Plan as if they were accounted
for under Statement 123.
The per share weighted-average fair values of stock options granted
during fiscal years 1996 and 1997 were $4.54 and $4.41, respectively,
on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions: fiscal year 1996 expected
dividend yield 0%, risk-free interest rate of 5.945%, a volatility
factor of the expected market price of the Company's common stock of
.4166, and a weighted-average expected life of approximately 9 years;
fiscal year 1997 expected dividend yield 0%, risk-free interest rate
of 5.945%, a volatility factor of the expected market price of the
Company's common stock of .4166, and a weighted-average expected life
of approximately 10 years.
The fair market value of stock options included in the pro forma
amounts for fiscal years 1996 and 1997 is not necessarily indicative
of future effects on net income and net income per share.
A summary of the status of the Company's stock option plans and
changes during the years ended on those dates is presented below:
[Enlarge/Download Table]
Fiscal years ended: September 30, 1995 September 30, 1996 September 30, 1997
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at beginning
of year........ 570,760 $2.18 570,760 $1.89 696,928 $2.45
Granted......... 300,400 1.87 126,168 4.99 135,180 7.49
Exercised....... 24,032 1.66 -- -- -- --
Cancelled....... 276,368 2.50 -- -- -- --
-------- ---- ------- ----- ------- -----
Outstanding at end of
year 570,760 1.89 696,928 2.45 832,108 3.26
======== ==== ======= ==== ======= =====
Options exercisable at
year-end...... 570,760 1.69 696,928 2.45 832,108 3.26
======== ==== ======= ==== ======= =====
F-16
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) Continued
The following table summarizes information about the Company's stock
option plans as of September 30, 1997:
Options outstanding Options exercisable
------------------- -------------------
Number Weighted Weighted Number Weighted
Outstanding Average Average Exercisable Average
Range of on Remaining Exercise on Exercise
exercise September Contractual September
prices 30, 1997 Life Price 30, 1997 Price
---------- ----------- ------------ -------- ------------ ----------
$ 1.90 270,360 2 years $ 1.90 270,360 $ 1.90
4.99 36,048 3 years 4.99 36,048 4.99
1.66-1.90 300,400 7 years 1.88 300,400 1.88
4.99 90,120 9 years 4.99 90,120 4.99
7.07-8.32 135,180 10 years 7.49 135,180 $7.49
------- -------
$1.66-8.32 832,108 832,108
======= =======
Series A Non-Voting Convertible Preferred Stock
Series A Non-Voting Convertible Preferred Stock (the Preferred Stock)
is convertible at the option of the holder at any time into shares of
the Company's common stock at the rate of one share of Preferred Stock
for .6008 shares of common stock (See Note 15). The Preferred Stock
has no redemption features but does have a preference in liquidation.
(13) Private Placement
In fiscal 1995, the Company sold 1,748,328 shares of its common stock
in exchange for $8,562,384, net of $167,616 of offering costs as part
of a private placement transaction. As part of the private placement
transaction during fiscal 1996, the Company also sold 64,886 shares of
its common stock in exchange for $320,569. The offering under this
private placement transaction ceased during fiscal 1996.
(14) Stock Purchase Plan
Under the terms of the Company's Stock Purchase Plan, eligible
employees may purchase shares of the Company's common stock at 85% of
the estimated fair market value at the offering date. At September 30,
1997, there were 89,565 shares set aside for eligible employees under
this plan of which 76,254 shares had been subscribed for at $5.41 per
share and 6,409 shares were purchased by employees during fiscal
September 30, 1997. The remaining 6,902 common shares were not
subscribed for by the eligible employees. Payment for the subscribed
shares must be made by January 1, 1998. Employees may choose to pay
for their subscribed shares by using the proceeds from bank loans
guaranteed by the Company. The common stock purchased with the
proceeds of the loans will serve as collateral for these loans. The
loans defer principal and interest payments for 5 years.
F-17
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) Continued
Under the terms of the Company's Stock Purchase Plan, a total of
98,847 shares of common stock which were subscribed for in fiscal 1996
and were issued during fiscal 1997 at $4.16 per share for a total of
$411,312. Of this amount, the Company is contingently liable for
$385,015 as a result of bank loans guaranteed by the Company.
(15) Reverse Stock Split
On October 24, 1997, the Company's Board of Directors approved a
0.6008-for-1 reverse stock split of each outstanding share of Common
Stock of the Company. All share and per share data, including stock
option and stock purchase plan information, have been restated to
reflect this split.
(16) Subsequent Event - Acquisition of Dunsmuir Bottling Company, Inc.
(Unaudited)
On October 15, 1997, the Company entered into a merger agreement to
purchase all of the stock of Dunsmuir Bottling Company, Inc.
("Dunsmuir", also known as Castle Rock Spring Water). Under terms of
this agreement, the Company will buy Dunsmuir for approximately
$3,000,000 plus the assumption of certain liabilities. This purchase
price consists of a combination of cash and the Company's common stock
and the assumption of up to $4,650,000 in Dunsmuir's liabilities.
The following pro forma, condensed, combined balance sheet assumes the
acquisition occurred at September 30, 1997 and the pro forma,
condensed, combined statement of operations assumes the acquisition
occurred at the beginning of fiscal 1997. This financial information
does not purport to be indicative of what would have occurred had the
acquisition been made at the beginning of fiscal 1997, or of the
results which may occur in the future.
[Enlarge/Download Table]
Proforma Condensed Combined Balance Sheet
(Unaudited)
September 30, 1997
Pro Forma Pro
AquaPenn Dunsmuir Adjustments Forma
Assets:
Current assets ................... $ 6,494,000 $ 1,105,000 $(1,500,000)(a) $ 6,099,000
Property, plant and equipment .... 20,031,000 3,046,000 -- 23,077,000
Other noncurrent assets .......... 55,000 30,000 (150,000)(b) 2,935,000
........................... -- -- 3,000,000(a) --
----------- ----------- ----------- -----------
........................... $26,580,000 $ 4,181,000 $ 1,350,000 $32,111,000
=========== =========== =========== ===========
Liabilities and Stockholders' Equity:
Current liabilities .............. $ 3,398,000 $ 2,618,000 -- $ 6,016,000
Long-term liabilities ............ 4,519,000 1,542,000 -- 6,061,000
Other noncurrent liabilities ..... 599,000 -- -- 599,000
Stockholders' equity 18,064,000 21,000 (150,000)(b) 19,435,000
........................... -- -- 1,500,000(a) --
----------- ----------- ----------- -----------
........................... $26,580,000 $ 4,181,000 $ 1,350,000 $32,111,000
=========== =========== =========== ===========
F-18
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Download Table]
ProForma Condensed Combined Statement of Operations
(Unaudited)
Year Ended
September 30, 1997
Pro Forma Pro
AquaPenn Dunsmuir Adjustments Forma
Sales ............ $38,015,000 $7,771,000 -- $45,786,000
Gross profit...... 9,698,000 2,221,000 -- 11,919,000
Other costs
and expenses 6,911,000 2,517,000 150,000 (b) 9,578,000
----------- ---------- --------- -----------
Net income (loss). $ 2,787,000 $(296,000)(c) $(150,000)(b) $ 2,341,000
=========== ========== ========= ===========
(a)The aggregate purchase price of $3,000,000 was assumed to be paid
through the issuance of shares of the Company's Common Stock and the
remainder through cash resources.
(b)Since the purchase price allocation will not be finalized after the
Offering and the determination of the Offering price, the approximate
excess of purchase price over assets acquired is recorded in other
noncurrent assets.
(c)The net loss of Dunsmuir has been adjusted for an income tax benefit as
if its results had been consolidated with the Company's income tax
provision.
F-19
[Photographs to appear on inside back cover with the following captions:]
1. (Lauth With Pure American Bottles)
AquaPenn President and founder Edward J. Lauth, III was named
Entrepreneur of the Year for Western Pennsylvania in 1996 in a
competition sponsored by Ernst & Young LLP and its co-sponsors
Entrepreneur of the Year(R) Institute and the Center for Entrepreneur
Leadership at the Ewing Marion Kauffman Foundation.
2. (Gerber Baby Water Bottle)
AquaPenn was selected by the Gerber Products Company, in June 1996 to
produce Gerber(R) Baby Water for the United States market.
3. (Steel Silos Against Sky)
Four 60,000-gallon stainless steel silos store spring water at
AquaPenn's Milesburg Facility until it is needed for bottling.
4. (Feidelberg With Pure American Vending Machine)
Geoffrey F. Feidelberg, Chief Operating Officer and Chief Financial
Officer, joined AquaPenn in 1989 following 13 years with the
international accounting firm of Price Waterhouse.
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained
in this Prospectus and, if given or made, such information and
representations must not be relied upon as having been authorized by the
Company or the Underwriters. Neither the delivery of this Prospectus nor
any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct
as of any time subsequent to its date. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any security other
than the registered securities to which it relates. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is
unlawful.
--------------------
TABLE OF CONTENTS
Page
Prospectus Summary................................................... 3
Risk Factors......................................................... 7
Use of Proceeds...................................................... 13
Dividend Policy...................................................... 13
Dilution............................................................. 14
Capitalization....................................................... 15
Selected Consolidated Financial Data................................. 16
Management's Discussion and Analysis
of Financial Condition and Results of Operations................... 18
Business............................................................. 24
Management........................................................... 32
Certain Transactions................................................. 39
Principal Shareholders and Selling Shareholder....................... 40
Description of Capital Stock......................................... 42
Shares Eligible for Future Sale...................................... 45
Underwriting......................................................... 46
Legal Matters........................................................ 47
Experts.............................................................. 47
Available Information................................................ 47
Index to Consolidated Financial Statements...........................F-1
--------------------------
Until ---------------, 1997, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution,
may be required to deliver a Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
[LOGO]
Shares
AQUAPENN SPRING
WATER COMPANY, INC.
Common Stock
---------------
PROSPECTUS
---------------
PaineWebber Incorporated
Lazard Freres & Co. LLC
Parker/Hunter
Incorporated
--------------------
, 1997
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated amounts of various expenses
payable by the Company and the Selling Shareholder in connection with the
registration of the Common Stock offered hereby, other than underwriting
discounts and commissions:
Selling
Company Stockholder
Securities and Exchange Commission fee $12,504 $9,013
NASD filing fee.................. * *
New York Stock Exchange listing fee * *
Printing and engraving expenses.. * *
Blue sky fees and expenses....... * *
Legal fees and expenses.......... * *
Accounting fees and expenses..... * *
Transfer agent and registrar fees * *
Miscellaneous....................
Total.......................... $ $
======= ======
--------------------
* To be provided by amendment.
Item 14. Indemnification of Directors and Officers.
The Pennsylvania Business Corporation Law of 1988 authorizes the Company
to indemnify its directors and officers in terms sufficiently broad to
permit indemnification of such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under
the Securities Act of 1933.
The Company's By-Laws provide as follows:
"Section 7.01. Indemnification of Directors and Officers. The
Corporation shall indemnify any director or officer or employee or agent of
the Corporation or any of its subsidiaries who was or is an "authorized
representative" of the Corporation (which shall mean, for the purposes of
this Article, a director or officer of the Corporation, or a person serving
at the request of the Corporation as a director, officer, partner,
fiduciary or trustee of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise) and who was or is a
"party" (which shall include for purpose of this Article the giving of
testimony or similar involvement) or is threatened to be made a party to
any "proceeding" (which shall mean for purposes of this Article any
threatened, pending or completed action, suit, appeal or other proceeding
of any nature, whether civil, criminal, administrative or investigative,
whether formal or informal, and whether brought by or in the right of the
Corporation, its shareholders or otherwise) by reason of the fact that such
person was or is an authorized representative of the Corporation to the
fullest extent permitted by law including, without limitation,
indemnification against expenses (which shall include for purposes of this
Article, attorneys' fees and disbursements), damages, punitive damages,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by such person in
II-1
connection with such proceeding unless the act or failure to act giving
rise to the claim is finally determined by a court to have constituted
willful misconduct or recklessness. If an authorized representative is not
entitled to indemnification with respect to a portion of any liabilities to
which such person may be subject, the Corporation shall nonetheless
indemnify such person to the maximum extent for the remaining portion of
the liabilities."
Item 15. Recent Sales of Unregistered Securities.
Within the past three years, the Company has issued and sold the
securities described below in reliance upon the exemption from registration
under Section 4(2) of the Securities Act of 1933, except as may otherwise
be noted.
In October 1994, the Company granted an option to purchase 270,360
shares at $1.90 per share to Matthew J. Suhey in consideration for the
termination of an agreement under which Mr. Suhey served as a sales
representative to the Company.
In December 1994, the Company issued 901 shares of Common Stock to each
of its nine directors for a total of 8,111 shares as compensation for
serving on the Board of Directors in 1994.
In December 1994, the Company granted an option to purchase 30,040
shares of Common Stock at $1.66 per share to Edward J. Lauth, III, to
replace shares previously transferred by Mr. Lauth to an individual for
services rendered to the Company.
In April 1995, the Company issued a warrant to purchase 105,140 shares
of Common Stock at $4.99 per share to Edward J. Lauth, III, in
consideration for Mr. Lauth's guarantee of a portion of the Company's
borrowings. Mr. Lauth subsequently assigned the rights to purchase 30,040
shares under the warrant to other individuals. To effect the assignment,
the Company issued a warrant in the amount of 75,100 to Mr. Lauth and
warrants in the amounts of 21,028 and 9,012 to the assigness.
In April 1995, the Company issued a warrant to purchase 135,180 shares
of Common Stock at an exercise price of $4.99 per share to AquaWorks, Inc.
in connection with loans to the Company from AquaWorks, Inc.
In June 1995, the Company issued 24,032 shares of Common Stock at $1.66
per share upon the exercise of options received by an individual as
compensation for services rendered to the Company.
In September 1995, the Company issued 2,704 shares of Common Stock to a
former director in consideration for past services as a member of the Board
of Directors.
In September 1995, the Company issued 1,748,328 shares of Common Stock
at $4.99 per share to purchasers in a private placement under Section 4(2)
of the Securities Act of 1933 and Rule 506 of Regulation D of the
Securities Act of 1933 for an aggregate price of $8,730,000.
In September 1995, the Company issued 901 shares of Common Stock to each
of its nine directors for a total of 8,111 shares as compensation for
serving on the Board of Directors in 1995.
In October 1995, the Company issued 21,629 shares of Common Stock for an
aggregate price of $108,000 to the Davis Trust UAD 2/5/77 in a private
placement.
In December 1995, the Company issued 10,814 shares of Common Stock to
M-S Capital Fund for an aggregate price of $54,000 in connection with a
private placement.
In January 1996, the Company issued 21,629 shares of Common Stock to an
individual for an aggregate price of $108,000 in connection with a private
placement.
II-2
In June 1996, the Company granted an option to purchase 36,048 shares of
Common Stock at $4.99 per share to an individual as compensation for
services rendered to the Company.
In July 1996, the Company issued 901 shares of Common Stock to each of
its twelve directors for a total of 10,814 shares as compensation for
serving on the Board of Directors in 1996.
In July 1996, the Company issued 10,814 shares to individuals for an
aggregate price of $54,000 in connection with a private placement.
In September 1996, the Company granted options to purchase 30,040 shares
of Common Stock at $4.99 per share to Edward J. Lauth, III, Geoffrey F.
Feidelberg and Matthew J. Suhey in consideration for services rendered to
the Company.
In October 1996, the Company issued 13,068 shares of Common Stock to the
Lauth Rabbi Trust and 10,815 shares of Common Stock to the Feidelberg Rabbi
Trust for an aggregate price of $119,250 in connection with deferred
compensation plans.
In May 1997, the Company issued 901 shares of Common Stock to each of
its twelve directors for a total of 10,814 shares as compensation for
serving on the Board of Directors in 1997.
From March 1997 until August 1997, the Company issued 98,847 shares of
Common Stock at a price of $4.16 per share and 6,409 shares of Common Stock
at $5.41 per share to employees purchasing stock under the 1996 Employee
Stock Purchase Plan.
In September 1997, the Company granted options to purchase 30,040 shares
of Common Stock at $7.07 per share to Edward J. Lauth, III, Geoffrey F.
Feidelberg and Matthew J. Suhey in consideration for services rendered to
the Company.
In October 1997, the Company granted 186,163 shares of Common Stock to
selling shareholders in connection with a merger of a wholly owned
subsidiary of the Company with and into another company (the number of
shares subject to adjustment after completion of the Offering, currently
estimated at 137,715 shares).
In October 1997, the Company issued 1,803 shares of Common Stock and
options to purchase 12,016 shares of Common Stock at an exercise price of
$8.32 per share in connection with a real estate transaction.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibit
Exhibit
Number
1 Form of Underwriting Agreement*
3.1 Restated Articles of Incorporation of the Company*
3.2 Amended and Restated By-laws of the Company
4.1 Form of Certificate evidencing Common Stock of the Company*
II-3
4.2 Registration and Holdback Agreement dated as of October 17, 1997
between the Company and Weis Markets, Inc., Dutch Valley Foods,
Inc. and Aqua Works, Inc.
5 Opinion of Ballard Spahr Andrews & Ingersoll regarding the
legality of the securities being registered*
10.1 Termination Agreement dated October 3, 1994 between Matthew J.
Suhey and the Company
10.2 1996 Employee Stock Purchase Plan
10.3 Form of Warrant issued to Edward J. Lauth, III, Nancy Jean Davis
and James D. Hammond and Marian I. Hammond
10.4 Employment Agreement dated September 16, 1994 between Edward J.
Lauth, III, and the Company
10.5 Employment Agreement dated September 16, 1994 between Geoffrey F.
Feidelberg and the Company
10.6 Change in Control Agreement dated September 16, 1994 between
Edward J. Lauth, III, and the Company
10.7 Change in Control Agreement dated September 16, 1994 between
Geoffrey F. Feidelberg and the Company
10.8 Amendment No. 1 to Employment Agreement dated October __, 1997
between Edward J. Lauth, III and the Company*
10.9 Amendment No. 1 to Employment Agreement dated October __, 1997
between Geoffrey F. Feidelberg and the Company*
10.10 Agreement of Lease dated July 19, 1996 between Johnson Controls,
Inc. and the Company+
10.11 Assignment of Lease dated February 28, 1997 between Johnson
Controls, Inc. and Schmalbach-Lubeca Plastic Containers USA, Inc.
10.12 Letter Agreement dated September 10, 1997 between
Schmalbach-Lubeca Plastic Containers USA, Inc. and the Company+
10.13 Agreement dated July 30, 1997 between Seven Springs Water Company
and the Company+
10.14 Water Agreement dated July 10, 1995 between Bellefonte Borough
and the Company
10.15 Amended and Restated Lease Agreement dated October 14, 1997 among
Roy Bresler and Ida Bresler and the Company+
10.16 Water Contract dated August 8, 1990 between City of Dunsmuir and
Dunsmuir Bottling Company
II-4
10.17 Agreement and Plan of Merger dated October 15, 1997 between the
Company, Castle Rock Spring Water Company, Inc. and Dunsmuir
Bottling Company and certain shareholders of Dunsmuir Bottling
Company
10.18 1992 Stock Option Plan
21 Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in
Exhibit 5)*
24 Power of Attorney (included in signature page)
27 Financial Data Schedule
--------------------
* To be filed by amendment.
+ Confidential treatment requested
Item 17. Undertakings.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names required by
the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
II-5
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Milesburg,
Pennsylvania, on October 24, 1997.
AQUAPENN SPRING WATER COMPANY, INC.
By:/s/ EDWARD J. LAUTH, III
-------------------------
Name: Edward J. Lauth, III
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Each person whose signature appears below in so signing also makes,
constitutes and appoints Edward J. Lauth, III and Geoffrey F. Feidelberg
and each of them, his or her true and lawful attorney-in-fact, with full
power of substitution, for him or her in any and all capacities, to execute
and cause to be filed with the Securities and Exchange Commission any and
all amendments and post-effective amendments to this Registration
Statement, with exhibits thereto and other documents in connection
therewith and hereby ratifies and confirms all that said attorney-in-fact
or his substitute or substitutes may do or cause to be done by virtue
hereof.
/s/ EDWARD J. LAUTH, III President, Chief Executive October 24, 1997
------------------------ Officer and Director
Edward J. Lauth, III (principal executive officer)
/s/ GEOFFREY F. FEIDELBERG Executive Vice President, October 24, 1997
-------------------------- Chief Financial Officer,
Geoffrey F. Feidelberg Chief Operating Officer and
Director (principal financial
and accounting officer)
/s/ WALTER BRUCE Director October 24, 1997
-------------------------
Walter Bruce
/s/ NANCY JEAN DAVIS Director October 24, 1997
-------------------------
Nancy Jean Davis
/s/ RICHARD F. DeFLURI Director October 24, 1997
-------------------------
Richard F. DeFluri
/s/ JOHN H. GUTFREUND Director October 24, 1997
-------------------------
John H. Gutfreund
/s/ JAMES D. HAMMOND Director October 24, 1997
-------------------------
James D. Hammond
/s/ ROBERT E. POOLE, JR. Director October 24, 1997
-------------------------
Robert E. Poole, Jr.
/s/ NORMAN S. RICH Director October 24, 1997
-------------------------
Norman S. Rich
/s/ HENRY S. SHATKIN Director October 24, 1997
-------------------------
Henry S. Shatkin
/s/ MATTHEW J. SUHEY Director October 24, 1997
-------------------------
Matthew J. Suhey
/s/ CALVIN J. WAGNER, JR. Director October 24, 1997
-------------------------
Calvin J. Wagner, Jr.
EXHIBIT INDEX
Exhibit
Number Page
1 Form of Underwriting Agreement*
3.1 Restated Articles of Incorporation of the Company*
3.2 Amended and Restated By-laws of the Company
4.1 Form of Certificate evidencing Common Stock of the Company*
4.2 Registration and Holdback Agreement dated as of October 17, 1997 by
and between the Company and Weis Markets, Inc., Dutch Valley Foods,
Inc. and Aqua Works, Inc.
5 Opinion of Ballard Spahr Andrews & Ingersoll regarding the legality of
the securities being registered*
10.1 Termination Agreement dated October 3, 1994 between Matthew J. Suhey
and the Company
10.2 1996 Employee Stock Purchase Plan
10.3 Form of Warrant issued to Edward J. Lauth, III, Nancy Jean Davis and
James D. Hammond and Marian I. Hammond
10.4 Employment Agreement dated September 16, 1994 between Edward J. Lauth,
III, and the Company
10.5 Employment Agreement dated September 16, 1994 between Geoffrey F.
Feidelberg and the Company
10.6 Change in Control Agreement dated September 16, 1994 between Edward J.
Lauth, III, and the Company
10.7 Change in Control Agreement dated September 16, 1994 between Geoffrey
F. Feidelberg and the Company
10.8 Amendment No. 1 to Employment Agreement dated October __, 1997 between
Edward J. Lauth, III and the Company*
10.9 Amendment No. 1 to Employment Agreement dated October __, 1997 between
Geoffrey F. Feidelberg and the Company*
10.10 Agreement of Lease dated July 19, 1996 between Johnson Controls, Inc.
and the Company+
10.11 Assignment of Lease dated February 28, 1997 between Johnson Controls,
Inc. and Schmalbach-Lubeca Plastic Containers USA, Inc.
10.12 Letter Agreement dated September 10, 1997 between Schmalbach-Lubeca
Plastic Containers USA, Inc. and the Company+
10.13 Agreement dated July 30, 1997 between Seven Springs Water Company and
the Company+
10.14 Water Agreement dated July 10, 1995 between Bellefonte Borough and
the Company
10.15 Amended and Restated Lease Agreement dated October 14, 1997 among Roy
Bresler and Ida Bresler and the Company+
10.16 Water Contract dated August 8, 1990 between City of Dunsmuir and
Dunsmuir Bottling Company
10.17 Agreement and Plan of Merger dated October 15, 1997 by and among the
Company, Castle Rock Spring Water Company, Inc. and Dunsmuir Bottling
Company and Certain Shareholders of Dunsmuir Bottling Company.
10.18 1992 Stock Option Plan
21 Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 5)*
24 Power of Attorney (included in signature page)
27 Financial Data Schedule
--------------------
* To be filed by amendment.
+ Confidential treatment requested
Dates Referenced Herein
↑Top
Filing Submission 0000950157-97-000547 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)
Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
About — Privacy — Redactions — Help —
Tue., May 7, 8:52:56.2am ET 
