1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1997.
REGISTRATION NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERISERVE FOOD DISTRIBUTION, INC.*
(EXACT NAME OF REGISTRANT SPECIFIED IN ITS CHARTER)
NEBRASKA 5142 47-0464089
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
17975 WEST SARAH LANE, SUITE 100
BROOKFIELD, WISCONSIN 53045
(414) 792-9300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF THE
COMPANY'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
COPIES OF ALL COMMUNICATIONS
DONALD J. ROGERS ADAM O. EMMERICH, ESQ.
CHIEF FINANCIAL OFFICER WACHTELL, LIPTON, ROSEN & KATZ
AMERISERVE FOOD DISTRIBUTION, INC. 51 WEST 52ND STREET
17975 WEST SARAH LANE, SUITE 100 NEW YORK, NEW YORK 10019
BROOKFIELD, WISCONSIN 53045 (212) 403-1000
(414) 792-9300
(NAME, ADDRESS, INCLUDING ZIP CODE AND
TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Approximate date of commencement of proposed sale to public: Upon
consummation of the Exchange Offer referred to herein.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G check the following box. [ ]
CALCULATION OF REGISTRATION FEE
==================================================================================================
AMOUNT PROPOSED PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE(2) OFFERING PRICE FEE
- --------------------------------------------------------------------------------------------------
10 1/8% New Senior
Subordinated Notes due
2007(1)..................... $500,000,000 100% $500,000,000 $151,515.15
- --------------------------------------------------------------------------------------------------
Guarantees for the New Senior
Subordinated Notes due
2007(3)(4).................. $0 0% $0(2) $0
==================================================================================================
(1) This Registration Statement covers both the prospectus filed hereby in
connection with the exchange offer for the New Notes and the prospectus
filed hereby in connection with certain market-making activities by
affiliates of the Registrant.
(2) Estimated solely for the purpose of determining the registration fee.
(3) Calculated pursuant to Rule 457.
(4) Pursuant to Rule 457(n), no registration fee is required with respect to the
guarantees.
------------------------
THE REGISTRANTS HEREBY AMEND THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
2
*TABLE OF ADDITIONAL REGISTRANTS
STATE OR OTHER
JURISDICTION OF PRIMARY STANDARD I.R.S. EMPLOYER
INCORPORATION OR INDUSTRY IDENTIFICATION
NAME, ADDRESS AND TELEPHONE NUMBER ORGANIZATION CLASSIFICATION NUMBER NUMBER
- ------------------------------------------------ ---------------- --------------------- ----------------
AmeriServ Food Company(1)....................... Delaware 5142 75-2296149
Chicago Consolidated Corporation(1)............. Illinois 5142 36-2691925
Northland Transportation Services, Inc.(1)...... Nebraska 5142 39-1807312
The Harry H. Post Company(1).................... Colorado 5142 84-0294250
Delta Transportation, Ltd.(1)................... Wisconsin 5142 39-1411171
AmeriServe Transportation, Inc.(2).............. Nebraska 5142 91-1824117
- ---------------
(1) The address of these additional registrants is 17975 West Sarah Lane, Suite
100, Brookfield, WI 53045. Their telephone number is (414) 792-9300.
(2) The address of this registrant is 14841 Dallas Parkway, Dallas, TX 75240.
Its telephone number is (792) 385-8595.
3
EXPLANATORY NOTE
This Registration Statement covers the registration of an aggregate
principal amount of $500,000,000 of 10 1/8% New Senior Subordinated Notes due
2007 (the "New Senior Subordinated Notes" or "New Notes") of AmeriServe Food
Distribution, Inc. (the "Company") that may be exchanged for equal principal
amounts of the Company's outstanding 10 1/8% Senior Subordinated Notes due 2007
(the "Senior Subordinated Notes") (the "Exchange Offer"). This Registration
Statement also covers the registration of the New Notes for resale by Donaldson,
Lufkin & Jenrette Securities Corporation and BancAmerica Securities, Inc. in
market-making transactions. The complete Prospectus relating to the Exchange
Offer (the "Exchange Offer Prospectus") follows immediately after this
Explanatory Note. Following the Exchange Offer Prospectus are certain pages of
the Prospectus relating solely to such market-making transactions (the
"Market-Making Prospectus"), including alternate front and back cover pages, an
alternate "Available Information" section, a section entitled "Risk
Factors -- Trading Market for the New Notes" to be used in lieu of the section
entitled "Risk Factors -- Absence of Public Market for the New Notes;
Restrictions on Transfers," a new section entitled "Use of Proceeds" and an
alternate section entitled "Plan of Distribution." In addition, the
Market-Making Prospectus will not include the following captions (or the
information set forth under such captions) in the Exchange Offer Prospectus:
"Prospectus Summary -- The Note Offering" and "-- The Exchange Offer", "Risk
Factors -- Exchange Offer Procedures" and "-- Restrictions on Transfer," "The
Exchange Offer, and "Certain Federal Income Tax Consequences of the Exchange
Offer". All other sections of the Exchange Offer Prospectus will be included in
the Market-Making Prospectus.
4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 8, 1997
PRELIMINARY PROSPECTUS
OFFER TO EXCHANGE
ALL OUTSTANDING
[AMERISERVE LOGO]
10 1/8% SENIOR SUBORDINATED NOTES DUE 2007
($500,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
10 1/8% NEW SENIOR SUBORDINATED NOTES DUE 2007
($500,000,000 PRINCIPAL AMOUNT)
OF
AMERISERVE FOOD DISTRIBUTION, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997, UNLESS EXTENDED
AmeriServe Food Distribution, Inc., a Nebraska corporation (the "Company"),
hereby offers (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange up to an aggregate
principal amount of $500,000,000 of its 10 1/8% New Senior Subordinated Notes
due 2007 (the "New Senior Subordinated Notes" or "New Notes") for an equal
principal amount of its outstanding 10 1/8% Senior Subordinated Notes due 2007
(the "Senior Subordinated Notes" or the "Notes"), in integral multiples of
$1,000. The New Notes will be guaranteed on a senior subordinated basis by
AmeriServ Food Company, a Delaware corporation and a subsidiary of the Company,
AmeriServe Transportation, Inc., a Nebraska corporation and a subsidiary of the
Company, Chicago Consolidated Corporation, an Illinois corporation and a
subsidiary of the Company, Northland Transportation Services, Inc., a Nebraska
corporation and a subsidiary of the Company, The Harry H. Post Company, a
Colorado corporation and a subsidiary of the Company, and Delta Transportation,
Ltd., a Wisconsin corporation and a subsidiary of the company (the "Subsidiary
Guarantors"). The New Notes will be senior subordinated unsecured obligations of
the Company and are substantially identical (including principal amount,
interest rate, maturity and redemption rights) to the Notes for which they may
be exchanged pursuant to this offer, except that (i) the offering and sale of
the New Notes will have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and (ii) holders of New Notes will not be
entitled to certain rights of holders under a Registration Rights Agreement of
the Company and the Subsidiary Guarantors dated as of July 11, 1997 (the
"Registration Rights Agreement"). The Senior Subordinated Notes have been, and
the New Senior Subordinated Notes will be, issued under an Indenture dated as of
July 11, 1997 (the "Senior Subordinated Note Indenture" or the "Indenture"),
among the Company, the Subsidiary Guarantors and State Street Bank & Trust
Company, as trustee (the "Senior Subordinated Note Trustee"). See "Description
of New Notes." There will be no proceeds to the Company from this offering;
however, pursuant to the Registration Rights Agreement, the Company will bear
certain offering expenses.
------------------------
SEE "RISK FACTORS," COMMENCING ON PAGE 13, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER NOTES IN THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997.
(cover page continued)
5
The Company will accept for exchange any and all validly tendered Notes on
or prior to 5:00 p.m. New York City time, on [ ], 1997, unless the
Exchange Offer is extended (the "Expiration Date"). Tenders of Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date; otherwise such tenders are irrevocable. State Street Bank & Trust Company
will act as Exchange Agent with respect to the Senior Subordinated Notes (in
such capacity, the "Exchange Agent") in connection with the Exchange Offer. The
Exchange Offer is not conditioned upon any minimum principal amount of Notes
being tendered for exchange, but is otherwise subject to certain customary
conditions.
The Notes were sold by the Company on July 11, 1997 in transactions not
registered under the Securities Act in reliance upon the exemption provided in
Section 4(2) of the Securities Act. A portion of the Notes were subsequently
resold to qualified institutional buyers in reliance upon Rule 144A under the
Securities Act and to a limited number of institutional accredited investors in
a manner exempt from registration under the Securities Act. Based on information
provided by the Initial Purchasers, the Company believes no Notes were resold
outside the United States in reliance on Regulation S under the Securities Act.
Accordingly, the Notes may not be reoffered, resold or otherwise transferred in
the United States unless registered under the Securities Act or unless an
applicable exemption from the registration requirements of the Securities Act is
available. The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company under the Registration Rights Agreement. See "The
Exchange Offer."
The New Senior Subordinated Notes will bear interest from July 11, 1997,
the date of issuance of the Senior Subordinated Notes that are tendered in
exchange for the New Senior Subordinated Notes (or the most recent Interest
Payment Date (as defined herein) to which interest on such Notes has been paid),
at a rate equal to 10 1/8% per annum. Interest on the New Notes will be payable
semiannually on January 15 and July 15 of each year, commencing January 15,
1998. The New Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after July 15, 2002, at the redemption prices set forth
herein, plus accrued and unpaid interest and liquidated damages, if any, thereon
to the date of redemption. See "Prospectus Summary -- Summary of Terms of New
Notes."
Prior to July 15, 2000, up to 33% of the initially outstanding aggregate
principal amount of New Senior Subordinated Notes will be redeemable at the
option of the Company, on one or more occasions, from the net proceeds of public
or private sales of common stock of, or contributions to the common equity
capital of, the Company, at a price of 110.125% of the principal amount of the
New Senior Subordinated Notes, together with accrued and unpaid interest, and
liquidated damages, if any, to the date of redemption; provided that at least
67% of the initially outstanding aggregate principal amount of New Senior
Subordinated Notes remains outstanding immediately after such redemption. Upon
the occurrence of a Change of Control (as defined in the Indenture), each Holder
(as defined herein) of New Notes may require the Company to repurchase all or a
portion of such Holder's New Notes at 101% of the aggregate principal amount of
the New Senior Subordinated Notes, together with accrued and unpaid interest,
and liquidated damages, if any, to the date of repurchase. See "Risk
Factors -- Payment Upon a Change of Control" and "Description of New Notes-
Repurchase at the Option of Holders."
The New Notes will be general, unsecured obligations of the Company, will
be subordinated to all Senior Debt (as defined herein) and will rank senior or
pari passu in right of payment to all existing and future subordinated
indebtedness of the Company. The claims of holders of the New Notes will be
effectively subordinated to the Senior Debt, which, as of March 29, 1997, on a
pro forma basis, after giving effect to the Acquisition (as defined herein), the
related financing transactions, and other transactions described herein, would
have been approximately $217.5 million, $205.0 million of which would have been
fully secured borrowings under the New Credit Facility (as defined herein). See
"Capitalization."
Based on an interpretation by the staff of the SEC (as defined herein) set
forth in no-action letters issued to third parties, the Company believes that
New Notes issued pursuant to the Exchange Offer in exchange for Notes may be
offered for resale, resold and otherwise transferred by any holder thereof
(other than any such holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such holder's
business and that such holder does not intend to participate in the distribution
of such New Notes.
(cover page continued)
i
6
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with the initial resale of such New Notes. The Letter of Transmittal
delivered with this Prospectus states that by so acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Notes received in exchange for Notes where
such Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that for a period
of 120 days after the consummation of the Exchange Offer, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale.
Any Holder who tenders in the Exchange Offer with the intention to
participate, or for purpose of participating, in a distribution of the New Notes
cannot rely on the position of the staff of the SEC enunciated in Exxon Capital
Holdings Corporation (available April 13, 1989), or Morgan Stanley & Co., Inc.
(available June 5, 1991) or similar no-action letters and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with the resale of the New
Notes. Failure to comply with such requirements in such instance may result in
such Holder incurring liability under the Securities Act for which the Holder is
not indemnified by the Company.
The Company does not intend to list the New Notes on any securities
exchange, or to seek admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") and BancAmerica Securities, Inc. ("BancAmerica"
and, together with DLJ, the "Initial Purchasers") have advised the Company that
they intend to make a market in the New Notes; however, they are not obligated
to do so and any market-making may be discontinued at any time. As a result, the
Company cannot determine whether an active public market will develop for the
New Notes.
ANY NOTES NOT TENDERED AND ACCEPTED IN THE EXCHANGE OFFER WILL REMAIN
OUTSTANDING. TO THE EXTENT ANY NOTES ARE TENDERED AND ACCEPTED IN THE EXCHANGE
OFFER, A HOLDER'S ABILITY TO SELL UNTENDERED NOTES COULD BE ADVERSELY AFFECTED.
FOLLOWING CONSUMMATION OF THE EXCHANGE OFFER, THE HOLDERS OF NOTES WILL CONTINUE
TO BE SUBJECT TO THE EXISTING RESTRICTIONS UPON TRANSFER THEREOF AND THE COMPANY
WILL HAVE FULFILLED ONE OF ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS
AGREEMENT. HOLDERS OF NOTES WHO DO NOT TENDER THEIR NOTES GENERALLY WILL NOT
HAVE ANY FURTHER REGISTRATION RIGHTS UNDER THE REGISTRATION RIGHTS AGREEMENT OR
OTHERWISE. SEE "THE EXCHANGE OFFER -- CONSEQUENCES OF FAILURE TO EXCHANGE."
The New Notes issued pursuant to this Exchange Offer generally will be
issued in the form of Global New Notes (as defined herein), which will be
deposited with, or on behalf of, The Depository Trust Company (the "Depository"
or "DTC") and registered in its name or in the name of Cede & Co., its nominee.
Beneficial interests in the Global New Notes representing the New Notes will be
shown on, and transfers thereof will be effected through, records maintained by
the Depository and its participants. Notwithstanding the foregoing, Notes held
in certificated form will be exchanged solely for New Notes in certificated
form. After the initial issuance of the Global New Notes, New Notes in
certificated form will be issued in exchange for the Global New Notes only on
the terms set forth in the Indenture. See "Description of New Notes --
Book-Entry, Delivery and Form."
------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE NEW NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE NEW NOTES TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1997 (90 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN
THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
ii
7
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-4 under the Securities Act for the
registration of the New Notes offered hereby (the "Registration Statement").
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain items of which are contained in exhibits and schedules to the
Registration Statement as permitted by the rules and regulations of the SEC. For
further information with respect to the Company or the New Notes offered hereby,
reference is made to the Registration Statement, including the exhibits and
financial statement schedules thereto, which may be inspected without charge at
the public reference facility maintained by the SEC at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and copies of which may be obtained from the
SEC at prescribed rates. Statements made in this Prospectus concerning the
contents of any document referred to herein are not necessarily complete. With
respect to each such document filed with the SEC as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
Such documents and other information filed by the Company can be inspected
and copied at the public reference facilities of the SEC at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at the web site maintained by the SEC
(http://www.sec.gov) and at the regional offices of the SEC located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, at the Website maintained by the SEC
(http://www.sec.gov). Copies of such materials may be obtained from the Public
Reference Section of the SEC, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at its public reference facilities in New York, New
York and Chicago, Illinois at prescribed rates.
The Company and the Subsidiary Guarantors are not currently subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). As a result of the offering of the New Notes, each of the
Company and the Subsidiary Guarantors will become subject to the informational
requirements of the Exchange Act. The Company will fulfill its obligations with
respect to such requirements by filing periodic reports with the Commission on
its own behalf or, in the case of the Subsidiary Guarantors, by including
information regarding the Subsidiary Guarantors in the Company's periodic
reports. In addition, the Company will send to each holder of New Notes copies
of annual reports and quarterly reports containing the information required to
be filed under the Exchange Act.
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it is required to furnish the information required to be filed
with the SEC to the Trustees and the holders of the Notes and the New Notes. The
Company has agreed that, even if it is not required under the Exchange Act to
furnish such information to the SEC, it will nonetheless continue to furnish
information that would be required to be furnished by the Company by Section 13
of the Exchange Act to the Trustees and the holders of the Notes or New Notes as
if it were subject to such periodic reporting requirements.
In addition, the Company and the Subsidiary Guarantors have agreed that,
for so long as any of the Notes remain outstanding, they will make available to
any prospective purchaser of the Notes or Holder of the Notes in connection with
any sale thereof, the information required by Rule 144A(d)(4) under the
Securities Act.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
AMERISERVE FOOD DISTRIBUTION, INC., 17975 WEST SARAH LANE, SUITE 100,
BROOKFIELD, WISCONSIN 53045, (414) 792-9300. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY AUGUST , 1997.
2
8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to and
should be read in conjunction with the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Unless otherwise indicated, all references in this Prospectus to the Company's
business and pro forma data give effect to the transactions described below. An
index of certain defined terms used herein can be found on page 97. Unless the
context indicates or otherwise requires, references in this Prospectus to the
"Company" or "AmeriServe" are to AmeriServe Food Distribution, Inc., its
predecessors and its subsidiaries, and give effect to the acquisition of PFS and
the contribution of The Harry H. Post Company ("Post"), each as described below
and references to "NEHC" are to Nebco Evans Holding Company, a Delaware
corporation and the parent of the Company.
THE COMPANY
AmeriServe is North America's largest systems foodservice distributor
specializing in distribution to chain restaurants, the fastest growing segment
of the domestic restaurant industry. The Company is the primary supplier to its
customers of a wide variety of items, including fresh and frozen meat and
poultry, seafood, frozen foods, canned and dry goods, fresh and pre-processed
produce, beverages, dairy products, paper goods, cleaning supplies and
equipment. The Company serves over 30 different restaurant chains and over
26,500 restaurant locations in North America. The Company has had long-standing
relationships with such leading restaurant concepts as Pizza Hut, Taco Bell,
KFC, Wendy's, Burger King, Dairy Queen, Subway and Applebee's. The Company's
strategy is to capitalize on its market leading position, compelling industry
trends and management's extensive experience to: (i) pursue profitable internal
and external growth opportunities; (ii) capitalize on its nationwide network of
distribution centers to increase customer density and regional market
penetration; (iii) continue to provide low cost, superior customer service; and
(iv) maximize operating leverage by pursuing selective acquisitions within the
fragmented foodservice distribution industry. For the 12 months ended March 29,
1997, the Company generated pro forma net sales and Adjusted EBITDA of $4.8
billion and $145.2 million, respectively.
The Company has achieved a record of strong growth in net sales and EBITDA
by successfully implementing this strategy. From 1992 to 1996, exclusive of PFS,
the Company's net sales increased from $293.6 million to $1.3 billion,
representing a compound annual growth rate ("CAGR") of 44.5%. During the same
period, the Company's EBITDA, exclusive of PFS, increased from $6.0 million to
$26.0 million, representing a CAGR of 44.1%. The Company believes it is well
positioned to continue to expand its presence in the systems foodservice
distribution industry as a result of its reputation for providing superior
customer service as well as its ability to provide low cost, efficient services.
The Company believes that it was primarily as a result of these factors that in
January 1997 it was awarded a three-year exclusive contract effective April 1997
to provide foodservice distribution to approximately 2,600 Arby's restaurants.
The Company estimates that this contract, which management believes represents
the single largest customer migration in the systems foodservice distribution
industry, will result in the addition of approximately $325 million of net sales
in the first 12 months of such contract.
On May 23, 1997, in furtherance of its strategy, NEHC entered into an
agreement to acquire PFS, the foodservice distribution business of PepsiCo (the
"Acquisition"). Prior to the Acquisition, PFS was North America's second largest
systems foodservice distributor, serving over 17,000 restaurants in the Pizza
Hut, Taco Bell and KFC restaurant systems. The Company expects to realize
significant benefits from the Acquisition, including: (i) enhanced customer and
concept diversification; (ii) increased customer density; (iii) broadened
national and international presence; and (iv) substantial cost savings and
economies of scale. In addition, in connection with the Acquisition, the Company
has entered into the Distribution Agreement whereby it will be the exclusive
distributor of selected products for five years to the approximately 9,800 Pizza
Hut, Taco Bell and KFC restaurants in the continental United States owned by
PepsiCo and previously serviced by PFS. These restaurants accounted for
approximately 68% of PFS's 1996 net sales and 44% of the Company's 1996 pro
forma net sales after giving effect to the Arby's contract.
3
9
The Company believes it is well positioned to capitalize on the attractive
characteristics of the chain restaurant segment of the foodservice distribution
industry, which include: (i) the high growth rate of the segment, which
experienced an approximately 7.4% net sales CAGR from 1985 to 1995; (ii) the
uniformity of product offerings and consistency of demand by chain restaurant
customers; (iii) the increased focus by chain restaurants on foodservice
distributors that can provide consistent quality, reliable service and value on
a nationwide basis to maintain the chain's uniform standards; and (iv) the
fragmented nature of the industry, which includes over 3,000 foodservice
distribution companies. As the largest systems foodservice distributor serving
chain restaurants, the Company believes it is better positioned than its
competitors to offer consistent quality, reliable service and value on a
national scale in order to accommodate the growth of each customer.
COMPETITIVE ADVANTAGES
The Company believes that it will benefit from the following competitive
advantages:
- Market Leader with a Nationwide Presence. As a result of its national
presence, the Company believes it is one of the few systems foodservice
distributors capable of effectively serving large national accounts. The
Company believes it has significant advantages over smaller, regional
foodservice distributors as a result of its ability to: (i) derive
significant economies of scale in operating and distribution expenses;
(ii) benefit from increased purchasing power; (iii) make significant
investments in advanced technology and equipment, which enhance
productivity and customer service; and (iv) provide superior customer
service on a national scale.
- Low Cost Structure. The Company believes that it is uniquely positioned
to provide distribution services to chain restaurants at attractive
prices while also providing superior customer service. A critical
component of the Company's ability to reduce costs is the Company's
effective management of its warehouse and distribution costs, primarily
as a result of: (i) utilizing fewer, larger distribution centers within
each of its geographic regions; and (ii) maximizing customer density
within each region it serves. Furthermore, the Company has made
significant investments in advanced distribution centers, transportation
equipment and information technology, which enable it to efficiently
serve its customers.
- Stable Customer Base. The Company services over 26,500 restaurant
locations within more than 30 different restaurant concepts. The Company
believes it has among the best relationships with its customers of any
systems foodservice distributor as evidenced by the length and stability
of such relationships. For example, as a result of its ability to provide
high quality service at attractive rates, the Company has developed
long-standing relationships with many of the leading restaurant concepts,
including Dairy Queen (customer for 46 years), Burger King (customer for
36 years), KFC (customer for 26 years), Wendy's (customer for 21 years),
Pizza Hut (customer for 20 years) and Taco Bell (customer for 18 years).
- Experienced Management Team. The Company's management team has extensive
experience in the systems foodservice distribution business and has
developed long-standing relationships with franchisees and senior
management of successful concepts. The top four senior executives of the
Company have an average of approximately 24 years of experience with the
Company. In addition, prior to the Acquisition, the Company's management
team has successfully integrated five acquisitions since 1990,
representing approximately $1.2 billion in aggregate annual sales.
BUSINESS STRATEGY
The Company's objective is to continue to increase net sales and EBITDA by
implementing the following key elements of its business strategy:
- Continue to Pursue Internal and External Growth Opportunities. The
Company intends to continue to grow through a combination of the
development of new business from existing customers, the addition of new
chains, international expansion and selective acquisitions.
4
10
Growth From Existing Chains. As the primary foodservice distributor
to most of its customers, the Company expects to benefit from the continued
growth of the domestic chain restaurant industry, the fastest growing
sector of the restaurant industry. From 1985 to 1995, the chain restaurant
segment experienced an approximately 7.4% net sales CAGR, which exceeds the
estimated 3.0% CAGR experienced by the overall restaurant industry. The
Company expects to realize growth from its existing base of customers and
concepts primarily due to: (i) increased traffic within existing
restaurants; (ii) the addition of new product lines; (iii) new restaurant
development and restaurant acquisitions by existing customers; and (iv) the
addition of new customers within concepts currently serviced by the
Company.
Growth Through Addition of New Chains. The Company continually
monitors the marketplace for opportunities to expand its portfolio of
customers and concepts. The Company targets (i) chains operating in
geographic areas where the Company could benefit from increased customer
density, further enhancing its operating leverage, and (ii) concepts that
could benefit from the Company's national presence and superior customer
service. In April 1997, the Company began operating under a recently
awarded three-year exclusive contract to provide foodservice distribution
to over 2,600 Arby's restaurants nationwide. The Company estimates that
this contract, which management believes represents the single largest
customer migration in the systems foodservice distribution industry, will
result in the addition of approximately $325 million of net sales in the
first 12 months of such contract. In addition, the Company plans to pursue
additional export opportunities and further expand its operations in
international markets. After giving effect to the Acquisition, the Company
will export products from its distribution centers in the United States to
approximately 65 foreign countries.
Pursue Selective Acquisition Opportunities. As North America's
largest systems foodservice distributor serving chain restaurants, the
Company believes it is well positioned to capitalize on the consolidation
taking place in the fragmented foodservice distribution industry. The
number of foodservice distributors has decreased from approximately 3,600
in 1985 to approximately 3,000 in 1997, with a significant increase in the
market shares of the largest distributors. The Company intends to continue
to make strategic fold-in acquisitions in order to augment its operations
in existing markets, enhance customer density and further reduce costs.
- Capitalize on the Benefits of the PFS Acquisition. Management believes
that combining the operations of AmeriServe and PFS will present it with
opportunities to eliminate duplicative costs and realign the Company's
distribution center network to capitalize effectively on economies of
scale and the benefits of higher customer density. Management has
identified approximately $27 million of annual cost savings, which it
believes it can achieve through the elimination of general and
administrative expenses and the consolidation of distribution centers in
certain markets. Following the Acquisition, the Company expects to reduce
the number of current distribution centers from 39 to 29. In addition,
the five-year Distribution Agreement will further secure the Company's
customer base and provide for a long-term contract covering approximately
44% of the Company's pro forma 1996 net sales after giving effect to the
Arby's contract.
- Continue to Maximize Operating Leverage. As the largest systems
foodservice distributor in North America, the Company pursues a low-cost
operating strategy based primarily on achieving economies of scale in the
areas of warehousing, transportation, general and administrative
functions and management information systems. The Company generates
significant operating leverage by utilizing large distribution centers
strategically located within each of its geographic markets, enabling it
to: (i) service multiple concepts from the same warehouse; (ii) maximize
the density of restaurants served from each facility; (iii) optimize
delivery routes; (iv) invest in advanced technology, which increases
operational efficiencies and enhances customer service; and (v) manage
inventory more efficiently.
- Continue to Provide Superior Customer Service. The Company believes it
enjoys a reputation for providing consistent, high quality service based
on its customer focus, its commitment to service excellence and the depth
of its management team. The Company has successfully implemented a
decentralized management structure that enables the Company to respond
quickly and flexibly to local customer needs. The Company typically
interacts with its customers on a daily basis, and generally
5
11
makes multiple deliveries to each restaurant each week. The Company measures
its service performance daily by continuously monitoring the accuracy and
promptness of deliveries. The Company's advanced computer systems are linked to
many of its customers' locations, enabling customers to communicate
electronically with the Company, thereby reducing the Company's administrative
costs, and enabling it to respond more efficiently to customers' needs. In
addition, the Company's national presence allows it to provide consistent and
reliable service to national restaurant concepts with geographically diverse
locations.
THE TRANSACTIONS
In connection with the Acquisition, the Company: (i) consummated the Note
Offering (as defined herein); (ii) entered into the New Credit Facility (as
defined herein); (iii) established the Accounts Receivable Program (as defined
herein); (iv) received the Equity Contribution (as defined herein); (v) effected
the Preferred Stock Contribution (as defined herein); and (vi) consummated the
Post Contribution (as defined herein) (collectively, the "Transactions"). See
"The Transactions," "Description of Indebtedness" and "Certain Relationships and
Related Party Transactions."
------------------------
The Company's principal executive offices are located at 17975 West Sarah
Lane, Suite 100, Brookfield, Wisconsin 53045 and its telephone number is (414)
792-9300.
THE NOTE OFFERING
THE NOTES.................. The Notes were sold by the Company on July 11, 1997
and were subsequently resold to qualified
institutional buyers pursuant to Rule 144A under
the Securities Act, to institutional investors that
are accredited investors in a manner exempt from
registration under the Securities Act and based on
information supplied by the Initial Purchasers, the
Company believes no sales were made to persons in
transactions outside the United States in reliance
on Regulation S under the Securities Act ("the Note
Offering").
REGISTRATION RIGHTS
AGREEMENT.................. In connection with the Note Offering, the Company
entered into the Registration Rights Agreement,
which grants Holders of the Notes certain exchange
and registration rights, which generally terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED......... $500,000,000 in aggregate principal amount of the
Company's 10 1/8% New Senior Subordinated Notes due
2007.
THE EXCHANGE OFFER......... $1,000 principal amount of 10 1/8% New Notes in
exchange for each $1,000 principal amount of the
Notes. As of the date hereof, $500,000,000
aggregate principal amount of Senior Subordinated
Notes are outstanding. The Company will issue the
New Notes to Holders on or promptly after the
Expiration Date.
EXPIRATION DATE............ 5:00 p.m., New York City time on , 1997,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
INTEREST ON THE NEW NOTES
AND THE NOTES.............. The New Notes will bear interest from July 11,
1997, the date of issuance of the Notes that are
tendered in exchange for the New Notes (or the most
recent Interest Payment Date (as defined below in
the
6
12
Summary of Terms of New Notes) to which interest on
such Notes has been paid). Accordingly, Holders of
Notes that are accepted for exchange will not
receive interest on the Notes that is accrued but
unpaid at the time of tender, but such interest
will be payable on the first Interest Payment Date
after the Expiration Date.
CONDITIONS TO THE EXCHANGE
OFFER...................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions."
PROCEDURES FOR TENDERING
NOTES...................... Each Holder of Notes wishing to accept the Exchange
Offer must complete, sign and date the relevant
accompanying Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Notes and any other
required documentation to the relevant Exchange
Agent at the address set forth in the Letter of
Transmittal. The Letter of Transmittal should be
used to tender Notes. By executing the Letter of
Transmittal, each Holder will represent to the
Company that, among other things, the Holder or the
person receiving such New Notes, whether or not
such person is the Holder, is acquiring the New
Notes in the ordinary course of business and that
neither the Holder nor any such other person has
any arrangement or understanding with any person to
participate in the distribution of such New Notes.
In lieu of physical delivery of the certificates
representing Notes, tendering Holders may transfer
Notes pursuant to the procedure for book-entry
transfer as set forth under "The Exchange Offer --
Procedures for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... Any beneficial owner whose Notes are registered in
the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered Holder
promptly and instruct such registered Holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such
beneficial owner's own behalf, such beneficial
owner must, prior to completing and executing the
Letter of Transmittal and delivering its Notes,
either make appropriate arrangements to register
ownership of the Notes in such beneficial owner's
name or obtain a properly completed bond power from
the registered Holder. The transfer of registered
ownership may take considerable time.
GUARANTEED DELIVERY
PROCEDURES................. Holders of Notes who wish to tender their Notes and
whose Notes are not immediately available or who
cannot deliver their Notes, the Letter of
Withdrawal Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration Date
must tender their Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date
pursuant to the procedures described under "The
Exchange Offer -- Terms of the Exchange Offer."
7
13
ACCEPTANCE OF NOTES AND
DELIVERY OF NEW NOTES...... The Company will accept for exchange any and all
Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date. The New Notes issued pursuant
to the Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
FEDERAL INCOME TAX
CONSEQUENCES............... The issuance of the New Notes to Holders of the
Notes pursuant to the terms set forth in this
Prospectus will not constitute an exchange for
federal income tax purposes. Consequently, no gain
or loss would be recognized by Holders of the Notes
upon receipt of the New Notes. See "Certain Federal
Income Tax Consequences of the Exchange Offer."
USE OF PROCEEDS............ There will be no proceeds to the Company from the
exchange of Notes pursuant to the Exchange Offer.
EFFECT ON HOLDERS OF
NOTES...................... As a result of the making of this Exchange Offer,
the Company will have fulfilled certain of its
obligations under the Registration Rights
Agreement, and Holders of Notes who do not tender
their Notes will generally not have any further
registration rights under the Registration Rights
Agreement or otherwise. Such Holders will continue
to hold the untendered notes and will be entitled
to all the rights and subject to all the
limitations applicable thereto under the
Indentures, except to the extent such rights or
limitations, by their terms, terminate or cease to
have further effectiveness as a result of the
Exchange Offer. All untendered Notes will continue
to be subject to certain restrictions on transfer.
Accordingly, if any Notes are tendered and accepted
in the Exchange Offer, the trading market for the
untendered Notes could be adversely affected.
EXCHANGE AGENT............. State Street Bank and Trust Company is serving as
exchange agent in connection with the Exchange
Offer. See "The Exchange Offer -- Exchange Agent."
8
14
SUMMARY OF TERMS OF EXCHANGE NOTES
The form and terms of the New Notes are the same as the form and terms of
the Notes (which they will replace) except that (i) the New Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and (ii) the Holders of the New Notes generally
will not be entitled to further registration rights under the Registration
Rights Agreement, which rights generally will be satisfied when the Exchange
Offer is consummated. The New Notes will evidence the same debt as the Notes and
will be entitled to the benefits of the Indenture. See "Description of New
Notes."
THE COMPANY................ AmeriServe Food Distribution, Inc.
MATURITY DATE.............. July 15, 2007.
SECURITIES OFFERED......... $500,000,000 principal amount of 10 1/8% New Senior
Subordinated Notes.
INTEREST RATE.............. The New Notes will bear interest at the rate of
10 1/8% per annum, payable semi-annually on January
15 and July 15 of each year, commencing January 15,
1998.
SUBORDINATION.............. The New Notes will be general unsecured obligations
of the Company, will rank subordinate in right of
payment to all Senior Debt and will rank senior or
pari passu in right of payment to all existing and
future subordinated indebtedness of the Company.
The New Notes will be unconditionally guaranteed on
a senior subordinated basis by the Subsidiary
Guarantors. The New Note Guarantees (as defined
herein) will be general unsecured obligations of
the Subsidiary Guarantors, will rank subordinate in
right of payment to all Senior Debt of the
Subsidiary Guarantors and will rank senior or pari
passu in right of payment to all existing and
future subordinated indebtedness of the Subsidiary
Guarantors. As of March 29, 1997, on a pro forma
basis, after giving effect to the Transactions, the
New Notes would have been subordinate to $217.5
million of Senior Debt. See "Risk
Factors -- Subordination."
OPTIONAL REDEMPTION........ The New Notes will be redeemable at the option of
the Company, in whole or in part, at any time on or
after July 15, 2002 in cash at the redemption
prices set forth herein, plus accrued and unpaid
interest and liquidated damages, if any, thereon to
the date of redemption. In addition, at any time
prior to July 15, 2000, the Company may redeem up
to 33% of the initially outstanding aggregate
principal amount of New Notes at a redemption price
equal to 110.125% of the principal amount thereof,
plus accrued and unpaid interest and liquidated
damages, if any, thereon to the redemption date,
with the net proceeds of a Public Equity Offering;
provided that, in each case, at least 67% of the
initially outstanding aggregate principal amount of
New Notes remains outstanding immediately after the
occurrence of any such redemption. See "Description
of New Notes -- Optional Redemption."
CHANGE OF CONTROL.......... Upon the occurrence of a Change of Control, each
holder of New Notes will have the right to require
the Company to repurchase all or any part of such
holder's New Notes at an offer price in cash equal
to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest and liquidated
damages, if any, thereon to the date of repurchase.
See "Description of New Notes -- Repurchase at the
Option of Holders -- Change of Control." There can
be no assurance that, in the event of a Change of
Control, the Company would have sufficient funds to
repurchase all New Notes tendered. See "Risk
Factors -- Payment Upon a Change of Control."
9
15
NEW NOTE GUARANTEES........ The New Notes will be unconditionally guaranteed on
a senior subordinated basis by the Subsidiary
Guarantors.
CERTAIN COVENANTS.......... The Indenture contains certain covenants that
limit, among other things, the ability of the
Company to: (i) pay dividends, redeem capital stock
or make certain other restricted payments or
investments; (ii) incur additional indebtedness or
issue preferred equity interests; (iii) merge,
consolidate or sell all or substantially all of its
assets; (iv) create liens on assets; and (v) enter
into certain transactions with affiliates or
related persons. See "Description of New
Notes -- Certain Covenants."
FORM AND DENOMINATION...... The certificates representing the New Notes will be
issued in fully registered form, deposited with a
custodian for and registered in the name of a
nominee of the Depositary in the form of a Global
New Note certificate. Beneficial interests in the
certificates representing the Global New Note will
be shown on, and transfers thereof will be effected
through, records maintained by the Depositary and
its Participants. See "Book Entry, Delivery and
Form."
EXCHANGE OFFER;
REGISTRATION RIGHTS........ If any Holder of an aggregate of at least $2.0
million in principal amount of Notes notifies the
Company within 20 business days of the consummation
of the Exchange Offer that (A) such Holder is
prohibited by law or SEC policy from participating
in the Exchange Offer, or (B) such Holder may not
resell the New Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus
and the Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or
available for such resales by such Holder, or (C)
such Holder is a broker-dealer and holds Notes
acquired directly from the Company or one of its
respective affiliates, then the Company and the
Subsidiary Guarantors will be required to provide a
shelf registration statement (the "Shelf
Registration Statement") to cover resales of the
Notes by the Holders thereof. Notwithstanding the
foregoing, at any time after consummation of the
Exchange Offer, the Company may allow the Shelf
Registration Statement to cease to be effective and
usable if (i) the Board of Directors of the Company
determines in good faith that it is in the best
interests of the Company not to disclose the
existence of or facts surrounding any proposed or
pending material corporate transaction involving
the Company, and the Company notifies the Holders
within a certain period of time after the Board of
Directors makes such determination, or (ii) the
prospectus contained in the Shelf Registration
Statement contains an untrue statement of a
material fact necessary in order to make the
statements therein, in the light of the
circumstances under which they were made, not
misleading. The Company will pay certain liquidated
damages to Holders of Notes and Holders of New
Notes if the Company is not in compliance with its
obligations under the Registration Rights
Agreement. See "Exchange Offer; Registration
Rights."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PARTICIPANTS IN THE EXCHANGE OFFER, SEE "RISK FACTORS."
10
16
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table sets forth summary unaudited pro forma consolidated
balance sheet data at March 29, 1997 and summary unaudited pro forma
consolidated income statement data of the Company for the fiscal year ended
December 28, 1996, for the first quarter of 1996 and 1997 and for the 12 months
ended March 29, 1997. The Company has a fiscal year ending on the Saturday
closest to the end of the calendar year. Each fiscal year was 52 weeks. PFS had
a fiscal year ending on the last Wednesday in December. Each PFS fiscal year was
52 weeks. The pro forma consolidated balance sheet data at March 29, 1997 give
effect to the Transactions as if they had occurred on March 29, 1997. The pro
forma consolidated income statement data and other data for the fiscal year
ended December 28, 1996, for the first quarter of 1996 and 1997 and for the 12
months ended March 29, 1997 give effect to the Transactions as if they had
occurred at the beginning of the period presented. The following information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations", the historical and unaudited pro
forma financial statements of the Company, the historical financial statements
of PFS and the related notes thereto included elsewhere herein.
TWELVE MONTHS
FIRST QUARTER ENDED
FISCAL YEAR ----------------------- MARCH 29,
1996 1996 1997 1997
----------- ---------- ---------- -------------
INCOME STATEMENT DATA:
Net sales............................................ $ 4,874,980 $1,080,901 $1,055,836 $ 4,849,915
Gross profit......................................... 488,051 108,871 110,310 489,490
Operating expenses................................... 397,202 93,651 95,900 399,451
Operating income..................................... 90,849 15,220 14,410 90,039
OTHER DATA:
EBITDA(1)............................................ $ 134,953 $ 25,595 $ 25,617 $ 134,975
Depreciation and amortization........................ 44,587 10,375 11,207 45,419
Capital expenditures................................. 41,510 8,105 8,557 41,962
CREDIT RATIOS:
Adjusted EBITDA(2)................................... -- -- -- $ 145,175
Cash interest expense(3)............................. -- -- -- 69,819
Adjusted EBITDA/cash interest expense................ -- -- -- 2.1x
Net debt/Adjusted EBITDA(4).......................... -- -- -- 4.6x
AT MARCH 29, 1997
-----------------------
ACTUAL PRO FORMA
-------- ----------
BALANCE SHEET DATA:
Cash and cash equivalents.................................................... $ 3,995 $ 48,116
Working capital.............................................................. 26,637 56,067
Total assets................................................................. 320,846 1,227,764
Long-term debt, including current portion.................................... 141,268 717,500
Stockholder's equity......................................................... 41,489 159,923
- ---------------
(1) EBITDA represents operating income plus depreciation and amortization and
excludes one-time non-recurring gains and losses. EBITDA in fiscal 1996 and
for the twelve months ended March 29, 1997 excludes net one-time,
non-recurring gains of $0.5 million. EBITDA for fiscal 1996 and the twelve
months ended March 29, 1997 includes an adjustment to reflect $27.5 million
of annual cost savings related to the PFS Acquisition. EBITDA for the first
quarter 1996 and 1997 includes an adjustment to reflect $6.9 million of cost
savings related to the PFS Acquisition. EBITDA is calculated after deducting
the discount on the sale of receivables pursuant to the Accounts Receivable
Program. EBITDA is presented because it is a widely accepted financial
indicator used by certain investors and analysts to analyze and compare
companies on the basis of operating performance. EBITDA is not intended to
represent cash flows for the period, nor has it been presented as an
alternative to operating income as an indicator of operating performance and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles. See the historical and unaudited pro forma financial statements
of the Company, the historical financial statements of PFS and the related
notes thereto included elsewhere herein.
(2) Adjusted EBITDA represents EBITDA plus (i) fees payable by the Company to
Holberg Industries, Inc. for expenses incurred in its capacity as a holding
company that are attributable to the operations of the Company and its
Restricted Subsidiaries (such payments are subordinated to the Company's
obligations under the Notes) and (ii) $6.2 million, which represents
management's estimate of the EBITDA contribution in the first 12 months of
the Company's three-year exclusive contract to provide foodservice
distribution services to Arby's.
(3) Cash interest expense represents total interest expense less amortization of
deferred financing fees and other non-cash interest charges.
(4) Net debt represents total long-term debt, including current portion, less
cash and cash equivalents. The ratio of net debt to Adjusted EBITDA was
calculated based on pro forma net debt as of March 29, 1997, of $669.4
million.
11
17
SUMMARY SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table sets forth summary historical financial data of
AmeriServe and PFS for the fiscal years 1994, 1995 and 1996, which have been
derived from the audited financial statements of AmeriServe and PFS,
respectively. The financial statements of AmeriServe were audited by Ernst &
Young LLP for fiscal years 1994, 1995 and 1996. The financial statements of PFS
were audited by KPMG Peat Marwick LLP for fiscal years 1994, 1995 and 1996.
AmeriServe has a fiscal year ending on the Saturday closest to the end of the
calendar year. Each fiscal year for AmeriServe was 52 weeks. PFS had a 52-53
week fiscal year ending on the last Wednesday in December. Each fiscal year for
PFS was 52 weeks, except 1994, which contained 53 weeks. Data for the first
quarters of 1996 and 1997 have been derived from unaudited financial statements
of AmeriServe and PFS, which, in the opinion of management, include all
adjustments necessary for a fair presentation of the information. Data at and
for the first quarter of 1997 do not purport to be indicative of results to be
expected for the full fiscal year. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", the historical and unaudited pro forma financial
statements of the Company, the historical financial statements of PFS and
related notes thereto included elsewhere herein.
FISCAL YEAR FIRST QUARTER
------------------------------------ -------------------
AMERISERVE 1994 1995 1996 1996 1997
- ---------------------------------------------------------- ---------- ---------- ---------- -------- --------
INCOME STATEMENT DATA:
Net sales............................................... $ 358,516 $ 400,017 $1,280,598 $231,732 $308,727
Gross profit............................................ 37,914 40,971 128,849 23,709 31,641
Operating expenses...................................... 34,488 36,695 114,560 22,204 30,396
Operating income........................................ 3,426 4,276 14,289 1,505 1,245
OTHER DATA:
EBITDA(1)............................................... $ 6,710 $ 7,038 $ 26,041 $ 3,128 $ 3,983
Depreciation and amortization........................... 3,284 2,762 10,061 1,623 2,738
Capital expenditures.................................... 1,331 2,496 12,518 866 2,257
Net cash provided by (used in):
Operating activities.................................. 4,276 4,505 1,213 (4,599) (1,363)
Investing activities.................................. (5,422) (5,574) (105,013) (98,535) (6,801)
Financing activities.................................. 490 619 105,387 102,559 9,997
FISCAL YEAR FIRST QUARTER
------------------------------------ -------------------
PFS 1994 1995 1996 1996 1997
- ----------------------------------------------- ---------- ---------- ---------- -------- --------
INCOME STATEMENT DATA:
Net sales.................................... $3,279,837 $3,458,944 $3,422,086 $766,688 $720,524
Gross profit................................. 326,672 344,777 341,484 77,038 75,682
Operating expenses........................... 239,772 265,305 261,741 60,995 61,225
Operating income............................. 86,900 79,472 79,743 16,043 14,457
OTHER DATA:
EBITDA(1).................................... $ 103,953 $ 98,236 $ 99,573 $ 20,748 $ 19,363
Depreciation and amortization................ 17,053 18,764 19,830 4,705 4,906
Capital expenditures......................... 21,310 25,245 28,771 7,193 6,212
- ---------------
(1) EBITDA represents operating income plus depreciation and amortization and
excludes one-time non-recurring gains and losses. EBITDA for AmeriServe in
fiscal 1996 adds back a net one-time, non-recurring charge of $1.7 million.
EBITDA is presented because it is a widely accepted financial indicator used
by certain investors and analysts to analyze and compare companies on the
basis of operating performance. EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles. The
Company understands that, while EBITDA is frequently used by securities
analysts in the evaluation of companies, EBITDA, as used herein, is not
necessarily comparable to other similarly titled captions of other companies
due to potential inconsistencies in the method of calculation. See the
historical and unaudited pro forma financial statements of the Company and
the historical financial statements of PFS and the related notes thereto
included elsewhere herein.
12
18
RISK FACTORS
Holders of Notes should consider carefully the factors set forth below, as
well as the other information set forth elsewhere in this Prospectus, before
making a decision to tender into the Exchange Offer. This Prospectus includes
forward-looking statements, including statements concerning the Company's
business strategy, operations, cost savings initiatives, economic performance,
financial condition and liquidity and capital resources. Such statements are
subject to various risks and uncertainties. The Company's actual results may
differ materially from the results discussed in such forward-looking statements
because of a number of factors, including those identified in this "Risk
Factors" section and elsewhere in this Prospectus. See "Summary," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"The Business." The forward-looking statements are made as of the date of this
Prospectus, and the Company assumes no obligation to update the forward-looking
statements or to update the reasons why actual results could differ from those
projected in the forward-looking statements.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
The Company is and will continue to be highly leveraged as a result of the
substantial indebtedness it has incurred in connection with the Transactions.
After giving pro forma effect to the Transactions, the Company would have had
total indebtedness of $717.5 million and stockholder's equity of $159.9 million
as of March 29, 1997, and the Company's ratio of earnings to fixed charges would
have been 1.2x for the year ended December 28, 1996. On a pro forma basis after
giving effect to the Transactions, cash interest expense for the last 12 months
ended March 29, 1997 would have been $69.8 million. The Company may incur
additional indebtedness in the future, subject to limitations imposed by the
Indenture and the New Credit Facility. See "Capitalization," "Unaudited Pro
Forma Combined Financial Statements" and "The Transactions -- The Acquisition."
The Company's ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness (including the New Notes) depends
on its future performance, which, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors
beyond its control. Based upon the current level of operations and anticipated
growth, the management of the Company believes that available cash flow,
together with available borrowings under the New Credit Facility and other
sources of liquidity, including the Accounts Receivable Program, will be
adequate to meet the Company's anticipated future requirements for working
capital, capital expenditures, scheduled payments of principal of and interest
on its indebtedness, and interest on the New Notes. However, all or a portion of
the principal payments at maturity on the New Notes may require refinancing.
There can be no assurance that the Company's business will generate sufficient
cash flow from operations or that future borrowings will be available in an
amount sufficient to enable the Company to service its indebtedness, including
the New Notes, or to make necessary capital expenditures, or that any
refinancing would be available on commercially reasonable terms or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The degree to which the Company is now leveraged could have important
consequences to holders of the New Notes, including, but not limited to, the
following: (i) a substantial portion of the Company's cash flow from operations
will be required to be dedicated to debt service and will not be available for
other purposes; (ii) the Company's ability to obtain additional financing in the
future could be limited; (iii) certain of the Company's borrowings are at
variable rates of interest, which could result in higher interest expense in the
event of an increase in interest rates; and (iv) the Indenture and the New
Credit Facility contain financial and restrictive covenants that limit the
ability of the Company to, among other things, borrow additional funds, dispose
of assets or pay cash dividends. Failure by the Company to comply with such
covenants could result in an event of default, which, if not cured or waived,
could have a material adverse effect on the Company. In addition, the degree to
which the Company is leveraged could prevent it from repurchasing all New Notes
tendered to it upon the occurrence of a Change of Control. See "Description of
New Notes -- Repurchase at the Option of Holders -- Change of Control,"
"Description of Indebtedness -- New Credit Facility" and "The
Transactions -- The Acquisition."
13
19
SUBORDINATION
The New Notes will be subordinated in right of payment to all existing and
future Senior Debt, including the principal of or premium, if any, and interest
on and all other amounts due on or payable in connection with Senior Debt. At
March 29, 1997, on a pro forma basis after giving effect to the Transactions,
there would have been outstanding approximately $217.5 million of Senior Debt.
By reason of such subordination, in the event of the insolvency, liquidation,
reorganization, dissolution or other winding-up of the Company or upon a default
in payment with respect to, or the acceleration of, any Senior Debt, the Holders
of such Senior Debt must be paid in full before the holders of the New Notes may
be paid. If the Company incurs any additional pari passu debt, the holders of
such debt would be entitled to share ratably with the holders of the New Notes
in any proceeds distributed in connection with any insolvency, liquidation,
reorganization, dissolution or other winding-up of the Company. This may have
the effect of reducing the amount of proceeds paid to holders of the New Notes.
In addition, no payments may be made with respect to the principal of, premium
and Liquidated Damages, if any, or interest on the New Notes if a payment
default exists with respect to Senior Debt and, under certain circumstances, no
payments may be made with respect to the principal of, premium and Liquidated
Damages, if any, or interest on the New Notes for a period of up to 179 days if
a non-payment default exists with respect to Senior Debt. In addition, the
Indenture permits the Company and its subsidiaries to incur additional debt if
certain conditions are met. See "Description of New Notes -- Subordination."
Under the New Credit Facility, NEHC granted to the lenders thereunder (the
"Lenders") security interests in all of the capital stock of the Company, and
the Company granted to the Lenders security interests in substantially all of
the current and future assets of the Company, including a pledge of all of the
issued and outstanding shares of capital stock of certain of the Company's
subsidiaries. In the event of a default on secured indebtedness (whether as a
result of the failure to comply with a payment or other covenant, a cross-
default, or otherwise), such Lenders will have a prior secured claim on the
capital stock of the Company and the assets of the Company and its subsidiaries.
If such Lenders should attempt to foreclose on their collateral, the Company's
financial condition and the value of the New Notes will be materially adversely
affected and could be eliminated. See "Description of Indebtedness."
KEY CONTRACTS
In January 1997, the Company entered into a three-year agreement, which
became effective April 1997, to become the primary supplier to approximately
2,600 Arby's restaurants nationwide. The Company expects to generate at least
$325 million of annual net sales during the term of the agreement. No assurance
can be given that the Company's contract with Arby's will be renewed upon
expiration, that any renewal of such contract will be on terms as favorable to
the Company as the current contract or that the Company will realize expected
net sales under the existing contract.
In connection with the Acquisition, the Company and PepsiCo's chain
restaurant business have entered into a five-year Distribution Agreement
effective from the Closing pursuant to which the Company will be the exclusive
distributor of specified restaurant products purchased by Pizza Hut, Taco Bell
and KFC restaurants within the continental United States, which are owned,
directly or indirectly, by PepsiCo as of the Closing (other than certain
specified restaurants) or which are acquired or built by PepsiCo's chain
restaurant business during the term of the Distribution Agreement. On a pro
forma basis after giving effect to the Transactions and after giving effect to
the Arby's contract, approximately 44% of the Company's 1996 net sales would
have been generated under the Distribution Agreement. The Distribution Agreement
may be terminated at any time (i) by any party in the event that the other party
breaches any material term and such breach remains unremedied for a period of 30
calendar days after written notice of such breach, (ii) by the PepsiCo Chains if
the Company is in material breach of the Distribution Agreement for failure to
maintain specified service levels for a specified period of time or (iii) by
either party in the event that the other party becomes the subject of a
bankruptcy, insolvency or other similar proceeding. See "The Acquisition --
Distribution Agreement."
While exclusive or written arrangements are not typically the basis of
foodservice distribution sales and have not historically been requisite to the
Company's growth, the Distribution Agreement will expire in five
14
20
years and no assurance can be given that the Distribution Agreement will be
renewed or, if renewed, whether such renewal will be on terms as favorable as
the existing agreement. Furthermore, no assurance can be given that the Company
will be able to achieve the expected net sales under the current Distribution
Agreement. Gross profit and net pretax profit on certain sales by PFS to Pizza
Hut under the Distribution Agreement are limited.
DEPENDENCE ON CERTAIN CHAINS AND CUSTOMERS
The Company derives substantially all of its net sales from several chain
restaurant concepts. On a pro forma basis after giving effect to the
Transactions, and the Arby's contract, the largest chains serviced by the
Company would have been Pizza Hut, Taco Bell and KFC, representing 28%, 28% and
12% of 1996 net sales, respectively. Adverse developments affecting such chains
or a decision by a corporate owner or franchisor to revoke its approval of the
Company as a distributor could have a material adverse effect on the Company's
operating results.
The Company's customers are generally individual franchisees or
corporate-owned restaurants within such restaurant chains. Although the
corporate owner or franchisor of a chain generally reserves the right to approve
the distributors for its franchisees, each customer generally makes its
selection of a foodservice distributor from an approved group of distributors.
On a pro forma basis after giving effect to the Transactions and after giving
effect to the Arby's contract, the Company's largest customer would have been
PepsiCo, representing 44% of the Company's 1996 net sales. No other customer
accounted for more than 10% of the Company's pro forma net sales in 1996.
Adverse events affecting any of the Company's largest customers, a material
decrease in sales to any such customers or the loss of a major customer through
the acquisition thereof by a company with an internal foodservice distribution
business or otherwise could have a material adverse effect on the Company's
operating results. In addition, the Company's continued growth is dependent in
part on the continued growth and expansion of its customers.
A significant portion of the Company's business is conducted with customers
with which the Company does not have contracts. Such customers could cease doing
business with the Company on little or no notice. The Company's contracts with
its other customers are subject to termination by the customer prior to
expiration of the stated term under circumstances specified in each contract,
including, in some cases, failure to comply with performance reliability
standards. Although the Company is not aware of any issues of non-compliance
that could reasonably be expected to result in termination of any such contracts
prior to expiration of the stated term, and has not been notified by any
customer that it intends to terminate its contract with the Company, there can
be no assurance that historic levels of business from any customer of the
Company will be maintained in the future. See " -- Key Contracts" and "The
Business -- Customers."
ABILITY TO INTEGRATE ACQUISITIONS
The Company has achieved a significant portion of its growth through
acquisitions and will continue to try to grow in this way. Although each of the
previously acquired companies has a significant operating history, the Company
has a limited history of owning and operating the most recently acquired of
these businesses on a consolidated basis. Holberg Industries, Inc. ("Holberg")
acquired NEBCO Distribution of Omaha, Inc. ("NEBCO") in 1986. NEBCO acquired
Evans Brothers Company ("Evans") in January 1990 and the combined company was
renamed "NEBCO EVANS Distribution, Inc." ("NEBCO EVANS"). NEBCO EVANS acquired
L.L. Distribution Systems Inc. in 1990, Condon Supply Company in 1991, AmeriServ
Food Company ("AmeriServ") in January 1996 and, in April 1997, changed its name
to AmeriServe Food Distribution, Inc. Following the Acquisition, the Company
will have to integrate PFS with its existing business, including its prior
acquisitions. While the Company believes that such integration provides
significant opportunities to reduce costs, there can be no assurance that the
Company will be able to meet performance expectations or successfully integrate
these businesses on a timely basis without disruption in the quality and
reliability of service to its customers or diversion of management resources. In
addition, while the Company has made acquisitions successfully before, the
Acquisition is substantially larger than the Company's prior acquisitions. The
integration of such businesses will also require improvements in the Company's
15
21
management information systems. There can be no assurance that such improvements
will be realized on a timely basis.
DEPENDENCE ON KEY PERSONNEL
The Company's success is, and will continue to be, substantially dependent
upon the continued services of its senior management, particularly Mr. John V.
Holten, Chairman and Chief Executive Officer of the Company, and Mr. Raymond E.
Marshall, President and Treasurer of the Company. The loss of the services of
one or more members of senior management could adversely affect the Company's
operating results. The Company has entered into employment agreements with Mr.
Marshall and other members of senior management, and has obtained key-man life
insurance in the amount of $3.0 million on Mr. Marshall. In addition, the
Company's continued growth depends on the ability to attract and retain skilled
operating managers and employees and the ability of its key personnel to manage
the Company's growth and consolidate and integrate its operations. See
"Management."
COMPETITION
The foodservice distribution industry is highly competitive. The Company
competes with other systems foodservice distribution companies that focus on
chain restaurants and with broadline foodservice distributors that distribute to
a wide variety of customers. Further, the Company could face increased
competition to the extent that there is an increase in the number of foodservice
distributors specializing in distribution to chain restaurants on a nationwide
basis. See "The Business -- Competition."
CONTROL BY PRINCIPAL STOCKHOLDER
After the consummation of the Transactions, Holberg will indirectly own a
majority of the issued and outstanding capital stock of NEHC, which in turn
directly owns all of the issued and outstanding capital stock of the Company.
See "Security Ownership of Certain Beneficial Holders and Management." Holberg
and DLJ will collectively have sufficient voting power to elect the entire Board
of Directors of each of NEHC, and through NEHC, the Company, and thereby
exercise control over the business, policies and affairs of NEHC and the
Company, and, in general, determine the outcome of any corporate transaction or
other matters submitted to stockholders for approval, such as any amendment to
the certificate of incorporation of the Company (the "Certificate of
Incorporation"), the authorization of additional shares of capital stock, and
any merger, consolidation or sale of all or substantially all of the assets of
the Company, all of which could adversely affect the Company and holders of the
New Notes.
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of New Notes may
require the Company to repurchase all or a portion of such holder's New Notes at
101% of the principal amount of the New Notes, together with accrued and unpaid
interest, if any, and Liquidated Damages, if any, to the date of repurchase. The
Indenture will require that prior to such a repurchase, the Company must either
repay all outstanding indebtedness under the New Credit Facility or obtain any
required consent to such repurchase. If a Change of Control were to occur, the
Company may not have the financial resources to repay all of its obligations
under the New Credit Facility, the New Notes and the other indebtedness that
would become payable upon such event. See "Description of New
Notes -- Repurchase at the Option of Holders -- Change of Control."
FRAUDULENT CONVEYANCE
Management of the Company believes that the indebtedness represented by the
New Notes is being incurred for proper purposes and in good faith, and that,
based on present forecasts, asset valuations and other financial information,
after the consummation of the Transactions, the Company will be solvent, will
have sufficient capital for carrying on its business and will be able to pay its
debts as they mature. See "-- Substantial Leverage and Debt Service."
Notwithstanding management's belief, however, if a court of competent
jurisdiction in a suit by an unpaid creditor or a representative of creditors
(such as a trustee in
16
22
bankruptcy or a debtor-in-possession) were to find that, at the time of the
incurrence of such indebtedness, the Company was insolvent, was rendered
insolvent by reason of such incurrence, was engaged in a business or transaction
for which its remaining assets constituted unreasonably small capital, intended
to incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured, or intended to hinder, delay or defraud its creditors,
and that the indebtedness was incurred for less than reasonably equivalent
value, then such court could, among other things, (i) void all or a portion of
the Company's obligations to the holders of the New Notes, the effect of which
would be that the holders of the New Notes may not be repaid in full and/or (ii)
subordinate the Company's obligations to the holders of the New Notes to other
existing and future indebtedness of the Company to a greater extent than would
otherwise be the case, the effect of which would be to entitle such other
creditors to be paid in full before any payment could be made on the New Notes.
The Company's obligations under the New Notes will be guaranteed, jointly
and severally, on a senior subordinated basis, by each of the Subsidiary
Guarantors. Management of the Company believes that indebtedness represented by
the New Note Guarantees is being incurred by the Subsidiary Guarantors for
proper purposes and in good faith, and that, based on present forecasts, asset
valuations and other financial information, after consummation of the
Transactions, each of the Subsidiary Guarantors will be solvent, will have
sufficient capital for carrying on its business, and will be able to pay its
debts as they mature. See "-- Substantial Leverage and Debt Service."
Notwithstanding management's belief, however, if a court of competent
jurisdiction in a suit by an unpaid creditor or a representative of creditors
(such as a trustee in bankruptcy or a debtor-in-possession) were to find that,
at the time of the incurrence of such indebtedness, the Subsidiary Guarantors
were insolvent, were rendered insolvent by reason of such incurrence, were
engaged in a business or transaction for which their remaining assets
constituted unreasonably small capital, intended to incur, or believed that they
would incur, debts beyond their ability to pay such debts as they matured, or
intended to hinder, delay or defraud their creditors, and that the indebtedness
was incurred for less than reasonably equivalent value, then such court could,
among other things, (i) void all or a portion of such Subsidiary Guarantors'
obligations to the holders of the New Notes, the effect of which would be that
the holders of the New Notes may not be repaid in full or at all and/or (ii)
subordinate such Subsidiary Guarantors' obligations to the holders of the New
Notes to other existing and future indebtedness of such Subsidiary Guarantors,
the effect of which would be to entitle such other creditors to be paid in full
before any payment could be made on the New Notes. Among other things, a legal
challenge to a Note Guarantee on fraudulent conveyance grounds may focus on the
benefits, if any, realized by the Subsidiary Guarantors as a result of the
issuance by the Company of the New Notes.
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES; RESTRICTIONS ON TRANSFERS
The Notes are currently owned by a relatively small number of beneficial
owners. The Notes have not been registered under the Exchange Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for the New Notes. The New Notes will constitute a new issue of
securities with no established trading market. Although the New Notes will
generally be permitted to be resold or otherwise transferred by Holders who are
not affiliates of the Company without compliance with the registration
requirements under the Securities Act, the Company does not intend to list the
New Notes on any securities exchange or to seek admission thereof to trading in
the National Association of Securities Dealers Automated Quotation System.
Although DLJ and BancAmerica have advised the Company that they currently intend
to make a market in the New Notes, they are not obligated to do so and may
discontinue such market making at any time without notice. If a trading market
does not develop or is not maintained, holders of the New Notes may experience
difficulty in reselling the New Notes or may be unable to sell them at all. If a
market for the New Notes develops, any such market may be discontinued at any
time. See "Notice to Investors." In addition, such market making activity will
be subject to the limits imposed by the Exchange Act. See "Description of New
Notes -- Registration Rights; Liquidated Damages." Accordingly, there can be no
assurance as to the development or liquidity of any market for the New Notes.
17
23
EXCHANGE OFFER PROCEDURES
Issuance of the New Notes in exchange for Notes pursuant to the Exchange
Offer will be made only after a timely receipt by the Exchange Agent of such
Notes, a properly completed and duly executed letter of transmittal and all
other required documents. Therefore, Holders of the Notes desiring to tender
such Notes in exchange for New Notes should allow sufficient time to ensure
timely delivery. The Company is under no duty to give notification of defects or
irregularities with respect to the tenders of Notes for exchange. Notes that are
not tendered or are tendered but not accepted will, following the consummation
of the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof and, upon consummation of the Exchange Offer, the registration
rights under the Registration Rights Agreement generally will terminate. In
addition, any Holder of Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the New Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale. Each broker-dealer that receives New Notes for its
own account in exchange for Notes, where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities must acknowledge that it will deliver a prospectus in connection with
the initial resale of such New Notes. To the extent that Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Notes could be adversely affected. See "The Exchange Offer."
18
24
THE EXCHANGE OFFER
The following discussion sets forth or summarizes what the Company believes
are the material terms of the Exchange Offer, including those set forth in the
Letter of Transmittal distributed with this Prospectus. This summary is
qualified in its entirety by reference to the full text of the documents
underlying the Exchange Offer, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and are incorporated
by reference herein.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were sold by the Company on July 11, 1997, and were subsequently
resold to qualified institutional buyers pursuant to Rule 144A under the
Securities Act, to institutional investors that are accredited investors in a
manner exempt from registration under the Securities Act and to certain persons
in transactions outside the United States in reliance on Regulation S under the
Securities Act. In connection with the Note Offering, the Company entered into
the Registration Rights Agreement, which requires, among other things, that
promptly following the completion of the Acquisition, the Company and the
Subsidiary Guarantors (i) file with the SEC a registration statement under the
Securities Act with respect to an issue of new Notes of the Company identical in
all material respects to the Notes, (ii) use their best efforts to cause such
registration statement to become effective under the Securities Act and (iii)
upon the effectiveness of that registration statement, offer to the Holders of
the Notes the opportunity to exchange their Notes for a like principal amount of
New Notes, which would be issued without a restrictive legend and may be
reoffered and resold by the holder without restrictions or limitations under the
Securities Act (other than any such holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act). A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The term "Holder" with respect to
the Exchange Offer means any person in whose name the Notes are registered on
the books of the Company or any other person who has obtained a properly
completed bond power from the registered holder.
Because the Exchange Offer is for any and all Notes, the number of Notes
tendered and exchanged in the Exchange Offer will reduce the principal amount of
Notes outstanding. Following the consummation of the Exchange Offer, Holders of
the Notes who did not tender their Notes generally will not have any further
registration rights under the Registration Rights Agreement, and such Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for such Notes could be adversely affected. The Notes
are currently eligible for sale pursuant to Rule 144A through the PORTAL System
of the National Association of Securities Dealers, Inc. Because the Company
anticipates that most holders of Notes will elect to exchange such Notes for New
Notes due to the absence of restrictions on the resale of New Notes under the
Securities Act, the Company anticipates that the liquidity of the market for any
Notes remaining after the consummation of the Exchange Offer May be
substantially limited.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Notes
validly tendered and not withdrawn prior to 5:00 p.m. New York City time, on the
Expiration Date. The Company will issue $1,000 principal amount of New Senior
Subordinated Notes in exchange for each $1,000 principal amount of outstanding
Senior Subordinated Notes accepted in the Exchange Offer. Holders may tender
some or all of their Notes pursuant to the Exchange Offer. However, Notes may be
tendered only in integral multiples of $1,000.
The form and terms of the New Notes are the same as the form and terms of
the Notes except that (i) the New Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer thereof
and (ii) the holders of the New Notes generally will not be entitled to certain
rights under the Registration Rights Agreement, which rights generally will
terminate upon consummation of the Exchange Offer. The New Notes will evidence
the same debt as the Notes and will be entitled to the benefits of the
Indentures.
Holders of Notes do not have any appraisal or dissenters' rights under the
Nebraska Business Corporation Act or the Indentures in connection with the
Exchange Offer. The Company intends to conduct the Exchange
19
25
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the SEC thereunder, including Rule 14e-1 thereunder.
The Company shall be deemed to have accepted validly tendered Notes when,
as and if the Company has given oral or written notice thereof to the Exchange
Agents. The Exchange Agent will act as agent for the tendering Holders for the
purpose of receiving the New Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange Offer.
See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
To extend the Exchange Offer, the Company will notify the Exchange Agent of
any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
The Company reserves the right, in its reasonable judgment, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "-- Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in, any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by a public announcement
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered Holders, and, depending upon the significance of the amendment and
the manner of disclosure to the registered Holders, the Company will extend the
Exchange Offer for five to ten business days if the Exchange Offer would
otherwise expire during such five to ten business-day period.
If the Company does not consummate the Exchange Offer, or, in lieu thereof,
the Company does not file and cause to become effective a resale shelf
registration for the New Notes within the time periods set forth herein,
liquidated damages will accrue and be payable on the New Notes either
temporarily or permanently. See "Description of New Notes -- Registration
Rights; Liquidated Damages."
INTEREST ON NEW NOTES
The New Senior Subordinated Notes will bear interest from July 11, 1997,
the date of issuance of the Notes that are tendered in exchange for the New
Notes (or the most recent Interest Payment Date to which interest on such Notes
has been paid). Accordingly, Holders of Notes that are accepted for exchange
will not receive interest that is accrued but unpaid on the Notes at the time of
tender, but such interest will be payable on the first Interest Payment Date
after the Expiration Date. Interest on the New Notes will be payable
semiannually on each January 15 and July 15, commencing on January 15, 1998.
PROCEDURES FOR TENDERING
Only a Holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a Holder must complete, sign and date the relevant
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Notes
and any other required documents, to the Exchange Agent so as to be received by
the Exchange Agent at the address set forth below prior to 5:00 p.m.,
20
26
New York City time, on the Expiration Date. The Letter of Transmittal must be
used to tender Notes. Delivery of the Notes may be made by book-entry transfer
in accordance with the procedures described below. Confirmation of such
book-entry transfer must be received by the Exchange Agent prior to the
Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the
Company the representation set forth below in the second paragraph under the
heading "-- Resale of New Notes."
The tender by a Holder and the acceptance thereof by the Company will
constitute an agreement between such Holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered Holder promptly and instruct such registered
Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered Holder
as such registered Holder's name appears on such Notes with the signature
thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Company understands that each Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Notes at the Depository for the purpose of facilitating the Exchange Offer,
and subject to the establishment thereof, any financial institution that is a
participant in the Depository's system may make book-entry delivery of the Notes
by causing the Depository to transfer such Notes into the Exchange Agent's
account with respect to the Notes in accordance with the Depository's procedures
for such transfer. Although delivery of the Notes may be effected through
book-entry transfer into the Exchange Agent's account at the Depository, an
appropriate Letter of Transmittal properly completed and duly executed with any
required signature guarantee and all other required documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the
21
27
time period provided under such procedures. Delivery of documents to the
Depository does not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Notes must be cured within such
time as the Company shall determine. Although the Company intends to notify
Holders of defects or irregularities with respect to tenders of Notes, none of
the Company, the Exchange Agent or any other person shall incur any liability
for failure to give such notification. Tenders of Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Notes received by the Exchange Agent that are not properly tendered and as
to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose New Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the relevant Exchange Agent or
(iii) who cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the relevant Exchange Agent receives
from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the Holder, the certificate
number(s) of such Notes and the principal amount of Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof), together with the certificates(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Depository) and any other
documents required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Depository) and all
other documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of Notes transferred
22
28
by book-entry transfer, the name and number of the account at the Depository to
be credited), (iii) be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal by which such Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee with respect to the Notes register the
transfer of such Notes into the name of the person withdrawing the tender, and
(iv) specify the name in which any such Notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form and
eligibility (including time or receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Notes so withdrawn will be deemed not to have been validly tendered for purposes
of the Exchange Offer and no New Notes will be issued with respect thereto
unless the Notes so withdrawn are validly retendered. Any Notes which have been
tendered but which are not accepted for exchange will be returned to the Holder
thereof without cost to such Holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Notes may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange New Notes for, any Notes, and
may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Notes, if (a) any law, statute, rule, regulation or
interpretation by the staff of the SEC is proposed, adopted or enacted, which,
in the reasonable judgment of the Company, might materially impair the ability
of the Company to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to the Company.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Notes and
return all tendered Notes to the tendering Holders, (ii) extend the Exchange
Offer and retain all Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of Holders to withdraw such Notes (see
"Withdrawals of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Notes which have
not been withdrawn. If such waiver constitutes a material change to the Exchange
Offer, the Company will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered Holders, and, depending
upon the significance of the waiver and the manner of disclosure to the
registered Holders, the Company will extend the Exchange Offer for a period of
five to ten business days if the Exchange Offer would otherwise expire during
such five to ten business-day period.
EXCHANGE AGENT
State Street Bank & Trust Company will act as Exchange Agent for the
Exchange Offer with respect to the Notes (the "Exchange Agent").
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal for the Notes and requests for
copies of Notice of Guaranteed Delivery should be directed to the Exchange
Agent, addressed as follows:
By Registered or Certified Mail, Overnight Mail or Courier Service or in
Person by Hand:
State Street Bank & Trust Company
777 Main Street, 11th floor
Hartford, CT 06123-0177
Attention: Corporate Trust Administration
By Facsimile:
(860) 986-7920
23
29
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone, facsimile or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agents reasonable and customary fees for their services and will
reimburse them for their reasonable out-of-pocket expenses in connection
therewith and pay other registration expenses, including fees and expenses of
the Trustees, filing fees, blue sky fees and printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Notes pursuant to the Exchange Offer. If, however, certificates
representing the New Notes or the Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Notes tendered, or if
tendered Notes are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the exchange of the Notes pursuant to the Exchange Offer, then
the amount of any such transfer taxes (whether imposed on the registered Holder
or any other person) will be payable by the tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Notes,
which is the aggregate principal amount in the case of the Notes, as reflected
in the Company's accounting records on the date of exchange. Accordingly, no
gain or loss for accounting purposes will be recognized in connection with the
Exchange Offer. The expenses of the Exchange Offer will be amortized over the
term of the New Notes.
RESALE OF NEW NOTES
Based on an interpretation by the staff of the SEC set forth in no-action
letters issued to third parties, the Company believes that New Notes issued
pursuant to the Exchange Offer in exchange for New Notes may be offered for
resale, resold and otherwise transferred by any Holder of such New Notes (other
than any such Holder which is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holder's business and such
Holder does not intend to participate, and has no arrangement or understanding
with any person to participate, in the distribution of such New Notes. Any
Holder who tenders in the Exchange Offer with the intention to participate, or
for the purpose of participating, in a distribution of the New Notes may not
rely on the position of the staff of the SEC enunciated in Exxon Capital
Holdings Corporation (available April 13, 1989) and Morgan Stanley & Co.,
Incorporated (available June 5, 1991), or similar no-action letters, but rather
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. In addition, any such
resale transaction should be covered by an effective registration statement
containing the selling security holder's information required by Item 507 or 508
of Regulation S-K of the Securities Act, as applicable. Each broker-dealer that
receives New Notes for its own account in exchange for Notes, where such Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, may be a statutory underwriter and must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes.
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving such New Notes, whether or not such person is a Holder, (ii)
neither the Holder nor any such other person has an arrangement or understanding
with any person to participate in the distribution of such New Notes and (iii)
the Holder and such other person acknowledge that if they participate in the
Exchange Offer for the purpose of distributing the New Notes (a) they must, in
the absence of an exemption therefrom, comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the New Notes and cannot rely on the no-action letters
24
30
referenced above and (b) failure to comply with such requirements in such
instance could result in such Holder incurring liability under the Securities
Act for which such Holder is not indemnified by the Company. Further, by
tendering in the Exchange Offer, each Holder that may be deemed an "affiliate"
(as defined under Rule 405 of the Securities Act) of the Company will represent
to the Company that such Holder understands and acknowledges that the New Notes
may not be offered for resale, resold or otherwise transferred by that Holder
without registration under the Securities Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the SEC with respect to resales of
the New Notes without compliance with the registration and prospectus delivery
requirements of the Securities Act. In connection with the Note Offering, the
Company entered into the Registration Rights Agreement pursuant to which the
Company agreed to file and maintain, subject to certain limitations, a
registration statement that would allow DLJ , and BancAmerica to engage in
market-making transactions with respect to the Notes or the New Notes. The
Company has agreed to bear all registration expenses incurred under such
agreement, including printing and distribution expenses, reasonable fees of
counsel, blue sky fees and expenses, reasonable fees of independent accountants
in connection with the preparation of comfort letters, and SEC and the National
Association of Securities Dealers, Inc. filing fees and expenses.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
Holders of Notes who do not tender their Notes generally will not have any
further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any Holder of Notes that does not exchange that Holder's
Notes for New Notes will continue to hold the untendered Notes and will be
entitled to all the rights and limitations applicable thereto under the
Indentures, except to the extent that such rights or limitations, by their
terms, terminate or cease to have further effectiveness as a result of the
Exchange Offer.
The Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Notes may be resold
only (i) to the Company (upon redemption thereof or otherwise), (ii) pursuant to
an effective registration statement under the Securities Act, (iii) so long as
the Notes are eligible for resale pursuant to Rule 144A, to a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, (iv) outside the United
States to a foreign person pursuant to the exemption from the registration
requirements of the Securities Act provided by Regulation S thereunder, (v)
pursuant to an exemption from registration under the Securities Act provided by
Rule 144 thereunder (if available), or (vi) to an institutional accredited
investor in a transaction exempt from the registration requirements of the
Securities Act, in each case in accordance with any applicable securities laws
of any state of the United States. See "Risk Factors -- Restrictions on
Transfer."
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Notes are urged to consult
their financial and tax advisors in making their own decision on what action to
take.
The Company may in the future seek to acquire untendered Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plans to acquire any Notes that are not
tendered in the Exchange Offer or to file a registration statement to permit
resales of any untendered Notes.
25
31
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE OFFER
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "IRS") will not take a contrary view, and
no ruling from the IRS has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to Holders. Certain Holders of the Notes (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. Each Holder of a
Note should consult his, her or its own tax advisor as to the particular tax
consequences of exchanging such Holder's Notes for New Notes, including the
applicability and effect of any state, local or foreign tax laws.
The issuance of the New Notes to Holders of the Notes pursuant to the terms
set forth in this Prospectus will not constitute an exchange for federal income
tax purposes. Consequently, no gain or loss would be recognized by Holders of
the Notes upon receipt of the New Notes, and ownership of the New Notes will be
considered a continuation of ownership of the Notes. For purposes of determining
gain or loss upon the subsequent sale or exchange of the New Notes, a Holder's
basis in the New Notes should be the same as such Holder's basis in the Notes
exchanged therefor. A Holder's holding period for the New Notes should include
the Holder's holding period for the Notes exchanged therefor. The issue price,
and other tax characteristics of the New Notes should be identical to the issue
price, and other tax characteristics of the Notes exchanged therefor.
See also "Description of Certain Federal Income Tax Consequences of an
Investment in the New Notes."
THE TRANSACTIONS
In connection with the Acquisition, the Company: (i) consummated the Note
Offering; (ii) entered into the New Credit Facility; (iii) established the
Accounts Receivable Program; (iv) received the Equity Contribution; (v) effected
the Preferred Stock Contribution; and (vi) consummated the Post Contribution.
See "Description of Indebtedness" and "Certain Relationships and Related Party
Transactions."
THE ACQUISITION
Pursuant to an Asset Purchase Agreement (together with the related
agreement covering Canadian assets, the "Asset Purchase Agreement"), dated as of
May 23, 1997, by and between NEHC and PepsiCo, which was assigned to the Company
at the Closing, the Company subject to the terms and conditions contained in the
Asset Purchase Agreement, acquired substantially all of the assets and
properties used or held for use by PFS for $830.0 million in cash, subject to
adjustment, and assumed certain liabilities, including post-Closing purchase
price adjustments. See note 2 to the unaudited pro forma financial statements of
the Company.
THE POST CONTRIBUTION
In connection with the January 1996 purchase of AmeriServ, the Company
acquired a minority interest in Post Holdings Company ("Post Holdings"), which
owned 93.6% of Post. Post is a systems food distributor with three distribution
centers in the western United States. For the fiscal year ending December 28,
1996, Post generated net sales of $119.4 million and EBITDA of $1.9 million. On
November 25, 1996, NEHC: (i) acquired (a) the Company's ownership interest in
Post Holdings, and (b) Daniel W. Crippen's 50% ownership of Post Holdings and
(ii) merged Post Holdings with and into NEHC with NEHC as the surviving entity.
Mr. Crippen is the Company's Chief Operating Officer and was the President of
Post.
26
32
In connection with the Acquisition: (i) the remaining 6.4% of the capital
stock outstanding of Post was acquired from the minority stockholder; (ii) a
dividend of $4.7 million was declared to eliminate the intercompany balance
between Post and NEHC; (iii) all of the capital stock of Post was transferred to
AmeriServ Food Company, a subsidiary of the Company; and (iv) Post's $9.0
million of outstanding indebtedness was refinanced. AmeriServ Food Company's
investment in NEHC preferred stock of $2.5 million was cancelled (collectively,
the "Post Contribution"). See note 2 to the historical financial statements of
the Company.
EQUITY CONTRIBUTION
In connection with the Acquisition, NEHC contributed $130.0 million of cash
to the Company (the "Equity Contribution"). The Equity Contribution was financed
through NEHC's sale of debt and equity securities. A portion of such funds was
raised by NEHC through the sale to DLJ Merchant Banking, L.P. II and Affiliates
("DLJMBII") of preferred stock and warrants for aggregate consideration of
$115.0 million. See "Certain Relationships and Related Party Transactions."
PREFERRED STOCK CONTRIBUTION
In connection with the Acquisition, NEHC contributed to the Company an
aggregate principal amount of $45.0 million of outstanding non-convertible
preferred stock of the Company (the "Preferred Stock Contribution"). See
"Capitalization."
SOURCES AND USES OF FUNDS
The gross proceeds from the sale of the Notes, together with borrowings
under the New Credit Facility, proceeds from the Accounts Receivable Program and
the Equity Contribution, were used and will be used by the Company: (i) to fund
the purchase price payable in connection with the Acquisition; (ii) to repay in
full certain existing indebtedness; (iii) to provide working capital; and (iv)
to pay fees and expenses in connection with the Transactions.
The following table sets forth the estimated sources and uses of funds in
connection with the Transactions, assuming that the Transactions occurred on
March 29, 1997 (in millions):
SOURCES
New Credit Facility(1)
Revolving Credit Facility........................................ $ 0.0
Term Loans....................................................... 205.0
--------
Total.................................................... 205.0
Accounts Receivable Program(2)..................................... 225.0
Senior Subordinated New Notes due 2007............................. 500.0
Equity Contribution................................................ 130.0
--------
Total sources............................................ $1,060.0
========
USES
Cash purchase of PFS assets........................................ $ 830.0
Refinance AmeriServe senior debt................................... 124.8
Refinance other debt............................................... 14.8
Cash for working capital........................................... 43.9
Estimated fees and expenses........................................ 46.5
--------
Total uses............................................... $1,060.0
========
- ---------------
(1) At Closing, the Company entered into a new $355.0 million senior credit
facility (the "New Credit Facility") by and among Bank of America National
Trust and Savings Association ("Bank of America NT&SA"; in such capacity,
the "Administrative Agent"), and DLJ Capital Funding, Inc. (in such
27
33
capacity, the documentation agent; and with the Administrative Agent, the
"Agents") and the other Lenders thereto. BancAmerica Securities, Inc.
("BancAmerica Securities") served as the syndication agent. The following
amounts were drawn under the New Credit Facility: $205.0 million of term
loans (the "Term Loans"), consisting of: (a) $78.1 million Term Loan A,
which matures in six years; (b) $42.3 million of Term Loan B, which matures
in seven years; (c) $42.3 million of Term Loan C, which matures in eight
years; and (d) $42.3 million of Term Loan D, which matures in nine years.
See "Description of Indebtedness -- New Credit Facility." A $150.0 million
revolving credit facility (the "Revolving Credit Facility") is available as
part of the New Credit Facility for working capital and general corporate
purposes, including the issuance of letters of credit which were $11.1
million at Closing, subject to the achievement of certain financial ratios
and compliance with certain conditions.
(2) At Closing, the Company entered into a $250.0 million Accounts Receivable
Program (the "Accounts Receivable Program"), approximately $225.0 million of
which was funded at Closing. Under the Accounts Receivable Program, the
Company established a wholly-owned, special purpose bankruptcy-remote
subsidiary that purchases from the Company, on a revolving basis, all trade
receivables generated by the Company and/or one or more of its subsidiaries.
See "Description of Indebtedness -- Accounts Receivable Program."
USE OF PROCEEDS
The net proceeds from the sale of the Notes was approximately $483.0
million (after deducting discounts and commissions and estimated expenses of the
Offering) and, together with borrowings under the New Credit Facility, proceeds
from the Accounts Receivable Program and the Equity Contribution were used and
will be used by the Company: (i) to fund the cash purchase price payable in
connection with the Acquisition; (ii) to repay in full certain existing
indebtedness; (iii) to provide working capital; and (iv) to pay fees and
expenses in connection with the Transactions. The existing indebtedness of the
Company being repaid in connection with the Transactions includes approximately
$124.8 million of borrowings under the Company's existing credit facility (which
bears interest at a blended rate of approximately 8.6% at March 29, 1997) and
$14.8 million of other indebtedness (which bears interest at a blended rate of
approximately 9.5% per annum).
See "The Transactions -- Sources and Uses of Funds."
28
34
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth the consolidated cash and capitalization of
the Company as of March 29, 1997 and the pro forma consolidated capitalization
of the Company as of March 29, 1997, adjusted to reflect the Transactions. This
table should be read in conjunction with the historical and unaudited pro forma
financial statements of the Company and the related notes thereto included
elsewhere herein. See "The Transactions."
AS OF MARCH 29, 1997
----------------------
ACTUAL PRO FORMA
-------- ---------
Cash and cash equivalents.............................................. $ 3,995 $ 48,116
======== ========
Long-term debt (including current portion):
Existing credit facility............................................. $124,800 $ --
Revolving Credit Facility(1)......................................... -- --
Term Loans(1)........................................................ -- 205,000
Capital lease obligation............................................. 10,673 12,500
Senior Subordinated New Notes due 2007............................... -- 500,000
Other................................................................ 5,795 --
-------- --------
Total long-term debt......................................... 141,268 717,500
Stockholder's equity:
Preferred............................................................ 45,000 --
Common............................................................... (3,511) 159,923
-------- --------
Total stockholder's equity................................... 41,489 159,923
-------- --------
Total capitalization................................................... $182,757 $ 877,423
======== ========
- ---------------
(1) At the Closing, the following amounts were drawn under the New Credit
Facility: (a) $78.1 million Term Loan A, which matures in six years; (b)
$42.3 million of Term Loan B, which matures in seven years; (c) $42.3
million of Term Loan C, which matures in eight years; and (d) $42.3 million
of Term Loan D, which matures in nine years. The undrawn amount of $150.0
million under the Revolving Credit Facility is available for working capital
and general corporate purposes, including the issuance of letters of credit
which were $11.1 million at Closing, subject to the achievement of certain
financial ratios and compliance with certain conditions. See "Description of
Indebtedness -- New Credit Facility."
29
35
SELECTED AMERISERVE HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table presents selected historical financial data of the
Company at and for the fiscal years 1992, 1993, 1994, 1995 and 1996, which have
been derived from the audited financial statements of the Company, and at and
for the first quarters of 1996 and 1997, which have been derived from the
unaudited interim financial statements of the Company. The historical financial
statements of the Company for the fiscal years 1994, 1995 and 1996 were audited
by Ernst & Young LLP. The historical data of the Company at and for the first
quarter of 1996 and 1997 have been derived from, and should be read in
conjunction with, the unaudited financial statements of the Company and the
related notes thereto, included elsewhere herein. In the opinion of management,
such interim financial statements reflect all adjustments (consisting only of
normal and recurring adjustments) necessary to fairly present the information
presented for such periods. The results of operations for the first quarter of
1997 are not necessarily indicative of the results of operations to be expected
for the full year. The selected financial data set forth below should be read in
conjunction with "The Transactions," "Summary Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the historical financial statements of the Company and the
related notes thereto included elsewhere herein.
FISCAL YEAR FIRST QUARTER
------------------------------------------------------ -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- ---------- -------- --------
INCOME STATEMENT DATA:
Net sales............................. $293,621 $327,606 $358,516 $400,017 $1,280,598 $231,732 $308,727
Gross profit.......................... 33,827 35,153 37,914 40,971 128,849 23,709 31,641
Operating expenses.................... 30,347 32,054 34,488 36,695 114,560 22,204 30,396
-------- -------- -------- -------- ----------- -------- --------
Operating income...................... 3,480 3,099 3,426 4,276 14,289 1,505 1,245
Interest expense...................... (3,404) (2,759) (3,294) (3,936) (10,999) (2,405) (3,165)
Interest income-Holberg and
affiliate........................... 293 150 533 749 528 99 85
-------- -------- -------- -------- ----------- -------- --------
Income (loss) before income taxes,
extraordinary loss, and cumulative
effect of accounting change......... 369 490 665 1,089 3,818 (801) (1,835)
Provision (credit) for income taxes... 223 172 523 583 1,300 (242) (649)
-------- -------- -------- -------- ----------- -------- --------
Income (loss) before extraordinary
loss and cumulative effect of
accounting change................... 146 318 142 506 2,518 (559) (1,186)
Extraordinary loss on early
extinguishment of debt.............. -- (613) -- -- -- -- --
Cumulative effect of change in method
of accounting for income taxes...... -- (495) -- -- -- -- --
-------- -------- -------- -------- ----------- -------- --------
Net income (loss)....................... $ 146 $ (790) $ 142 $ 506 $ 2,518 $ (559) $ (1,186)
======== ======== ======== ======== =========== ======== ========
OTHER DATA:
EBITDA(1)............................. $ 6,034 $ 6,195 $ 6,710 $ 7,038 $ 26,041 $ 3,128 $ 3,983
Depreciation and amortization......... 2,554 3,096 3,284 2,762 10,061 1,623 2,738
Capital expenditures.................. 3,446 2,205 1,331 2,496 12,518 866 2,257
Net cash provided by (used in):
Operating activities................ 10,462 4,680 4,276 4,505 1,213 (4,599) (1,363)
Investing activities................ (3,352) (6,556) (5,422) (5,574) (105,013) (98,535) (6,801)
Financing activities................ (6,462) 2,676 490 619 105,387 102,559 9,997
Ratio of earnings to fixed
charges(2).......................... 1.1x 1.1x 1.1x 1.2x 1.2x N/A N/A
BALANCE SHEET DATA:
Cash.................................. $ 882 $ 1,682 $ 1,025 $ 575 $ 2,162 $ -- $ 3,995
Total assets.......................... 68,040 75,265 79,218 77,503 291,103 269,739 321,175
Long-term debt, including current
portion............................. 34,065 34,170 32,160 32,779 129,905 114,772 141,268
Total stockholder's equity............ 10,212 14,779 17,205 10,157 42,675 39,598 41,489
- ---------------
(1) EBITDA represents operating income plus depreciation, amortization and
excludes one-time, non-recurring gains and losses. EBITDA in fiscal 1996
adds back a net one-time, non-recurring charge of $1.7 million. EBITDA is
presented because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the basis
of operating performance. EBITDA is not intended to represent cash flows for
the period, nor has it been presented as an alternative to operating income
as an indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles. The Company
understands that, while EBITDA is frequently used by securities analysts in
the evaluation of companies, EBITDA, as used herein, is not necessarily
comparable to other similarly titled captions of other companies due to
potential inconsistencies in the method of calculation. See the historical
and unaudited pro forma financial statements of the Company and the related
notes thereto included elsewhere herein.
(2) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred finance fees and one-third of the rent expense from
operating leases, which management believes is a reasonable approximation of
the interest factor of the rent. For the first quarter of 1996 and 1997,
earnings were inadequate to cover fixed charges by $0.8 million and $1.8
million, respectively.
30
36
SELECTED PFS HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table presents selected historical financial data of PFS at
and for the fiscal years 1992, 1993, 1994, 1995 and 1996, and the first quarters
of 1996 and 1997. The selected historical financial data for the fiscal years
1992, 1993, 1994, 1995 and 1996 have been derived from the audited financial
statements of PFS. The historical financial statements of PFS for the fiscal
years 1992, 1993, 1994, 1995 and 1996 were audited by KPMG Peat Marwick LLP. The
historical data of PFS at and for the first quarters of 1996 and 1997 have been
derived from, and should be read in conjunction with, the unaudited financial
statements of PFS and the related notes thereto, which are included elsewhere
herein. In the opinion of management, such interim financial statements reflect
all adjustments (consisting only of normal and recurring adjustments) necessary
to fairly present the information presented for such periods. The results of
operations for the first quarter of 1997 are not necessarily indicative of the
results of operations to be expected for the full year. The selected financial
data set forth below should be read in conjunction with "The Transactions,"
"Summary Selected Financial Data," "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" and the historical financial
statements of PFS and the related notes thereto included elsewhere herein.
FISCAL YEAR(1) FIRST QUARTER(1)
-------------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- -------- --------
INCOME STATEMENT DATA:
Net sales............................. $2,799,673 $3,126,745 $3,279,837 $3,458,944 $3,422,086 $766,688 $720,524
Gross profit.......................... 273,858 304,030 326,672 344,777 341,484 77,038 75,682
Operating expenses.................... 199,796 220,834 239,772 265,305 261,741 60,995 61,225
--------- --------- --------- --------- --------- ------- -------
Operating income...................... 74,062 83,196 86,900 79,472 79,743 16,043 14,457
Interest expense...................... (9,311) (8,780) (12,934) (17,613) (15,566) (3,597) (3,996)
--------- --------- --------- --------- --------- ------- -------
Income before income taxes............ 64,751 74,416 73,966 61,859 64,177 12,446 10,461
Provision for income taxes............ 24,624 28,703 28,874 23,844 24,597 4,874 4,155
--------- --------- --------- --------- --------- ------- -------
Net income............................ $ 40,127 $ 45,713 $ 45,092 $ 38,015 $ 39,580 $ 7,572 $ 6,306
========= ========= ========= ========= ========= ======= =======
OTHER DATA:
EBITDA(2)............................. $ 87,264 $ 96,872 $ 103,953 $ 98,236 $ 99,573 $ 20,748 $ 19,363
Depreciation and amortization......... 13,202 13,676 17,053 18,764 19,830 4,705 4,906
Capital expenditures.................. 16,246 24,927 21,310 25,245 28,771 7,193 6,212
Ratio of earnings to fixed
charges(3).......................... 5.5x 6.1x 5.2x 3.8x 4.1x 3.7x 3.1x
BALANCE SHEET DATA:
Cash.................................. $ (441) $ 80 $ 174 $ 203 $ 1,625 $ 539 $ 176
Total assets.......................... 401,168 462,042 479,799 516,288 478,921 492,343 489,802
Long-term debt, including current
portion............................. -- -- -- -- -- -- --
Divisional equity..................... 77,997 100,146 85,707 88,579 93,405 90,567 89,941
- ---------------
(1) PFS had a 52-53 week fiscal year ending on the last Wednesday in December.
Each fiscal year had 52 weeks, except 1994 contained 53 weeks. Each quarter
presented was 12 weeks.
(2) EBITDA represents operating income plus depreciation, amortization and
excludes one-time non-recurring gains and losses. EBITDA is presented
because it is a widely accepted financial indicator used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance. EBITDA is not intended to represent cash flows for
the period, nor has it been presented as an alternative to operating income
as an indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles. See the historical
financial statements of PFS and the related notes thereto included elsewhere
herein.
(3) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred finance fees and one-third of the rent expense from
operating leases, which management believes is a reasonable approximation of
the interest factor of the rent.
31
37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
AmeriServe is North America's largest systems foodservice distributor
specializing in distribution to chain restaurants, the fastest growing segment
of the domestic restaurant industry. The Company serves over 30 different
restaurant chains and over 26,500 restaurant locations in North America. The
Company has long-standing relationships with such leading restaurant concepts as
Pizza Hut, Taco Bell, KFC, Wendy's, Arby's, Burger King, Dairy Queen, Subway and
Applebee's. Holberg was formed in 1986 to acquire and manage foodservice
distribution businesses. Management believes the Company's history of
successfully identifying and integrating acquisitions helped the Company achieve
its current market position.
Acquisitions prior to the Acquisition of PFS consisted of:
- The acquisition in December 1986 of NEBCO, a regional systems distributor
based in Omaha, Nebraska for $6.0 million. NEBCO had annual sales of
approximately $60 million at the time of such acquisition.
- The acquisition in January 1990 of Evans, a regional systems distributor
based in Waukesha, Wisconsin for $33.9 million. Evans had annual sales of
approximately $115 million at the time of such acquisition.
- The acquisition in December 1990 of L.L. Distribution Systems Inc., a
regional systems distributor based in Plymouth, Minnesota for $10.0
million. L.L. Distribution Systems Inc. had annual sales of approximately
$50 million at the time of such acquisition.
- The acquisition in March 1991 of Condon Supply Company, a regional
systems distributor based in St. Cloud, Minnesota for $3.4 million.
Condon Supply Company had annual sales of approximately $15 million at
the time of such acquisition.
- The acquisition in January 1996 of AmeriServ, a wholesale distributor of
food and other supply items based in Dallas, Texas for a purchase price
of $92.9 million. AmeriServ had annual sales of approximately $940
million at the time of such acquisition.
- The acquisition of Chicago Consolidated Corporation, an operator of
redistribution facilities for dry goods based in Chicago, Illinois for
approximately $2.0 million.
Primarily as a result of these acquisitions, the Company's net sales
increased from $277.9 million in 1991 to $1.3 billion in 1996. In May 1997, in
furtherance of its growth strategy, the Company entered into an agreement to
acquire PFS, subject to certain conditions. See "The Transactions."
RESULTS OF OPERATIONS OF AMERISERVE
The following financial information presents certain historical financial
information of AmeriServe, expressed as a percentage of net sales, for the
fiscal years 1994, 1995 and 1996 and for the first quarters of 1996 and 1997.
FISCAL YEAR FIRST QUARTER
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............................... 10.6 10.2 10.1 10.2 10.2
EBITDA..................................... 1.9 1.8 2.0 1.3 1.3
Operating income........................... 1.0 1.1 1.1 0.6 0.4
32
38
FIRST QUARTER OF 1997 COMPARED TO FIRST QUARTER OF 1996
AmeriServ was acquired on January 26, 1996. Therefore, the first quarter of
1996 includes only nine weeks of operations related to the acquisition of
AmeriServ.
Net Sales. Net sales increased by $77.0 million, or 33.2%, during the
first quarter of 1997 as compared to the first quarter of 1996. The pro forma
effect of the AmeriServ acquisition accounted for $55.1 million, or 71.6%, of
such increase, and increased account penetration and new store openings
accounted for the remaining $21.9 million, or 28.4%, of such increase. The
increased account penetration in new store openings was principally a result of
successful marketing of the Company's service capabilities and attractive
pricing.
Gross Profit. Gross profit increased by $7.9 million, or 33.5%, during the
first quarter of 1997 as compared to the first quarter of 1996. The increase was
due to the pro forma effect of the AmeriServ acquisition ($5.2 million) and the
increase in sales ($2.7 million). Gross margin remained constant at 10.2% during
the first quarter of 1997 as compared to the first quarter of 1996.
EBITDA. EBITDA increased by $0.9 million, or 27.3%, during the first
quarter of 1997 as compared to the first quarter of 1996. The increase was a
result of the increased gross margin, offset by increased operating costs that
were primarily due to costs related to preparation for the commencement of
service to Arby's. EBITDA margin remained constant at 1.3% during the first
quarter of 1997 as compared to the first quarter of 1996.
Operating Income. Operating income decreased by $0.3 million, or 17.3%,
during the first quarter of 1997 as compared to the first quarter of 1996. The
decrease was due to increased (i) depreciation resulting from capital projects
and capital expenditures associated with the integration of AmeriServ and (ii)
amortization resulting from goodwill associated with the acquisition of
AmeriServ. Operating income margin decreased from 0.6% during the first quarter
of 1996 to 0.4% during the first quarter of 1997.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales. Net sales increased by $880.6 million, or 220.1%, during fiscal
1996 as compared to fiscal 1995. This increase was primarily due to the
acquisition of AmeriServ. The increase in net sales was net of certain account
resignations made during fiscal 1996. The Company regularly reviews the
profitability of its account portfolio, and at times decides to discontinue
relationships with accounts deemed not sufficiently profitable for the Company.
Gross Profit. Gross profit increased by $87.9 million, or 214.5%, during
fiscal 1996 as compared to fiscal 1995. The increase was due to the acquisition
of AmeriServ. Gross margin declined slightly from 10.2% during fiscal 1995 as
compared to 10.1% during fiscal 1996, due to the slightly higher cost of
products purchased by customers added through the AmeriServ acquisition.
EBITDA. EBITDA increased by $19.0 million, or 270.0%, during fiscal 1996
as compared to fiscal 1995. The overall increase was primarily due to the
AmeriServ acquisition. The EBITDA margin increased from 1.8% during fiscal 1995
to 2.0% during fiscal 1996, due to decreased operating costs offset by the
slight decline in gross margin.
Operating Income. Operating income increased by $10.0 million, or 234.2%,
during fiscal 1996 as compared to fiscal 1995. The increase was primarily due to
the increased EBITDA discussed above, offset by an increase in depreciation and
amortization of $7.3 million. The increased amortization and depreciation were a
result of the AmeriServ acquisition and the capital expenditures made by the
Company in 1996. Operating margin stayed the same at 1.1% in fiscal 1995 and
fiscal 1996.
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. Net sales increased by $41.5 million, or 11.6%, during fiscal
1995 as compared to fiscal 1994. This increase was primarily due to new store
openings by existing customers, increased account penetration and expanded
geographical coverage.
33
39
Gross Profit. Gross profit increased by $3.1 million, or 8.1%, during
fiscal 1995 as compared to fiscal 1994. The increase was due to new store
openings by existing customers, increased account penetration and expanded
geographical coverage, offset by lower gross margins. Gross margin decreased
from 10.6% during fiscal 1994 to 10.2% during fiscal 1995, consistent with
decreases in gross margin throughout the industry at that time.
EBITDA. EBITDA increased by $0.3 million, or 4.9%, during fiscal 1995 as
compared to fiscal 1994. The increase was primarily due to increased gross
profit dollars and lower operating expenses. EBITDA margin decreased from 1.9%
during fiscal 1994 to 1.8% during fiscal 1995 due to the lower gross margin,
offset by a decrease in operating expenses.
Operating Income. Operating income increased by $0.9 million, or 24.8%,
during fiscal 1995 as compared to fiscal 1994. The increase was primarily due to
the $0.3 million increase in EBITDA and a decrease of $0.5 million in
amortization and depreciation expense. As a result, operating income margin
increased from 1.0% during fiscal 1994 to 1.1% during fiscal 1995.
RESULTS OF OPERATIONS OF PFS
The following financial information presents certain historical financial
information of PFS, expressed as a percentage of net sales, for the fiscal years
1994, 1995 and 1996 and for the first quarter of 1996 and 1997.
FISCAL YEAR FIRST QUARTER
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
Net sales.................. 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............... 10.0 10.0 10.0 10.0 10.5
EBITDA..................... 3.2 2.8 2.9 2.7 2.7
Operating income........... 2.6 2.3 2.3 2.1 2.0
FIRST QUARTER 1997 COMPARED TO FIRST QUARTER 1996
Net Sales. PFS net sales of $720.5 million declined by $46.2 million, or
6.0%, during the first quarter of 1997 as compared to the first quarter of 1996,
primarily due to higher volumes in the first quarter of 1996 related to sales of
promotional items and lower store volumes in the current period, offset slightly
by an increased market share in the first quarter of 1997.
Gross Profit. Gross profit decreased by $1.4 million, or 1.8%, during the
first quarter of 1997 as compared to the first quarter of 1996, due to the
decrease in revenue during the first quarter of 1997. Gross margin increased
from 10.0% during the first quarter of 1996 to 10.5% during the first quarter of
1997, due to a shift in sales to higher margin products.
EBITDA. EBITDA decreased by $1.4 million, or 6.7%, during the first
quarter of 1997 as compared to the first quarter of 1996, due to the decrease in
revenue during the first quarter of 1997, as well as the impact of both higher
general and administrative expenses for fees incurred to implement a new
computer system and interest charges incurred to prepay a guaranteed cost
casualty program. EBITDA margin remained constant at 2.7% during the first
quarter of 1996 as compared to the first quarter of 1997.
Operating Income. Operating income declined by $1.6 million, or 9.9%,
during the first quarter of 1997 as compared to the first quarter of 1996. The
decrease was due to the revenue shortfall and higher expenses as noted above.
Depreciation expense increased slightly due to the impact of center expansions
completed during the first quarter of 1996. Operating income margin decreased
from 2.1% during the first quarter of 1996 to 2.0% during the first quarter of
1997, due to the lower EBITDA margin and the increased depreciation.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales. Net sales decreased by $36.9 million, or 1.1%, during fiscal
1996 as compared to fiscal 1995. This decrease was due to the impact of soft
sales in the equipment segment, which declined by $24.7 million
34
40
from fiscal 1995. Food and supply revenues declined by $12.2 million during
fiscal 1996 as compared to fiscal 1995, due to soft volumes in our customer
base, offset slightly by increased market share.
Gross Profit. Gross profit decreased by $3.3 million, or 1.0%, during
fiscal 1996 as compared to fiscal 1995, due to the decrease in revenue during
fiscal 1996. Gross margin was consistent with prior year results during fiscal
1996.
EBITDA. EBITDA increased by $1.3 million, or 1.4%, during fiscal 1996 as
compared to fiscal 1995. A favorable performance in distribution, general and
administrative expenses of $2.4 million during fiscal 1995, due to savings
generated from an operations restructuring performed during fiscal 1995 and the
impact of higher bad debt expense during fiscal 1995, contributed to the
increase. These items were partially offset by the gross margin decline
described above. EBITDA margin increased from 2.8% during fiscal 1995 to 2.9%
during fiscal 1996, due to the lower operating expenses.
Operating Income. Operating income increased by $0.3 million, or 0.3%,
during fiscal 1996 as compared to fiscal 1995. This increase was primarily due
to favorable performance in distribution, general and administrative expenses
and other income, largely offset by a decline in gross margin and increased
depreciation expense due to several distribution center expansions and the
relocation of a facility in Southern California. Operating income margin during
fiscal 1996 was consistent with the prior year's margin of 2.3%.
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. Net sales increased by $179.1 million, or 5.5%, during fiscal
1995 as compared to fiscal 1994, due to an increase in the number of units
served by an average of almost 1,000 stores, as well as increased product costs.
Strong food and supply sales were offset by soft sales in the equipment segment.
Gross Profit. Gross profit increased by $18.1 million, or 5.5%, during
fiscal 1995 as compared to fiscal 1994, due to the increase in revenue during
fiscal 1995. Gross margin was consistent with prior year results during fiscal
1995.
EBITDA. EBITDA decreased by $5.7 million, or 5.5%, during fiscal 1995 as
compared to fiscal 1994, despite a strong revenue performance, reflecting
increased bad debt expense and reduced leverage on distribution expense due to a
field restructuring during fiscal 1995. EBITDA margin decreased from 3.2% during
fiscal 1994 to 2.8% during fiscal 1995, due to the increased operating expenses.
Operating Income. Operating income decreased by $7.4 million, or 8.5%,
during fiscal 1995 as compared to fiscal 1994, due to increased distribution,
general and administrative expenses. Depreciation and amortization increased
during fiscal 1995 as compared to fiscal 1994, due to the relocation of a
distribution center and several center expansions. Operating income margin
decreased from 2.6% during fiscal 1994 to 2.3% during fiscal 1995 as a result of
the increased operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
Historical
The Company had $26.6 million of working capital at March 29, 1997 as
compared to $18.0 million at the end of fiscal 1996. The increase of $8.6
million was primarily due to increased receivables of $5.5 million, increased
inventory of $15.2 million and decreased accrued liabilities of $5.0 million,
offset by increased accounts payable of $25.4 million. The changes in working
capital were due to the increased business needs of the second quarter versus
the first quarter and preparation for the start of service to Arby's.
The Company had $18.0 million of working capital at December 28, 1996
compared to $10.5 million of working capital at December 30, 1995. The increase
was due to the working capital required to service the customer base of
AmeriServ, which was acquired on January 25, 1996.
The Company had $10.5 million of working capital at December 30, 1995 as
compared to $10.9 million of working capital at December 31, 1994. The decrease
was due to an increase in accounts payable.
35
41
During the first quarter of 1997, net cash used in operating activities was
$1.4 million. Net loss was $1.2 million and depreciation and amortization was
$2.7 million. Net cash used in investing activities was $6.8 million. Capital
expenditures were $2.3 million. Net cash provided by financing activities was
$10.0 million.
During the first quarter of 1996, net cash used in operating activities was
$4.6 million. Net loss was $0.6 million and depreciation and amortization was
$1.6 million. Net cash used in investing activities was $98.5 million. Capital
expenditures were $0.9 million. Net cash provided by financing activities was
$102.6 million.
During fiscal 1996, net cash provided by operating activities was $1.2
million. Net income was $2.5 million and depreciation and amortization was $10.1
million. Net cash used in investing activities was $105.0 million principally
used to purchase AmeriServ. Capital expenditures were $12.5 million. Net cash
provided by financing activities was $105.4 million.
During fiscal 1995, net cash provided by operating activities was $4.5
million. Net income was $0.5 million and depreciation and amortization was $2.8
million. Net cash used in investing activities was $5.6 million. Capital
expenditures were $2.5 million. Net cash provided by financing activities was
$0.6 million.
During fiscal 1994, net cash provided by operating activities was $4.3
million. Net income was $0.1 million and depreciation and amortization was $3.3
million. Net cash used in investing activities was $5.4 million. Capital
expenditures were $1.3 million. Net cash provided by financing activities was
$0.5 million.
Pro Forma
After the Transactions, the Company's primary capital requirements, on a
pro forma basis, will be for debt service, working capital and capital
expenditures. The Company believes that cash flow from operating activities,
cash and cash equivalents and borrowings under the New Credit Facility will be
adequate to meet the Company's short-term and long-term liquidity requirements
prior to the maturity of its long-term indebtedness, although no assurance can
be given in this regard. Under the New Credit Facility, the Revolving Credit
Facility will provide $150 million of revolving credit availability, of which
approximately $138.9 million will be available (after reductions of $11.1
million of letters of credit) for draw after Closing subject to customary
covenants. In addition, the Company may increase the Accounts Receivable
Program, further improving liquidity, although no assurance can be given that
the Receivables will be sufficient to increase the Accounts Receivable Program.
See "Risk Factors -- Substantial Leverage and Debt Service."
The Company estimates that capital expenditures for fiscal 1997 will be
approximately $35 million, which includes maintenance capital expenditures and
various planned and potential projects designed to increase efficiencies and
enhance the Company's competitiveness and profitability. Specifically, such
capital expenditures include the planned distribution center consolidation,
modification and expansion of certain distribution centers, integration and
upgrade of MIS and other general capital improvements.
SEASONALITY AND INFLATION
Historically, AmeriServe's sales and operating results have reflected
seasonal variations. The Company experiences lower net sales and income from
operations in the first and fourth quarters, with the effects being more
pronounced in the first quarter. Additionally, the effect of these seasonal
variations are more pronounced in regions where winter weather is generally more
inclement.
Inflation has not had a significant impact on the Company's operations.
Food price deflation could adversely affect the Company's profitability as a
significant portion of the Company's sales are at prices based on product cost
plus a percentage markup. The Company has not been adversely affected by food
price deflation in recent years.
36
42
ENVIRONMENTAL MATTERS
Under applicable environmental laws, the Company may be responsible for
remediation of environmental conditions and may be subject to associated
liabilities (including liabilities resulting from lawsuits brought by private
litigants) relating to its distribution centers and the land on which its
distribution centers are situated, regardless of whether the Company leases or
owns the stores or land in question and regardless of whether such environmental
conditions were created by the Company or by a prior owner or tenant.
The Company believes it currently conducts its business, and in the past
has conducted its business, in substantial compliance with applicable
environmental laws and regulations. In addition, compliance with federal, state
and local laws enacted for protection of the environment has had no material
effect on the Company. However, there can be no assurance that environmental
conditions relating to prior, existing or future distribution centers or
distribution center sites will not have a material adverse effect on the
Company.
In connection with the Acquisition, the Company reviewed existing reports
and retained environmental consultants to conduct an environmental audit of
PFS's operations in order to identify conditions that could have material
adverse effects on the Company. The Company is in the process of obtaining final
reports on the results of such audit with regard to PFS and does not believe
such reports will reveal any environmental matter that is likely to have a
material adverse effect on the Company.
37
43
THE BUSINESS
AmeriServe is North America's largest systems foodservice distributor
specializing in distribution to chain restaurants, the fastest growing segment
of the domestic restaurant industry. The Company is the primary supplier to its
customers of a wide variety of items, including fresh and frozen meat and
poultry, seafood, frozen foods, canned and dry goods, fresh and pre-processed
produce, beverages, dairy products, paper goods, cleaning supplies and
equipment. The Company serves over 30 different restaurant chains and over
26,500 restaurant locations in North America. The Company has had long-standing
relationships with such leading restaurant concepts as Pizza Hut, Taco Bell,
KFC, Wendy's, Burger King, Dairy Queen, Subway and Applebee's. The Company's
strategy is to capitalize on its market leading position, compelling industry
trends and management's extensive experience to: (i) pursue profitable internal
and external growth opportunities; (ii) capitalize on its nationwide network of
distribution centers to increase customer density and regional market
penetration; (iii) continue to provide low cost, superior customer service; and
(iv) maximize operating leverage by pursuing selective acquisitions within the
fragmented foodservice distribution industry. For the 12 months ended March 29,
1997, the Company generated pro forma net sales and Adjusted EBITDA of $4.8
billion and $145.2 million, respectively.
The Company has achieved a record of strong growth in net sales and EBITDA
by successfully implementing this strategy. From 1992 to 1996, exclusive of PFS,
the Company's net sales increased from $293.6 million to $1.3 billion,
representing a CAGR of 44.5%. During the same period, the Company's EBITDA,
exclusive of PFS, increased from $6.0 million to $26.0 million, representing a
CAGR of 44.1%. The Company believes it is well positioned to continue to expand
its presence in the systems foodservice distribution industry as a result of its
reputation for providing superior customer service as well as its ability to
provide low cost, efficient services. The Company believes that it was primarily
as a result of these factors that in January 1997 it was awarded a three-year
exclusive contract effective April 1997 to provide foodservice distribution to
approximately 2,600 Arby's restaurants. The Company estimates that this
contract, which management believes represents the single largest customer
migration in the systems foodservice distribution industry, will result in the
addition of approximately $325 million of net sales in the first 12 months of
such contract.
On May 23, 1997, in furtherance of its strategy, NEHC entered into an
agreement to acquire PFS, the foodservice distribution business of PepsiCo.
Prior to the Acquisition, PFS was North America's second largest systems
foodservice distributor, serving over 17,000 restaurants in the Pizza Hut, Taco
Bell and KFC restaurant systems. The Company expects to realize significant
benefits from the Acquisition, including: (i) enhanced customer and concept
diversification; (ii) increased customer density; (iii) broadened national and
international presence; and (iv) substantial cost savings and economies of
scale. In addition, in connection with the Acquisition, the Company has entered
into the Distribution Agreement, whereby it will be the exclusive distributor of
selected products for five years to the approximately 9,800 Pizza Hut, Taco Bell
and KFC restaurants in the continental United States owned by PepsiCo and
previously serviced by PFS. These restaurants accounted for approximately 68% of
PFS's 1996 net sales and 44% of the Company's 1996 pro forma net sales after
giving effect to the Arby's contract.
The Company believes it is well positioned to capitalize on the attractive
characteristics of the chain restaurant segment of the foodservice distribution
industry, which include: (i) the high growth rate of the segment, which
experienced an approximately 7.4% net sales CAGR from 1985 to 1995; (ii) the
uniformity of product offerings and consistency of demand by chain restaurant
customers; (iii) the increased focus by chain restaurants on foodservice
distributors that can provide consistent quality and reliable service on a
nationwide basis to maintain the chain's uniform standards; and (iv) the
fragmented nature of the industry, which includes over 3,000 foodservice
distribution companies. As the largest systems foodservice distributor serving
chain restaurants, the Company believes it is better positioned than its
competitors to offer consistent quality, reliable service and value on a
national scale in order to accommodate the growth of each customer.
38
44
FOODSERVICE DISTRIBUTION INDUSTRY
Generally
The foodservice distribution business involves the purchasing, receiving,
warehousing, marketing, selecting, loading and transportation of fresh and
frozen meat and poultry, seafood, frozen foods, canned and dry goods, fresh and
preprocessed produce, beverages, dairy products, paper goods, cleaning supplies,
equipment and other supplies from manufacturers and vendors to a broad range of
enterprises, including restaurants, cafeterias, nursing homes, hospitals, other
health care facilities and schools (but generally does not include supermarkets
and other retail grocery stores). The United States foodservice distribution
industry was estimated to generate $123 billion in sales in 1996.
Within the foodservice distribution industry, there are two primary types
of distributors: broadline foodservice distributors and specialist foodservice
distributors, such as the Company. Broadline foodservice distributors service a
wide variety of customers including both independent and chain restaurants,
schools, cafeterias and hospitals. Broadline distributors may purchase and
inventory as many as 25,000 different food and food-related items. Customers
utilizing broadline foodservice distributors typically purchase inventory from
several distributors. Specialist foodservice distributors may be segregated into
three categories: product specialists, which distribute a limited number of
products (such as produce or meat); market specialists, which distribute to one
type of restaurant (such as Mexican); and systems specialists, which focus on
one type of customer (such as chain restaurants or health care facilities).
Systems specialists, such as the Company, typically serve as a single source of
supply for their customers. In addition, chain restaurant foodservice
distributors are less vulnerable to customer migrations because much of their
inventory is proprietary to the restaurant concept. Also, broadline foodservice
distributors generally rely on sales representatives who must call on customers
regularly. Systems' distributors, however, regularly process orders
electronically without the need for a sales representative's involvement.
Systems Specialty -- Chain Restaurants
The Company operates as a systems distributor that specializes in servicing
chain restaurants. The chain restaurant segment represents a significant portion
of the foodservice distribution industry, with 1996 industry sales in this
segment estimated by the Company to be approximately $103 billion at the retail
level and approximately $44 billion at the distributor level. In addition,
retail sales in this segment are estimated to have grown at a CAGR of
approximately 7.4% from 1985 to 1995, reflecting both the growth of existing
chain restaurants and the introduction of new chain restaurant concepts. The
chain restaurant market at the retail level is projected to grow from $103
billion in 1996 to $162 billion by 2005, representing a ten-year inflation
adjusted CAGR of approximately 5%.
The Company believes a significant factor influencing growth in the systems
distribution market share segment is the ability of the systems distributor to
provide consistently high quality and reliable distribution services at
competitive prices, which has resulted in customers' forming long-term
relationships with their systems distributor in order to tailor specific
programs that meet the particular needs of the customer while creating operating
and cost efficiencies for both the customer and the systems distributor.
The Company believes that systems distributors are better able to service
chain restaurants than broadline distributors because the Company believes
systems distributors are often able to offer their customers a higher quality of
service at a lower cost. Given the uniformity of product offerings and the
consistency of demand of chain restaurants, a systems distributor has the
opportunity to reduce its overall costs and consequently those of its customers
through purchasing and holding fewer SKUs in inventory than a broadline
distributor. This reduces both the inbound and outbound freight costs through
higher volumes and larger drop sizes and provides more efficient and reliable
distribution schedules, thereby reducing labor costs of both the systems
distributor and its customer. In addition, systems distributors generally
require a smaller sales force than broadline distributors. The Company believes
that the uniformity of product offerings, frequency of deliveries and magnitude
of volumes allow a systems distributor to chain restaurants to significantly
improve net asset turnover as compared to a broadline distributor. In addition,
management believes that the larger systems distributors have the volume and
scale to offer chain restaurants an
39
45
opportunity to further reduce their costs through value-added services, such as
procurement of nonproprietary items and in-bound freight logistics management.
In addition, larger systems distributors can invest in technology and business
processes, such as electronic order entry, to reduce the cost of distributing to
the restaurants.
The Company believes that it has the leading market share in the chain
restaurant foodservice distribution segment. The foodservice distribution
industry remains highly fragmented and continues to experience significant
consolidation. The number of foodservice distributors has decreased from
approximately 3,600 in 1985 to approximately 3,000 in 1997, with a significant
increase in the market shares of the largest distributors. The Company
anticipates that further consolidation may take place in this segment and
intends to be a leading participant in any such further consolidation.
BUSINESS STRATEGY
The Company's objective is to continue to grow net sales and EBITDA by
implementing the following key elements of its business strategy:
- Continue to Pursue Internal and External Growth Opportunities. The
Company intends to continue to grow through a combination of the
development of new business from existing customers, the addition of new
chains, international expansion and selective acquisitions.
Growth From Existing Chains. As the primary foodservice distributor
to most of its customers, the Company expects to benefit from the continued
growth of the domestic chain restaurant industry, the fastest growing
sector of the restaurant industry. From 1985 to 1995, the chain restaurant
segment experienced an approximately 7.4% net sales CAGR, which exceeds the
estimated 3.0% CAGR experienced by the overall restaurant industry. The
Company expects to realize growth from its existing base of customers and
concepts primarily due to: (i) increased traffic within existing
restaurants; (ii) the addition of new product lines; (iii) new restaurant
development and restaurant acquisitions by existing customers; and (iv) the
addition of new customers within concepts currently serviced by the
Company.
Growth Through Addition of New Chains. The Company continually
monitors the marketplace for opportunities to expand its portfolio of
customers and concepts. The Company targets (i) chains operating in
geographic areas where the Company could benefit from increased customer
density, further enhancing its operating leverage, and (ii) concepts that
could benefit from the Company's national presence and superior customer
service. In April 1997, the Company began operating under a recently
awarded three-year exclusive contract to provide foodservice distribution
to over 2,600 Arby's restaurants nationwide. The Company estimates that
this contract, which management believes represents the single largest
customer migration in the systems foodservice distribution industry, will
result in the addition of approximately $325 million of net sales in the
first 12 months of such contract. In addition, the Company plans to pursue
additional export opportunities and further expand its operations in
international markets. After giving effect to the Acquisition, the Company
exports products from its distribution centers in the United States to
approximately 65 foreign countries.
Pursue Selective Acquisition Opportunities. As North America's
largest systems foodservice distributor serving chain restaurants, the
Company believes it is well positioned to capitalize on the consolidation
taking place in the fragmented foodservice distribution industry. The
number of foodservice distributors has decreased from approximately 3,600
in 1985 to approximately 3,000 in 1997, with a significant increase in the
market shares of the largest distributors. The Company intends to continue
to make strategic fold-in acquisitions in order to augment its operations
in existing markets, enhance customer density and further reduce costs.
- Capitalize on the Benefits of the PFS Acquisition. Management believes
that combining the operations of AmeriServe and PFS will present it with
opportunities to eliminate duplicative costs and realign the Company's
distribution center network to effectively capitalize on economies of
scale and the benefits of higher customer density. Management has
identified approximately $27 million of annual cost savings, which it
believes it can achieve through the elimination of general and
40
46
administrative expenses and the consolidation of distribution centers in
certain markets. Following the Acquisition, the Company expects to reduce
the number of current distribution centers from 39 to 29. In addition,
the five-year Distribution Agreement will further secure the Company's
customer base and provide for a long-term contract covering approximately
44% of the Company's pro forma 1996 net sales after giving effect to the
Arby's contract.
- Continue to Maximize Operating Leverage. As the largest systems
foodservice distributor in North America, the Company pursues a low-cost
operating strategy based primarily on achieving economies of scale in the
areas of warehousing, transportation, general and administrative
functions and management information systems. The Company generates
significant operating leverage by utilizing large distribution centers
strategically within each of its geographic markets, enabling it to: (i)
service multiple concepts from the same warehouse; (ii) maximize the
density of restaurants served from each facility; (iii) optimize delivery
routes; (iv) invest in advanced technology, which increases operational
efficiencies and enhances customer service; and (v) manage inventory more
efficiently.
- Continue to Provide Superior Customer Service. The Company believes it
enjoys a reputation for providing consistent, high quality service based
on its customer focus, its commitment to service excellence and the depth
of its management team. The Company has successfully implemented a
decentralized management structure that enables the Company to respond
quickly and flexibly to local customer needs. The Company typically
interacts with its customers on a daily basis, and generally makes
multiple deliveries to each restaurant each week. The Company measures
daily its service performance by continuously monitoring the accuracy and
promptness of deliveries. The Company's advanced computer systems are
linked to many of its customers' locations, enabling customers to
communicate electronically with the Company, thereby reducing the
Company's administrative costs, and enabling it to more efficiently
respond to customers' needs. In addition, the Company's national presence
allows it to provide consistent and reliable service to national
restaurant concepts with geographically diverse locations.
CUSTOMERS
The Company's customers are generally individual franchisees or
corporate-owned restaurants of chain restaurant concepts. The Company's
customers include over 30 restaurant concepts with over 26,500 restaurant
locations. The corporate owner or franchisor of the restaurant concept generally
reserves the right to designate one or more approved foodservice distributors
within a geographic region, and each franchisee is typically allowed to select
its foodservice distributor from such approved list.
Concept Mix and Concentration
On a pro forma basis after giving effect to the Transactions and the Arby's
contract, the Company's net sales in 1996 to its largest restaurants concepts
were as follows:
PERCENTAGE OF 1996 NET SALES
--------------------------------
PRO FORMA
CONCEPT AMERISERVE PFS COMBINED
------------------------------------------------------- ---------- --- ---------
Pizza Hut restaurants(1)............................... 43% 28%
Taco Bell restaurants(2)............................... 43% 28%
KFC restaurants(3)..................................... 7% 14% 12%
Wendy's restaurants.................................... 30% 10%
Arby's restaurants..................................... 17% 6%
Burger King restaurants................................ 14% 5%
- ---------------
(1) PepsiCo -- owned Pizza Hut restaurants accounted for approximately 17.4% of
pro forma combined net sales.
41
47
(2) PepsiCo -- owned Taco Bell restaurants accounted for approximately 18.3% of
pro forma combined net sales.
(3) PepsiCo -- owned KFC restaurants accounted for approximately 7.9% of pro
forma combined net sales.
On a pro forma basis after giving effect to the Transactions and to the
Arby's contract, aggregate sales to PepsiCo Chains would have represented 44% of
the Company's 1996 net sales. No other single customer accounted for more than
10% of the Company's pro forma net sales in fiscal 1996. See "Risk Factors --
Dependence on Certain Chains and Customers."
Length of Customer Relationships
The Company has enjoyed long and successful relationships with its
customers that, in many cases, date back to the initial start-up of the
concept's operations. The following table illustrates concepts that are serviced
by the Company and the number of years the Company has serviced customers within
these concepts:
YEARS AS A
CONCEPT CUSTOMER
-------------------------------------------------- ----------
Dairy Queen....................................... 46
Burger King....................................... 36
KFC............................................... 26
Wendy's........................................... 21
Pizza Hut......................................... 20
Taco Bell......................................... 18
Applebee's........................................ 8
Subway............................................ 6
The Distribution Agreement entered into with PepsiCo will provide the
Company with exclusive distribution rights for certain restaurant products to
approximately 9,800 Pizza Hut, Taco Bell and KFC restaurants for a five-year
term. Historically, PFS has had great success retaining business with
restaurants formerly owned by PepsiCo that have been refranchised. The
increasing penetration of franchise restaurants and the strong refranchising
retention rate have resulted in an overall net increase in restaurants served
every year. PFS's high level of customer satisfaction is a direct result of
management's emphasis on customer service. PFS's field level management is
responsible for maintaining and reinforcing long-standing partnerships with the
Pizza Hut, Taco Bell and KFC restaurants.
In January 1997, the Company entered into a three-year agreement, which
became effective April 1997, to become the primary supplier to approximately
2,600 Arby's restaurants nationwide. Management believes this to be the single
largest customer migration in the systems foodservice distribution business. The
Company services these restaurants together with three other cooperating
distributors. The cooperating distributors currently serve Arby's restaurants
located outside the Company's pre-Acquisition primary service territory. The
Company expects to generate at least $325 million of net sales during the first
12 months of the Distribution Agreement. See "Risk Factors -- Key Contracts."
OPERATIONS AND DISTRIBUTION
The Company's operations generally can be categorized into three business
processes: product replenishment, product storage and order fulfillment. Product
replenishment involves the management of logistics from the vendors through the
delivery of products to the Company's distribution centers. Product storage
involves the warehousing and rotation of temperature-controlled inventory at the
distribution centers pending sale to customers. Order fulfillment involves all
activities from customer order placement and selecting and loading through
delivery from the distribution centers to the restaurant location. Supporting
these processes is the Company's nationwide network of distribution centers, its
fleet of approximately 900 tractors and 1,200 trailers and its management
information systems. Substantially all the Company's products are purchased,
stored and delivered in sealed cases, that the Company does not open or alter.
42
48
Product Replenishment
While the Company is responsible for purchasing products to be delivered to
its customers, chain restaurants typically approve the vendors and negotiate the
price for their proprietary products. The Company determines the distribution
centers that will warehouse products for each customer and the quantities in
which such products will be purchased. Order quantities for each product are
systematically determined for each distribution center, taking into account both
recent sales history and projected customer demand. The distribution centers
selected to serve a customer are based on the location of the restaurants to be
serviced.
The Company works with its chain customers in order to optimize
transportation from vendor locations to distribution centers. By utilizing the
collective demand of its customers for inbound transportation, its existing
fleet of trucks, and its expertise in managing transportation, the Company can,
in many instances, offer its customers inbound transportation on a more
economical basis than the vendors that have traditionally provided such
services. The Company believes it can offer its customers lower inbound
transportation costs through (i) the use of the Company's delivery fleet to
backhaul products, and (ii) the consolidation of products from more than one
vendor or for use by more than one customer to increase truckloads and brokering
freight to third-party carriers with whom the Company has negotiated lower
transportation rates.
Product Storage
The Company currently warehouses approximately 1,100 to 5,500 SKUs
(excluding the redistribution and equipment distribution centers) for its
customers at 36 facilities in 30 metropolitan areas. Upon receipt of the product
at the distribution centers, the product is inspected and stored in pallets, in
racks or in bulk in the appropriate temperature-controlled environment. Products
stored at the distribution centers are generally not reserved for a specific
customer. Rather, customer orders are filled from the common inventory at the
relevant distribution center. The Company's computer systems continuously
monitor inventory levels in an effort to maintain optimal levels, taking into
account required service levels, buying opportunities and capital requirements.
Each distribution center contains ambient, refrigerated (including cool docks)
and frozen space, as well as offices for operations, sales and customer service
personnel and a computer network, accessing systems at other distribution
centers and the Company's corporate support centers.
A majority of the Company's distribution centers are between 100,000 to
200,000 square feet with approximately 20% refrigerated storage space, 30%
frozen storage space and 50% dry storage area. The Company uses sophisticated
logistics programs to strategically locate new distribution centers in areas
near key highways with specific consideration given to the proximity of
customers and suppliers. The Company also employs consultants in distribution
center layout and product flow to design the distribution center with the
objective of maximizing product throughput. The Company estimates that each
distribution center can effectively service customers within a 350 mile radius,
although the Company's objective is to service customers within a 150 mile
radius.
Order Fulfillment
The Company places a significant emphasis on providing high quality service
in order fulfillment. By providing high quality service and reliability, the
Company believes that it can reduce the number of reorders and redeliveries,
reducing costs for both the Company and its customers. Each restaurant places
product orders based on recent usage, estimated sales and existing restaurant
inventories. The Company uses its management information systems to continually
update routes and delivery times with each customer in order to lower
fulfillment costs. Product orders are placed with the Company one to three times
a week either through the Company's customer service representatives or through
electronic transmission using specially designed software. Many of the
restaurants served by the Company transmit product orders electronically.
Once ordered by the customer, products are picked and labeled at each
distribution center, and the products are generally placed on a pallet for the
loading of outbound trailers. Delivery routes are scheduled to both fully
utilize the trailer's load capacity and minimize the number of miles driven in
order to exploit the cost benefit of customer density.
43
49
Fleet
The Company operates a fleet of approximately 900 tractors and 1,200
trailers. The Company leases approximately 300 of the tractors from General
Electric Capital Corp. pursuant to full-service leases that include maintenance,
licensing and fuel tax reporting. The Company owns approximately 600 tractors
and approximately 800 trailers. The remaining trailers are leased under similar
full-service leases from a variety of leasing companies. Lease terms average six
years for new tractors and nine years for new trailers.
Most of the Company's vehicles contain onboard computers. The computers
assist in managing fleet operations and provide expense controls, automated
service level data collection and real-time driver feedback, thereby enhancing
the Company's service level to customers. Data from the onboard computers are
loaded into the routing software after each route in order to continually
optimize the route structure. Substantially all of the Company's trailers
contain three temperature-controlled compartments, which allow the Company to
simultaneously deliver frozen food, refrigerated food and dry goods.
Management Information Systems
AmeriServe and PFS currently operate with different computer systems.
AmeriServe utilizes a variety of personal computer and IBM AS/400-based software
applications. PFS also operates with a variety of applications, the core of
which are mainframe-based. Both companies have invested significantly in their
systems, and both consider their systems to be among the leaders in the
industry. Programs in use include various customized and special-purpose
applications, such as warehouse management tools, remote order entry, automated
replenishment, delivery routing, and onboard computers for delivery trucks.
Following the Acquisition, the Company intends to replace its core
applications with software from J.D. Edwards in order to integrate the systems
of AmeriServe and PFS. This conversion process is expected to take 18 to 24
months to complete and will result in all of the Company's distribution centers
operating with the same computer systems and the same operating policies and
practices.
Procurement, Logistics and Re-Distribution
The Company procures a wide range of food, paper and cleaning products for
ultimate distribution to its chain restaurant customers. These products include
fresh and frozen meat and poultry, seafood, frozen foods, canned and dry goods,
fresh and preprocessed produce, beverages, dairy products, paper goods, cleaning
supplies and equipment. The Company is also exclusively responsible for the
inventory management of these items for its customers. The Company also operates
two re-distribution centers for the purpose of purchasing slow-moving inventory
items and consolidating these items into full truckload shipments to the
Company's distribution centers nationally, as well as to customers outside the
Company. The re-distribution division has been approved as a national
consolidation point for Burger King, Dairy Queen, Arby's, KFC, Taco Bell, Pizza
Hut and several other chains. The major benefits of consolidation are: (i)
effective reduction of inbound freight costs; and (ii) increased distributor
inventory turns, providing optimal quantity purchase opportunities and
optimizing the inventory management of both the Company's distribution centers
and the chain customers. The Company also offers re-distribution services to
customers outside of the continental U.S.
The Company operates a freight logistics division for the purpose of
achieving the lowest landed costs to its distribution centers through the review
of purchase orders generated at the various distribution centers. The Company
generates freight savings through leveraged purchasing, with key carriers
operating in defined traffic lanes. This division also provides logistical
services to a substantial number of customers outside of the Company on a fee
basis. Current inbound purchase orders controlled by this division exceed 2,500
truckloads monthly. Further, the Company operates a nationally registered common
carrier fleet of temperature-controlled tractor-trailer units. This division
serves as a "core-carrier" to several national food manufacturers and is an
integral part of the Company's inbound freight logistics initiative.
44
50
MARKETING AND CUSTOMER SERVICE
The Company employs national and regional marketing representatives who
service existing customers, as well as focus on developing new customers from
among other restaurant concepts. Additionally, each division President and
certain members of senior management are active in maintaining relationships
with current and potential customers. The Company compensates its sales and
marketing representatives under various compensation plans, which combine a base
pay with an incentive bonus.
The Company's customer service activities are highly customized to the
unique needs of each customer. Each customer has a dedicated account manager who
is responsible for overseeing all of a customer's needs and coordinating the
services provided to such customer. In order to manage problem resolution, the
Company tracks customer calls to ensure that appropriate action and follow-up
occur. The Company's representatives travel frequently to the customer's
restaurant or office for regularly scheduled meetings and key project reviews to
ensure close coordination between the Company and the customer.
A key component of the Company's marketing plan is the use of customized
information systems to improve customer service, and to assist the customer in
the daily operation of its business. The Company utilizes on-line order entry
inventory systems, which permit the Company to simultaneously take orders,
compare the order to previous orders, track and replenish inventory and schedule
the delivery. In addition to placing orders, certain customers may also access
their own accounts, and inventory information, and print copies of order
acknowledgments, invoices and account statements. This electronic data
interchange system provides certain customers with access to the Company's
information systems at their convenience and enables the Company to accept
orders 24 hours a day, seven days a week. The electronic data interchange not
only allows for greater efficiencies, but also produces reduced administrative
expenses and fewer ordering errors. The Company believes that this system
provides customers with superior value-added services, which strengthens the
relationship between the Company and its customers and creates certain
competitive strengths.
COMPETITION
The foodservice distribution industry is highly competitive. Competitors
include other systems distribu-
tion companies focused on the chain restaurants and captive, multi-unit
franchisor-owned distribution companies and broadline foodservice distributors.
The Company competes directly with other systems specialists that target
chain restaurant concepts. The Company's principal competitors are ProSource,
Inc., Sysco Corporation's Sygma division, Marriott Distribution Services Inc.,
Alliant Foodservice Inc. and MBM Corp. The Company also competes with regional
and local distributors in the foodservice industry, principally for business
from franchisee-owned chain restaurants. National and regional chain restaurant
concepts typically receive service from one or more systems distributors.
Distributors are appointed or approved to service these concepts and/or their
franchisees on either a national or regional basis. The Company believes that
distributors in the foodservice industry compete on the bases of quality,
reliability of service and price. Because a number of the Company's customers
prefer a distributor that is able to service their restaurants on a nationwide
basis, the Company believes that it is in a strong position to retain and
compete for national chain restaurant customers and concepts. The Company
believes that restaurant management, in general, is reluctant to change
distributors or use multiple distributors if service and prices are
satisfactory. Accordingly, the ability to provide quality service and deliver
the products in a timely, dependable manner is the key to building, as well as
maintaining, customer relationships. The Company believes it has an excellent
reputation as a prompt and reliable systems foodservice distributor with
competitive prices.
Opportunities for growth by gaining access to new chains typically occur at
the expense of a competitor and are awarded in a bid or negotiation situation,
in which large blocks of business are awarded to the most efficient distributor.
The Company believes that a key competitive advantage is continuously pursuing a
strategy of being the low-cost provider of distribution and other value-added
services within the industry. See "Risk Factors -- Competition."
45
51
LITIGATION
From time to time the Company is involved in litigation relating to claims
arising out of its normal business operations. The Company is not currently
engaged in any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on the Company.
REGULATORY MATTERS
The Company is subject to a number of federal, state and local laws,
regulations and codes, including those relating to the protection of human
health and the environment, compliance with which has required, and will
continue to require, capital and operating expenditures. The Company believes
that it is in compliance, in all material respects, with all such laws,
regulations and codes. The Company, however, is not able to predict the impact
of any changes in the requirements or mode of enforcement of these laws,
regulations and codes on its operating results.
EMPLOYEES
As of March 27, 1997, after giving effect to the Acquisition, the Company
had approximately 5,100 full-time employees, approximately 500 of whom were
employed in corporate support functions and approximately 4,600 of whom were
warehouse, transportation, sales, and administrative staff at the distribution
centers. As of such date, approximately 275 of the Company's employees were
covered by two collective bargaining agreements. One such collective bargaining
agreement, covering approximately 200 employees will expire in January 1998. The
other such collective bargaining agreement, covering approximately 75 employees,
will expire at the end of November 1998. The Company has not experienced any
significant labor disputes or work stoppages and believes that its relationships
with its employees are good. Substantially all full-time employees who are over
age 21 and have completed one year of service with the Company are eligible to
participate in the Company's 401(k) plans.
46
52
FACILITIES
The Company currently operates 39 distribution centers located throughout
the United States and Canada as follows:
AMERISERVE PFS
- ------------------------------------------------- -------------------------------------------------
APPROXIMATE LEASED/ APPROXIMATE LEASED/
LOCATION SQUARE FEET OWNED LOCATION SQUARE FEET OWNED
- --------------------------- ----------- ------- --------------------------- ----------- -------
Albuquerque, NM............ 65,000 Leased Albany, NY................. 104,000 Leased
Canton, MS................. 80,500 Leased Arlington, TX.............. 105,600 Leased
Charlotte, NC.............. 158,500 Owned Charlotte, NC.............. 91,771 Leased
Denver, CO................. 119,000 Leased Columbus, OH............... 143,903 Leased
Fort Worth, TX............. 113,000 Leased Denver, CO................. 74,360 Leased
Gainesville, FL............ 53,000 Leased Gulfport, MS............... 63,792 Leased
Grand Rapids, MI........... 180,000 Leased Houston, TX................ 69,800 Leased
Hebron, KY................. 124,000 Leased Indianapolis, IN........... 115,200 Leased
Jacksonville, FL........... 119,600 Leased Indianapolis, IN(3)........ 180,100 Leased
Lemont, IL(1).............. 105,000 Leased Jonesboro, GA.............. 124,076 Leased
Madison, WI(1)............. 123,000 Leased Lenexa, KS................. 105,600 Leased
Norcross, GA............... 169,900 Owned Manassas, VA............... 100,337 Owned
Omaha, NE.................. 105,000 Leased Memphis, TN................ 70,750 Leased
Orlando, FL(2)............. 268,000 Leased Milwaukee, WI.............. 123,185 Leased
Plymouth, MN............... 104,200 Leased Mississauga, Ontario....... 53,487 Leased
Salt Lake City, UT......... 31,000 Leased Mt. Holly, NJ.............. 126,637 Leased
Waukesha, WI(4)............ 196,000 Leased Novi, MI................... 72,830 Leased
Oklahoma City, OK.......... 52,500 Leased
Ontario, CA................ 201,454 Leased
Orlando, FL................ 115,240 Leased
Portland, OR............... 81,815 Leased
Stockton, CA............... 105,000 Leased
Tempe, AZ.................. 67,660 Leased
- ---------------
(1) Re-distribution facilities
(2) Under construction
(3) PFS restaurant equipment distribution center
(4) Capital lease
Within five years of December 31, 1996, two of the Company's distribution
center leases are due to expire. The Company believes that it will be able to
renew expiring leases at reasonable rates in the future. The Company believes
that its existing distribution centers, together with planned modifications and
expansions, provide sufficient space to support its expected expansion over the
next several years.
47
53
THE ACQUISITION
Pursuant to the Asset Purchase Agreement, which was assigned to the Company
at the Closing (with the Canadian agreement being assigned to a Canadian
subsidiary of the Company at Closing), the Company acquired substantially all of
the assets and properties used or held for use by PFS for a price of $830.0
million in cash, subject to adjustment, and assumed certain liabilities.
The Asset Purchase Agreement contains customary representations and
warranties from PepsiCo with respect to the assets and liabilities of PFS.
PepsiCo has agreed to indemnify NEHC and its affiliates, including the Company,
for any loss (i) resulting from any breach of any such representation, warranty
or agreement made by PepsiCo, provided, however, that such indemnity is limited
to cover only losses in excess of $3.0 million in the aggregate; or (ii)
resulting from or arising out of any liability or obligation not expressly
assumed by the Company pursuant to the Asset Purchase Agreement. The Company has
agreed to indemnify PepsiCo and its affiliates for any loss resulting from any
breach of any representation, warranty or agreement made by the Company pursuant
to the Asset Purchase Agreement or the operation of PFS by the Company after the
Closing. PepsiCo has agreed to refrain from actively and directly soliciting any
officer, manager or key employee of the Company without the prior written
consent of the Company for the 12 months following the Closing.
On July 11, 1997, pursuant to the Asset Purchase Agreement, the Company and
its affiliates, on the one hand, and PepsiCo and its affiliates, on the other
hand, authorized Chase Manhattan Bank, N.A., as escrow agent (the "Escrow
Agent"), to deliver all of the documents to be delivered by such party at the
Closing. The Company also delivered the amount due under the escrow agreement
entered into on June 11, 1997 (as described hereafter). The transactions
effected at the Closing were effected without any further act or instrument of
either party.
DISTRIBUTION AGREEMENT
Upon consummation of the Acquisition, the Company was assigned and assumed
the Sales and Distribution Agreement (the "Distribution Agreement") dated as of
May 6, 1997, as amended as of May 29, 1997 by and among PFS and PepsiCo's chain
restaurant businesses (the "PepsiCo Chains"). The Distribution Agreement
provides that the Company will be the exclusive distributor of specified
restaurant products purchased by the Pizza Hut, Taco Bell and KFC restaurants
within the continental United States, which are owned by the PepsiCo Chains as
of the Closing (other than certain specified restaurants), or which are acquired
or built by the PepsiCo Chains during the term of the Distribution Agreement.
The Distribution Agreement will continue to cover restaurants refranchised by
PepsiCo (other than KFC restaurants) for the five-year term. Additionally, the
Distribution Agreement provides that the Company will be an approved distributor
of specified restaurant products sold to all Pizza Hut, Taco Bell and KFC
restaurants, whether franchised or owned by the PepsiCo Chains, in the United
States, Canada or the countries to which PFS currently exports restaurant
products from its distribution centers in the United States. The Distribution
Agreement will be effective from the Closing and through the fifth anniversary
of the Closing, unless renewed or extended by mutual agreement of the parties.
The Distribution Agreement may be terminated at any time (i) by any party in the
event that the other party breaches any material term and such breach remains
unremedied for a period of 30 calendar days after written notice of such breach
from the non-breaching party, (ii) by the PepsiCo Chains if the Company is in
material breach of the Distribution Agreement for failure to maintain specified
service levels for a specified period, or (iii) by any party in the event that
the other party becomes the subject of a bankruptcy, insolvency or other similar
proceeding. See "Risk Factors -- Key Contracts."
48
54
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of August 1, 1997,
with respect to each person who is an executive officer or director of the
Company, as indicated below:
NAME AGE TITLE
----------------------------------- --- -----------------------------------
John V. Holten..................... 40 Director, Chairman and Chief
Executive Officer
John R. Evans...................... 57 Director and Vice Chairman
Raymond E. Marshall................ 47 Director, President and Treasurer
Daniel W. Crippen.................. 45 Director and Chief Operating
Officer
William F. Woodall................. 50 President and Chief Operating
Officer, Procurement Group
Donald J. Rogers................... 37 Chief Financial Officer and
Secretary
Edward Zielinski................... 45 Senior Vice President -- Operations
Stanley Szlauderbach............... 48 Senior Vice President -- Controller
Gunnar E. Klintberg................ 48 Director and Vice President
A. Petter Ostberg.................. 35 Vice President
Leif F. Onarheim................... 62 Director
Peter T. Grauer.................... 51 Director
Benoit Jamar....................... 42 Director
John V. Holten. Mr. Holten has served as Chairman and Chief Executive
Officer of Holberg since its inception in 1986. Mr. Holten was Managing Director
of DnC Capital Corporation, a merchant banking firm in New York City, from 1984
to 1986. Mr. Holten received his M.B.A. from Harvard University in 1982 and he
graduated from the Norwegian School of Economics and Business Administration in
1980.
John R. Evans. Mr. Evans has been in the foodservice distribution industry
for nearly forty years, all of which have been with the Company or its
predecessors. Mr. Evans became President of Evans in 1971, and was named Chief
Executive Officer of the combined company when Evans merged with NEBCO in 1990.
Along with building Evans from its infancy, Mr. Evans has played an active
leadership role in the industry. Mr. Evans obtained his degree from Spencerian
College and serves on the Board of Directors of each of M&I Northern Bank,
Aerial Company, Inc., AFI Inc., and AmeriServe.
Raymond E. Marshall. Mr. Marshall has 27 years of foodservice distribution
experience, including 24 years with the Company or its predecessors. Mr.
Marshall progressed through management positions in virtually all areas of NEBCO
before being named President and Chief Executive Officer in 1980. In 1989, at
the time of the merger between NEBCO and Evans, Mr. Marshall was named President
and Chief Operating Officer of NEBCO EVANS. He took on his new position as
President of AmeriServe in April 1996. Mr. Marshall earned his PMD from Harvard
Business School in 1980 after attending the University of Omaha and serves on
the Board of Directors of each of NEHC, AmeriServe and Independent Distributors
of America ("IDA").
Daniel W. Crippen. Mr. Crippen has spent the last 20 years in the
foodservice distribution business with Post. In addition, Mr. Crippen was
appointed to his present position at AmeriServe in April 1997. He is Chairman of
the Board of Directors of IDA. Mr. Crippen received his B.A. from Augustana
College in Rock Island, Illinois in 1973 and is a certified public accountant.
William F. Woodall. Mr. Woodall has over 18 years' experience in the
distribution industry. Mr. Woodall worked as Transportation Director for
Perlman/Rocque Company from 1978 to 1980. From 1980 to 1982 he was Vice
President for Distribution of Chart House, Inc. In 1982, Mr. Woodall became
President of IDA, and in 1990 founded Chicago Consolidated Company ("CCC"). Mr.
Woodall was
49
55
appointed to his present position as President and Chief Operating Officer of
the Procurement Group at AmeriServe in April 1996. Mr. Woodall attended the
University of Illinois at Chicago. He is currently on the Board of Directors of
EMCO, Inc. and holds various other positions with industry organizations. He
served four years in the United States Navy -- Aviation, and was a police
officer for eight years.
Donald J. Rogers. Mr. Rogers joined AmeriServe in March 1993 after
spending five years with Holberg. While at Holberg, Mr. Rogers worked closely
with AmeriServe's management on a variety of projects. Before joining Holberg,
Mr. Rogers held financial analyst positions at The Dun & Bradstreet Corporation
and Keypoint Financial Corporation and spent three years in a management
training program at Metropolitan Life Insurance Company. Mr. Rogers earned an
M.B.A. from UCLA Graduate School of Management in 1987 and his B.S. degree from
The Wharton School, University of Pennsylvania in 1982.
Edward Zielinski. Mr. Zielinski joined AmeriServe in 1996 from Alliant
Foodservice Inc. (formerly Kraft Foodservice) where he held the position of
Director of Logistics and Field Operations since 1990, with responsibility for
the management and operating performance of all field operations throughout the
company. Prior to Alliant, Mr. Zielinski held a variety of logistics and
industrial engineering positions with various companies including Baxter
Healthcare Corporation, Edward Don, National Can Industries and Amway. Mr.
Zielinski holds a B.S. Degree from the University of Illinois and an M.B.A. from
the Rochester Institute of Technology.
Stanley Szlauderbach. Mr. Szlauderbach joined AmeriServe in 1996. Before
joining AmeriServe, Mr. Szlauderbach spent the past 14 years at PepsiCo, where
his experience included eight years as Corporate Director in charge of all
external financial reporting and three years as Assistant Controller at Pizza
Hut. Prior to PepsiCo, Mr. Szlauderbach spent seven years in various accounting
positions at Pullman, Inc. and four years with Price Waterhouse LLP. Mr.
Szlauderbach is a certified public accountant and earned his Bachelors Degree in
accounting from the University of Illinois.
Gunnar E. Klintberg. Mr. Klintberg has served as Vice Chairman of Holberg
since its inception in 1986. Mr. Klintberg was a Managing Partner of DnC Capital
Corporation, a merchant banking firm in New York City, from 1983 to 1986. From
1975 to 1983, Mr. Klintberg held various management positions with the Axel
Johnson Group, headquartered in Stockholm, Sweden. Mr. Klintberg headed up the
Axel Johnson Group's headquarters in Moscow from 1976 to 1979 and served as
assistant to the President of Axel Johnson Group's $1 billion operation in the
U.S., headquartered in New York City, from 1979 to 1983. Mr. Klintberg received
his undergraduate degree from Dartmouth College in 1972 and a degree in Business
Administration and Economics from the University of Uppsala, Sweden in 1974.
A. Petter Ostberg. Mr. Ostberg joined Holberg in 1994 and was appointed
Chief Financial Officer of Holberg in 1997. Prior to joining Holberg, Mr.
Ostberg held various finance positions from 1990 to 1994 with New York Cruise
Lines, Inc., including Group Vice President, Treasurer and Secretary. Prior to
joining New York Cruise Lines, Inc., Mr. Ostberg was General Manager of Planter
Technology Ltd. in Mountain View, California, and from 1985 to 1987, Mr. Ostberg
was a Financial Analyst with Prudential Securities, Inc. in New York. Mr.
Ostberg received a B.A. in International Relations and Economics from Tufts
University in 1985, and an M.B.A. from Stanford University Graduate School of
Business in 1989.
Leif F. Onarheim. Mr. Onarheim is one of Norway's leading industrialists
and for the last 4 years held the position as president of Norway's largest
business school. In 1996, Mr. Onarheim was elected chairman of NHO, the
country's largest association of business and industry. From 1980 to 1992 Mr.
Onarheim served as CEO of Nora Industries. When Nora merged with Orkla
Borregaard to form the Orkla Group in 1991, Onarheim briefly served as the new
group's Chairman. The Orkla Group is one of Scandinavia's largest branded goods
company with production facilities in the US, Germany, Poland and England. Mr.
Onarheim is a graduate of the Norwegian School of Business and Economics in
Bergen, Norway. He serves as Chairman of the Board of Directors of H. Aschehoug
& Co. publishers, Norwegian Fair, Netcom ASA and Narvesen ASA, Vice Chairman of
Saga Petroleum ASA and is a board member with Wilhelm Wihelmsen Ltd. (shipping).
He has been a director of AmeriServe since 1986 and a director of Holberg since
1997.
50
56
Peter T. Grauer. Mr. Grauer has been a Managing Director of DLJ Merchant
Banking, Inc. since September 1992. From April 1989 to September 1992, he was
Co-Chairman of Grauer & Wheat, Inc., an investment firm specializing in
leveraged buyouts. Prior thereto Mr. Grauer was a Senior Vice President of
Donaldson, Lufkin & Jenrette Securities Corporation. Mr. Grauer serves on the
Board of Directors of each of Doane Products Co. and Total Renal Care, Inc.
Benoit Jamar. Mr. Jamar is a Managing Director in the Mergers &
Acquisitions group at Donaldson, Lufkin & Jenrette Securities Corporation. Prior
to joining Donaldson, Lufkin & Jenrette Securities Corporation in 1989, he
worked at Lehman Brothers in its financial restructuring group. Mr. Jamar is a
director of the Company.
51
57
EXECUTIVE COMPENSATION
The following table sets forth the information for 1996 with regard to
compensation for services rendered in all capacities to the Company by the Chief
Executive Officer and the other four most highly compensated executive officers
of the Company (collectively, the "Named Executive Officers"). Information set
forth in the table reflects compensation earned by such individuals for services
with the Company or its respective subsidiaries.
SUMMARY COMPENSATION TABLE
OTHER
ANNUAL ALL OTHER
FISCAL SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) ($) ($)(2)
---------------------------- ------ -------- -------- ------------ ------------
John V. Holten.............. 1996 -- -- -- --
Chairman and Chief 1995 -- -- -- --
Executive Officer 1994 -- -- -- --
Raymond E. Marshall......... 1996 273,793 265,000(3) -- 11,600
President and Treasurer 1995 212,492 109,220 -- 10,400
1994 202,000 64,000 -- 6,800
Daniel W. Crippen........... 1996 246,764 265,076 -- 9,659
Chief Operating Officer 1995 202,538 129,464 -- 9,788
1994 202,250 295,284 -- 9,394
Donald J. Rogers............ 1996 158,529 125,000(3) 33,000(4) 11,600
Chief Financial Officer 1995 115,671 45,000 33,000(4) 10,400
and Secretary 1994 106,050 15,000 34,000(4) 6,800
John R. Evans............... 1996 263,000 -- -- 4,800
Vice Chairman 1995 262,832 -- -- 4,800
1994 262,600 -- -- 4,800
- ---------------
(1) The amounts shown in this column include amounts contributed by the Company
to its 401(k) plan under a contribution matching program.
(2) The amounts shown in this column reflect premiums paid by the Company on
behalf of Named Executive Officers for whole life insurance policies and
annuities to which the Named Executive Officers are entitled to the cash
surrender value.
(3) These amounts include discretionary cash bonuses paid by Holberg for
services provided during 1995 in connection with the acquisition of
Ameriserv Food Company.
(4) This amount reflects forgiveness by the Company of a portion of a $100,000
relocation assistance loan.
The Company will pay an annual management fee to Holberg for management
services. The amount of this fee is not set or allocated with respect to any
particular employee's compensation from Holberg.
DIRECTOR COMPENSATION
Directors of the Company do not receive compensation for serving on the
Company's Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee in fiscal 1996. The
Company intends to form a Compensation Committee in fiscal 1997. The members of
such committee have not yet been determined. During fiscal 1996, no executive
officer of the Company served as a member of the Compensation Committee of
another entity.
52
58
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Mr. Marshall's current employment agreement with the Company provides for a
three year term, scheduled to lapse on Jan. 1, default annual renewals, and an
annual base salary of $210,000, which will increase for 1997 to $285,000 plus an
annual bonus to be determined by the Chairman of the Board of Directors after
considering the Company's Reported Operating Profit, plus participation in any
employee benefit plan sponsored by the Company. Mr. Marshall agrees not to
disclose confidential information for so long as such information remains
competitively sensitive. During the term of the employment agreement and for one
year after its termination, Mr. Marshall agrees not to render services to, or
have any ownership interest in, any business which is competitive with the
Company. Mr. Marshall's employment agreement does not contain any change of
control provisions.
53
59
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT
All of the Company's capital stock is held by NEHC. The following table
sets forth certain information regarding the beneficial ownership of NEHC Common
Stock by (i) each person known to the Company to own beneficially more than 5%
of any class of NEHC Common Stock, (ii) each director of the Company, (iii) each
Named Executive Officer of the Company and (iv) all executive officers and
directors of the Company, as a group. All information with respect to beneficial
ownership has been furnished to the Company by the respective stockholders of
NEHC. Except as otherwise indicated in the footnotes, each beneficial owner has
the sole power to vote and to dispose of all shares held by such holder.
PERCENT
AMOUNT AND NATURE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP OUTSTANDING
- --------------------------------------------- ---------------------------------------- -----------
Nebco Evans Distributors, Inc. ("NED")....... 6,508 shares of Class A Common Stock 100%(+)
1,733 shares of Class B Common 100%(+)
Orkla ASA ("Orkla").......................... (1)
DLJ Merchant Banking, L.P. and affiliates Warrants to purchase 3,682 shares of 36.1%(++)
("DLJMB").................................. Class A Common Stock
Warrants to purchase 981 shares of Class 36.1%(++)
B Common Stock
John V. Holten............................... (2)
Daniel W. Crippen............................ (3)
John R. Evans................................ --
Peter T. Grauer.............................. (4)
Benoit Jamar................................. (4)
Gunnar E. Klintberg.......................... (5)
Raymond E. Marshall.......................... (6)
Leif F. Onarheim............................. (7)
Donald J. Rogers............................. (8)
- ---------------
(+) Computed with respect to the currently outstanding shares of Class A and
Class B Common Stock of NEHC, and without taking into account any options
or convertible interests of NEHC.
(++) Computed with respect to the currently outstanding shares of Class A and
Class B Common Stock of NEHC and the warrants held by DLJMB, but without
taking into account any other options or convertible interests of NEHC.
(1) Orkla owns approximately 7% of the outstanding common stock of NED, and has
an additional interest in the common stock of NED of approximately 8%
through certain warrants to purchase such common stock. In addition, Orkla
owns approximately 30% of the outstanding common stock of Holberg (which
itself owns the balance of the common stock of NED not owned directly by
Orkla and has an additional interest in the common stock of NED of
approximately 75% through certain preferred stock convertible into common
stock), and an additional interest in the common stock of Holberg of
approximately 17% through certain preferred stock convertible into common
stock. The warrant and convertible interests described in this note have
been computed based upon the outstanding common shares of NED and Holberg,
without taking into account any options or convertible interests of NED or
Holberg. Orkla also has certain contractual rights as to NED and NEHC
pursuant to an Amended and Restated Investors Agreement among DLJMB, NEHC,
NED, Holberg and Orkla.
(2) Mr. Holten owns all of the outstanding common stock of the corporate parent
of Holberg, which entity owns approximately 70% of the outstanding common
stock of Holberg, and an additional interest in the common stock of Holberg
of approximately 25% through certain preferred stock convertible into
54
60
common stock. As noted above, Holberg owns approximately 93% of the
outstanding NED common stock and has an additional interest through certain
preferred stock convertible into common stock. The convertible interests
described in this note have been computed based upon the outstanding common
shares of Holberg and NED, without taking into account any options or
convertible interests of Holberg or NED.
(3) Mr. Crippen owns shares of a series of convertible preferred stock of NEHC
that, if converted, would result in his ownership of approximately 1.6% of
the outstanding common stock of NEHC, taking into account the actually
outstanding shares and the warrants held by DLJMB.
(4) Messrs. Grauer and Jamar are Managing Directors of DLJ, and may be
considered to have beneficial ownership of the interests of DLJMB in the
Company and NEHC. Messrs. Grauer and Jamar disclaim such beneficial
ownership.
(5) Mr. Klintberg is an officer and director of NED and certain of its
corporate parents, but disclaims beneficial ownership of any of the shares
owned by NED.
(6) Mr. Marshall has an interest of 5% in NED through certain options that have
been granted to him by NED. Such interest has been computed based upon the
outstanding common shares of NED, without taking into account any options
or convertible interests of NED.
(7) Mr. Onarheim has an interest of less than 1% in NED through certain options
that have been granted to him by NED. Such interest has been computed based
upon the outstanding common shares of NED, without taking into account any
options or convertible interests of NED. Mr. Onarheim has also had a long
affiliation with Orkla and acts as Orkla's representative on the Board of
Directors of the Company and NEHC, but disclaims beneficial ownership of
any interests held by Orkla.
(8) Mr. Rogers has an indirect interest of less than 1% in NEHC and the Company
through certain options that have been granted to him as an indirect
corporate shareholder of NEHC.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
DLJMB, an affiliate of DLJ, and certain of its affiliates beneficially own
approximately 36.1% of the common stock of NEHC. Peter T. Grauer, a principal of
DLJ, is a member of the Board of Directors of NEHC and the Company; Benoit
Jamar, a principal of DLJ, became a member of the Board of Directors of NEHC and
the Company as of Closing. Further, DLJ Capital Funding, Inc., an affiliate of
DLJ, is acting as documentation agent in connection with the New Credit Facility
for which it is receiving certain customary fees and expenses. In addition, DLJ
received a merger advisory fee of $4.0 million in cash from the Company after
consummation of the Transactions.
Holberg has received investment banking fees from the Company and its
affiliates in connection with certain prior transactions, and received a $4.0
million merger advisory fee upon consummation of the Transactions. In addition,
it is expected that the Company will pay Holberg a management fee of
approximately $4.0 million annually for 1997 and subsequent years. See
"Management -- Executive Compensation."
The Company leases a warehouse and office facility in Waukesha, Wisconsin
from an affiliated partnership owned by certain former shareholders of an
acquired company, including Mr. John Evans, for approximately $810,000 per year
through May 31, 2008.
With the January 1996 acquisition of AmeriServ, the Company acquired a
minority interest in Post Holdings, a 93.6% owner of Post. On November 25, 1996
NEHC acquired: (i) the Company's ownership interest in Post Holdings; and (ii)
Daniel W. Crippen's 50% ownership of Post Holdings. In connection with this
transaction, Mr. Crippen, the Company's Chief Operating Officer, received $4.4
million ($2.0 million cash and $2.4 million in NEHC 8% Senior Convertible
Preferred Stock) in exchange for his 50% equity interest in Post Holdings.
55
61
The Company participates in a self-insured group casualty (including
workers compensation and auto liability) risk program with an affiliate, which
determines the insurance expenses to be allocated to the Company. The Company
and Holberg also periodically engage in bi-lateral interest-bearing loans and
advances. See Note 10 to the Company's historical financial statements included
elsewhere herein.
In connection with the Acquisition, NEHC, pursuant to the Equity
Contribution, contributed $130.0 million of cash to the Company. This
contribution was financed in part through NEHC's sale of debt and equity
securities, as well as warrants to purchase NEHC Common Stock, to DLJMB II.
The equity securities sold by NEHC to affiliates of DLJ for an aggregate of
$115 million consisted of NEHC senior exchangeable preferred stock, junior
exchangeable preferred stock and warrants to purchase shares of NEHC Class A
Common Stock (representing the right to acquire an aggregate of up to 22.5% of
the common stock of NEHC).
In connection with the consummation of the Transactions, NEHC made an
offering of 12 3/8% Senior Discount Notes due 2007 (the "Senior Discount
Notes"). Upon consummation of such offering, all of the outstanding Old NEHC
Notes were redeemed with the proceeds of the issuance of the Senior Discount New
Notes, and the proceeds from such offering in excess of the amount used in such
redemption were retained by NEHC and used in the Equity Contribution.
In connection with the Transactions, DLJMB committed that in the event the
Senior Discount Notes were not sold in the offering thereof, it would (i)
purchase senior discount notes in an aggregate principal amount of $15 million
and (ii) exchange all of the Old NEHC Notes held by DLJMB for senior discount
notes with an aggregate principal amount equal to the accreted value of the Old
NEHC Notes so exchanged. Also in connection with the Transactions, each of Bank
of America NT&SA and an affiliate of DLJ committed to provide certain financing
in the amount of $350 million in the event the Notes were not sold at or prior
to the time of the Acquisition. Bank of America NT&SA and such affiliate of DLJ
received certain customary fees in connection with such commitment. In the event
the Notes were not sold at or prior to the time of the Acquisition, the balance
of the funds which would otherwise have been provided by the Offering were to be
provided under the New Credit Facility.
See "The Transactions," and "Plan of Distribution."
56
62
DESCRIPTION OF INDEBTEDNESS
The following sets forth information concerning the Company's indebtedness
outstanding immediately following the consummation of the Transactions.
ACCOUNTS RECEIVABLE PROGRAM
In connection with the Acquisition, the Company entered into the Accounts
Receivable Program. The Accounts Receivable Program is structured as an
off-balance sheet financing for accounting purposes.
Under the Accounts Receivable Program, the Company established AmeriServe
Funding Corporation ("AmeriServe Funding"), a wholly-owned, special purpose
bankruptcy-remote subsidiary that will acquire, on a revolving basis, all of the
trade receivables (the "Receivables") generated by the Company and/or one or
more of its subsidiaries. The purchase by AmeriServe Funding will be financed
through the transfer to a newly formed master trust, AmeriServe Master Trust
(the "Trust"), of the Receivables and the issuance of a series of certificates
by the Trust representing an undivided interest in the assets of the Trust. The
certificates will be purchased by any of Bank of America, a commercial paper
conduit administered by Bank of America NT&SA, and/or a group of banks (all of
the foregoing, collectively, referred to as the "Banks").
While the level of proceeds ultimately available under the Accounts
Receivable Program will be subject to the Banks' and BancAmerica Securities' due
diligence regarding the origination, servicing and performance of the accounts
receivable, it is expected that the Accounts Receivable Program will be
available in an amount up to $250.0 million, provided, however, that until the
Company can satisfy certain reporting requirements, not more than $225.0 million
will be available. The Accounts Receivable Program will be available to
AmeriServe Funding for five years from the Closing, subject to early termination
in accordance with the terms of the transaction documents.
All of the Receivables will be transferred on a daily basis to AmeriServe
Funding. The purchase price for the Receivables conveyed to AmeriServe Funding
shall be a dollar amount equal to the aggregate unpaid balance of the
Receivables less a discount specified in the transaction documents. AmeriServe
Funding may also pay the purchase price for such Receivables by increasing the
principal amount of notes payable by it to the Company and subsidiaries of the
Company rather than paying cash for such Receivables. Certain of the Receivables
will be transferred by the Company to AmeriServe Funding as a contribution of
capital rather than as a sale. AmeriServe Funding (and the Trust, in turn) will
obtain first priority, perfected ownership interest in the Receivable, and any
related security and proceeds thereof. The Company will serve as the initial
master servicer of the Accounts Receivable Program.
The Banks' yield on their Invested Amount will be based on either LIBOR or
a Base Rate plus a margin. The "Invested Amount" generally will be calculated as
the sum of the purchase prices paid by the Banks from time to time for undivided
interests in the Receivables in the Trust, reduced by the aggregate amount of
distributions made to the Banks on account of principal. As of March 29, 1997,
the Banks' yield would have been 6.875%.
After the Closing, a non-usage fee of 3/8 of 1% per annum on a daily
average of (i) the aggregate commitments of the Banks under the Accounts
Receivable Program minus (ii) the Invested Amount will be
payable by AmeriServe Funding monthly in arrears.
Prior to termination of the Banks' commitment under the Accounts Receivable
Program, AmeriServe Funding may cause the Trust to sell undivided interests in
the Receivables to the Banks from time to time so long as certain conditions are
satisfied, including, without limitation, that after giving effect to such sale,
the Invested Amount (less amounts held in certain Trust accounts) would not
exceed the Base Amount. The "Base Amount" generally will be equal to the result
of (a)(i) the Net Eligible Receivables, times (ii) 100% minus the Applicable
Reserve Ratio, minus (b) the Carrying Cost Receivables Reserve. The "Net
Eligible Receivables" generally will be calculated as the aggregate unpaid
balance of Receivables held by the Trust that satisfy certain eligibility
criteria, less unapplied cash held by the Trust, less funds not yet made
available by lockbox banks holding collections on Receivables, less the
aggregate amount of excess concentrations of Receivables as specified in the
transaction documents. The "Applicable Reserve Ratio" will be calculated
57
63
consistent with the trade receivable rating methodology of Standard & Poor's
and/or Duff & Phelps, will incorporate specified loss reserve ratios and
dilution reserve ratios, and will be subject to a floor of 15%. The "Carrying
Cost Receivables Reserve" generally will be calculated to reflect interest
payable to the Banks, the servicing fee payable from the Assets of the Trust,
certain accrued and unpaid expenses and certain additional amounts based on days
sales outstanding.
The Accounts Receivable Program contains customary conditions, including,
without limitation, delivery of true sale and non-consolidation opinions. In
addition, BancAmerica Securities shall be satisfied that structural enhancements
are in place so that the Accounts Receivable Program satisfies, at a minimum,
the "BBB" rating criteria of Standard & Poor's and/or Duff & Phelps. The
Accounts Receivable Program also contains customary termination events,
including, without limitation, bankruptcy or insolvency of the Company or
AmeriServe Funding, cross-acceleration to other material indebtedness of the
Company and Receivables performance triggers.
NEW CREDIT FACILITY
At the Closing, the Company entered into the New Credit Facility, pursuant
to which the Company has available a new revolving credit facility (the
"Revolving Credit Facility"), and four term loan facilities ("Term Loan A,"
"Term Loan B," "Term Loan C" and "Term Loan D" and, collectively, the "Term
Loans"). At the Closing, the following amounts were drawn under the New Credit
Facility: $205.0 million consisting of: (a) aggregate principal amount $78.1
million, Term Loan A, which matures in six years; (b) aggregate principal amount
$42.3 million, Term Loan B, which matures in seven years; (c) aggregate
principal amount $42.3 million, Term Loan C, which matures in eight years; and
(d) aggregate principal amount $42.3 million, Term Loan D, which matures in nine
years. The undrawn amount of $150.0 million under the Revolving Credit Facility
is available for working capital and general corporate purposes, including the
issuance of letters of credit, which were approximately $12 million at Closing,
subject to the achievement of certain financial ratios and compliance with
certain conditions.
Term Loan A will amortize by approximately $3.3 million in year two,
approximately $16.3 million in year three, and approximately $19.5 million in
each of years four, five and six. Term Loan B, Term Loan C and Term Loan D will
each have amortization of approximately $0.4 million per annum, beginning in
year two, with the remainder due in four equal quarterly installments ending on
the respective maturity dates.
The initial interest rate for borrowings under the Revolving Credit
Facility and the Term A Loan will be, at the option of the Company, LIBOR plus
2.50% or the Base Rate plus 1.25%. For the Term B, Term C and Term D Loans, the
exact spreads over LIBOR or the Base Rate, as the case may be, were determined
before closing based on market conditions. The interest rate for the Term B Loan
will be, at the option of the Company, LIBOR plus 3.00% or the Base Rate plus
1.75%. The interest rate for the Term C Loan will be, at the option of the
Company, LIBOR plus 3.25% or the Base Rate plus 2.00%. The rate for the Term D
Loan will be, at the option of the Company, LIBOR plus 3.50% or the Base Rate
plus 2.25%. The initial rates for borrowings under the Revolving Credit Facility
and the Term A Loan will remain in effect until December 31, 1997, at which time
they may be reduced according to a pricing grid to be negotiated. The Company
may elect interest periods of one, two, three or six months for LIBOR
borrowings. Calculation of interest shall be on the basis of actual days elapsed
in a year of 360 days (or 365 or 366 days, as the case may be, in the case of
the Base Rate Loans based on the Administrative Agent's "reference rate") and
interest shall be payable at the end of each interest period and, in any event,
at least every three months or 90 days, as the case may be. The "Base Rate" is
the higher of (i) the Administrative Agent's reference rate and (ii) the Federal
Funds Effective Rate plus one-half of 1%. LIBOR will at all times include
statutory reserves to the extent actually incurred.
NEHC and all domestic subsidiaries of the Company have guaranteed the
indebtedness under the New Credit Facility (the "Guarantors"). All extensions of
credit under the New Credit Facility to the Company and guaranties of
subsidiaries of the Company are secured by all existing and after-acquired
personal property (other than accounts receivable transferred in connection with
the Accounts Receivable Program or any securitization refinancing of the
Accounts Receivable Program) of the Company and its subsidiaries,
58
64
including all outstanding capital stock of the Company and of all of its
domestic subsidiaries, 65% of outstanding capital stock of the Company's foreign
subsidiaries and any intercompany debt obligations, and, subject to exceptions
to be agreed upon, all existing and after-acquired real property fee and
leasehold interests. NEHC's guaranty is secured by a pledge of all outstanding
capital stock of the Company. With certain exceptions to be agreed upon, NEHC,
the Company and its subsidiaries are prohibited from pledging any of their
assets other than under the New Credit Facility.
Within 90 days of the Closing, the Company is required to obtain interest
rate protection by interest rate swaps, caps or other agreements satisfactory to
the Agents against increases in the interest rates with respect to a notional
amount of at least $150.0 million and for a period of at least three years.
Interest rate swaps or other hedging agreements provided by any Lender or
affiliate of any Lender will be equally and ratably secured by the collateral
described above and covered by the guarantees described above.
Under the New Credit Facility, the letter of credit fee will be 2.50% per
annum for standby letters of credit, which will be shared by all Lenders, and an
additional 0.25% per annum to be retained by the issuing bank for issuing the
standby letters of credit, based upon the amount available for drawing under
outstanding standby letters of credit. There will be adjustments, after December
31, 1997, in the letter of credit fees described above, according to a to be
determined pricing grid acceptable to the Agents, the Arranger and the Company.
Indebtedness under the New Credit Facility may be prepaid in whole or in
part without premium or penalty (subject in some cases to related breakage) and
the Lenders' commitments relative thereto reduced or terminated upon such notice
and in such amounts as may be agreed upon. Voluntary prepayments of the Term
Loans will be applied ratably among Term Loan A, Term Loan B, Term Loan C and
Term Loan D and shall be applied pro rata to scheduled amortization payments.
Notwithstanding the foregoing, in the case of any voluntary prepayment to be
applied to Term Loan B, Term Loan C or Term Loan D, the Company will be entitled
to elect to offer the holders of such term loans the opportunity to waive the
right to receive the amount of such voluntary prepayment. In the event any such
holders elect to waive such right, 50% of the amount, which otherwise would have
been applied as such voluntary prepayment of the applicable Term Loans of such
holders, shall be applied to the prepayment of Term Loan A, and 50% of such
amount shall be retained by the Company.
The Company will be required to make the following mandatory prepayments
(subject to certain exceptions and basket amounts to be set forth in the New
Credit Facility): (a) with respect to asset sales, prepayments in an amount
equal to 100% of (i) the net after-tax cash proceeds of the sale or other
disposition of any property or assets of AmeriServe or any of its subsidiaries
other than net cash proceeds of sales or certain other dispositions in the
ordinary course of business, or (ii) the net after-tax cash proceeds in excess
of $275 million from the sale or other disposition of receivables payable upon
receipt; (b) with respect to debt financings of the Company or any of its
subsidiaries, prepayments in an amount equal to 100% of the net cash proceeds
received from such debt financings (excluding, among other things, the New
Notes), payable upon receipt; (c) with respect to equity offerings of the
Company or any of its subsidiaries, prepayments in an amount equal to 50% of the
net cash proceeds received from the issuance of such equity securities, payable
upon receipt; and (d) with respect to excess cash flow (to be defined in the New
Credit Facility), prepayments in an amount equal to 75% of such excess cash
flow, payable within 90 days of fiscal year-end, reducing to 50% of such excess
cash flow after the outstanding aggregate principal amount of Term Loans has
been repaid to 50% of the Term Loans outstanding on the Closing.
All mandatory prepayments will be applied first to reduce the Term Loans
outstanding to the full extent thereof and thereafter to the permanent reduction
of the commitments under the Revolving Credit Facility. All mandatory
prepayments shall be applied ratably between Term Loan A, Term Loan B, Term Loan
C and Term Loan D and to scheduled amortization payments of the Term Loans as
follows: (a) with respect to asset sale proceeds, excess cash flow and equity
offerings, prepayment amount applied pro rata to all remaining scheduled
amortization payments; and (b) with respect to debt financings, prepayment
amount applied to remaining scheduled amortization payments in inverse order of
maturity. Notwithstanding the foregoing, in the case of any mandatory prepayment
to be applied to Term Loan B, Term Loan C or Term Loan D, the
59
65
Company may elect to offer the holders of such term loans the opportunity to
waive the right to receive the amount of such mandatory prepayment. In the event
any such holders elect to waive such right, 50% of the amount that would
otherwise have been applied as such mandatory prepayment of the applicable term
loans of such holders shall be applied to the prepayment of Term Loan A and 50%
of such amount shall be retained by the Company.
The New Credit Facility contains customary and appropriate representations
and warranties, including without limitation those relating to due organization
and authorization, no conflicts, financial condition, no material adverse
changes, title to properties, liens, litigation, payment of taxes, no material
adverse agreements, compliance with laws, environmental liabilities and full
disclosure.
The New Credit Facility contains customary conditions to all borrowings
which include representations and warranties, and the absence of any default or
potential event of default, and will otherwise be customary and appropriate for
financings of this type.
The New Credit Facility also contains customary affirmative and negative
covenants (including, where appropriate, certain exceptions and baskets to be
mutually agreed upon), including but not limited to furnishing information and
limitations on other indebtedness, liens, investments, guarantees, restricted
payments, restructuring and reserve costs, mergers and acquisitions, sales of
assets, capital expenditures, leases, and affiliate transactions. The New Credit
Facility also contains financial covenants, including without limitation, those
relating to: minimum interest coverage; minimum fixed charge coverage; and
maximum leverage.
Events of default under the New Credit Facility are usual and customary,
including without limitation, those relating to: (a) non-payment of interest,
principal or fees payable under the New Credit Facility; (b) non-performance of
certain covenants; (c) cross default to other material debt of the Company and
its subsidiaries; (d) bankruptcy or insolvency; (e) judgments in excess of
specified amounts; (f) impairment of security interests in collateral; (g)
invalidity of guarantees; (h) materially inaccurate or false representations or
warranties; and (i) change of control.
DESCRIPTION OF NEW NOTES
GENERAL
The New Notes will be issued pursuant to the same indenture (the
"Indenture") among the Company, the direct or indirect domestic Restricted
Subsidiaries of the Company (together, the "Subsidiary Guarantors"), and State
Street Bank and Trust Company, as trustee (the "Trustee"), under which the Notes
were issued. See "Notice to Investors." The terms of the New Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The New
Notes are subject to all such terms, and Holders of Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of the material provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the Indenture and the
Registration Rights Agreement, including the definitions therein of certain
terms used below. Copies of the Indenture and Registration Rights Agreement are
available as set forth below under "-- Additional Information." The definitions
of certain terms used in the following summary are set forth below under
"-- Certain Definitions."
The New Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Debt of the
Company, including Indebtedness pursuant to the New Credit Facility. The
Company's obligations under the New Notes will be guaranteed (the "New Note
Guarantees") on a senior subordinated basis by the Subsidiary Guarantors. See
"-- New Note Guarantees." As of March 29, 1997, on a pro forma basis giving
effect to the Offering and the application of the proceeds therefrom, the
Company would have had approximately $217.5 million of Senior Debt. The
Indenture will permit the incurrence of additional Senior Debt, pari passu
Indebtedness and subordinated Indebtedness in the future.
60
66
The operations of the Company are conducted in part through its
Subsidiaries, and the Company may, therefore, be dependent upon the cash flow of
its Subsidiaries to meet its debt obligations, including its obligations under
the New Notes. All of the existing domestic Restricted Subsidiaries of the
Company are, and all future domestic Restricted Subsidiaries are expected to be,
Subsidiary Guarantors. As of the date of the Indenture, all of the Company's
Subsidiaries, except for the Receivables Subsidiary, will be Restricted
Subsidiaries. However, under certain circumstances, the Company will be able to
designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The New Notes will be limited in aggregate principal amount to $500.0
million and will mature on July 15, 2007. Interest on the New Notes will accrue
at the rate of 10 1/8% per annum and will be payable semi-annually in arrears on
July 15 and January 15 of each year, commencing on January 15, 1998, to Holders
of record on the immediately preceding July 1 and January 1. Interest on the New
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from July 11, 1997. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months. Principal,
premium and Liquidated Damages, if any, and interest on the New Notes will be
payable at the office or agency of the Company maintained for such purpose
within the City and State of New York or, at the option of the Company, payment
of interest and liquidated damages, if any, may be made by check mailed to the
Holders of the New Notes at their respective addresses set forth in the register
of Holders of New Notes; provided that all payments of principal, premium and
Liquidated Damages, if any, and interest with respect to New Notes the Holders
of which have given wire transfer instructions to the Company will be required
to be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Until otherwise designated by the Company, the
Company's office or agency in New York will be the office of the Trustee
maintained for such purpose. The New Notes will be issued in denominations of
$1,000 and integral multiples thereof.
SUBORDINATION
The payment of principal of, premium and liquidated damages, if any, and
interest on the New Notes will be subordinated in right of payment, as set forth
in the Indenture, to the prior payment in full of all Senior Debt, whether
outstanding on the date of the Indenture or thereafter created, incurred or
assumed and all permissible renewals, extensions, refundings or refinancings
thereof.
The Indenture provides that, upon any payment or distribution of assets of
the Company of any kind or character, whether in cash, property or securities,
to creditors in any Insolvency or Liquidation Proceeding with respect to the
Company all amounts due or to become due under or with respect to all Senior
Debt will first be paid in full in cash before any payment is made on account of
the New Notes, except that the Holders of New Notes may receive Reorganization
Securities. Upon any such Insolvency or Liquidation Proceeding, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities (other than Reorganization Securities), to which the
Holders of the New Notes or the Trustee would be entitled will be paid by the
Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or
other person making such payment or distribution, or by the Holders of the New
Notes or by the Trustee if received by them, directly to the holders of Senior
Debt (pro rata to such holders on the basis of the amounts of Senior Debt held
by such holders) or their Representative or Representatives, as their interests
may appear, for application to the payment of the Senior Debt remaining unpaid
until all such Senior Debt has been paid in full in cash, after giving effect to
any concurrent payment, distribution or provision therefor to or for the holders
of Senior Debt.
The Indenture provides that (a) in the event of and during the continuation
of any default in the payment of principal of, interest or premium, if any, on
any Senior Debt, or any Obligation owing from time to time under or in respect
of Senior Debt, or in the event that any event of default (other than a payment
default) with respect to any Senior Debt will have occurred and be continuing
and will have resulted in such Senior Debt becoming or being declared due and
payable prior to the date on which it would otherwise have become
61
67
due and payable, or (b) if any event of default other than as described in
clause (a) above with respect to any Designated Senior Debt will have occurred
and be continuing permitting the holders of such Designated Senior Debt (or
their Representative or Representatives) to declare such Designated Senior Debt
due and payable prior to the date on which it would otherwise have become due
and payable, then no payment will be made by or on behalf of the Company on
account of the New Notes (other than payments in the form of Reorganization
Securities) (x) in case of any payment or nonpayment default specified in (a),
unless and until such default will have been cured or waived in writing in
accordance with the instruments governing such Senior Debt or such acceleration
will have been rescinded or annulled, or (y) in case of any nonpayment event of
default specified in (b), during the period (a "Payment Blockage Period")
commencing on the date the Company or the Trustee receives written notice (a
"Payment Notice") of such event of default (which notice will be binding on the
Trustee and the Holders of New Notes as to the occurrence of such a payment
default or nonpayment event of default) from the Credit Agent (or other holders
of Designated Senior Debt or their Representative or Representatives) and ending
on the earliest of (A) 179 days after such date, (B) the date, if any, on which
such Designated Senior Debt to which such default relates is paid in full in
cash or such default is cured or waived in writing in accordance with the
instruments governing such Designated Senior Debt by the holders of such
Designated Senior Debt and (C) the date on which the Trustee receives written
notice from the Credit Agent (or other holders of Designated Senior Debt or
their Representative or Representatives), as the case may be, terminating the
Payment Blockage Period. During any consecutive 360-day period, the aggregate of
all Payment Blockage Periods shall not exceed 179 days and there shall be a
period of at least 181 consecutive days in each consecutive 360-day period when
no Payment Blockage Period is in effect. No event of default which existed or
was continuing with respect to the Senior Debt for which notice commencing a
Payment Blockage Period was given on the date such Payment Blockage Period
commenced shall be or be made the basis for the commencement of any subsequent
Payment Blockage Period unless such event of default is cured or waived for a
period of not less than 90 consecutive days.
As a result of the subordination provisions described above, in the event
of the Company's liquidation, dissolution, bankruptcy, reorganization,
insolvency, receivership or similar proceeding or in an assignment for the
benefit of the creditors or a marshalling of the assets and liabilities of the
Company, Holders of New Notes may recover less ratably than creditors of the
Company who are holders of Senior Debt. See "Risk Factors -- Subordination." The
Indenture limits, subject to certain financial tests, the amount of additional
Indebtedness, including Senior Debt, that the Company and its Restricted
Subsidiaries can incur. See " -- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock."
NEW NOTE GUARANTEES
The Company's payment obligations under the New Notes are jointly and
severally guaranteed by the Subsidiary Guarantors. The New Note Guarantees are
subordinated to the prior payment in full of all Senior Debt of each Subsidiary
Guarantor (including such Subsidiary Guarantor's guarantee of the New Credit
Agreement, if any) to the same extent that the New Notes are subordinated to
Senior Debt of the Company. The obligations of any Subsidiary Guarantor under
its Note Guarantee are limited so as not to constitute a fraudulent conveyance
under applicable law.
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another corporation, Person or entity whether or not affiliated with
such Subsidiary Guarantor unless, subject to the provisions of the following
paragraph, (i) the Person formed by or surviving any such consolidation or
merger (if other than such Subsidiary Guarantor) assumes all the obligations of
such Subsidiary Guarantor pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the New Notes and the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default exists; (iii) such Subsidiary Guarantor, or any Person
formed by or surviving any such consolidation or merger, would have Consolidated
Net Worth (immediately after giving effect to such transaction) equal to or
greater than the Consolidated Net Worth of such Subsidiary Guarantor immediately
preceding the transaction; and (iv) the Company would be permitted by virtue of
its pro forma Fixed Charge Coverage Ratio, immediately after giving effect to
such transaction, to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed
62
68
Charge Coverage Ratio test set forth in the covenant described below under the
caption " -- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock." The requirements of clauses (iii) and (iv) of this paragraph
will not apply in the case of a consolidation with or merger with or into (a)
the Company or another Subsidiary Guarantor or (b) any other Person if the
acquisition of all of the Equity Interests in such Person would have complied
with the provisions of the covenants described below under the captions
" -- Certain Covenants -- Restricted Payments" and " -- Incurrence of
Indebtedness and Issuance of Preferred Stock."
The Indenture provides that (a) in the event of a sale or other disposition
of all of the assets of any Subsidiary Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the capital
stock of any Subsidiary Guarantor, or (b) in the event that the Company
designates a Subsidiary Guarantor to be an Unrestricted Subsidiary, or such
Subsidiary Guarantor ceases to be a Subsidiary of the Company, then such
Subsidiary Guarantor (in the event of a sale or other disposition, by way of
such a merger, consolidation or otherwise, of all of the capital stock of such
Subsidiary Guarantor or any such designation) or the entity acquiring the
property (in the event of a sale or other disposition of all of the assets of
such Subsidiary Guarantor) will be released and relieved of any obligations
under its Note Guarantee; provided that the Net Proceeds of such sale or other
disposition are applied in accordance with the applicable provisions of the
Indenture. See " -- Repurchase at the Option of Holders." In the case of a sale,
assignment, lease, transfer, conveyance or other disposition of all or
substantially all of the assets of a Subsidiary Guarantor, upon the assumption
provided for in clause (ii) of the covenant described under the caption " --
Certain Covenants -- Merger, Consolidation, or Sale of Assets," such Subsidiary
Guarantor shall be discharged from all further liability and obligation under
the Indenture.
OPTIONAL REDEMPTION
The New Notes will not be redeemable at the Company's option prior to July
15, 2002. Thereafter, the New Notes will be subject to redemption at any time at
the option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the applicable redemption date, if
redeemed during the twelvemonth period beginning on July 15 of the years
indicated below:
YEAR PERCENTAGE
-------------------------------------------------- ----------
2002.............................................. 105.063%
2003.............................................. 103.375%
2004.............................................. 101.688%
2005 and thereafter............................... 100.000%
Notwithstanding the foregoing, at any time prior to July 15, 2000, the
Company may redeem up to 33% of the original aggregate principal amount of New
Notes at a redemption price of 110.125% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the
redemption date, with the net cash proceeds of a Public Equity Offering;
provided that at least 67% of the original aggregate principal amount of New
Notes remains outstanding immediately after the occurrence of such redemption;
and provided, further, that such redemption shall occur within 45 days of the
date of the closing of such Public Equity Offering.
SELECTION AND NOTICE
If less than all of the New Notes are to be redeemed at any time, selection
of New Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
New Notes are listed, or, if the New Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no New Notes of $1,000 or less shall be redeemed in part. Notices
of redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of New Notes to be redeemed at
its registered address. Notices of redemption may not be conditional. If any New
Note is to be redeemed in part only, the
63
69
notice of redemption that relates to such New Note shall state the portion of
the principal amount thereof to be redeemed. A new New Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original New Note. New Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on New Notes or portions of them
called for redemption.
MANDATORY REDEMPTION
Except as set forth below under " -- Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the New Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of New Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's New Notes pursuant to
the offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of purchase
(the "Change of Control Payment"). Within 30 days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase New Notes on the date specified in such notice, which date shall
be no earlier than 30 days and no later than 60 days from the date such notice
is mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by the Indenture and described in such notice. The Company will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the New Notes as
a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all New Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all New
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the New Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of New Notes or portions thereof being
purchased by the Company. The Paying Agent will promptly mail to each Holder of
New Notes so tendered the Change of Control Payment for such New Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by book
entry) to each Holder a new New Note equal in principal amount to any
unpurchased portion of the New Notes surrendered, if any; provided that each
such new New Note will be in a principal amount of $1,000 or an integral
multiple thereof. The Indenture provides that, prior to complying with the
provisions of this covenant, but in any event within 90 days following a Change
of Control, the Company will either repay all outstanding Senior Debt or obtain
the requisite consents, if any, under all agreements governing outstanding
Senior Debt to permit the repurchase of New Notes required by this covenant. The
Company will publicly announce the results of the Change of Control Offer on, or
as soon as practicable after, the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the New Notes to require that the Company
repurchase or redeem the New Notes in the event of a takeover, recapitalization
or similar transaction.
The New Credit Facility provides that certain change of control events with
respect to the Company would constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Debt to which the Company
becomes a party may contain similar restrictions and provisions. In the event a
Change of Control occurs at a time when the Company is prohibited from
purchasing New Notes, the Company could seek the consent of its lenders to
purchase the New Notes or could attempt to refinance the borrowings that contain
such prohibition. If the Company does not obtain such consent or repay such
borrowings, the Company will remain prohibited from purchasing New Notes. In
such case, the Company's
64
70
failure to purchase tendered New Notes would constitute an Event of Default
under the Indenture which would, in turn, constitute a default under the New
Credit Facility. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the Holders of New Notes. See
"Description of Indebtedness."
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all New Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of that phrase under applicable
law. Accordingly, the ability of a Holder of New Notes to require the Company to
repurchase such New Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale other than transfers
of Receivables to a Receivables Subsidiary in connection with a Receivables
Transaction unless (i) the Company (or the Restricted Subsidiary, as the case
may be) receives consideration at the time of such Asset Sale at least equal to
the fair market value (evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee) of the assets or
Equity Interests issued or sold or otherwise disposed of and (ii) at least 80%
of the consideration therefor received by the Company or such Restricted
Subsidiary is in the form of cash; provided that the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet) of the Company or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the New Notes or any guarantee thereof) that are assumed by the transferee of
any such assets pursuant to a customary novation agreement that releases the
Company or such Restricted Subsidiary from further liability and (y) any
securities, notes or other obligations received by the Company or any such
Restricted Subsidiary from such transferee that are converted by the Company or
such Restricted Subsidiary into cash within 180 days (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to permanently repay
Senior Debt (and to correspondingly reduce commitments with respect thereto in
the case of revolving borrowings), or (b) to the acquisition of a controlling
interest in another business, the making of a capital expenditure or the
acquisition of other long-term assets, in each case, in a Permitted Business.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce the revolving Indebtedness under the New Credit Facility or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0
million, the Company will be required to make an offer to all Holders of New
Notes (an "Asset Sale Offer") to purchase the maximum principal amount of New
Notes that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 100% of the principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of purchase,
in accordance with the procedures set forth in the Indenture. To the extent that
the aggregate amount of New Notes tendered pursuant to an Asset Sale Offer is
less than the Excess Proceeds, the Company may use any remaining Excess Proceeds
for general corporate purposes. If the aggregate principal amount of New Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the New Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
65
71
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that from and after the date of the Indenture the
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of the Company's or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such (other than dividends
or distributions payable in Equity Interests (other than Disqualified Stock) of
the Company); (ii) purchase, redeem or otherwise acquire or retire for value
(including without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company or any direct or
indirect parent of the Company; (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is pari passu with or subordinated to the New Notes (other
than the Notes), except a payment of interest or principal at Stated Maturity;
or (iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under caption "-- Incurrence of Indebtedness
and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries after
the date of the Indenture (excluding Restricted Payments permitted by
clause (ii) of the next succeeding paragraph), is less than the sum of (i)
50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company from
the issue or sale since the date of the Indenture of Equity Interests of
the Company (other than Disqualified Stock) or of Disqualified Stock or
debt securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock), plus (iii) to the extent that any
Restricted Investment that was made after the date of the Indenture is sold
for cash or otherwise liquidated or repaid for cash, the lesser of (A) the
cash return of capital with respect to such Restricted Investment (less the
cost of disposition, if any) and (B) the initial amount of such Restricted
Investment, plus (iv) if any Unrestricted Subsidiary (A) is redesignated as
a Restricted Subsidiary, the fair market value of such redesignated
Subsidiary (as determined in good faith by the Board of Directors) as of
the date of its redesignation or (B) pays any cash dividends or cash
distributions to the Company or any of its Restricted Subsidiaries, 50% of
any such cash dividends or cash distributions made after the date of the
Indenture.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any pari passu or subordinated Indebtedness or Equity Interests
of the Company in exchange for, or out of the net cash proceeds of the
substantially concurrent sale or issuance (other than to a Restricted Subsidiary
of the Company) of, other Equity Interests of the Company (other than any
Disqualified Stock); provided that the amount of any
66
72
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause
(c)(ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase
or other acquisition of pari passu or subordinated Indebtedness with the net
cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the
payment of any dividend by a Restricted Subsidiary of the Company to the holders
of its Equity Interests on a pro rata basis; (v) the declaration or payment of
dividends to NEHC for expenses incurred by NEHC or Holberg in its capacity as a
holding company that are attributable to the operations of the Company and its
Restricted Subsidiaries, including, without limitation, (a) customary salary,
bonus and other benefits payable to officers and employees of NEHC or Holberg,
(b) fees and expenses paid to members of the Board of Directors of NEHC or
Holberg, (c) general corporate overhead expenses of NEHC or Holberg, (d)
foreign, federal, state or local tax liabilities paid by NEHC or Holberg, (e)
management, consulting or advisory fees paid to Holberg not to exceed $4.0
million in any fiscal year, and (f) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of NEHC or Holberg
held by any member of NEHC's or the Company's (or any of their Restricted
Subsidiaries') management pursuant to any management equity subscription
agreement or stock option agreement in effect as of the date of the Indenture;
provided, however, the aggregate amount paid pursuant to the foregoing clauses
(a) through (f) does not exceed $7.0 million in any fiscal year; (vi)
Investments in any Person (other than the Company or a Wholly-Owned Restricted
Subsidiary) engaged in a Permitted Business in an amount not to exceed $5.0
million; (vii) other Investments in Unrestricted Subsidiaries having an
aggregate fair market value, taken together with all other Investments made
pursuant to this clause (vii) that are at that time outstanding, not to exceed
$2.0 million; (viii) Permitted Investments; (ix) payments to NEHC or Holberg
pursuant to the tax sharing agreement among Holberg and other members of the
affiliated corporations of which Holberg is the common parent; or (x) other
Restricted Payments in an aggregate amount not to exceed $10.0 million.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default; provided
that in no event shall the business currently operated by any Subsidiary
Guarantor be transferred to or held by an Unrestricted Subsidiary. For purposes
of making such determination, all outstanding Investments by the Company and its
Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary
so designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the fair market value of
such Investments at the time of such designation (as determined in good faith by
the Board of Directors). Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined in good faith by the Board of
Directors whose resolution with respect thereto shall be delivered to the
Trustee; such determination will be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $10.0 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant "-- Restricted
Payments" were computed, together with a copy of any fairness opinion or
appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including
67
73
Acquired Debt) or issue shares of Disqualified Stock if the Fixed Charge
Coverage Ratio for the Company's most recently ended four full fiscal quarters
for which internal financial statements are available immediately preceding the
date on which such additional Indebtedness is incurred or such Disqualified
Stock is issued would have been at least 2.0 to 1, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock had
been issued, as the case may be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company of term Indebtedness under the New
Credit Facility; provided that the aggregate principal amount of all term
Indebtedness outstanding under the New Credit Facility after giving effect
to such incurrence does not exceed the aggregate amount of term
Indebtedness borrowed under the New Credit Facility on July 11, 1997 less
the aggregate amount of all repayments, optional or mandatory, of the
principal of any term Indebtedness under the New Credit Facility (other
than repayments that are immediately reborrowed) that have been made since
July 11, 1997; provided that the foregoing proviso shall not limit the
principal amount of Permitted Refinancing Indebtedness that may be incurred
to refund, refinance or replace any Indebtedness incurred pursuant to this
clause (i);
(ii) the incurrence by the Company of revolving Indebtedness and
letters of credit pursuant to the New Credit Facility; provided that the
aggregate principal amount of all revolving Indebtedness (with letters of
credit being deemed to have a principal amount equal to the maximum
potential liability of the Company thereunder) outstanding under the New
Credit Facility after giving effect to such incurrence does not exceed
$150.0 million; provided that the foregoing proviso shall not limit the
principal amount of Permitted Refinancing Indebtedness that may be incurred
to refinance or replace any Indebtedness incurred pursuant to this clause
(ii);
(iii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iv) the incurrence by the Company and the Subsidiary Guarantors of
Indebtedness represented by the New Notes and the New Note Guarantees,
respectively;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used in the
business of the Company or such Restricted Subsidiary (whether through the
direct purchase of assets or the Capital Stock of any Person owning such
Assets), in an aggregate principal amount not to exceed $125.0 million;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness in connection with the acquisition of assets
or a new Restricted Subsidiary; provided that such Indebtedness was
incurred by the prior owner of such assets or such Restricted Subsidiary
prior to such acquisition by the Company or one of its Subsidiaries and was
not incurred in connection with, or in contemplation of, such acquisition
by the Company or one of its Subsidiaries; provided further that the
principal amount (or accreted value, as applicable) of such Indebtedness,
together with any other outstanding Indebtedness incurred pursuant to this
clause (vi), does not exceed $5.0 million;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
that was permitted by the Indenture to be incurred;
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Wholly-Owned Restricted Subsidiaries; provided, however, that
(i) if the Company is the obligor on such Indebtedness and the payee is not
a Subsidiary Guarantor, such Indebtedness is expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the New
Notes and (ii)(A) any subsequent issuance or transfer of Equity
68
74
Interests that results in any such Indebtedness being held by a Person
other than the Company or a Wholly Owned Restricted Subsidiary and (B) any
sale or other transfer of any such Indebtedness to a Person that is not
either the Company or a Wholly Owned Restricted Subsidiary shall be deemed,
in each case, to constitute an incurrence of such Indebtedness by the
Company or such Restricted Subsidiary, as the case may be;
(ix) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging currency risk or interest rate risk with respect to any
floating rate Indebtedness that is permitted by the terms of this Indenture
to be outstanding;
(x) the guarantee by the Company or any of its Restricted Subsidiaries
of Indebtedness of the Company or a Restricted Subsidiary of the Company
that was permitted to be incurred by another provision of this covenant;
(xi) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company;
(xii) Asset Sales in the form of Receivables Transactions;
(xiii) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including without
limitation to letters of credit in respect to workers' compensation claims
or self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; provided, however, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(xiv) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, asset to a Subsidiary,
other than guarantees of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided that the maximum aggregate liability
of all such Indebtedness shall at no time exceed 50% of the gross proceeds
actually received by the Company or a Restricted Subsidiary in connection
with such disposition;
(xv) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(xvi) guarantees incurred in the ordinary course of business in an
aggregate principal amount not to exceed $5.0 millon at any time
outstanding; and
(xvii) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness, including Attributable Debt
incurred after the date of the Indenture, in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any other Indebtedness incurred pursuant to this clause (xvii), not to
exceed $25.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xvii) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest and the accretion of accreted
value will not be deemed to be an incurrence of Indebtedness for purposes of
this covenant.
69
75
Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien of any kind securing trade payables
or Indebtedness that does not constitute Senior Debt (other than Permitted
Liens) upon any of their property or assets, now owned or hereafter acquired.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on July 11, 1997, (b) the New Credit Facility as in
effect as of July 11, 1997, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive in the aggregate (as determined by the Credit Agent in good faith)
with respect to such dividend and other payment restrictions than those
contained in the New Credit Facility as in effect on July 11, 1997, (c) the
Indenture and the New Notes, (d) any applicable law, rule, regulation or order,
(e) any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Company or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred, (f) by reason of
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (g) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, (h) Permitted Refinancing Indebtedness, provided that the material
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced, (i) contracts for the sale of
assets, including without limitation customary restrictions with respect to a
Subsidiary pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Subsidiary, and (j) restrictions on cash or other deposits or net worth imposed
by customers under contracts entered into in the ordinary course of business.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the New Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; and (iv) except in
the case of a merger of the Company with or into a Wholly-Owned
70
76
Restricted Subsidiary of the Company, the Company or the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company), or
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
" -- Incurrence of Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction")
involving consideration in excess of $3.0 million unless (i) such Affiliate
Transaction is on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) the Company delivers to the Trustee (a) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $7.5 million, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors and (b) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving either aggregate consideration in
excess of $15.0 million or an aggregate consideration in excess of $10.0 million
where there are no disinterested members of the Board of Directors, an opinion
as to the fairness to the Holders of such Affiliate Transaction from a financial
point of view issued by an accounting, appraisal or investment banking firm of
national standing; provided that the following shall not be deemed Affiliate
Transactions: (q) any employment agreement entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business and consistent
with the past practice of the Company or such Restricted Subsidiary, (r)
transactions between or among the Company and/or its Restricted Subsidiaries,
(s) Permitted Investments and Restricted Payments that are permitted by the
provisions of the Indenture described above under the caption " -- Restricted
Payments," (t) customary loans, advances, fees and compensation paid to, and
indemnity provided on behalf of, officers, directors, employees or consultants
of the Company or any of its Restricted Subsidiaries, (u) annual management fees
paid to Holberg not to exceed $5.0 million in any one year, (v) transactions
pursuant to any contract or agreement in effect on the date of the Indenture as
the same may be amended, modified or replaced from time to time so long as any
such amendment, modification or replacement is no less favorable to the Company
and its Restricted Subsidiaries than the contract or agreement as in effect on
the Issue Date or is approved by a majority of the disinterested directors of
NEHC, (w) transactions between the Company or its Restricted Subsidiaries on the
one hand, and Holberg on the other hand, involving the provision of financial or
advisory services by Holberg; provided that fees payable to Holberg do not
exceed the usual and customary fees for similar services, (x) transactions
between the Company or its Restricted Subsidiaries on the one hand, and
Donaldson, Lufkin & Jenrette Securities Corporation or its Affiliates ("DLJ") on
the other hand, involving the provision of financial, advisory, placement or
underwriting services by DLJ; provided that fees payable to DLJ do not exceed
the usual and customary fees of DLJ for similar services, (y) the insurance
arrangements between NEHC and its Subsidiaries and an Affiliate of Holberg that
are not less favorable to the Company or any of its Subsidiaries than those that
are in effect on the date hereof provided such arrangements are conducted in the
ordinary course of business consistent with past practices, and (z) payments
under the tax sharing agreement among Holberg and other members of the
affiliated group of corporations of which it is the common parent.
Anti-Layering
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is both
(a) subordinate or junior in right of payment to any Senior
71
77
Debt and (b) senior in any respect in right of payment to the New Notes and (ii)
no Subsidiary Guarantor will incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is both (a) subordinate or
junior in right of payment to its Senior Debt and (b) senior in right of payment
to its Note Guarantee.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company may enter into a sale and leaseback
transaction if (i) the Company could have (a) incurred Indebtedness in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
pursuant to the covenant described above under the caption " -- Incurrence of
Indebtedness and Issuance of Preferred Stock" and (b) incurred a Lien to secure
such Indebtedness pursuant to the covenant described above under the caption
" -- Liens," (ii) the gross cash proceeds of such sale and leaseback transaction
are at least equal to the fair market value (as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to the
Trustee) of the property that is the subject of such sale and leaseback
transaction and (iii) the transfer of assets in such sale and leaseback
transaction is permitted by, and the Company applies the proceeds of such
transaction in compliance with, the covenant described above under the caption
" -- Repurchase at the Option of Holders -- Asset Sales."
Limitation on Issuances and Sales of Capital Stock of Wholly-Owned Restricted
Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any Wholly-Owned Restricted Subsidiary of the Company to, transfer, convey,
sell, lease or otherwise dispose of any Capital Stock of any Wholly-Owned
Subsidiary of the Company to any Person (other than the Company or a
Wholly-Owned Restricted Subsidiary of the Company), unless (a) such transfer,
conveyance, sale, lease or other disposition is of all the Capital Stock of such
Wholly-Owned Restricted Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in accordance
with the covenant described above under the caption " -- Asset Sales," and (ii)
will not permit any Wholly-Owned Restricted Subsidiary of the Company to issue
any of its Equity Interests (other than, if necessary, shares of its Capital
Stock constituting directors' qualifying shares) to any Person other than to the
Company or a Wholly-Owned Restricted Subsidiary of the Company.
Limitations on Issuances of Guarantees of Indebtedness
The Indenture provides that the Company will not permit any Restricted
Subsidiary, directly or indirectly, to Guarantee or pledge any assets to secure
the payment of any other Indebtedness of the Company unless either such
Restricted Subsidiary (x) is a Subsidiary Guarantor or (y) simultaneously
executes and delivers a supplemental indenture to the Indenture providing for
the Guarantee of the payment of the New Notes by such Restricted Subsidiary,
which Guarantee shall be senior to or pari passu with such Restricted
Subsidiary's Guarantee of or pledge to secure such other Indebtedness.
Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary of
the New Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon any sale, exchange or transfer, to
any Person not an Affiliate of the Company, of all of the Company's stock in, or
all or substantially all the assets of, such Restricted Subsidiary, which sale,
exchange or transfer is made in compliance with the applicable provisions of the
Indenture. The form of such Guarantee is attached as an exhibit to the
Indenture.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than a Permitted Business, except to such extent as
would not be material to the Company and its Restricted Subsidiaries taken as a
whole.
72
78
Additional Guarantees
The Indenture provides that (i) if the Company or any of its Restricted
Subsidiaries shall, after the date of the Indenture, transfer or cause to be
transferred, including by way of any Investment, in one or a series of
transactions (whether or not related), any assets, businesses, divisions, real
property or equipment having an aggregate fair market value (as determined in
good faith by the Board of Directors) in excess of $1.0 million to any
Restricted Subsidiary that is not a Subsidiary Guarantor or a Foreign
Subsidiary, (ii) if the Company or any of its Restricted Subsidiaries shall
acquire another Restricted Subsidiary other than a Foreign Subsidiary having
total assets with a fair market value (as determined in good faith by the Board
of Directors) in excess of $1.0 million, or (iii) if any Restricted Subsidiary
other than a Foreign Subsidiary shall incur Acquired Debt in excess of $1.0
million, then the Company shall, at the time of such transfer, acquisition or
incurrence, (i) cause such transferee, acquired Restricted Subsidiary or
Restricted Subsidiary incurring Acquired Debt (if not then a Subsidiary
Guarantor) to execute a Note Guarantee of the Obligations of the Company under
the New Notes in the form set forth in the Indenture and (ii) deliver to the
Trustee an Opinion of Counsel, in form reasonably satisfactory to the Trustee,
that such Note Guarantee is a valid, binding and enforceable obligation of such
transferee, acquired Restricted Subsidiary or Restricted Subsidiary incurring
Acquired Debt, subject to customary exceptions for bankruptcy, fraudulent
conveyance and equitable principles. Notwithstanding the foregoing, the Company
or any of its Restricted Subsidiaries may make a Restricted Investment in any
Wholly-Owned Restricted Subsidiary of the Company without compliance with this
covenant provided that such Restricted Investment is permitted by the covenant
described under the caption, " -- Restricted Payments."
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any New Notes are outstanding, the
Company will furnish to the Holders of New Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission, the Company will
file a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the Company has agreed that, for so long as any New Notes
remain outstanding, it will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the New Notes (whether or not prohibited by
the subordination provisions of the Indenture); (ii) default in payment when due
of the principal of or premium, if any, on the New Notes (whether or not
prohibited by the subordination provisions of the Indenture); (iii) failure by
the Company to comply with the provisions described under the captions
" -- Repurchase at the Option of Holders -- Change of Control," " -- Certain
Covenants -- Asset Sales," or " -- Certain Covenants -- Merger, Consolidation,
or Sale of Assets"; (iv) failure by the Company for 30 days after notice from
the Trustee or at least 25% in principal amount of the New Notes then
outstanding to comply with the provisions described under the captions
" -- Restricted Payments" or "-- Incurrence of Indebtedness and Issuance of
Preferred Stock"; (v) failure by the Company for 60 days after notice from the
Trustee or at least 25% in principal amount of the New Notes then outstanding to
comply with any of its other agreements in the Indenture or the New Notes; (vi)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
73
79
borrowed by the Company or any of its Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Subsidiaries) whether such Indebtedness
or Guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $15.0 million or more; (vii) failure by the Company or
any of its Subsidiaries to pay final judgments aggregating in excess of $5.0
million, which judgments are not paid, discharged or stayed for a period of 60
days; and (viii) certain events of bankruptcy or insolvency with respect to the
Company or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding New Notes
may declare all the New Notes to be due and payable immediately provided,
however, that if any Indebtedness or Obligation is outstanding pursuant to the
New Credit Facility, upon a declaration of acceleration by the holders of the
New Notes or the Trustee, all principal and interest under the Indenture shall
be due and payable upon the earlier of (x) the day which five Business Days
after the provision to the Company, the Credit Agent and the Trustee of such
written notice of acceleration or (y) the date of acceleration of any
Indebtedness under the New Credit Facility; and provided further that in the
event of an acceleration based upon an Event of Default set forth in clause (vi)
above, such declaration of acceleration shall be automatically annulled if the
holders of Indebtedness which is the subject of such failure to pay at maturity
or acceleration have rescinded their declaration of acceleration in respect of
such Indebtedness or such failure to pay at maturity shall have been cured or
waived within 30 days thereof and no other Event of Default has occurred during
such 30-day period which has not been cured, paid or waived. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any of its Subsidiaries
all outstanding New Notes will become due and payable without further action or
notice. Holders of the New Notes may not enforce the Indenture or the New Notes
except as provided in the Indenture. Subject to certain limitations, Holders of
a majority in principal amount of the then outstanding New Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the New Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the New Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the New Notes. If an Event of Default occurs prior to
July 15, 2002 by reason of any willful action (or inaction) taken (or not taken)
by or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the New Notes prior to July 15, 2002, then the premium specified
in the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the New Notes.
The Holders of a majority in aggregate principal amount of the New Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the New Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the New Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
74
80
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or the Subsidiary Guarantors, as such, shall have any liability for any
obligations of the Company or any Subsidiary Guarantor under the New Notes, the
Indenture, the New Note Guarantees or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of New Notes by
accepting a New Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the New Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding New Notes and all
obligations of the Subsidiary Guarantors under the New Note Guarantees ("Legal
Defeasance") except for (i) the rights of Holders of outstanding New Notes to
receive payments in respect of the principal of, premium and Liquidated Damages,
if any, and interest on such New Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the New Notes
concerning issuing temporary New Notes, registration of New Notes, mutilated,
destroyed, lost or stolen New Notes and the maintenance of an office or agency
for payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company and the Subsidiary Guarantors
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the New Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "-- Events of Default" will no longer constitute an
Event of Default with respect to the New Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the New Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium and Liquidated Damages, if any, and interest on
the outstanding New Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the New Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the Holders of the outstanding New Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding New
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
75
81
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of New Notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange New Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any New Note selected for redemption. Also, the Company is not required to
transfer or exchange any New Note for a period of 15 days before a selection of
New Notes to be redeemed.
The registered Holder of a New Note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the New Notes or the New Note Guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the New
Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, New
Notes), and any existing default or compliance with any provision of the
Indenture, the New Notes or the New Note Guarantees may be waived with the
consent of the Holders of a majority in principal amount of the then outstanding
New Notes (including consents obtained in connection with a tender offer or
exchange offer for New Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any New Notes held by a non-consenting Holder): (i) reduce the
principal amount of New Notes whose Holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the New
Notes (other than provisions relating to the covenants described above under the
caption "-- Repurchase at the Option of Holders"); (iii) reduce the rate of or
change the time for payment of interest on any Note; (iv) waive a Default or
Event of Default in the payment of principal of or premium, if any, or interest
on the New Notes (except a rescission of acceleration of the New Notes by the
Holders of at least a majority in aggregate principal amount of the New Notes
and a waiver of the payment default that resulted from such acceleration); (v)
make any Note payable in money other than that stated in the New Notes; (vi)
make any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders of New Notes to receive payments of principal
of or premium, if any, or interest on the New Notes; (vii) waive a redemption
payment with respect to any Note (other than a payment required by one of the
covenants described above under the caption "-- Repurchase at the Option of
Holders") or (viii) make any change in the foregoing amendment and waiver
provisions. In addition, any amendment to the provisions of Article 10 of the
Indenture (which relate to subordination) will require the consent of the
Holders of at least 75% in aggregate principal amount of the New Notes then
outstanding if such amendment would adversely affect the rights of Holders of
New Notes.
Notwithstanding the foregoing, without the consent of any Holder of New
Notes, the Company, the Subsidiary Guarantors and the Trustee may amend or
supplement the Indenture, the New Notes or the New Note Guarantees to cure any
ambiguity, defect or inconsistency, to provide for uncertificated New Notes in
addition to or in place of certificated New Notes, to provide for the assumption
of the Company's and the Subsidiary Guarantors' obligations to Holders of New
Notes in the case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of New Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, to comply with requirements of the
76
82
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act or to allow any Subsidiary to guarantee the New
Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding New
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of New Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to AmeriServe,
Brookfield Lake Corporate Center, 117975 West Sarah Lane, Suite 100, Brookfield,
Wisconsin; Attention: Secretary.
BOOK-ENTRY, DELIVERY AND FORM
The New Notes initially being issued in exchange for the Notes generally
will be represented by one or more fully-registered global notes without
interest coupons (collectively the "Global New Note"). Notwithstanding the
foregoing, New Notes held in certificated form will be exchanged solely for New
Notes in certificated form as discussed below. The Global New Note will be
deposited upon issuance with the Depository Trust Company (the "DTC") and
registered in the name of DTC or its nominee (the "Global New Note Registered
Owner"), in each case for credit to an account of a direct or indirect
participant as described below. Except as set forth below, the Global New Note
may be transferred, in whole and not in part, only to another nominee of the DTC
or to a successor of the DTC or its nominee. See "-- Exchange of Book-Entry New
Notes for Certificated New Notes."
The New Notes may be presented for registration of transfer and exchange at
the offices of the Registrar.
Depository Procedures
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of Participants. The Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or Indirect
Participants. The ownership interest and transfer of ownership interest of each
actual purchaser of each security held by or on behalf of DTC are recorded on
the records of the Participants and Indirect Participants.
DTC has also advised the Company that pursuant to procedures established by
it, (i) upon deposit of the Global New Notes, DTC will credit the accounts of
Participants designated by the Initial Purchaser with
77
83
portions of the principal amount of Global New Notes and (ii) ownership of such
interests in the Global New Notes will be shown on, and the transfer ownership
thereof will be effected only through, records maintained by DTC (with respect
to Participants) or by Participants and the Indirect Participants (with respect
to other owners of beneficial interests in the Global New Notes).
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NEW NOTES WILL
NOT HAVE NEW NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY
OF NEW NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED
OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal and premium and Liquidated Damages, if
any, and interest on a Global New Note registered in the name of DTC or its
nominee will be payable by the Trustee to DTC or its nominee in its capacity as
the registered holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee will treat the persons in whose names the New Notes,
including the Global New Notes, are registered as the owners thereof for the
purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, none of the Company, the Trustee nor any agent of the
Company or the Trustee has or will have any responsibility or liability for (i)
any aspect of DTC's records or any Participant's or Indirect Participant's
records relating to or payments made on account of beneficial ownership
interests in the Global New Notes, or for maintaining, supervising or reviewing
any of DTC's records or any Participant's or Indirect Participant's records
relating to the beneficial ownership interests in the Global New Notes or (ii)
any other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants.
DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the New Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security
such as the Global New Notes as shown on the records of DTC. Payments by
Participants and the Indirect Participants to the beneficial owners of New Notes
will be governed by standing instructions and customary practices and will not
be the responsibility of DTC, the Trustee or the Company. Neither the Company
nor the Trustee will be liable for any delay by DTC or its Participants in
identifying the beneficial owners of the New Notes, and the Company and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee as the registered owner of the New Notes
for all purposes.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of New Notes only at the direction of one or more Participants
to whose account DTC interests in the Global New Notes are credited and only in
respect of such portion of the aggregate principal amount of the New Notes as to
which such Participant or Participants have given direction. However, if there
is an Event of Default under the New Notes, DTC reserves the right to exchange
Global New Notes for legended New Notes in certificated form, and to distribute
such New Notes to its Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global New Notes among Participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Initial
Purchaser or the Trustee will have any responsibility for the performance by
DTC, or its Participants or indirect Participants of its obligations under the
rules and procedures governing their operations.
Exchange of Book-Entry New Notes for Certificated New Notes
A Global New Note is exchangeable for definitive New Notes in registered
certificated form if (i) DTC (x) notifies the Company that it is unwilling or
unable to continue as depositary for the Global New Note and the Company
thereupon fails to appoint a successor depositary or (y) has ceased to be a
clearing agency registered under the Exchange Act, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
the New Notes in certificated form or (iii) there shall have occurred and be
continuing to occur a Default or an Event of Default with respect to the New
Notes. In addition, beneficial
78
84
interests in a Global New Note may be exchanged for certificated New Notes upon
request but only upon at least 20 days' prior written notice given to the
Trustee by or on behalf of DTC in accordance with customary procedures. In all
cases, certificated New Notes delivered in exchange for any Global New Note or
beneficial interest therein will be registered in the names, and issued in any
approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures).
Subject to the restrictions on the transferability of the New Notes
described in "Risk Factors -- Restrictions on Transfer," a New Note in
definitive form will be issued (i) in the Exchange Offer solely in exchange for
certificated Notes or (ii) following the Exchange Offer, upon the resale, pledge
or other transfer of any New Note or interest therein to any person or entity
that does not participate in the Depository. The exchange of certificated notes
in the Exchange Offer may be made only by presentation of the notes, duly
endorsed, together with a duly completed Letter of Transmittal and other
required documentation as described under "The Exchange Offer -- Procedures for
Tendering" and "-- Guaranteed Delivery Procedures." Transfers of certificated
New Notes may be made only by presentation of New Notes, duly endorsed, to the
Trustees for registration of transfer on the Note Register maintained by the
Trustees for such purposes.
The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
CERTIFICATED NEW NOTES
Subject to certain conditions, any person having a beneficial interest in
the Global New Note may, upon request to the Trustee, exchange such beneficial
interest for New Notes in the form of Certificated New Notes. Upon any such
issuance, the Trustee is required to register such Certificated New Notes in the
name of, and cause the same to be delivered to, such person or persons (or the
nominee of any thereof). In addition, if (i) the Company notifies the Trustee in
writing that the DTC is no longer willing or able to act as a depositary and the
Company is unable to locate a qualified successor within 90 days or (ii) the
Company, at its option, notifies the Trustee in writing that it elects to cause
the issuance of New Notes in the form of Certificated New Notes under the
Indenture, then, upon surrender by the Global New Note Holder of its Global New
Note, New Notes in such form will be issued to each person that the Global New
Note Holder and the DTC identify as being the beneficial owner of the related
New Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global New Note Holder or the DTC in identifying the beneficial owners of New
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global New Note Holder or the DTC
for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the New Notes
represented by the Global New Note (including principal, premium, if any,
interest and Liquidated Damages, if any) be made by wire transfer of immediately
available next day funds to the accounts specified by the Global New Note
Holder. With respect to Certificated New Notes, the Company will make all
payments of principal, premium, if any, interest and Liquidated Damages, if any,
by wire transfer of immediately available funds to the accounts specified by the
Holders thereof or, if no such account is specified, by mailing a check to each
such Holder's registered address. The Company expects that secondary trading in
the Certificated New Notes will also be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company, the Subsidiary Guarantors and the Initial Purchasers entered
into the Registration Rights Agreement on the Closing date. Pursuant to the
Registration Rights Agreement, the Company and the Subsidiary Guarantors agreed
to file with the Commission the Exchange Offer Registration Statement of which
this Prospectus is a part on the appropriate form under the Securities Act with
respect to the New Notes. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company will offer to the
79
85
Holders of Transfer Restricted Securities pursuant to the Exchange Offer who are
able to make certain representations the opportunity to exchange their Transfer
Restricted Securities for New Notes. If any Holder of Transfer Restricted
Securities notifies the Company prior to the 20th day following consummation of
the Exchange Offer that (i) it is prohibited by law or Commission policy from
participating in the Exchange Offer or (ii) that it may not resell the New Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (iii) that it is a
broker-dealer and owns Notes acquired directly from the Company or an affiliate
of the Company, the Company and the Subsidiary Guarantors will file with the
Commission a Shelf Registration Statement to cover resales of the Notes by the
Holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. The Company and
the Subsidiary Guarantors will use their best efforts to cause the applicable
registration statement to be declared effective as promptly as possible by the
Commission. For purposes of the foregoing, "Transfer Restricted Securities"
means each Note until (i) the date on which such Note has been exchanged by a
person other than a broker-dealer for a New Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of a Note for a
New Note, the date on which such New Note is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a copy of the
prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Note has been effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration Statement or (iv) the
date on which such Note is distributed to the public pursuant to Rule 144 under
the Act.
The Registration Rights Agreement provides, among other things, that (i)
unless the Exchange Offer would not be permitted by applicable law or Commission
policy, the Company and the Subsidiary Guarantors will commence the Exchange
Offer and use their best efforts to issue on or prior to 30 business days after
the date on which the Exchange Offer Registration Statement was declared
effective by the Commission, New Notes in exchange for all Notes tendered prior
thereto in the Exchange Offer and (ii) if obligated to file the Shelf
Registration Statement, the Company and the Subsidiary Guarantors will use their
best efforts to file the Shelf Registration Statement with the Commission on or
prior to 45 days after such filing obligation arises and to cause the Shelf
Registration to be declared effective by the Commission on or prior to 120 days
after such obligation arises. If (a) the Company and the Subsidiary Guarantors
fail to file any of the Registration Statements required by the Registration
Rights Agreement on or before the date specified for such filing, (b) any of
such Registration Statements is not declared effective by the Commission on or
prior to the date specified for such effectiveness (the "Effectiveness Target
Date"), (c) the Company and the Subsidiary Guarantors fail to consummate the
Exchange Offer within 30 business days of the Effectiveness Target Date with
respect to the Exchange Offer Registration Statement, or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective or usable in connection with
resales of Transfer Restricted Securities during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will pay
Liquidated Damages to each Holder of Notes, with respect to the first 90-day
period immediately following the occurrence of the first Registration Default in
an amount equal to $.05 per week per $1,000 principal amount of Notes held by
such Holder. The amount of the Liquidated Damages will increase by an additional
$.05 per week per $1,000 principal amount of Notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $.50 per week per $1,000 principal
amount of Notes. All accrued Liquidated Damages will be paid by the Company on
each Damages Payment Date to the Global Note Holder by wire transfer of
immediately available funds or by federal funds check and to Holders of
Certificated Notes by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order
80
86
to have their Notes included in the Shelf Registration Statement and benefit
from the provisions regarding Liquidated Damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices and other than a Receivables Transaction
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole will be governed by the provisions of the Indenture described
above under the caption "-- Repurchase at Option of Holders -- Change of
Control" and/or the provisions described above under the caption "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets" and not by the provisions
of the Asset Sale covenant), and (ii) the issue or sale by the Company or any of
its Restricted Subsidiaries of Equity Interests of any of the Company's
Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a
single transaction or a series of related transactions (a) that have a fair
market value in excess of $3.0 million or (b) for net proceeds in excess of $3.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the Company
to a Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary, (ii)
an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to the
Company or to another Wholly Owned Restricted Subsidiary, and (iii) a Restricted
Payment that is permitted by the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments" will not be deemed to be Asset
Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
81
87
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any lender party to the New Credit
Facility or with any domestic commercial bank having capital and surplus in
excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each
case maturing within six months after the date of acquisition and (vi)
securities quoted by the Nasdaq National Market or listed on a United States,
Canadian or western European national securities exchange.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Principals or their Related Parties (as defined below), (ii)
the adoption of a plan relating to the liquidation or dissolution of the
Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Principals and their Related
Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to
have "beneficial ownership" of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only upon
the occurrence of a subsequent condition), directly or indirectly, of more than
50% of the Voting Stock of the Company (measured by voting power rather than
number of shares), (iv) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors or (v) the
Company consolidates with, or merges with or into, any Person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any Person, or any Person consolidates with, or merges with or
into, the Company, in any such event pursuant to a transaction in which any of
the outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where the
Voting Stock of the Company outstanding immediately prior to such transaction is
converted into or exchanged for Voting Stock (other than Disqualified Stock) of
the surviving or transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee Person (immediately
after giving effect to such issuance).
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, plus (v) in connection with
any acquisition by the Company,
82
88
projected quantifiable improvements in operating results (on an annualized
basis) due to cost reductions calculated in accordance with Article 11 of
Regulation S-X of the Securities Act and evidenced by (A) in the case of cost
reductions of less than $10.0 million, an Officers' Certificate delivered to the
Trustee and (B) in the case of cost reductions of $10.0 million or more, a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee, minus (vi) non-cash items increasing such Consolidated
Net Income for such period. Notwithstanding the foregoing, the provision for
taxes on the income or profits of, and the depreciation and amortization and
other non-cash charges of, a Subsidiary of the referent Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
that a corresponding amount would be permitted at the date of determination to
be dividended to the Company by such Subsidiary without prior governmental
approval (that has not been obtained), and without direct or indirect
restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Subsidiary or its stockholders,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, (iv) the cumulative effect of a change in accounting principles shall
be excluded and (v) the Net Income of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the Company or one of its Restricted
Subsidiaries for purposes of the covenant described under the caption
"Incurrence of Indebtedness and Issuance of Preferred Stock" and shall be
included for purposes of the covenant described under the caption "Restricted
Payments" only to the extent of the amount of dividends or distributions paid in
cash to the Company or one of its Restricted Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Agent" means the Bank of America, in its capacity as Administrative
Agent for the lenders party to the New Credit Facility, or any successor thereto
or any person otherwise appointed.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
83
89
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
New Credit Facility and (ii) any other Senior Debt permitted under the Indenture
the principal amount of which is $25.0 million or more and that has been
designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the New Notes mature; provided, however,
that any Capital Stock that would not qualify as Disqualified Stock but for
change of control provisions shall not constitute Disqualified Stock if the
provisions are not more favorable to the holders of such Capital Stock than the
provisions described under "-- Change of Control" applicable to the Holders of
the New Notes.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period, (iii) any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or one of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or one of its Restricted Subsidiaries (whether or not such Guarantee
or Lien is called upon) and (iv) the product of (a) all dividend payments,
whether or not in cash, on any series of preferred stock of such Person or any
of its Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests of the Company, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in accordance
with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, (ii) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date,
84
90
shall be excluded, but only to the extent that the obligations giving rise to
such Fixed Charges will not be obligations of the referent Person or any of its
Restricted Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Global Notes" means the Rule 144A Global Note, the Regulation S Temporary
Global Notes and the Regulation S Permanent Global Notes.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or bankers' acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person. The amount of
any Indebtedness outstanding as of any date shall be (i) the accreted value
thereof, in the case of any Indebtedness that does not require current payments
of interest, and (ii) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Insolvency or Liquidation Proceedings" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding, relative to the Company or to the creditors
of the Company, as such, or to the assets of the Company, or (ii) any
liquidation, dissolution, reorganization or winding up of the Company, whether
voluntary or involuntary, and involving insolvency or bankruptcy, or (iii) any
assignment for the benefit of creditors or any other marshalling of assets and
liabilities of the Company.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of
85
91
such Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "-- Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"New Credit Facility" means that certain Credit Facility, dated as of the
date of the Indenture, by and among the Company and Bank of America, providing
for up to $150.0 million of revolving credit borrowings and $205.0 million of
term credit borrowings, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, renewed, refunded, replaced or refinanced from
time to time.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness (other than the New Notes
being offered hereby) of the Company or any of its Restricted Subsidiaries to
declare a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means any of the businesses and any other businesses
related to the businesses engaged in by the Company and its respective
Restricted Subsidiaries on the date of the Indenture.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company that is engaged in a Permitted
Business; (b) any Investment in Cash Equivalents; (c) any Investment by the
Company or any Restricted Subsidiary of the Company in a Person, if as a result
of such Investment (i) such Person becomes a Wholly Owned Restricted Subsidiary
of the Company that is engaged in a Permitted Business or (ii) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned
86
92
Restricted Subsidiary of the Company that is engaged in a Permitted Business;
(d) any Restricted Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the caption "-- Repurchase at the Option
of Holders -- Asset Sales"; (e) any acquisition of assets solely in exchange for
the issuance of Equity Interests (other than Disqualified Stock) of the Company;
(f) loans and advances made after the date of the Indenture to Holberg
Industries, Inc. not to exceed $10.0 million at any time outstanding; (g) loans
and advances made after the date of the Indenture to NEHC not to exceed $10.0
million at any time outstanding; and (h) other Investments made after the date
of the Indenture in any Person having an aggregate fair market value (measured
on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (h) that are at the time outstanding, not to exceed
$10.0 million.
"Permitted Liens" means (i) Liens securing Indebtedness under the New
Credit Facility that was permitted by the terms of the Indenture to be incurred;
(ii) Liens in favor of the Company; (iii) Liens on property of a Person existing
at the time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary of the Company, provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) Liens existing on the date of the Indenture;
(vii) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (viii) Liens incurred in the ordinary course
of business of the Company or any Restricted Subsidiary of the Company with
respect to obligations that do not exceed $5.0 million at any one time
outstanding and that (a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of business by the Company or such Restricted Subsidiary, and (ix)
Liens on assets of Unrestricted Subsidiaries that (A) secure Non-Recourse Debt
of Unrestricted Subsidiaries or (B) are incurred in connection with a
Receivables Transaction.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) except for Indebtedness used to extend, refinance, renew,
replace, defease or refund the New Credit Facility, the principal amount (or
accreted value, if applicable) of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the New Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the New Notes on terms at least as favorable to the Holders of New Notes as
those contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Principals" means Holberg Industries, Inc., John V. Holten, Orkla, ASA,
Nebco Evans Distributors, Inc., NEHC, DLJ Merchant Banking, L.P., DLJ
International Partners, C.V., DLJ Offshore Partners, C.V.,
87
93
DLJ Merchant Banking Funding, Inc., DLJ Merchant Banking Partners II, L.P., DLJ
Merchant Banking Partners II-A, L.P., DLJ Offshore Partners II, C.V., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ Millennium
Partners, L.P., DLJ Millennium Partners-A, L.P., DLJMB Funding II, Inc., DLJ
First ESC LLC, DLJ EAB Partners, L.P. and UK Investment Plan 1997 Partners.
"Public Equity Offering" means a public offering of Equity Interests (other
than Disqualified Stock) of (i) the Company; or (ii) NEHC to the extent the net
proceeds thereof are contributed to the Company as a capital contribution, that,
in each case, results in the net proceeds to the Company of at least $25.0
million.
"Receivables" means, with respect to any Person or entity, all of the
following property and interests in property of such Person or entity, whether
now existing or existing in the future or hereafter acquired or arising: (i)
accounts, (ii) accounts receivable incurred in the ordinary course of business,
including, without limitation, all rights to payment created by or arising from
sales of goods, leases of goods or the rendition of services, no matter how
evidenced, whether or not earned by performance, (iii) all rights to any goods
or merchandise represented by any of the foregoing after creation of the
foregoing, including, without limitation, returned or repossessed goods, (iv)
all reserves and credit balances with respect to any such accounts receivable or
account debtors, (v) all letters of credit, security or guarantees for any of
the foregoing, (vi) all insurance policies or reports relating to any of the
foregoing, (vii) all collection or deposit accounts relating to any of the
foregoing, (viii) all proceeds of the foregoing and (ix) all books and records
relating to any of the foregoing.
"Receivables Subsidiary" means an Unrestricted Subsidiary exclusively
engaged in Receivables Transactions and activities related thereto; provided,
however, that (i) at no time shall the Company and its Subsidiaries have more
than one Receivables Subsidiary and (ii) all Indebtedness or other borrowings of
such Unrestricted Subsidiary shall be Non-Recourse Debt.
"Receivables Transaction" means (i) the sale or other disposition to a
third party of Receivables or an interest therein, or (ii) the sale or other
disposition of Receivables or an interest therein to a Receivables Subsidiary
followed by a financing transaction in connection with such sale or disposition
of such Receivables (whether such financing transaction is effected by such
Receivables Subsidiary or by a third party to whom such Receivables Subsidiary
sells such Receivables or interests therein); provided that in each of the
foregoing, the Company or its Subsidiaries receive at least 80% of the aggregate
principal amount of any Receivables financed in such transaction.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Notes" means the Regulation S Temporary Global Notes
or the Regulation S Permanent Global Notes as applicable.
"Regulation S Permanent Global Notes" means the permanent global Notes that
are deposited with and registered in the name of the Depository or its nominee,
representing a series of Notes sold in reliance on Regulation S.
"Regulation S Temporary Global Notes" means the temporary global Notes that
are deposited with and registered in the name of the Depository or its nominee,
representing a series of Notes sold in reliance on Regulation S.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"Reorganization Securities" means securities distributed to the Holders of
the New Notes in an Insolvency or Liquidation Proceeding pursuant to a plan of
reorganization consented to by each class of the Senior Debt, but only if all of
the terms and conditions of such securities (including, without limitation,
term, tenor, interest, amortization, subordination, standstills, covenants and
defaults) are at least as favorable (and provide the same relative benefits) to
the holders of Senior Debt and to the holders of any security distributed
88
94
in such Insolvency or Liquidation Proceeding on account of any such Senior Debt
as the terms and conditions of the New Notes and the Indenture are, and provide
to the holders of Senior Debt.
"Representative" means the Trustee, agent or representative for any Senior
Debt.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary. "Rule 144A" means Rule 144A
promulgated under the Securities Act.
"Rule 144A Global Note" means a permanent global note that is deposited
with and registered in the name of the Depository or its nominee, representing a
series of Notes sold in reliance on Rule 144A.
"Senior Debt" means (i) all Indebtedness outstanding under the New Credit
Facility, including any Guarantees thereof and all Hedging Obligations with
respect thereto, (ii) any other Indebtedness permitted to be incurred by the
Company under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the New Notes and (iii) all Obligations with
respect to the foregoing. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (w) any liability for federal, state,
local or other taxes owed or owing by the Company, (x) any Indebtedness of the
Company to any of its Subsidiaries or other Affiliates, (y) any trade payables
or (z) any Indebtedness that is incurred in violation of the Indenture.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantors" means all direct and indirect Restricted
Subsidiaries of the Senior Subordinated New Notes.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries; and (e) has at least one director
on its board of directors that is not a director or executive officer of the
Company or any of its Restricted Subsidiaries and has at least one executive
officer that is not a director or executive officer of the Company or any of its
Restricted Subsidiaries. Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption "Certain
Covenants -- Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter
89
95
cease to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under the
caption "Incurrence of Indebtedness and Issuance of Preferred Stock," the
Company shall be in default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall be
permitted only if (i) such Indebtedness is permitted under the covenant
described under the caption "Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock," and (ii) no Default or Event of Default would be
in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
DESCRIPTION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain U.S. federal income tax
considerations relevant to the purchase, ownership and disposition of the New
Notes by the holders thereof. This summary does not purport to be a complete
analysis of all the potential federal income tax effects relating to the
purchase, ownership and disposition of the New Notes. There can be no assurance
that the U.S. Internal Revenue Service will take a similar view of such
consequences. Further, the discussion does not address all aspects of taxation
that may be relevant to particular purchasers in light of their individual
circumstances (including the effect of any foreign, state or local laws) or to
certain types of purchasers (including dealers in securities, insurance
companies, financial institutions, persons that hold New Notes that are a hedge
or that are hedged against currency risks or that are part of a straddle or
conversion transaction, persons whose functional currency is not the U.S. dollar
and tax-exempt entities) subject to special treatment under U.S. federal income
tax laws. The discussion below assumes that the New Notes are held as capital
assets.
The discussion of the U.S. federal income tax consequences set forth below
is based upon currently existing provisions of the Internal Revenue Code of
1986, as amended (the "Code"), judicial decisions, and administrative
interpretations. Because individual circumstances may differ, each prospective
purchaser of the New Notes is strongly urged to consult its own tax advisor with
respect to its particular tax situation and the particular tax effects of any
state, local, non-U.S. or other tax laws and possible changes in the tax laws.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
who or which is for U.S. federal income tax purposes either (i) a citizen or
resident of the U.S., (ii) a corporation, partnership or other entity created or
organized in or under the laws of the U.S. or of any political subdivision
thereof, (iii) an estate or trust the income of which is subject to U.S. federal
income taxation regardless of its source or (iv) a trust if a court within the
U.S. is able to exercise primary supervision over the administration of the
trust and one or more U.S. fiduciaries have the authority to control all
substantial decisions of the trust. The term also includes certain former
citizens of the U.S. whose income and gain on the New Notes will be subject to
U.S. taxation. As used herein, the term "U.S. Alien Holder" means a beneficial
owner of a Note that is not a U.S. Holder.
90
96
PAYMENTS OF INTEREST
Interest paid on a Note will generally be taxable to a U.S. Holder as
ordinary interest income at the time it accrues or is received in accordance
with the U.S. Holder's method of accounting for federal income tax purposes.
MARKET DISCOUNT AND PREMIUM
If a U.S. Holder that acquires a New Note has a tax basis in the New Note
that is less than its "stated redemption price at maturity," the amount of the
difference will be treated as "market discount" for U.S. federal income tax
purposes, unless such difference is less than a specified de minimis amount.
Under the market discount rules of the Code, a U.S. Holder will be required to
treat any principal payment on, or any gain on the sale, exchange, retirement or
other disposition of, a New Note as ordinary income to the extent of any accrued
market discount that has not previously been included in income. Market discount
generally accrues on a straight-line basis over the remaining term of a New
Note. A U.S. Holder may not be allowed to deduct immediately all or a portion of
the interest expense on any indebtedness incurred or continued to purchase or to
carry such New Note. A U.S. Holder may elect to include market discount in
income currently as it accrues (either on a straight-line basis or, if the
United States Holder so elects, on a constant yield basis), in which case the
interest deferral rule set forth in the preceding sentence will not apply. Such
an election will apply to all bonds acquired by the U.S. Holder on or after the
first day of the first taxable year to which such election applies and may be
revoked only with the consent of the Internal Revenue Service.
If a U.S. Holder purchases a New Note for an amount that is greater than
the sum on all amounts payable on the New Note after the purchase date, other
than stated interest, such holder will be considered to have purchased such Note
with "amortizable bond premium" equal in amount to such excess, and may elect
(in accordance with applicable Code provisions) to amortize such premium, using
a constant yield method over the remaining term of the New Note. The amount
amortized in any year will be treated as a reduction of the U.S. Holder's
interest income from the New Note in such year. A U.S. Holder that elects to
amortize bond premium must reduce its tax basis in the New Note by the amount of
the premium amortized in any year. An election to amortize bond premium applies
to all taxable debt obligations then owned and thereafter acquired by the U.S.
Holder and may be revoked only with the consent of the Internal Revenue Service.
SALE, EXCHANGE OR RETIREMENT OF NEW NOTES
Upon the sale, exchange or retirement of a New Note, a U.S. Holder will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (not including any amount
attributable to accrued but unpaid interest) and such holder's adjusted tax
basis in the New Note. A U.S. Holder's adjusted tax basis in a New Note will
equal the cost of the New Note to such holder, increased by the amount of any
market discount previously included in income by such holder with respect to
such New Note and reduced by any amortized bond premium and any principal
payment received by such holder.
Subject to the discussion of market discount above, gain or loss realized
on the sale, exchange or retirement of a New Note by a U.S. Holder will be
capital gain or loss, and will be long-term capital gain or loss if at the time
of the sale, exchange or retirement the New Note has been held for more than one
year. Net capital gain is taxed at a lower rate than ordinary income for certain
non-corporate taxpayers, but not for corporate taxpayers. The distinction
between capital gain or loss and ordinary income or loss is also relevant for
purposes of, among other things, limitations on the deductibility of capital
losses.
A U.S. Holder will recognize no gain or loss on the exchange of a Note for
a New Note pursuant to the Exchange Offer.
91
97
TAX CONSEQUENCES TO U.S. ALIEN HOLDERS
Under present U.S. federal income and estate tax law, and subject to the
discussion below concerning backup withholding:
(a) payments of principal or interest on the New Notes by the Company
or any paying agent to a beneficial owner of a New Note that is a U.S.
Alien Holder will not be subject to U.S. federal withholding tax, provided
that, in the case of interest, (i) such Holder does not own, actually or
constructively, 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, (ii) such Holder is not,
for U.S. federal income tax purposes, a controlled foreign corporation
related, directly or indirectly, to the Company through stock owner ship,
(iii) such Holder is not a bank receiving interest described in Section
881(c)(3)(A) of the Code, and (iv) the certification requirements under
Section 871(h) or Section 881(c) of the Code and Treasury Regulations
thereunder (summarized below) are met;
(b) a U.S. Alien Holder of a New Note will not be subject to U.S.
federal income tax on gains realized on the sale, exchange or other
disposition of such New Note, unless (i) such Holder is an individual who
is present in the U.S. for 183 days or more in the taxable year of sale,
exchange or other disposition, and certain conditions are met; (ii) such
gain is effectively connected with the conduct by such Holder of a trade or
business in the U.S. and, if certain tax treaties apply, is attributable to
a U.S. permanent establishment maintained by the U.S. Alien Holder or (iii)
the U.S. Alien Holder is subject to tax pursuant to the Code provisions
applicable to certain U.S. expatriates; and
(c) a New Note held by an individual who is not a citizen or resident
of the U.S. at the time of his death will not be subject to U.S. federal
estate tax as a result of such individual's death, provided that, at the
time of such individual's death, the individual does not own, actually or
constructively, 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote and payments with respect
to such New Note would not have been effectively connected with the conduct
by such individual of a trade or business in the U.S.
Sections 871(h) and 881(c) of the Code and current Treasury Regulations
thereunder require that, in order to obtain the exemption from withholding tax
described in paragraph (a) above, either (i) the beneficial owner of a New Note
must certify, under penalties of perjury, to the Company or paying agent, as the
case may be, that such owner is a U.S. Alien Holder and must provide such
owner's name and address, and U.S. taxpayer identification number ("TIN"), if
any, or (ii) a securities clearing organization, bank or other financial
institution that holds customers securities in the ordinary course of its trade
or business (a "Financial Institution") and holds the New Note on behalf of the
beneficial owner thereof must certify, under penalties of perjury, to the
Company or paying agent, as the case may be, that such certificate has been
received from the beneficial owner by it or by a Financial Institution between
it and the beneficial owner and must furnish the payor with a copy thereof. A
certificate described in this paragraph is effective only with respect to
payments of interest made to the certifying U.S. Alien Holder after delivery of
the certificate in the calendar year of its delivery and the two immediately
succeeding calendar years. Under temporary U.S. Treasury Regulations, such
requirement will be fulfilled if the beneficial owner of a New Note certifies on
Internal Revenue Service Form W-8, under penalties of perjury, that it is a U.S.
Alien Holder and provides its name and address, and any Financial Institution
holding the New Note on behalf of the beneficial owner files a statement with
the withholding agent to the effect that it has received such a statement from
the beneficial owner (and furnishes the withholding agent with a copy thereof).
Recently proposed Treasury Regulations (the "Proposed Regulations") would
provide alternative methods for satisfying the certification requirement
described above. The Proposed Regulations also would require, in the case of New
Notes held by a foreign partnership, that (x) the certification be provided by
the partners rather than by the foreign partnership and (y) the partnership
provide certain information, including a United States taxpayer identification
number. A lookthrough rule would apply in the case of tiered partnerships. The
Proposed Regulations are proposed to be effective for payments made after
December 31, 1997. There can be no assurance that the Proposed Regulations will
be adopted or as to the provisions that they will include if and when adopted in
temporary or final form.
92
98
If a U.S. Alien Holder of a New Note is engaged in a trade or business in
the U.S., and if interest on the New Note, or gain realized on the sale,
exchange or other disposition of the New Note, is effectively connected with the
conduct of such trade or business and, if certain tax treaties apply, is
attributable to a U.S. permanent establishment maintained by the U.S. Alien
Holder, the U.S. Alien Holder, although exempt from U.S. withholding tax, will
generally be subject to regular U.S. income tax on such interest or gain in the
same manner as if it were a U.S. Holder. In lieu of the certificate described in
the preceding paragraph, such a Holder will be required to provide the Company a
properly executed Internal Revenue Service Form 4224 in order to claim an
exemption from withholding tax. In addition, if such U.S. Alien Holder is a
foreign corporation, it may be subject to a branch profits tax equal to 30% (or
such lower rate provided by an applicable treaty) of its effectively connected
earnings and profits for the taxable year, subject to certain adjustments. For
purposes of the branch profits tax, interest on and any gain recognized on the
sale, exchange or other disposition of a New Note will be included in the
earnings and profits of such U.S. Alien Holder if such interest or gain is
effectively connected with the conduct by the U.S. Alien Holder of a trade or
business in the U.S. The Treasury has promulgated proposed regulations with
respect to withholding that are proposed to be effective for payments of income
after December 31, 1997, which, if finalized, would change some of the
withholding reporting requirements described above, subject to certain
grandfathering provisions.
BACKUP WITHHOLDING
Under current U.S. federal income tax law, a 31% backup withholding tax
requirement applies to certain payments of interest on, and the proceeds of a
sale, exchange or redemption of, the New Notes.
Backup withholding will generally not apply with respect to payments made
to certain exempt recipients, such as corporations or other tax-exempt entities.
In the case of a non-corporate U.S. Holder, backup withholding will apply only
if such Holder (i) fails to furnish its TIN, which, for an individual, would be
his Social Security number, (ii) furnishes an incorrect TIN, (iii) is notified
by the Internal Revenue Service that it has failed to properly report payments
of interest and dividends or (iv) under certain circumstances, fails to certify,
under penalties of perjury, that it has furnished a correct TIN and has not been
notified by the Internal Revenue Service that it is subject to backup
withholding for failure to report interest and dividend payments.
In the case of a U.S. Alien Holder, under current Treasury Regulations,
backup withholding will not apply to payments made by the Company or any paying
agent thereof on a New Note if such holder has provided the required
certification under penalties of perjury that it is not a U.S. Holder (as
defined above) or has otherwise established an exemption, provided in each case
that the Company or such paying agent, as the case may be, does not have actual
knowledge that the payee is a U.S. Holder.
Under current Treasury Regulations, if payments on a New Note are made to
or through a foreign office of a custodian, nominee or other agent acting on
behalf of a beneficial owner of a New Note, such custodian, nominee or other
agent acting will not be required to apply backup withholding to such payments
made to such beneficial owner. However, under proposed Treasury Regulations,
backup withholding may apply if such custodian, nominee or other agent has
actual knowledge that the payee is a U.S. Holder.
Under current Treasury Regulations, payments on the sale, exchange or other
disposition of a New Note made to or through a foreign office of a broker
generally will not be subject to backup withholding. However, under proposed
Treasury Regulations, backup withholding may apply if such broker has actual
knowledge that the payee is a U.S. Holder. In the case of proceeds from a sale
of a New Note by a U.S. Alien Holder paid to or through the foreign office of a
U.S. broker or a foreign office of a foreign broker that is (i) a controlled
foreign corporation for U.S. tax purposes or (ii) a person 50% or more of whose
gross income for the three-year period ending with the close of the taxable year
preceding the year of payment (or for the part of that period that the broker
has been in existence) is effectively connected with the conduct of a trade or
business within the U.S., information reporting is required unless the broker
has documentary evidence in its files that the payee is not a U.S. person and
certain other conditions are met, or the payee otherwise establishes an
exemption. Payments to or through the U.S. office of a broker will be subject to
backup withholding and information reporting unless the holder certifies, under
penalties of perjury, that it is not a U.S. Holder and that certain other
conditions are met or otherwise establishes an exemption.
93
99
Holders of New Notes should consult their tax advisors regarding the
application of backup withholding in their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available. Any amounts withheld from payment under the backup
withholding rules will be allowed as a credit against a Holder's U.S. federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the Internal Revenue Service.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE HOLDER OF NEW NOTES SHOULD CONSULT ITS OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO THE PROSPECTIVE HOLDER OF THE
NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR
NON-U.S. INCOME TAX LAWS AND ANY RECENT OR PROSPECTIVE CHANGES IN APPLICABLE TAX
LAWS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account
("Participating Broker-Dealer") pursuant to the Exchange Offer must acknowledge
that it will deliver a Prospectus in connection with the initial sales of such
New Notes. This Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with the sales
of New Notes received in exchange for Notes where such Notes were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that it will make this Prospectus, as amended or supplemented, available
to any Participating Broker-Dealer for use in connection with any such resale
and Participating Broker-Dealers shall be authorized to deliver this prospectus
for a period not exceeding 120 days after the Expiration Date. In addition,
until , 1997 (90 days after the date of this Prospectus), all dealers
effecting transactions in the New Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sales of the New Notes
by participating Broker-Dealers. New Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time, in one or more transactions in the over-the counter market,
in negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer that resells the New Notes
that were received by it for its own account pursuant to the Exchange Offer. Any
broker or dealer that participates in a distribution of such New Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and may
profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this prospectus to any Participating Broker-Dealer
that requests such documents in the Letter of Transmittal. See "The Exchange
Offer."
Bank of America NT&SA, an affiliate of BancAmerica Securities, is an agent
and lender under the Company's existing credit facility and will receive
proceeds from the Offering in connection with the repayment of loans under such
credit facility. See "Use of Proceeds." Bank of America NT&SA will be an agent
and lender under the New Credit Facility. It is expected that BancAmerica
Securities will receive an arrangement fee in connection with the New Credit
Facility and will be the syndication agent and an agent with respect to the
Accounts Receivable Program, for which, in each case, it is receiving certain
customary fees and expenses.
DLJMB, an affiliate of DLJ, and certain of its affiliates beneficially own
approximately 36.1% of the common stock of NEHC, the parent of the Company.
Peter T. Grauer, a principal of DLJ, is a member of the
94
100
Board of Directors of NEHC and the Company; Benoit Jamar, a principal of DLJ,
became a member of the Board of Directors of NEHC and the Company as of the
Closing. Further, DLJ Capital Funding, Inc., an affiliate of DLJ, acted as an
agent and lender in connection with the New Credit Facility, for which it
received certain customary fees and expenses. In addition, DLJ received a merger
advisory fee of approximately $4.0 million in cash from the Company upon
consummation of the Transactions.
In connection with the Transactions, each of Bank of America NT&SA and an
affiliate of DLJ has received customary fees in connection with their agreement
to finance a portion of the purchase price for PFS to the extent the Company
cannot arrange alternative financing for the Acquisition prior to the Closing.
See "Certain Relationships and Related Party Transactions."
LEGAL MATTERS
Certain legal matters in connection with the New Notes offered hereby will
be passed upon for the Company by Wachtell, Lipton, Rosen & Katz, New York, New
York.
EXPERTS
The consolidated financial statements of the Company as of December 30,
1995 and December 28, 1996 and for each of the three years in the period ended
December 28, 1996, appearing in this Prospectus and in the Registration
Statement, and the financial statement schedule for each of the three years in
the period ended December 28, 1996 included in the Registration Statement have
been audited by Ernst & Young LLP ("Ernst & Young"), independent auditors, as
set forth in their reports thereon appearing elsewhere herein and in the
Registration Statement, and are included herein in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The financial statements of PFS (A Division of PepsiCo, Inc. Held for Sale)
as of December 27, 1995 and December 25, 1996 and for each of the years in the
three-year period ended December 25, 1996 appearing in this Prospectus and in
the Registration Statement have been audited by KPMG Peat Marwick LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated statements of operations, stockholders' equity, and cash
flows of Ameriserv Food Company for each of the two years in the period ended
December 30, 1995 appearing in this Prospectus and in the Registration Statement
have been audited by Ernst & Young, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included herein in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
CHANGE IN COMPANY'S ACCOUNTANT
Prior to the acquisition by the Company of AmeriServ, the Company's
principal independent auditors were Deloitte & Touche LLP ("Deloitte & Touche").
At the time of its acquisition by the Company the principal independent auditors
for AmeriServ were Ernst & Young LLP ("Ernst & Young"). In July 1996 the Company
invited both Deloitte & Touche and Ernst & Young to submit proposals to act as
principal independent auditors to the Company. On or about October 1, 1996, the
Company notified Deloitte & Touche that Deloitte & Touche had been dismissed as
the Company's principal accountants. On October 1, 1996, the Company selected
and retained Ernst & Young as the Company's principal independent auditors for
the Company's 1996 fiscal year. The Company's Board of Directors approved of
this change.
Deloitte & Touche's reports on the Company's financial statements, which
financial statements were prepared on a private entity basis and not in
accordance with the requirements of Regulation S-X, for the fiscal years ended
December 31, 1994 and December 30, 1995 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or procedure, or accounting principles. During the fiscal years
ended December 31, 1994 and December 30, 1995
95
101
and through October 1, 1996 there were no disagreements with Deloitte & Touche,
as described in Item 304(a)(1)(iv), nor were there any events that would be
"reportable events" pursuant to Item 304(a)(1)(v) of Regulation S-K.
The Company's financial statements, which financial statements have been
presented on a basis which will comply with the requirements of Regulation S-X
for the fiscal years ended December 31, 1994 and December 30, 1995 included in
this Prospectus have been audited by Ernst & Young.
As required pursuant to Item 304 of Regulation S-K, filed as Exhibit 16.1
hereto is a letter from Deloitte & Touche addressed to the Securities and
Exchange Commission (the "SEC") stating that Deloitte & Touche agrees with the
statements in the first and fourth sentences of the first paragraph and the
statements in the second paragraph (and has no basis to agree or disagree with
the other statements) of this section.
96
102
INDEX OF CERTAIN DEFINED TERMS
PAGE NO.
--------
Accounts Receivable Program...... 28
Acquisition...................... 2
Adjusted EBITDA.................. 11
Administrative Agent............. 27
Agents........................... 28
AmeriServe Funding............... 57
AmeriServ........................ 15
AmeriServe....................... 3
Applicable Reserve Ratio......... 57
Asset Purchase Agreement......... 26
BancAmerica Securities........... 28
Bank of America NT&SA............ 27
Banks............................ 57
Base Amount...................... 57
CAGR............................. 3
Carrying Cost Receivable
Reserve........................ 58
CCC.............................. 49
Certificate of Incorporation..... 16
Change of Control................ 80
Code............................. 90
Commission....................... 96
Company.......................... 1
Depository....................... ii
Distribution Agreement........... ii, 6
DLJ.............................. ii, 7
DLJMB............................ 54
EBITDA........................... 11
Equity Contribution.............. 27
Escrow Agent..................... 48
Evans............................ 10
Exchange Act..................... 2
Exchange Offer................... 1
Financial Institution............ 92
Global New Note.................. 77
Guarantors....................... 58
Holberg.......................... 15
IDA.............................. 49
Indebtedness..................... 77
Indenture........................ 1
Initial Purchasers............... ii
Invested Amount.................. 57
PAGE NO.
--------
Lenders.......................... 14
market discount.................. 41
Named Executive Officers......... 52
NEBCO............................ 15
NEBCO EVANS...................... 15
NED.............................. 24
NEHC............................. 3
Net Eligible Receivables......... 57
New Credit Facility.............. 27
New Notes........................ 1
New Note Guarantees.............. 60
Participants..................... 47
PepsiCo Chains................... 48
Post............................. 3
Post Contribution................ 27
Post Holdings.................... 27
Preferred Stock Contribution..... 27
Proposed Regulations............. 92
Receivables...................... 57
Registration Rights Agreement.... 1
Regulation S Permanent Global
Notes.......................... 88
Regulation S Temporary Global
Notes.......................... 88
Restricted Subsidiary............ 89
Revolving Credit Facility........ 28
Rule 144A Global Note............ 89
Securities Act................... 1
Shelf Registration Statement..... 10
Subsidiary Guarantors............ 1
Term Loan A...................... 58
Term Loan B...................... 58
Term Loan C...................... 58
Term Loan D...................... 56
Term Loans....................... 28
TIN.............................. 42
Transactions..................... 6
Transfer Restricted Securities... 80
Trust............................ 57
Trustee.......................... 60
U.S. Alien Holder................ 90
U.S. Holder...................... 90
97
103
INDEX TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
PAGE
----
AMERISERVE FOOD DISTRIBUTION, INC.
Unaudited Pro Forma Consolidated Balance Sheet as of March 29, 1997............... P-2
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 29,
1997........................................................................... P-3
Unaudited Pro Forma Consolidated Statement of Income for the Fiscal Year 1996..... P-5
Unaudited Pro Forma Consolidated Statement of Income for the First Quarter of
1997........................................................................... P-6
Unaudited Pro Forma Consolidated Statement of Income for the First Quarter of
1996........................................................................... P-7
Notes to Unaudited Pro Forma Consolidated Statements of Income for Fiscal Year
1996, First Quarter of 1997 and First Quarter of 1996.......................... P-8
P-1
104
AMERISERVE FOOD DISTRIBUTION, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following sets forth the Unaudited Pro Forma Consolidated Balance Sheet
and the Unaudited Pro Forma Consolidated Statements of Income of AmeriServe Food
Distribution, Inc., in each case giving effect to the Transactions as if such
Transactions had been consummated on March 29, 1997 (in the case of the
Unaudited Pro Forma Consolidated Balance Sheet) and at the beginning of the
earliest period presented (in the case of the Unaudited Pro Forma Consolidated
Statements of Income). The Unaudited Pro Forma Consolidated Financial Statements
of the Company do not purport to present the financial position or results of
operations of the Company had the transactions assumed herein occurred on the
dates indicated, nor are they necessarily indicative of the results of
operations which may be expected to occur in the future.
AMERISERVE FOOD DISTRIBUTION, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 29, 1997
(IN THOUSANDS)
HISTORICAL HISTORICAL HISTORICAL PRO FORMA
AMERISERVE POST PFS ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ----------- ----------
ASSETS
Current assets:
Cash and cash equivalents............................ $ 3,995 $ 64 $ 176 $ 43,881(3) $ 48,116
Accounts receivable.................................. 74,087 12,451 284,116 (225,000)(4) 145,654
Inventories.......................................... 62,909 6,526 95,806 165,241
Other current assets................................. 12,907 4,765 21,109 (17,634)(1) 16,447
(4,700)(5)
------- ------ ------- -------- ----------
Total current assets........................... 153,898 23,806 401,207 (203,453) 375,458
Property and equipment, net............................ 35,720 1,928 88,247 (7,397)(1) 108,498
(10,000)(2)
Other assets:
Goodwill............................................. 99,421 3,725 218 588,846(2) 692,210
Other................................................ 31,807 61 130 24,100(3) 51,598
(2,000)(3)
(2,500)(5)
------- ------ ------- -------- ----------
$320,846 $ 29,520 $489,802 $ 387,596 $1,227,764
======= ====== ======= ======== ==========
LIABILITIES & STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt................. $ 2,474 $ 123 $ 397 $ (933)(3) $ 2,061
Accounts payable..................................... 114,870 10,857 177,688 (48,445)(1) 254,970
Due to PepsiCo....................................... -- -- 123,429 (123,429)(1) --
Accrued liabilities.................................. 9,917 666 69,041 (43,164)(1) 62,360
11,000(3)
14,900(2)
------- ------ ------- -------- ----------
Total current liabilities...................... 127,261 11,646 370,555 (190,071) 319,391
Non-current liabilities................................ 13,302 361 29,254 (25,006)(1) 33,011
15,100(2)
Long-term debt:
Existing credit facilities........................... 124,800 9,024 -- (133,824)(3) --
Term Loans........................................... -- -- -- 205,000(3) 205,000
Senior Subordinated New Notes due 2007............... -- -- -- 500,000(3) 500,000
Other................................................ 13,994 1,255 52 (4,862)(3) 10,439
------- ------ ------- -------- ----------
Total long-term debt............................. 138,794 10,279 52 566,314 715,439
------- ------ ------- -------- ----------
Total liabilities.............................. 279,357 22,286 399,861 366,337 1,067,841
------- ------ ------- -------- ----------
Stockholder's equity:
Preferred............................................ 45,000 -- -- (45,000)(5) --
Common............................................... (3,511) 7,234 -- 175,000(5) 159,923
(9,600)(3)
(2,000)(3)
(7,200)(5)
Divisional........................................... -- -- 89,941 (89,941)(5) --
------- ------ ------- -------- ----------
Total stockholder's equity..................... 41,489 7,234 89,941 21,259 159,923
------- ------ ------- -------- ----------
$320,846 $ 29,520 $489,802 $ 387,596 $1,227,764
======= ====== ======= ======== ==========
See accompanying notes to unaudited pro forma consolidated balance sheet.
P-2
105
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 29, 1997
(IN THOUSANDS)
Adjustments to reflect the Acquisition (the final purchase price allocation
will be based upon a final determination of the fair values of the net assets
acquired):
(1) Represents the elimination of assets and liabilities which will not be
acquired or assumed in the Acquisition. The reduction in other current
assets represents prepaid workers' compensation expense ($7,356) and
deferred taxes ($10,278). The reduction to property and equipment ($7,397)
represents leasehold improvements and data center equipment at facilities
being retained by PepsiCo. The reduction in accounts payable ($48,445)
represents certain accounts payable incurred by PFS as a division of PepsiCo
which will be paid by PepsiCo. The Due to PepsiCo ($123,429) entry
represents the net payable due to PepsiCo in connection with operating
activities, which will not be an obligation of the Company. The reduction in
accrued liabilities ($43,164) primarily represents income and other taxes to
be paid by PepsiCo. The reduction in non-current liabilities represents
deferred compensation and rent expense ($11,404) to be retained by PepsiCo,
deferred income tax liabilities of PepsiCo ($3,602) and postretirement
benefit obligations of PFS ($10,000) not assumed by the Company.
(2) Records excess of cost over fair value of assets acquired resulting from the
preliminary purchase price allocation as follows (the final purchase price
is subject to a negotiated price adjustment for working capital):
Cash purchase price............................................... $830,000
Post-closing purchase price adjustment............................ 8,000
Fees and expenses................................................. 15,800
--------
Total purchase price.............................................. 853,800
Purchase price allocated to:
Historical net assets of PFS less assets and liabilities not
transferred.................................................. 304,954
Leasehold improvements in duplicate facilities.................. (10,000)
Additional liabilities.......................................... (30,000)
--------
Subtotal................................................ 264,954
--------
Excess of cost over fair value of net assets acquired............. $588,846
========
The additional liabilities of $30,000 represent the current ($14,900) and
non-current ($15,100) accruals for costs to be incurred by the Company
related to the termination of redundant administrative and operating
employees ($9,100); lease termination costs in connection with the closing
of facilities which will not be used by the Company ($19,800) and certain
other costs to exit PFS activities ($1,100).
P-3
106
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET -- (CONTINUED)
(3) Represents the following:
Proceeds under the New Credit Facility............................ $205,000
Proceeds from the Offering........................................ 500,000
--------
$705,000
========
Use of Proceeds:
Reduction of existing indebtedness:
Current maturities of long-term debt............................ $ 933
Existing credit facilities...................................... 133,824
Other........................................................... 4,862
Deferred financing fees and offering costs........................ 24,100
One time commitment and securitization fees expensed at closing... 9,600
Cash for working capital.......................................... 43,881
Partially finance the Acquisition (excludes $11 million payable
subsequent to Closing).......................................... 487,800
--------
$705,000
========
In connection with the reduction of existing indebtedness, $2,000 of
deferred financing costs were written off.
(4) Represents the sale of accounts receivable ($370,654) to a special-purpose
entity owned by the Company for $225,000 in cash pursuant to the Accounts
Receivable Program, and a $145,654 undivided interest in the accounts
receivable trust.
(5) Adjustments to stockholder's equity:
Equity Contribution of $130,000 by NEHC to partially finance the
Acquisition..................................................... $130,000
Addition to common stock pursuant to the Preferred Stock
Contribution.................................................... 45,000
Elimination of existing preferred stock pursuant to the Preferred
Stock Contribution.............................................. (45,000)
Represents the elimination of the divisional equity of PFS in
purchase accounting............................................. (89,941)
Non-capitalized expenses associated with the Transactions......... (9,600)
Write-off of deferred financing costs............................. (2,000)
Elimination of AmeriServe's investment in NEHC preferred stock
($2,500) and declaration of dividend ($4,700) on Post to
eliminate the intercompany balance.............................. (7,200)
--------
Increase in stockholder's equity.................................. $ 21,259
========
P-4
107
AMERISERVE FOOD DISTRIBUTION, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE FISCAL YEAR 1996
(DOLLARS IN THOUSANDS)
ACQUISITION
HISTORICAL HISTORICAL HISTORICAL OF PRO FORMA
AMERISERVE POST PFS AMERISERV(10) ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ------------- ----------- ----------
INCOME STATEMENT DATA:
Net sales............... $1,280,598 $ 119,444 $3,422,086 $52,852 $ -- $4,874,980
Cost of goods sold...... 1,151,749 106,938 3,080,602 47,640 -- 4,386,929
---------- -------- ---------- ------- --------- ----------
Gross profit............ 128,849 12,506 341,484 5,212 -- 488,051
---------- -------- ---------- ------- --------- ----------
Operating expenses:
Distribution, selling
and
administrative..... 102,808 10,560 241,911 5,850 (11,100)(1) 353,098
(16,400)(2)
15,469(6)
4,000(4)
Depreciation.......... 5,251 295 19,830 134 (1,000)(3) 24,510
Amortization.......... 4,810 142 -- 404 14,721(7) 20,077
Integration costs..... 3,800 -- -- -- -- 3,800
Gain on sale of
assets............. -- (4,283) -- -- -- (4,283)
Other expense
(income)........... (2,109) -- -- -- 2,109(9) --
---------- -------- ---------- ------- --------- ----------
Total operating
expenses.............. 114,560 6,714 261,741 6,388 7,799 397,202
---------- -------- ---------- ------- --------- ----------
Operating income........ 14,289 5,792 79,743 (1,176) (7,799) 90,849
---------- -------- ---------- ------- --------- ----------
Interest expense........ 10,471 1,338 15,566 739 44,486(5) 72,600
---------- -------- ---------- ------- --------- ----------
Income before income
taxes................. 3,818 4,454 64,177 (1,915) (52,285) 18,249
Provision for income
taxes................. 1,300 1,886 24,597 17 (20,683)(8) 7,117
---------- -------- ---------- ------- --------- ----------
Net income.............. $ 2,518 $ 2,568 $ 39,580 $(1,932) $ (31,602) $ 11,132
========== ======== ========== ======= ========= ==========
OTHER DATA:
EBITDA.................. $ 26,041 $ 1,946 $ 99,573 $ (638) $ 8,031 $ 134,953
Depreciation and
amortization.......... 10,061 437 19,830 538 13,721 44,587
Capital expenditures.... 12,518 183 28,771 38 41,510
See accompanying notes to unaudited pro forma consolidated statements of income.
P-5
108
AMERISERVE FOOD DISTRIBUTION, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE FIRST QUARTER 1997
(DOLLARS IN THOUSANDS)
FIRST QUARTER 1997
-------------------------------------------------------------------
HISTORICAL HISTORICAL HISTORICAL PRO FORMA
AMERISERVE POST PFS ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ----------- ----------
INCOME STATEMENT DATA:
Net sales............................. $308,727 $ 27,849 $ 720,524 $ (1,264)(11) $1,055,836
Cost of goods sold.................... 277,086 24,862 644,842 (1,264)(11) 945,526
-------- ------- -------- ------- ----------
Gross profit.......................... 31,641 2,987 75,682 -- 110,310
-------- ------- -------- ------- ----------
Operating expenses:
Distribution, selling and
administrative................... 27,658 2,724 56,319 (2,775)(1) 84,693
(4,100)(2)
3,867(6)
1,000(4)
Depreciation........................ 1,741 96 4,906 (250)(3) 6,493
Amortization........................ 997 37 3,680(7) 4,714
-------- ------- -------- ------- ----------
Total operating expenses.............. 30,396 2,857 61,225 1,422 95,900
-------- ------- -------- ------- ----------
Operating income...................... 1,245 130 14,457 (1,422) 14,410
Interest expense...................... 3,080 317 3,996 10,757(5) 18,150
-------- ------- -------- ------- ----------
Income (loss) before income taxes..... (1,835) (187) 10,461 (12,179) (3,740)
Provision (credit) for income taxes... (649) -- 4,155 (4,965)(8) (1,459)
-------- ------- -------- ------- ----------
Net income (loss)..................... $ (1,186) $ (187) $ 6,306 $ (7,214) $ (2,281)
======== ======= ======== ======= ==========
OTHER DATA:
EBITDA................................ $ 3,983 $ 263 $ 19,363 $ 2,008 $ 25,617
Depreciation and amortization......... 2,738 133 4,906 3,430 11,207
Capital expenditures.................. 2,257 88 6,212 -- 8,557
See accompanying notes to unaudited pro forma consolidated statements of income.
P-6
109
AMERISERVE FOOD DISTRIBUTION, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE FIRST QUARTER 1996
(DOLLARS IN THOUSANDS)
FIRST QUARTER 1996
-----------------------------------------------------------------------------------
HISTORICAL HISTORICAL HISTORICAL ACQUISITION OF PRO FORMA
AMERISERVE POST PFS AMERISERV(10) ADJUSTMENTS PRO FORMA
---------- ---------- ---------- -------------- ----------- ----------
INCOME STATEMENT DATA:
Net sales................. $231,732 $ 27,372 $ 766,688 $ 55,109 $ -- $1,080,901
Cost of goods sold........ 208,023 24,460 689,650 49,897 -- 972,030
-------- ------- -------- ------- -------- ----------
Gross profit.............. 23,709 2,912 77,038 5,212 -- 108,871
-------- ------- -------- ------- -------- ----------
Operating expenses:
Distribution, selling
and administrative... 20,581 2,563 56,290 5,850 (2,775)(1) 83,276
(4,100)(2)
3,867(6)
1,000(4)
Depreciation............ 925 70 4,705 134 (250)(3) 5,584
Amortization............ 698 9 -- 404 3,680(7) 4,791
-------- ------- -------- ------- -------- ----------
Total operating
expenses................ 22,204 2,642 60,995 6,388 1,422 93,651
-------- ------- -------- ------- -------- ----------
Operating income.......... 1,505 270 16,043 (1,176) (1,422) 15,220
Interest expense.......... 2,306 319 3,597 -- 11,928(5) 18,150
-------- ------- -------- ------- -------- ----------
Income (loss) before
income taxes............ (801) (49) 12,446 (1,176) (13,350) (2,930)
Provision (credit) for
income taxes............ (242) -- 4,874 -- (5,775)(8) (1,143)
-------- ------- -------- ------- -------- ----------
Net income (loss)......... $ (559) $ (49) $ 7,572 $ (1,176) $ (7,575) $ (1,787)
======== ======= ======== ======= ======== ==========
OTHER DATA:
EBITDA.................... $ 3,128 $ 349 $ 20,748 $ (638) $ 2,008 $ 25,595
Depreciation and
amortization............ 1,623 79 4,705 538 3,430 10,375
Capital expenditures...... 866 8 7,193 38 -- 8,105
See accompanying notes to unaudited pro forma consolidated statements of income.
P-7
110
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(1) Represents net cost reductions in accordance with the terms of the Asset
Purchase Agreement for the following items:
FIRST QUARTER
FISCAL -----------------
1996 1996 1997
------- ------ ------
Reduction in lease expense for existing PFS
facilities being retained by PepsiCo.......... $ 4,100 $1,025 $1,025
Net reduction in data processing costs charged
by PepsiCo to PFS under the terms of a one
year data processing service contract......... 4,100 1,025 1,025
Reduction of employee retirement expense due to
the termination of pension and retirement
plans of PepsiCo, net of amounts to be paid
under AmeriServe's plans...................... 1,900 475 475
Compensation of certain PFS employees retained
by PepsiCo.................................... 1,000 250 250
------- ------ ------
Net cost savings................................ $11,100 $2,775 $2,775
======= ====== ======
(2) Represents the following initiatives in accordance with the Company's
business plan to integrate PFS:
FIRST QUARTER
FISCAL -----------------
1996 1996 1997
------- ------ ------
Payroll reductions for the elimination of
duplicative administrative personnel.......... $ 7,000 $1,750 $1,750
Reduction in warehouse facilities and operating
personnel..................................... 6,800 1,700 1,700
Reduction of marketing personnel................ 2,600 650 650
------- ------ ------
Net cost savings................................ $16,400 $4,100 $4,100
======= ====== ======
(3) Represents reduction of $1,000 annually in depreciation expense as a result
of the closure of certain distribution centers.
(4) Represents an annual management fee of $4,000 to be paid by the Company to
Holberg Industries, Inc. in accordance with the management agreement.
P-8
111
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME -- (CONTINUED)
(5) Represents the change in interest expense related to the Transactions:
PRINCIPAL FIRST QUARTER
AMOUNT FISCAL -------------------
OF DEBT 1996 1996 1997
--------- -------- ------- -------
Recording of pro forma interest:
Term Loans at rates from 8.375% to
9.375%.......................... $ 205,000 $ 18,124 $ 4,531 $ 4,531
Revolving Credit Facility......... -- -- -- --
New Senior Subordinated Notes due
2007 at 10.125%................. 500,000 50,625 12,656 12,656
Letters of credit................. 12,000 300 75 75
Capital leases at 9.0%............ 770 193 193
-------- ------- -------
Cash interest expense............. 69,819 17,455 17,455
Amortization of deferred financing
costs........................... 2,781 695 695
-------- ------- -------
Total interest expense............ 72,600 18,150 18,150
Less: historical interest......... (28,114) (6,222) (7,393)
-------- ------- -------
Pro forma interest adjustment..... $ 44,486 $11,928 $10,757
======== ======= =======
(6) Represents the discount of $15,469 annually and $3,867 quarterly on the
sale of accounts receivable pursuant to the Accounts Receivable Program
($225,000 at a rate of 6.875%).
(7) Represents the amortization of goodwill incurred in connection with the
Acquisition of $14,721 annually and $3,680 quarterly, assuming a 40-year
amortization period.
(8) Represents adjustments to reconcile income taxes to an effective income tax
rate of 39%.
(9) Eliminates AmeriServe's 45% equity interest in the net income of Post for
the period January 26, 1996 through November 25, 1996. Effective November
25, 1996, NEHC acquired the remaining 50% interest in Post.
(10) Represents AmeriServ net sales and expenses for the month of January 1996
prior to its acquisition by AmeriServe on January 26, 1996.
(11) Represents elimination of intercompany sales.
P-9
112
INDEX TO HISTORICAL FINANCIAL STATEMENTS
PAGE
-----
AMERISERVE FOOD DISTRIBUTION, INC.
Report of Ernst & Young LLP, Independent Auditors.................................. F-2
Consolidated Balance Sheets as of December 30, 1995 and December 28, 1996, and as
of March 29, 1997 (unaudited)................................................... F-3
Consolidated Statements of Income for each of the three fiscal years in the period
ended December 28, 1996, and for the three month periods ended March 30, 1996
and March 29, 1997 (unaudited).................................................. F-4
Consolidated Statements of Stockholder's Equity for each of the three fiscal years
in the period ended December 28, 1996, and for the three month period ended
March 29, 1997 (unaudited)...................................................... F-5
Consolidated Statements of Cash Flows for each of the three fiscal years in the
period ended December 28, 1996, and for the three month periods ended March 30,
1996 and March 29, 1997 (unaudited)............................................. F-6
Notes to Consolidated Financial Statements......................................... F-7
PFS
Report of KPMG Peat Marwick LLP, Independent Auditors.............................. F-17
Balance Sheets as of December 27, 1995 and December 25, 1996, and as of March 19,
1997 (unaudited)................................................................ F-18
Statements of Income for each of the years in the three year period ended December
25, 1996, and for the three month periods ended March 20, 1996 and March 19,
1997 (unaudited)................................................................ F-19
Statements of Divisional Equity for each of the years in the three year period
ended December 25, 1996, and for the three month period ended March 19, 1997
(unaudited)..................................................................... F-20
Statements of Cash Flows for each of the years in the three year period ended
December 25, 1996, and for the three month periods ended March 20, 1996 and
March 19, 1997 (unaudited)...................................................... F-21
Notes to Financial Statements...................................................... F-22
AMERISERV FOOD COMPANY
Report of Ernst & Young LLP, Independent Auditors.................................. F-27
Consolidated Statements of Operations for each of the two fiscal years in the
period ended December 30, 1995.................................................. F-28
Consolidated Statements of Stockholders' Equity (Deficit) for each of the two
fiscal years in the period ended December 30, 1995.............................. F-29
Consolidated Statements of Cash Flows for each of the two fiscal years in the
period ended December 30, 1995.................................................. F-30
Notes to Consolidated Financial Statements......................................... F-31
F-1
113
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
AmeriServe Food Distribution, Inc.
We have audited the accompanying consolidated balance sheets of AmeriServe
Food Distribution, Inc. (formerly known as NEBCO EVANS Distribution, Inc.) (the
Company) as of December 30, 1995 and December 28, 1996, and the related
consolidated statements of income, stockholder's equity and cash flows for each
of the three years in the period ended December 28, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company at
December 30, 1995 and December 28, 1996, and consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 28, 1996 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
August 6, 1997
F-2
114
AMERISERVE FOOD DISTRIBUTION, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 29,
1997
DECEMBER 30, DECEMBER 28, ------------
1995 1996
------------ ------------ (UNAUDITED)
ASSETS
Current assets:
Cash................................................ $ 575 $ 2,162 $ 3,995
Accounts receivable, less allowance for doubtful
accounts of $1,170, $4,896 and $4,974,
respectively..................................... 25,127 68,635 74,087
Other receivables................................... 2,234 3,764 3,689
Inventories......................................... 15,230 47,714 62,909
Due from Holberg.................................... 623 -- 2,487
Prepaid expenses and other current assets........... 707 4,313 6,731
------- -------- --------
Total current assets........................ 44,496 126,588 153,898
Property and equipment, net........................... 6,912 33,837 35,720
Other assets:
Intangible assets, net.............................. 20,189 122,451 121,852
Note receivable from Holberg........................ 3,516 3,516 3,516
Other noncurrent assets............................. 2,390 4,711 5,860
------- -------- --------
$ 77,503 $291,103 $320,846
======= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt................ $ -- $ 3,266 $ 2,474
Accounts payable.................................... 32,751 89,440 114,870
Due to Holberg...................................... -- 907 --
Accrued liabilities................................. 1,232 14,931 9,917
------- -------- --------
Total current liabilities................... 33,983 108,544 127,261
Noncurrent liabilities................................ 584 13,245 13,302
Long-term debt........................................ 32,779 126,639 138,794
Commitments
Stockholder's equity:
Senior preferred stock, $1 par value; 765 shares
authorized, 600 shares outstanding, $33,492
liquidation value................................ -- 30,000 30,000
Preferred stock, $50,000 par value; 150 shares
authorized and outstanding, $8,325 liquidation
value............................................ 7,500 7,500 7,500
Preferred stock, $25,000 par value; 400 shares
authorized, 300 shares outstanding, $8,213
liquidation value................................ 7,500 7,500 7,500
Common stock, $10 par value; 2,000 shares
authorized, 600 shares outstanding............... 6 6 6
Accumulated deficit................................. (4,849) (2,331) (3,517)
------- -------- --------
Total stockholder's equity.................. 10,157 42,675 41,489
------- -------- --------
$ 77,503 $291,103 $320,846
======= ======== ========
See accompanying notes.
F-3
115
AMERISERVE FOOD DISTRIBUTION, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
YEAR ENDED THREE MONTHS ENDED
------------------------------------------------- -----------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, MARCH 30, MARCH 29,
1994 1995 1996 1996 1997
------------- ------------- ------------- --------- ---------
(UNAUDITED)
Net sales.................... $ 358,516 $ 400,017 $ 1,280,598 $ 231,732 $ 308,727
Cost of goods sold........... 320,602 359,046 1,151,749 208,023 277,086
-------- -------- ---------- -------- --------
Gross profit................. 37,914 40,971 128,849 23,709 31,641
Distribution, selling and
administrative expenses.... 34,488 36,695 114,560 22,204 30,396
-------- -------- ---------- -------- --------
Operating income............. 3,426 4,276 14,289 1,505 1,245
Other income (expense):
Interest expense........... (3,294) (3,936) (10,999) (2,405) (3,165)
Interest income -- Holberg
and affiliate........... 533 749 528 99 85
-------- -------- ---------- -------- --------
(2,761) (3,187) (10,471) (2,306) (3,080)
-------- -------- ---------- -------- --------
Income (loss) before income
taxes...................... 665 1,089 3,818 (801) (1,835)
Provision (credit) for income
taxes...................... 523 583 1,300 (242) (649)
-------- -------- ---------- -------- --------
Net income (loss)............ $ 142 $ 506 $ 2,518 $ (559) $ (1,186)
======== ======== ========== ======== ========
See accompanying notes.
F-4
116
AMERISERVE FOOD DISTRIBUTION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SENIOR PREFERRED PREFERRED ADDITIONAL
PREFERRED STOCK, STOCK, COMMON PAID-IN ACCUMULATED
STOCK $50,000 SERIES $25,000 SERIES STOCK CAPITAL DEFICIT TOTAL
--------- -------------- -------------- ------ ---------- ----------- -------
Balance, January 2, 1994...... $ -- $7,500 $5,000 $ 6 $ 5,068 $(2,795) $14,779
Issuance of 100 shares of
preferred stock, $25,000
Series................... -- -- 2,500 -- -- -- 2,500
Dividends on preferred
stock.................... -- -- -- -- (1,200) -- (1,200)
Contribution of capital..... -- -- -- -- 984 -- 984
Net income.................. -- -- -- -- -- 142 142
------- ------ ------ --- ------- ------- -------
Balance, December 31, 1994.... -- 7,500 7,500 6 4,852 (2,653) 17,205
Dividends:
Preferred stock.......... -- -- -- -- -- (2,494) (2,494)
Common stock............. -- -- -- -- (6,086) (208) (6,294)
Contribution of capital..... -- -- -- -- 1,234 -- 1,234
Net income.................. -- -- -- -- -- 506 506
------- ------ ------ --- ------- ------- -------
Balance, December 30, 1995.... -- 7,500 7,500 6 -- (4,849) 10,157
Issuance of 600 shares of
senior preferred stock... 30,000 -- -- -- -- -- 30,000
Net income.................. -- -- -- -- -- 2,518 2,518
------- ------ ------ --- ------- ------- -------
Balance, December 28, 1996.... 30,000 7,500 7,500 6 -- (2,331) 42,675
Net loss (unaudited)........ -- -- -- -- -- (1,186) (1,186)
------- ------ ------ --- ------- ------- -------
Balance, March 29, 1997
(unaudited)................. $ 30,000 $7,500 $7,500 $ 6 $ -- $(3,517) $41,489
======= ====== ====== === ======= ======= =======
See accompanying notes.
F-5
117
AMERISERVE FOOD DISTRIBUTION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED THREE MONTHS ENDED
------------------------------------------ ---------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, MARCH 30, MARCH 29,
1994 1995 1996 1996 1997
------------ ------------ ------------ --------- ---------
(UNAUDITED)
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income (loss)......................... $ 142 $ 506 $ 2,518 $ (559) $ (1,186)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of
property and equipment............... 1,786 1,463 5,251 925 1,741
Amortization of intangible assets....... 1,498 1,299 4,810 698 997
Deferred income taxes................... (465) 48 -- -- --
Contribution of capital................. 984 1,234 -- -- --
Other................................... 83 131 83 83 29
Changes in assets and liabilities, net
of effect of businesses acquired:
Accounts receivable.................. (3,567) (1,645) (4,924) (4,275) (5,452)
Other receivables.................... (69) (645) (426) (571) 75
Inventories.......................... 237 (5) (6,497) (8,470) (15,195)
Prepaid expenses and other assets.... (261) (2,425) 1,696 946 (1,268)
Accounts payable..................... 2,831 5,035 6,741 7,378 25,430
Accrued liabilities.................. 1,077 (393) (5,309) (2,309) (5,014)
Noncurrent liabilities............... -- -- (66) (3,571) 28
Other................................ -- (98) (2,664) 5,126 (1,548)
------- ------- --------- -------- --------
Net cash provided by (used in) operating
activities.............................. 4,276 4,505 1,213 (4,599) (1,363)
------- ------- --------- -------- --------
INVESTING ACTIVITIES
Businesses acquired, net of cash
acquired................................ -- -- (94,411) (94,411) --
Expenditures for property and equipment... (1,331) (2,496) (12,518) (866) (2,257)
Proceeds from disposals of property and
equipment............................... 14 22 2,866 -- --
Net change in amounts due from/to
Holberg................................. (1,365) (1,690) 1,530 (1,378) (3,394)
Net increase in deposits with
affiliates.............................. (2,720) (315) (2,480) (1,880) (1,150)
Expenditures for intangible and other
assets.................................. (20) (1,095) -- -- --
------- ------- --------- -------- --------
Net cash used in investing activities..... (5,422) (5,574) (105,013) (98,535) (6,801)
------- ------- --------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of preferred
stock................................... 2,500 -- 30,000 30,000 --
Net increase in borrowings under revolving
line of credit.......................... 15 4,635 120,000 110,900 10,700
Repayments of long-term debt.............. (2,025) (4,016) (44,613) (38,341) (703)
------- ------- --------- -------- --------
Net cash provided by financing
activities.............................. 490 619 105,387 102,559 9,997
------- ------- --------- -------- --------
Net increase (decrease) in cash........... (656) (450) 1,587 (575) 1,833
Cash at beginning of period............... 1,681 1,025 575 575 2,162
------- ------- --------- -------- --------
Cash at end of period..................... $ 1,025 $ 575 $ 2,162 $ -- $ 3,995
======= ======= ========= ======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest............................. $ 3,100 $ 3,622 $ 9,504 $ 1,111 $ 3,438
Income taxes, net of refunds......... 406 332 1,256 121 325
Businesses acquired:
Fair value of assets acquired........ -- -- 187,907 187,907 --
Cash paid............................ -- -- (94,411) (94,411) --
------- ------- --------- -------- --------
Liabilities assumed.................. $ -- $ -- $ 93,496 $ 93,496 $ --
======= ======= ========= ======== ========
Supplemental noncash investing and
financing activities:
Payment of dividends to reduce deposits
and advances with Holberg and
affiliate............................ $ 1,200 $ 8,788 $ -- $ -- $ --
Property and equipment purchased with
capital leases (included in long-term
debt)................................ -- -- 11,845 3,112 1,367
See accompanying notes.
F-6
118
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 28, 1996
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
AmeriServe Food Distribution, Inc. (formerly known as NEBCO EVANS
Distribution, Inc.) has four subsidiaries: AmeriServ Food Company, Inc., (100%
owned), Northland Transportation Services, Inc. (100% owned), Chicago
Consolidated Corporation (CCC) (87% owned), and Delta Transportation Inc. (100%
owned) (collectively, the Company). The Company, through its divisions and
subsidiaries, is a system foodservice distributor specializing in distribution
to chain restaurants. The Company distributes a wide variety of items, including
fresh and frozen meat and poultry, frozen foods, canned and dry goods, fresh and
preprocessed produce, beverages, dairy products, paper goods, cleaning and other
supplies and small equipment.
The majority of revenues arise from sales to franchisees and/or franchisers
of several national limited-menu restaurant concepts. One customer represented
approximately 11% of consolidated net sales for the year ended December 28,
1996. The Company's accounts receivable generally are unsecured.
The Company is a wholly owned subsidiary of Nebco Evans Holding Company
(NEHC), which is ultimately controlled by Holberg Industries, Inc. (Holberg).
Holberg Industries, Inc., is a diversified service company with subsidiaries
operating within the food distribution and parking services industries in North
America.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Fiscal Year
The Company has elected a 52- or 53-week fiscal year ending on the Saturday
nearest to December 31. The fiscal years ended December 31, 1994 (fiscal 1994),
December 30, 1995 (fiscal 1995) and December 28, 1996 (fiscal 1996) are 52-week
periods.
Inventories
Inventories, which consist of purchased goods held for sale, are stated at
the lower of cost (determined on a first-in, first-out basis) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the assets, using either the straight-line or
double-declining balance method. Amortization of leasehold improvements is
recorded over the respective lease terms or useful lives of the assets,
whichever is shorter. Amortization of assets under capital leases is included in
depreciation expense. Useful lives for amortization and depreciation
calculations are as follows:
DESCRIPTION LIFE
------------------------------------------------ ------------
Buildings and improvements...................... 5 - 40 years
Delivery and automotive equipment............... 3 - 9 years
Warehouse equipment............................. 5 - 12 years
Furniture, fixtures and equipment............... 5 - 10 years
F-7
119
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1995, the Company completed a review of the estimated useful lives
of its property and equipment. The Company determined that, as a result of
preventative maintenance programs and improved product quality, actual useful
lives for certain assets were generally longer than the useful lives originally
estimated. Therefore, the Company extended the estimated useful lives of certain
categories of equipment, effective January 1, 1995. The effect of this change in
estimate reduced depreciation expense for the year ended December 30, 1995 by
$514,000 and increased net income by $308,000.
Goodwill and Other Intangibles
Costs in excess of the net identifiable assets of businesses acquired are
amortized on a straight line basis over periods not to exceed 40 years. Customer
lists and other intangible assets acquired in business acquisitions, deferred
financing costs and other intangibles are being amortized using primarily the
straight-line method over their respective estimated useful lives, which
generally range from 3 to 40 years. The Company periodically reviews the
carrying value of goodwill and other intangibles to assess recoverability and
other than temporary impairments by comparing the estimated future undiscounted
cash flows associated with the asset to the asset's carrying amount.
Investment in Affiliate
On May 30, 1995, the Company invested $550,000 to acquire 45% of the
outstanding common stock of Holberg Warehouse Properties, Inc. (HWPI), an
affiliate of Holberg. HWPI owns a warehouse and office facility in Omaha,
Nebraska, which is leased to the Company (see Note 7). The investment is
accounted for using the equity method and is included in other noncurrent assets
in the accompanying consolidated balance sheets. The results of operations of
HWPI are not significant.
Revenue Recognition
Revenue from the sale of the Company's products is recognized upon shipment
to the customer.
Income Taxes and Tax Sharing Agreement
The Company is part of a consolidated group for income tax purposes and,
accordingly, has a tax-sharing agreement with Holberg which requires the Company
to make tax sharing payments to Holberg for those entities within the Company's
consolidated subgroup that have taxable income. Income taxes have been provided
as if the Company were a separate taxpayer.
Deferred income tax assets or liabilities are recognized for the estimated
future tax effects attributable to temporary differences, including operating
loss carryforwards. The currently enacted statutory rate is used to estimate
differences between the financial statement and income tax bases of inventories,
property and equipment, intangible assets, certain accrued liabilities and
allowances and net operating losses. Because of the Company's prior operating
losses in certain of the Company's taxable entities, a valuation allowance has
been established to offset the entire amount of the net deferred tax assets.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
120
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value Information
The Company believes the carrying value of its financial instruments
(notes, accounts and other receivables, accounts payable and long-term debt) are
a reasonable estimate of the fair value of these instruments. Related party
financial instruments are recorded at cost.
Reclassifications
Certain reclassifications have been made to the 1994 and 1995 financial
statements to conform to the 1996 presentation. In addition, the 1994 and 1995
Financial Statements have been restated to conform to the requirements of the
Securities and Exchange Commission Staff Accounting Bulletin Number 55.
Interim Financial Data
The unaudited consolidated balance sheet as of March 29, 1997, and the
related consolidated statements of income and cash flows for the three-month
periods ended March 30, 1996 and March 29, 1997 and the consolidated statement
of stockholder's equity for the three months ended March 29, 1997, have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of adjustments of a normal and
recurring nature) considered necessary for a fair presentation of the financial
position and results of operations have been included. Operating results for the
three-month period ended March 29, 1997, are not necessarily indicative of the
results that might be expected for the year ending January 3, 1998.
2. ACQUISITIONS AND DISPOSITIONS
On January 25, 1996, the Company acquired the common and preferred stock of
AmeriServ Food Company (AmeriServ), a system foodservice distributor
specializing in distribution of food and supplies to chain restaurants. The
total cash outlay for the acquisition, including all direct costs, was $92.9
million. Of this amount, $44 million related to the retirement of all of
AmeriServ's existing bank debt and accrued interest, which occurred concurrently
with the closing of the purchase transaction. The transaction was financed
through the issuance of $30 million of preferred stock issued to NEHC, as well
as borrowings under a new Credit Agreement.
The acquisition has been accounted for under the purchase method;
accordingly, its results are included in the consolidated financial statements
from the acquisition date. The purchase price was allocated based on the
estimated fair values of identifiable intangible and tangible assets acquired
and liabilities assumed at the acquisition date. The excess of the purchase
price over the net assets acquired was $85 million and has been recorded as
goodwill, which is being amortized on a straight-line basis over 40 years.
The following unaudited pro forma results of operations for the years ended
December 30, 1995 and December 28, 1996 assume the acquisition of AmeriServ
occurred at the beginning of each fiscal year (in thousands):
1995 1996
---------- ----------
Net sales................................... $1,224,200 $1,335,700
Net income (loss)........................... (7,134) 600
This pro forma information does not purport to be indicative of the results
that actually would have been obtained if the combined operations had been
conducted during the periods presented and is not intended to be a projection of
future results.
F-9
121
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At the time of the acquisition, the Company and AmeriServ held ownership
interests of 20% and 18%, respectively, in the outstanding common stock of CCC.
CCC operates redistribution facilities that sell dry goods to independent
wholesale distributors. In March 1996, the Company acquired 49% of CCC's
outstanding common stock for $1.5 million in cash, bringing the consolidated
ownership interest in CCC to approximately 87%. The acquisition has been
accounted for under the purchase method. The Company had accounted for its
original 20% investment in CCC under the cost method. The operating results of
CCC are not significant to the consolidated results of the Company.
At the time of the acquisition, AmeriServ (through a wholly owned holding
company) effectively owned approximately 47% of the outstanding common stock of
Harry H. Post Company (Post). Post was an operating division of AmeriServ, also
engaged in system foodservice distribution. As part of the acquisition, the
Company effectively acquired approximately 44% of the outstanding common stock
of Post. The Company has accounted for this investment under the equity method.
In November of 1996, the Company sold its interest in Post to NEHC for $2.5
million in preferred stock, which approximated the carrying value of the equity
investment. As a result of other concurrent transactions, NEHC owns 93.6% of the
outstanding common stock of Post.
At the time of the acquisition, both the Company and AmeriServ owned
minority interests in the common stock of Independent Distributors of America
(IDA), a nonprofit cooperative providing purchasing services to the Company and
AmeriServ as well as other foodservice distributors. As a result of the
acquisition, on a consolidated basis, the Company owns 40% of the outstanding
stock of IDA and accounts for approximately 75% of IDA's purchasing activity.
The operating results of IDA are not significant to the consolidated results of
the Company.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
Land............................................... $ -- $ 1,479
Buildings and improvements......................... 2,379 10,036
Delivery and automotive equipment.................. 6,322 15,929
Warehouse equipment................................ 2,604 4,617
Furniture, fixtures and equipment.................. 3,413 11,842
Construction in progress........................... -- 2,412
------- -------
14,718 46,315
Less accumulated depreciation and amortization..... 7,806 12,478
------- -------
$ 6,912 $ 33,837
======= =======
F-10
122
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
Goodwill, less accumulated amortization of $2,823
and $5,332....................................... $ 17,187 $100,201
Customer lists, deferred financing costs and other
intangibles, less accumulated amortization of
$6,076 and $8,370................................ 3,002 22,250
------- -------
$ 20,189 $122,451
======= =======
5. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
Revolving credit facility under Bank Credit
Agreement........................................ $ 21,779 $ 69,100
Term loans under Credit Agreement.................. 11,000 45,000
Other notes payable................................ -- 6,034
------- -------
32,779 120,134
Capital lease obligations (see Note 7)............. -- 9,771
------- -------
32,779 129,905
Less current maturities............................ -- 3,266
------- -------
$ 32,779 $126,639
======= =======
The weighted average interest rates on the outstanding bank borrowings at
December 30, 1995 and December 28, 1996, were 8.61% and 7.99%, respectively. The
Company paid Holberg a guarantee fee of $180,000, $180,000 and $14,000 in 1994,
1995 and 1996, respectively.
In January 1996, in connection with the AmeriServ acquisition (see Note 2),
the Company refinanced its borrowings under a new Credit Agreement. The new
credit facility provided for borrowings of $25,000,000 and $20,000,000 under a
Term A and Term B loan, respectively, and up to $85,000,000 under a revolving
credit facility.
In March 1997, the Credit Agreement was amended. The Amended and Restated
Credit Agreement (Current Agreement), provides for borrowings of $20,000,000 and
$30,000,000 under a Term A and Term B loan, respectively. The amount available
under the revolving credit facility was increased to $100,000,000. Borrowings
under the revolving credit facility are limited to percentages of eligible
accounts receivable and inventories, as defined, and are reduced for letters of
credit outstanding ($8,536,000 outstanding at December 28, 1996). The revolving
credit facility expires on January 25, 2001. The term loans mature in annual
installments through 2002. In addition, mandatory prepayments are required based
on excess cash flow, as defined, and proceeds from sales of assets or issuances
of shares of equity.
Depending on leverage ratios, as defined in the Current Agreement, interest
on the revolving credit facility and the Term A loan is payable at LIBOR plus
.75% to 2.5% or an alternate reference rate plus 0% to 1.25% as selected by the
Company. Interest on the Term B loan is payable at LIBOR plus 2.75% to 3.00% or
an alternate reference rate plus 1.5% to 1.75%, as selected by the Company. The
alternate rate is the higher of
F-11
123
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the federal funds rate plus .50% and the prime rate, as defined. A commitment
fee of .25% to .50% is payable on the unutilized revolving line of credit.
Borrowings under the Current Agreement are collateralized by substantially
all the assets of the Company. The Current Agreement contains various
restrictive covenants with respect to additional borrowings, acquisitions and
dispositions of assets, rental liabilities, dividends, transactions with
affiliates and certain financial ratios and requirements.
Other notes payable represent indebtedness assumed in the acquisition of
AmeriServ and consist primarily of subordinated term notes payable to former
stockholders of companies acquired by AmeriServ. These notes mature in 1999 and
bear interest ranging from 8.5% to 10.0%.
In February 1996, the Company entered into an interest rate swap agreement
under which the Company receives a variable rate on a notional amount of
$30,000,000 based on three-month LIBOR and pays a fixed rate of 5.05% through
March 1, 1999. In March 1996, the Company entered into two additional interest
rate swap agreements under which the Company receives a variable rate on a
notional amount of $30,000,000 based on three-month LIBOR and pays a fixed rate
of 5.995% through March 26, 1999. The swap agreements effectively change a
portion of the Company's interest rate exposure from a floating rate to a fixed
rate. In August 1996, the Company entered into an interest rate cap agreement on
a notional amount of $5,000,000. The interest rate cap sets the maximum LIBOR
rate at 9% through August 1999. The initial cost of the interest rate cap
agreement is amortized over the term of the agreement. The counterparties to the
interest rate swap agreements are large financial institutions. Credit loss from
counterparty nonperformance is not anticipated. Net settlements are accrued over
the term of the swap agreements as an adjustment to interest expense.
Aggregate annual principal payments (excluding capital leases) required as
of December 28, 1996, are as follows (in thousands):
FISCAL YEAR ENDING
--------------------------------------------------
1997.............................................. $ 933
1998.............................................. 7,968
1999.............................................. 8,833
2000.............................................. 6,450
2001.............................................. 80,625
Thereafter........................................ 15,325
--------
$120,134
========
6. STOCKHOLDER'S EQUITY
The authorized capital of the Company consists of 2,000 shares of common
stock at a par value of $10; 765 shares of senior nonconvertible, nonvoting
preferred stock with a liquidation preference of $50,000 per share and
cumulative dividends at a rate of $6,250 per share; 150 shares of Series $50,000
par value nonconvertible, nonvoting preferred stock with a liquidation
preference of $50,000 per share and cumulative dividends at a rate of $5,500 per
share; and 400 shares of Series $25,000 par value nonconvertible, nonvoting
preferred stock with a liquidation preference of $25,000 per share and
cumulative dividends at a rate of $2,375 per share. In connection with the
AmeriServ acquisition, the Company issued 600 shares of senior nonconvertible
preferred stock for $30,000,000. In addition, the $50,000 and $25,000 series
preferred stock outstanding at December 30, 1995 was modified to be expressly
subordinate to the new issue, as well as to be nonconvertible. Accumulated
dividends in arrears at December 28, 1996 are $5,030,000.
F-12
124
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LEASE COMMITMENTS
The Company has noncancelable commitments under both capital and long-term
operating leases, primarily for office and warehouse facilities, transportation
and office equipment. The leases often contain fixed escalation features,
purchase and renewal options and provisions for payment of certain expenses by
the Company. Rent expense was approximately $5,408,000, $5,709,000 and
$13,757,000 (including contingent rentals based on miles driven) for the years
ended December 31, 1994, December 30, 1995 and December 28, 1996, respectively.
The Company leases a warehouse and office facility in Waukesha, Wisconsin
from an affiliated partnership owned by certain former shareholders of an
acquired company for approximately $810,000 per year through May 31, 2008.
On February 9, 1995, HWPI exercised the Company's option to purchase a
leased warehouse and office facility in Omaha, Nebraska. The Company will lease
the facility from HWPI for a fixed term of 13 years. Under the terms of the
lease, rent is $500,000 for the first 5-year period of the lease, and includes
fixed escalation provisions for the 8 years thereafter. The lease contains no
renewal or purchase options and the Company is responsible for all facility
expenses. In connection with the lease, the Company paid HWPI a security deposit
of $750,000, which is included in other noncurrent assets in the accompanying
consolidated balance sheets.
Property and equipment include the following amounts under capital leases
at December 28, 1996 (in thousands):
Delivery and automotive equipment.................................. $ 8,358
Furniture, fixtures and equipment.................................. 3,487
-------
11,845
Less accumulated amortization...................................... 1,741
-------
Property and equipment under capital leases, net................... $10,104
=======
The following is a schedule of aggregate future minimum lease payments
(excluding contingent rentals) required under terms of the aforementioned leases
at December 28, 1996 (in thousands):
CAPITAL OPERATING
FISCAL YEAR ENDING LEASES LEASES
-------------------------------------------------------- ------- --------
1997.................................................... $ 3,347 $ 9,414
1998.................................................... 2,398 9,389
1999.................................................... 2,064 9,429
2000.................................................... 1,656 8,667
2001.................................................... 1,246 7,646
Thereafter.............................................. 2,656 69,080
------- --------
Total................................................... 13,367 $113,625
========
Less amount representing interest....................... 3,596
-------
Present value of net minimum lease commitments.......... $ 9,771
=======
F-13
125
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
YEAR ENDED
------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
Current:
Federal......................................... $ 908 $ 437 $1,104
State........................................... 80 98 196
------ ------ ------
988 535 1,300
Deferred.......................................... (465) 48 --
------ ------ ------
$ 523 $ 583 $1,300
====== ====== ======
The provision for income taxes differs from the amount computed by applying
the federal statutory rate of 34% to income before income taxes, as follows (in
thousands):
YEAR ENDED
----------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
Provision at statutory rate................... $ 226 $ 370 $1,298
State income taxes, net of federal tax 53 66 130
benefit.....................................
Nondeductible goodwill........................ 167 167 758
Equity in earnings of unconsolidated -- -- (644)
subsidiary..................................
Other......................................... 77 (20) (242)
------ ------ ------
Provision for income taxes.................... $ 523 $ 583 $1,300
====== ====== ======
The components of the Company's deferred income tax assets and liabilities
are as follows (in thousands):
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
Deferred income tax liabilities:
Property and equipment................................... $ 380 $ --
Intangible assets other than nondeductible goodwill...... 582 7,974
Other.................................................... 38 --
------ --------
Total deferred tax liabilities........................ 1,000 7,974
Deferred income tax assets:
Allowances and reserves.................................. 682 3,155
Property and equipment................................... -- 1,701
Accrued liabilities...................................... 321 9,045
Federal net operating loss carryforwards................. -- 10,566
Other.................................................... 136 --
------ --------
1,139 24,467
Valuation allowance for deferred tax assets.............. (139) (16,493)
------ --------
Total deferred tax assets............................. 1,000 7,974
------ --------
Net deferred tax asset..................................... $ -- $ --
====== ========
F-14
126
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the Company's tax sharing agreement with Holberg, no current tax
benefit is provided for those entities within the Company with current operating
losses. As of December 28, 1996, the Company has net operating loss
carryforwards of $27,000,000, including $11,000,000 of losses incurred by
AmeriServ prior to its acquisition, which are subject to limitation under
Sections 382 and 1504 of the Internal Revenue Code. Under those Sections, after
a change of control, which occurred on January 25, 1996, with respect to
AmeriServ, no more than approximately $2,000,000 of operating loss carryforwards
incurred by AmeriServ prior to that date will be available annually and only to
the extent of future separate taxable income of AmeriServ during the permitted
carryover period.
The $11,000,000 separate return net operating loss carryforwards of
AmeriServ will expire in 2007 to 2010. The $16,000,000 balance of net operating
loss carryforwards of the Company will expire in 2011. As of its acquisition by
the Company, AmeriServ had net operating losses and other deferred tax benefits
(the Acquired Tax Attributes) of $46,000,000, which was entirely offset by a
valuation reserve. Goodwill will be reduced to the extent of any tax benefit
realized from the Acquired Tax Attributes.
9. BENEFIT PLANS
The Company and its subsidiaries have four 401(k) retirement savings plans
covering substantially all union and nonunion employees under which eligible
participants may elect to contribute a specified percentage of their earnings,
subject to certain limitations. The Company matches the contributions of
participating employees on the basis of percentages specified in the respective
plans. At its discretion, the Company may also elect to make a profit-sharing
contribution to the nonunion plans. Company contributions charged to operations
under the plans was approximately $67,000, $109,000 and $515,000 for the years
ended December 31, 1994, December 30, 1995 and December 28, 1996, respectively.
10. OTHER RELATED-PARTY TRANSACTIONS
The current amounts due from/to Holberg represent interest-bearing advances
which are made in the normal course of business as part of the cash management
strategy of Holberg. The note receivable from Holberg bears interest at 5% and
is due January 1, 2007.
The Company participates in a self-insured group casualty (including
workers' compensation and auto liability) risk program with an affiliate, which
determines the insurance expenses to be allocated to the Company. In fiscal year
1994 and 1995, the affiliate paid $1,694,000 and $1,128,000 of the Company's
casualty insurance expense, respectively. In addition, the affiliate paid
$378,000 of the health insurance expenses of the Company in 1995. These payments
have been charged to operations and reflected as contributed capital in the
accompanying consolidated financial statements. In connection with the insurance
program, the Company placed a deposit with an affiliate for insurance collateral
purposes of $2,480,000 as of December 28, 1996, which is included in prepaid
expenses and other current assets in the accompanying 1996 consolidated balance
sheet.
During 1995, distribution, selling and administrative expenses include
$554,000 for certain expenses, including salary, severance, relocation and
computer systems costs, which arose as a result of initiatives directed by
Holberg.
Interest income from Holberg and an affiliate of approximately $533,000,
$749,000 and $528,000 in fiscal 1994, 1995 and 1996, respectively, represents
interest on the advances and note receivable from Holberg and interest on the
insurance deposits with an affiliate, less the guarantee fee to Holberg.
F-15
127
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SUBSEQUENT EVENT
On May 23, 1997, NEHC entered into a definitive agreement to acquire, in an
asset purchase transaction, the U.S. and Canadian operations of the PFS division
of PepsiCo, Inc. PFS is engaged in the distribution of food products and
supplies to franchised and company-owned restaurants in PepsiCo, Inc.'s Pizza
Hut, Taco Bell and KFC systems. PepsiCo has announced its intentions to pursue a
spin-off of its restaurant operations. The U.S. and Canadian operations of PFS
posted revenues of $3.4 billion for the fiscal year ended December 28, 1996. The
cash purchase price of $830 million will be financed through a combination of
debt and preferred stock issuances. The transaction closed on July 11, 1997, at
which time NEHC assigned its interest in the agreement to the Company.
F-16
128
REPORT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
The Management of PFS
(A Division of PepsiCo, Inc. Held for Sale):
We have audited the accompanying balance sheets of PFS (A Division of
PepsiCo, Inc. Held for Sale) as of December 27, 1995 and December 25, 1996, and
the related statements of income, divisional equity, and cash flows for each of
the years in the three-year period ended December 25, 1996. These financial
statements are the responsibility of the management of PFS. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PFS as of December 27, 1995
and December 25, 1996, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 25, 1996, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Dallas, Texas
April 18, 1997
F-17
129
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
BALANCE SHEETS
DECEMBER 27, DECEMBER 25, MARCH 19,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
-----------
(IN THOUSANDS)
ASSETS
Current assets:
Cash.................................................. $ 203 $ 1,625 $ 176
Receivables:
Franchisees and licensees, net of allowance for
doubtful accounts of $11,941 in 1995 and $7,733 in
1996............................................... 115,004 117,729 117,449
Affiliates............................................ 206,658 162,485 166,667
Inventories........................................... 101,767 94,418 95,806
Prepaid expenses and other current assets............. 1,877 4,690 10,831
Deferred income taxes (note 7)........................ 10,105 10,629 10,278
--------- --------- ---------
Total current assets.......................... 435,614 391,576 401,207
Property and equipment, net (notes 3 and 6)........... 80,351 87,017 88,247
Other assets.......................................... 323 328 348
--------- --------- ---------
$516,288 $478,921 $ 489,802
========= ========= =========
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable -- trade............................. $196,695 $170,611 $ 177,688
Accrued liabilities (note 7).......................... 79,512 79,728 69,438
Advances from Parent and affiliates, net (note 4)..... 122,957 108,257 123,429
--------- --------- ---------
Total current liabilities..................... 399,164 358,596 370,555
Other liabilities and deferred credits (notes 6 and
9).................................................... 23,449 22,400 25,704
Deferred income taxes (note 7).......................... 5,096 4,520 3,602
Divisional equity (note 4).............................. 88,579 93,405 89,941
Commitments (note 6)
--------- --------- ---------
$516,288 $478,921 $ 489,802
========= ========= =========
See accompanying notes to financial statements.
F-18
130
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
STATEMENTS OF INCOME
YEARS ENDED TWELVE WEEKS ENDED
-------------------------------------------- -----------------------
DECEMBER 28, DECEMBER 27, DECEMBER 25, MARCH 20, MARCH 19,
1994 1995 1996 1996 1997
(53 WEEKS) (52 WEEKS) (52 WEEKS) (UNAUDITED)
(IN THOUSANDS)
Sales:
Affiliates (note 4)............. $2,378,963 $2,463,464 $2,292,423 $ 523,510 $ 459,522
Franchisees and licensees....... 905,874 999,988 1,136,201 244,459 262,896
---------- ---------- ---------- -------- --------
3,284,837 3,463,452 3,428,624 767,969 722,418
Less discounts and allowances... 5,000 4,508 6,538 1,281 1,894
---------- ---------- ---------- -------- --------
Net sales............... 3,279,837 3,458,944 3,422,086 766,688 720,524
---------- ---------- ---------- -------- --------
Costs and expenses:
Cost of sales and operating..... 3,155,422 3,331,866 3,297,381 739,470 694,570
General and administrative
(notes 4, 6 and 8)........... 37,515 47,606 44,962 11,175 11,497
---------- ---------- ---------- -------- --------
3,192,937 3,379,472 3,342,343 750,645 706,067
---------- ---------- ---------- -------- --------
Income from
operations............ 86,900 79,472 79,743 16,043 14,457
Interest expense to Parent (note
4).............................. 12,934 17,613 15,566 3,597 3,996
---------- ---------- ---------- -------- --------
Income before income
taxes................. 73,966 61,859 64,177 12,446 10,461
Provision for income taxes (note
7).............................. 28,874 23,844 24,597 4,874 4,155
---------- ---------- ---------- -------- --------
Net income.............. $ 45,092 $ 38,015 $ 39,580 $ 7,572 $ 6,306
========== ========== ========== ======== ========
See accompanying notes to financial statements.
F-19
131
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
STATEMENTS OF DIVISIONAL EQUITY
(IN THOUSANDS)
--------------
Divisional equity at December 29, 1993......................................... $100,146
Transfers to Advances from Parent and affiliates, net (note 4)................. (59,531)
Net income..................................................................... 45,092
--------
Divisional equity at December 28, 1994......................................... 85,707
Transfers to Advances from Parent and affiliates, net (note 4)................. (35,143)
Net income..................................................................... 38,015
--------
Divisional equity at December 27, 1995......................................... 88,579
Transfers to Advances from Parent and affiliates, net (note 4)................. (34,754)
Net income..................................................................... 39,580
--------
Divisional equity at December 25, 1996......................................... 93,405
Transfers to Advances from Parent and affiliates, net (note 4)(unaudited)...... (9,770)
Net income (unaudited)......................................................... 6,306
--------
Divisional equity at March 19, 1997 (unaudited)................................ $ 89,941
========
See accompanying notes to financial statements.
F-20
132
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
STATEMENTS OF CASH FLOWS
YEARS ENDED
------------------------------------------
TWELVE WEEKS ENDED
DECEMBER 28, DECEMBER 27, DECEMBER 25, ---------------------
1994 1995 1996
------------ ------------ ------------ MARCH 20, MARCH 19,
(53 WEEKS) (52 WEEKS) (52 WEEKS) 1996 1997
--------- ---------
(IN THOUSANDS) (UNAUDITED)
Cash flows -- operating activities:
Net income.............................. $ 45,092 $ 38,015 $ 39,580 $ 7,572 $ 6,306
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 17,053 18,764 19,830 4,705 4,906
Loss on sale of property and
equipment.......................... 1,788 2,324 1,065 -- --
Deferred income taxes................ (6,800) (3,075) (1,100) 408 (567)
Change in assets and liabilities:
Receivables........................ (22,614) (22,051) 41,448 15,765 (3,902)
Inventories........................ 4,839 (5,046) 7,349 4,091 (1,388)
Accounts payable................... 9,524 (2,347) (26,084) (12,400) 7,077
Accrued liabilities................ 13,105 (4,672) 216 (12,251) (10,290)
Other.............................. 2,730 7,668 (3,867) (3,978) (2,857)
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities.......... 64,717 29,580 78,437 3,912 (715)
------- ------- ------- ------- -------
Cash flows -- investing activities:
Additions to property and equipment..... (21,310) (25,245) (28,771) (7,193) (6,212)
Proceeds from sale of property and
equipment............................ 1,047 857 1,210 1,481 76
------- ------- ------- ------- -------
Net cash used for investing
activities.................... (20,263) (24,388) (27,561) (5,712) (6,136)
------- ------- ------- ------- -------
Cash flows -- financing
activities -- (repayment of)/additions
to advances from Parent and affiliates,
net..................................... (44,360) (5,163) (49,454) 2,136 5,402
------- ------- ------- ------- -------
Net increase (decrease) in cash......... 94 29 1,422 336 (1,449)
Cash at beginning of period............. 80 174 203 203 1,625
------- ------- ------- ------- -------
Cash at end of period................... $ 174 $ 203 $ 1,625 $ 539 $ 176
======= ======= ======= ======= =======
During 1994, 1995, and 1996 PFS made the following transfers to Parent
through the intercompany account:
1994 1995 1996
------- ------- -------
State income tax.............................. $ 4,135 $ 3,808 $ 3,475
======= ======= =======
Federal income tax............................ $18,876 $19,887 $18,800
======= ======= =======
Interest on advances.......................... $12,994 $17,613 $15,566
======= ======= =======
Divisional equity reclassifications........... $59,531 $35,143 $34,754
======= ======= =======
See accompanying notes to financial statements.
F-21
133
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 27, 1995 AND DECEMBER 25, 1996
(IN THOUSANDS)
(1) GENERAL AND BASIS OF PRESENTATION
PFS (A Division of PepsiCo, Inc. Held for Sale) ("PFS") operates as a
division of PepsiCo, Inc. ("Parent") and has no separate legal status or
existence. In January 1997, the Parent announced its intent to spin off its
restaurant business. Concurrent with this announcement, the Parent also
announced that it would explore the possible sale of PFS. The accompanying
financial statements present the business of PFS which is being held for sale.
Accordingly, they include only the assets, liabilities and results of operations
of the PFS business to be sold. The principal nature of this business is to
provide food, equipment, and supply items primarily to Taco Bell, Pizza Hut and
KFC restaurants, which restaurants are either owned or franchised by the Parent
in both the United States and Canada. The Division also has other transactions
with the Parent and affiliates of the Parent ("Affiliates") (notes 4, 5, 7, 8
and 9). PFS' fiscal year ends on the last Wednesday in December and, as a
result, a fifty-third week is added every five or six years. The fiscal year
ended December 28, 1994 consisted of 53 weeks.
The financial statements of the Company as of March 19, 1997 and for the
periods ended March 20, 1996 and March 19, 1997 are unaudited, but in the
opinion of management reflect all adjustments (consisting only of normal
recurring accruals) which are necessary for a fair statement of the results of
the interim periods presented. Results for interim periods are not necessarily
indicative of the results to be expected for a full year or for periods which
have been previously reported.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Inventories
Inventories are valued at the lower of cost, as determined by the first-in,
first-out ("FIFO") method, or net realizable value.
(b) Income Taxes
PFS is included in the consolidated federal income tax return of the
Parent. For financial reporting purposes, federal income taxes are computed on a
separate return basis. State income taxes are computed at a composite rate (6.3%
in 1994 and 5.8% in 1995 and 1996) based upon actual taxes incurred by the
Parent on behalf of the Division.
PFS accounts for income taxes using the asset and liability method. Under
the asset and liability method of accounting for income taxes, 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.
(c) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation and amortization are calculated on a straight-line basis over the
estimated useful lives of the assets, generally 3 to 10 years.
F-22
134
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(d) 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 reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(3) PROPERTY AND EQUIPMENT
Property and equipment at December 27, 1995 and December 25, 1996 is
summarized as follows:
1995 1996
-------- --------
Land................................................... $ 756 $ 756
Transportation equipment............................... 81,741 87,039
Warehouse and office equipment......................... 33,654 38,916
Buildings and leasehold improvements .................. 38,490 46,651
Construction in progress............................... 2,656 2,937
Leased computer and material handling equipment........ 5,712 5,750
-------- --------
163,009 182,049
Less accumulated depreciation and amortization......... 82,658 95,032
-------- --------
$ 80,351 $ 87,017
======== ========
(4) RELATED PARTY TRANSACTIONS
Transactions with the Parent include utilization of cash management
services under which net cash balances of PFS are transferred to or provided by
the Parent daily. In addition, the Parent provides payments under its incentive
compensation plans to certain key employees of PFS.
The Parent provides certain corporate general and administrative services
to PFS, including legal, treasury and benefits administration, among others. The
Company believes the inclusion of the costs of these services would not have a
material impact on the accompanying financial statements.
In 1994, 1995 and 1996, respectively, approximately 29%, 28% and 27% of the
gross sales of PFS were to restaurants owned by Pizza Hut, Inc., 31%, 31% and
28% of gross sales were to restaurants owned by Taco Bell Corp., and 13%, 11%
and 12% of gross sales were to restaurants owned by KFC Corporation.
PFS and the Parent have agreed to reclassify amounts between advances and
divisional equity in order to maintain a preestablished debt to equity ratio, as
defined, as part of the agreements between PFS and Pizza Hut, Inc. and its
franchisees.
Advances from Parent and Affiliates bear interest at the prime rate (8.25%
at December 25, 1996) and are not subject to stated repayment terms.
Accordingly, such advances are classified as current liabilities in the
accompanying balance sheets. The carrying amount of Advances from the Parent and
Affiliates at December 27, 1995 and December 25, 1996 approximates the fair
value since the borrowings bear interest at current market rates.
(5) PROFIT LIMITATION
"Gross profit" and "net pretax profit" on certain sales of PFS to Pizza Hut
restaurants, as defined in the agreements with Pizza Hut, Inc. and its
franchisees, are limited to amounts not to exceed 14% and 2.5% of
F-23
135
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
sales, respectively. Such limitations apply only to sales of food, paper
products, and similar restaurant supplies and exclude other nonfood items such
as furnishings, interior and exterior decor items, and equipment. As a result of
the profit limitation, sales are reported net of $3,039, $4,449 and $5,249 in
1994, 1995 and 1996, respectively, for distributions to Pizza Hut, Inc. and its
franchisees.
(6) LEASE COMMITMENTS
PFS occupies warehouse and office facilities under noncancellable operating
lease agreements expiring at various dates through 2006. Most of the leases
contain renewal options for periods ranging from one to five years, with rentals
generally equal to those stated for the initial term of the lease.
PFS also rents transportation equipment under operating leases which
provide for both short-term and long-term rentals.
Rental expense for the years ended December 28, 1994, December 27, 1995 and
December 25, 1996 is summarized as follows:
1994 1995 1996
------- ------- -------
Transportation equipment:
Fixed rentals............................... $ 336 $ 409 $ 442
Variable rentals............................ 2,173 1,776 1,059
Warehouse and office space.................... 8,110 8,531 10,252
Equipment..................................... 3,993 2,773 2,947
------- ------- -------
$14,612 $13,489 $14,700
======= ======= =======
The future minimum rental commitments as of December 25, 1996 for all
noncancellable operating transportation, warehouse, office, and other equipment
leases are as follows:
1997............................................... $10,783
1998............................................... 9,493
1999............................................... 8,110
2000............................................... 6,986
2001............................................... 7,020
Thereafter......................................... 17,027
-------
$59,419
=======
PFS leases computer equipment and material handling equipment under capital
lease arrangements. The minimum lease payments as of December 25, 1996 for the
remainder of the lease periods are as follows:
1997.................................................. $692
1998.................................................. 118
----
Total minimum lease payments.......................... 810
Less amount representing interest..................... 22
----
Present value of net minimum lease payments........... 788
Less current obligations.............................. 673
----
Long-term obligations................................. $115
====
F-24
136
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Included in property and equipment as of December 25, 1996 are assets
recorded under capital leases as follows:
Computer and material handling equipment............ $5,750
Less accumulated amortization....................... 5,114
------
$ 636
======
(7) INCOME TAXES
The provision for income taxes is comprised of the following:
1994 1995 1996
------- ------- -------
Current:
Federal..................................... $29,875 $24,227 $23,127
State....................................... 5,799 2,692 2,570
Deferred:
Federal..................................... (5,780) (2,639) (846)
State....................................... (1,020) (436) (254)
------- ------- -------
$28,874 $23,844 $24,597
======= ======= =======
The differences between the statutory and effective federal income tax
rates are as follows:
1994 1995 1996
---- ---- ----
Statutory federal rate.................................. 35% 35% 35%
State income tax, net of federal benefit................ 4 4 4
Effective rate........................................ 39% 39% 39%
== == ==
Federal income taxes currently payable to the Parent of $35,714 at December
27, 1995 and $36,441 at December 25, 1996 are included in accrued liabilities in
the accompanying balance sheets.
The primary components of deferred taxes result from accelerated
depreciation methods, bad debt provisions and the deferral of certain expenses
related to postretirement benefits for tax purposes.
(8) RETIREMENT PLANS
PFS participates in two defined benefit noncontributory pension plans for
salaried and nonsalaried employees (the "Plans") which are administered directly
or indirectly by the Parent. Substantially all employees of the Division are
covered by these Plans.
Generally, benefits for salaried and nonsalaried employees are based on
years of service and the employees' highest consecutive five-year average annual
earnings. The Parent funds the Plans in amounts not less than the minimum
statutory funding requirements nor more than the maximum amount which can be
deducted for federal income tax purposes by the Parent. The Plans' assets
consist principally of equity securities, government and corporate debt
securities, and other fixed income obligations. Capital stock of the Parent
accounted for approximately 24% and 22% of the total market value of the
domestic Parent sponsored Plans' assets for 1995 and 1996.
PFS was charged pension expense of $1,211, $1,174 and $2,374 in 1994, 1995
and 1996, respectively.
F-25
137
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
PFS participates in a postretirement benefit plan administered by the
Parent. The plan provides postretirement health care and life insurance benefits
to eligible retired U.S. employees. Employees who have 10 years of service and
attain age 55 while in service with the Division are eligible to participate in
the postretirement benefit plan. The plan in effect through 1994 was largely
noncontributory and was not funded. PFS accrues the cost of postretirement
benefits over the years employees provide services to the date of their full
eligibility for such benefits.
Postretirement benefit expense amounted to $919, $481 and $1,047 in 1994,
1995 and 1996, respectively. The liability for postretirement benefits of $8,967
at December 25, 1995 and $9,962 at December 27, 1996 is included in other
liabilities and deferred credits in the accompanying balance sheets.
Effective in 1994, certain features of the plan were amended to expand
retiree cost-sharing provisions and limit the Division's share of future
increases in health care costs.
F-26
138
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
AmeriServ Food Company
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of AmeriServ Food Company (the Company) for
the years ended December 31, 1994 and December 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of the Company for the years ended December 31, 1994 and December 30, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
March 22, 1996
F-27
139
AMERISERV FOOD COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED
---------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
(IN THOUSANDS)
Net sales............................................................ $873,309 $939,096
Operating expenses:
Cost of sales, including delivery and warehouse expenses........... 841,408 907,597
Selling, general, and administrative............................... 19,314 20,209
Depreciation....................................................... 2,778 2,768
Amortization of goodwill and covenants not to compete.............. 888 677
Losses of divested operations...................................... 313 --
-------- --------
Total operating expenses............................................. 864,701 931,251
-------- --------
Income from operations............................................... 8,608 7,845
Other expense:
Interest expense................................................... 6,442 7,465
Interest expense, related parties.................................. 226 216
Amortization of financing costs.................................... 236 302
Other expense, net................................................. 28 1,472
-------- --------
Income (loss) before minority interest............................... 1,676 (1,610)
Minority interest.................................................... 4 (2)
-------- --------
Income (loss) before income taxes.................................... 1,680 (1,612)
Income tax provision................................................. 108 270
-------- --------
Income (loss) before extraordinary items............................. 1,572 (1,882)
Extraordinary gain on early extinguishment of debt................... 312 --
-------- --------
Net income (loss).................................................... $ 1,884 $ (1,882)
======== ========
See accompanying notes.
F-28
140
AMERISERV FOOD COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
COMMON ADDITIONAL
STOCK PAID-IN ACCUMULATED
PAR VALUE CAPITAL DEFICIT TOTAL
--------- ---------- ----------- -------
(IN THOUSANDS)
Balance at January 1, 1994...................... $ 25 $ 8,742 $ (17,032) $(8,265)
Contribution of dividend promissory notes and
accrued interest to equity................. -- 5,678 -- 5,678
Accretion of redemption value of Series A
Redeemable Preferred Stock................. -- -- (1,125) (1,125)
Net income.................................... -- -- 1,884 1,884
---- ------- -------- -------
Balance at December 31, 1994.................... 25 14,420 (16,273) (1,828)
One for ten reverse stock split............... (22) 22 -- --
Accretion of redemption value of Series A
Redeemable Preferred Stock................. -- -- (675) (675)
Net loss...................................... -- -- (1,882) (1,882)
---- ------- -------- -------
Balance at December 30, 1995.................... $ 3 $ 14,442 $ (18,830) $(4,385)
==== ======= ======== =======
See accompanying notes.
F-29
141
AMERISERV FOOD COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED
---------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income (loss).................................................... $ 1,884 $ (1,882)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation....................................................... 2,778 2,768
Amortization of goodwill and covenants not to compete.............. 888 677
Amortization of financing costs.................................... 236 302
Other non-cash expenses............................................ -- 1,079
Deferred income tax provision...................................... (347) 45
Provision for doubtful accounts.................................... 410 181
Minority interest.................................................. (4) 2
Extraordinary gain................................................. (312) --
Changes in operating assets and liabilities:
Accounts and other receivables.................................. (3,116) (664)
Inventories..................................................... (5,929) (2,880)
Prepaid expenses and other...................................... (1,272) (730)
Accounts payable................................................ 10,143 7,228
Accrued liabilities............................................. 67 (844)
--------- ---------
Net cash provided by operating activities............................ 5,426 5,282
--------- ---------
INVESTING ACTIVITIES
Acquisitions of businesses........................................... (1,625) --
Capital expenditures for property, plant, and equipment.............. (1,263) (3,030)
Proceeds from sale of property, plant, and equipment................. 71 112
Other................................................................ 190 (229)
--------- ---------
Net cash used in investing activities................................ (2,627) (3,147)
--------- ---------
FINANCING ACTIVITIES
Borrowings under line of credit agreements........................... 929,724 960,744
Repayments under line of credit agreements........................... (933,505) (958,785)
Proceeds from long-term debt......................................... 5,896 --
Repayments of long-term debt......................................... (6,855) (3,617)
Maturity of certificates of deposit.................................. 1,620 --
Proceeds from issuance of Series A Redeemable Preferred Stock........ 2,000 --
Other................................................................ (1,335) (490)
--------- ---------
Net cash used in financing activities................................ (2,455) (2,148)
--------- ---------
Net increase (decrease) in cash...................................... 344 (13)
Cash at beginning of year............................................ 502 846
--------- ---------
Cash at end of year.................................................. $ 846 $ 833
========= =========
Supplemental disclosure of cash flow information -- Cash paid for
interest........................................................... $ 6,526 $ 7,097
See accompanying notes.
F-30
142
AMERISERV FOOD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 1994 AND DECEMBER 30, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Disposition
AmeriServ Food Company (the Company or AmeriServ) was formed in September
1989 and was majority owned by J. Lewis Partners, L.P. (Lewis Partners). On
January 26, 1996, all of the Company's outstanding stock (common and preferred)
was acquired by AmeriServe Food Distribution, Inc. (formerly NEBCO EVANS
Distribution, Inc.) (NEBCO). In conjunction with the acquisition, the Company's
revolving line of credit, its term notes payable to five co-lenders, and its
note to Signal Capital Corporation were paid off. The Company continues to
operate as a wholly-owned subsidiary of NEBCO with NEBCO providing any working
capital needed for the Company's operations.
The consolidated financial statements of the Company include the accounts
of the Company and the following subsidiaries:
SUBSIDIARY OWNERSHIP
-------------------------------------------------- ---------
Post Holding Company and subsidiary (Post)........ 50%
Delta Transportation, Ltd. (Delta)................ 100%
The Company was formed through a series of acquisitions. Interstate
Distributors, Inc. (IDI), and The
Sonneveldt Company (Sonneveldt) represent holding companies formed for the
purpose of acquiring the respective operating subsidiaries. Lewis Partners
acquired a 70% ownership interest in Sonneveldt and an 81% ownership interest in
IDI on December 19, 1988, and August 1, 1989, respectively. In 1989, Lewis
Partners transferred its ownership interests in these two entities to the
Company in exchange for shares of the Company's common stock. Concurrent with
the transfer of Lewis Partners' ownership interests in the subsidiaries to the
Company, the Company acquired the remaining 30% minority interest in Sonneveldt
by exchanging shares of the Company's common stock for the minority interest
holders' shares of Sonneveldt. The Company acquired Post Holding Company (Post)
in 1989, First Choice Food Distributors, Inc. (FCF), in 1990, Alpha
Distributors, Ltd., Delta Transportation, Ltd., and Omega Distributions
Services, Ltd. (collectively Alpha), and Food Service Systems (FSS) in 1991. The
Company merged FSS into IDI in December 1992.
On January 11, 1994, the Company completed a series of transactions
including a private equity offering, a corporate restructuring, and a
refinancing of the majority of the Company's debt. As a part of these
transactions, the Company purchased the 19% minority interest in IDI, and
simultaneously merged all of its subsidiaries into AmeriServ, except Post and
Delta Transportation, Ltd. (Delta), which were not merged for regulatory
reasons.
Nature of Operations
The Company, through its divisions and subsidiaries, is a system
foodservice distributor specializing in distribution to chain restaurants. The
Company distributes a wide variety of items, including fresh and frozen meat and
poultry, frozen foods, canned and dry goods, fresh and pre-processed produce,
beverages, dairy products, paper goods, cleaning and other supplies and small
equipment.
At December 30, 1995, the Company served approximately 4,300 restaurant
locations within 38 different restaurant chains (or "concepts") in 38 states,
Mexico and the Caribbean from 14 distribution centers in the United States.
F-31
143
AMERISERV FOOD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Upon consolidation, all intercompany accounts,
transactions, and profits have been eliminated.
Fiscal Year
The Company's fiscal year is the 52- or 53-week period ending on the
Saturday closest to December 31. The fiscal years ended December 31, 1994
(fiscal 1994) and December 30, 1995 (fiscal 1995) are 52-week periods.
Inventories
Merchandise inventories are valued at the lower of cost (first-in,
first-out method) or market.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is computed
over the estimated useful lives of the assets, using either the straight-line or
double-declining balance method. Amortization of leasehold improvements is
recorded over the respective lease terms or useful lives, whichever are shorter;
and assets recorded under capital leases are amortized over the respective lease
terms. Amortization of capital leases is included in depreciation expense.
Useful lives for amortization and depreciation calculations are as follows:
Buildings and improvements..................... 5 - 40 years
Delivery and automotive equipment.............. 5 - 9 years
Warehouse equipment............................ 5 - 12 years
Furniture, fixtures, and equipment............. 5 - 10 years
Other Assets
Goodwill represents the excess of the purchase prices over the fair values
of net assets of acquired businesses and is amortized over 40 years using the
straight-line method. On January 11, 1994, the Company purchased the remaining
minority interest in IDI resulting in additional goodwill of $1,160. The
carrying value of goodwill is reviewed if the facts and circumstances suggest it
may be impaired. If this review indicates that goodwill may not be recoverable,
as determined based on the estimated future undiscounted cash flows of the
entity acquired over the remaining amortization period, the Company's carrying
value of the goodwill is reduced by the estimated shortfall.
The costs of covenants not to compete, incurred in connection with
acquisitions, are being amortized over the lives of the respective covenants
(three to five years) using the straight-line method. Deferred financing costs
are being amortized over the terms of the respective agreements, generally three
to five years, using the straight-line method, which does not differ
significantly from the interest method.
Federal Income Taxes
The Company and its subsidiaries (excluding Post) file a consolidated
federal income tax return. Under federal tax regulations, Post is required to
file a separate consolidated federal income tax return.
F-32
144
AMERISERV FOOD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Losses of Divested Operations
In fiscal 1994, the Company incurred losses of $313, consisting of costs
incurred to close the two remaining FSS distribution facilities. The majority of
these expenses were related to operating, legal, severance, and shut-down costs
associated with the decision to close these facilities. The closing and
divesting of these operations was deemed necessary due to continued operating
losses with respect to these two facilities.
Other Expenses, Net
In fiscal 1995, other expense, net, of $1,472 in the consolidated statement
of operations, included expenses of $827 related to an attempted public offering
of the Company's common stock, and an accrual of $600 representing payments due
under contract to two former owners of a company acquired by AmeriServ in 1988.
As the two former owners are no longer involved in the business, these amounts
have been written off.
2. LEASES
The Company leases warehouse facilities and certain transportation
equipment under operating leases expiring at various dates through 1999. Minimum
annual rental commitments under noncancelable operating leases are as follows at
December 30, 1995:
1996............................................. $ 8,233
1997............................................. 7,509
1998............................................. 6,604
1999............................................. 5,134
2000............................................. 3,700
Thereafter....................................... 5,887
-------
$37,067
=======
Rent expense for fiscal 1994 and 1995 was approximately $9,363 and $11,243,
respectively. Under certain truck leases, various subsidiaries of the Company
are obligated to pay contingent rentals based on miles driven each period.
The Madison, Wisconsin, warehouse facility lease grants the Company an
option to purchase the warehouse facility at any time during the initial or
extended lease terms for $6,000. Additionally, the lease grants the lessors a
put option to require the Company to purchase the warehouse facility for $6,000
should the Company either default on future monthly rental payments or fail to
exercise, or not be entitled under the terms of the lease to exercise, any of
its options to extend the initial 10-year term of the lease.
The Company leases operating facilities and certain delivery and warehouse
equipment under capital lease agreements. The leases are for various terms
through 2002, with interest payable at rates ranging from 10 to 12.75%. The
facilities are leased from a partnership, which is partially owned by
stockholders of the Company. Payments representing principal on the facility
leases totaled $133 and $150 in fiscal 1994 and 1995, respectively. The Company
is required to pay real estate and other occupancy costs under the leases.
3. STOCK COMPENSATION PLAN
In 1991, the Company adopted a Stock Compensation Plan (the Plan), which
became effective on December 31, 1991. The Plan covers the issuance of incentive
and nonqualified stock options and restricted stock grants to directors and key
employees of the Company and its subsidiaries. The Plan is administered by a
committee (the Committee) appointed by the Company's Board of Directors. The
Committee generally has the authority to fix the terms and numbers of options to
be granted and to determine the employees or other parties who will receive the
options and the grants. The number of shares that may be issued under the Plan
F-33
145
AMERISERV FOOD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shall not exceed 56. Incentive stock options granted by the Committee shall
expire on the date determined by the Committee, but in no event shall any
incentive stock option expire later than 10 years after the grant date. The
exercise price per share for shares issued pursuant to the exercise of incentive
stock options shall not be less than the fair market value of common stock at
the time of the grant of the option. All options granted will expire between
January 1, 2002, and January 11, 2004.
Common share stock options outstanding at December 31, 1994, and December
30, 1995, are as follows adjusted for a 1 for 10 reverse stock split effective
September 1, 1995 (in thousands except per share data):
NUMBER OF PRICE PER OPTIONS
SHARES SHARE EXERCISABLE
--------- --------------- -----------
Outstanding at December 31, 1994................ 23 $53.33 -- $93.33 23
Outstanding at December 30, 1995................ 24 $53.33 -- $93.33 24
4. INCOME TAXES
Significant components of the provision for income taxes are as follows:
YEAR ENDED
---------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
Current:
Federal.................................................... $ 72 $ --
State...................................................... 383 289
---- ----
Total current................................................ 455 289
Deferred
Federal.................................................... (347) (19)
---- ----
Total deferred............................................... (347) (19)
---- ----
$108 $270
==== ====
A reconciliation of the Company's income tax provision calculated at
federal statutory rates to the provision for income taxes reported is as
follows:
YEAR ENDED
---------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
Federal statutory tax rate (34%) applied to income
(loss) before taxes........................................ $571 $ (548)
Net operating losses not benefited........................... -- 267
Benefit of net operating loss carryovers..................... (827) --
AMT credit not benefited..................................... 72 --
State income taxes........................................... 383 289
Tax return settlements....................................... (347) --
Amortization of goodwill..................................... 124 124
Meals and entertainment...................................... 97 119
Other........................................................ 35 19
---- -----
$108 $ 270
==== =====
At December 30, 1995, the Company has consolidated net operating loss
carryforwards of $8,707 for federal income tax purposes that expire in years
2004 through 2009. Additionally, at December 30, 1995, Post
F-34
146
AMERISERV FOOD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
has net operating loss carryforwards of $1,360, which are available to offset
Post's separate taxable income. The Company establishes a valuation allowance
for its deferred tax assets until, based on available evidence, it is more
likely than not that a portion or all of the deferred tax assets will be
realized.
Section 382 of the 1986 Internal Revenue Code provides for limitations on
the utilization of net operating loss carryovers subsequent to certain ownership
changes. If the Company experiences an ownership change, as defined under
Section 382, the availability of its net operating loss carryovers may be
limited.
5. OTHER RELATED PARTY TRANSACTIONS
The Company and its subsidiaries incurred monitoring and acquisition fees
of $415 to Lewis Partners for management advisory, investment banking, and
acquisition services during both fiscal 1994 and 1995.
6. CAPITAL STOCK
Effective November 10, 1994, the Board of Directors approved a
three-for-four reverse stock split and effective September 1, 1995, the Board of
Directors approved a one-for-ten reverse stock split. All references to stock
related data has been restated to reflect the effect of the splits.
The Board of Directors of the Company is authorized, without action by the
stockholders, to divide authorized preferred stock into one or more series and
to fix, for each series, the number of shares, powers, designations,
preferences, relative rights, qualifications, limitations, and restrictions. The
Company is authorized to issue 500 shares of Preferred Stock with a par value of
$0.01. The Company issued 45 shares of $.01 par value non-voting preferred
shares designated as Series A Redeemable Preferred Stock for $4,500. The
Preferred Stock is convertible into shares of common stock at a rate of 2.5
shares of common for each share of Series A Redeemable Preferred Stock. The
holders of shares of Series A Redeemable Preferred Stock are entitled to receive
dividends as declared by the Board of Directors from time to time. The Series A
Redeemable Preferred Stock is redeemable in whole at any time or from time to
time in part, at the option of the Company, at a redemption price of $125.00 per
share, with such redemption price increasing by 12% per year commencing on
January 1, 1995, and being increased by a per share amount equal to any then
declared but unpaid dividends. The redemption of the Series A Redeemable
Preferred Stock is mandatory on December 31, 2003, or earlier in the event of an
initial public offering, sale of the Company or merger, consolidation, or other
form of business combination in which the Company is not the surviving entity.
In the event of any form of liquidation of the Company, the holders of the
Series A Redeemable Preferred Stock hold preference over all other forms of
capital stock at an amount equal to $100.00 per share with the amount increasing
by 12% per year compounded annually. Commencing on January 1, 1995, this amount
is further increased by a per share amount equal to any then declared but unpaid
dividends.
Under the terms of an agreement with two of the Company's stockholders, the
Company must obtain an affirmative vote by at least one of the directors, if
any, nominated by each of the two stockholders and Lewis Partners, prior to the
consummation of any of the following events: (i) the issuance by the Company or
any subsidiary of any shares of its capital stock or other equity securities or
options, rights, or warrants; (ii) a transfer, as defined, by the Company of any
of the shares of capital stock of Post currently owned by it; (iii) the approval
of any amendments to the Certificate of Incorporation of the Company or its
subsidiaries; (iv) the merger, consolidation, liquidation, or dissolution of the
Company or any of its subsidiaries or the sale or other disposition of all, or
substantially all, of the assets of the Company or its subsidiaries; (v) the
declaration or payment of any dividend on or distribution to holders of the
common equity stock of the Company or any subsidiary that is not wholly owned by
the Company; or (vi) the amendment, modification, supplementation, or
termination of various agreements currently in effect or hereinafter to be
executed by the stockholders.
F-35
147
AMERISERV FOOD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the acquisition of Sonneveldt and the related financing
obtained, a warrant was issued to Signal Capital Corporation to purchase 25% of
the common stock of the Company's former subsidiary for an aggregate exercise
price of $0.25. The warrant was exercisable upon issuance. As a part of the
refinancing and restructuring completed January 11, 1994 (Note 9), the warrant
was purchased by the Company for $100.
7. CONCENTRATIONS OF CREDIT RISK
The Company and its subsidiaries perform periodic credit evaluations of its
customers' financial conditions and generally do not require collateral.
Franchiser-owned and franchisee-owned stores of three national limited-menu
concepts accounted for approximately 40%, 10%, and 10% in 1994 and 40%, 11%, and
10% in fiscal 1995 of the Company's consolidated revenues. One customer
represented approximately 15% and 14% of consolidated revenues for fiscal 1994
and 1995, respectively.
8. EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have two benefit plans, the AmeriServ
401(k) Savings Plan and The Sonneveldt Company 401(k) Plan. The AmeriServ 401(k)
Plan covers all hourly and salaried employees of AmeriServ and its subsidiaries,
except those covered in The Sonneveldt Plan. The Sonneveldt Company 401(k) Plan
covers all hourly warehouse and transportation employees of a former subsidiary,
The Sonneveldt Company. Under the plans, participants may elect to defer up to
15% of compensation, and the Company matches a portion of the participant's
salary deferral, up to plan-specified maximums. The Company's contributions to
the plans totaled $389 and $323 in fiscal 1994 and 1995, respectively.
9. REFINANCING
On January 11, 1994, the Company entered into a series of transactions that
resulted in capital contributions of $10,178, the refinancing of a majority of
the Company's debt, and the restructuring of the Company's corporate
organization.
The Company issued 45 shares of Series A Redeemable Preferred Stock for
$4,500 (Note 6). The consideration for these shares was a combination of cash
and the contribution of the Company's $2,500 promissory note payable to Lewis
Partners. Additionally, the stockholders of the Company, as a group, contributed
the $5,000 balance of the dividend promissory notes, together with accrued
interest of $678 thereon, to the Company in the form of additional paid-in
capital.
In fiscal 1994, the Company recognized a $313 extraordinary gain as a
result of the refinancing of its revolving credit notes payable and certain term
notes payable. The Company purchased the warrants in a subsidiary from one
lender for less than book value, generating a $275 gain, prepaid a note
obtaining a $263 discount in exchange for early extinguishment, and repaid
several issues of debt before the due date resulting in $225 in prepayment
penalties.
The corporate structure of the Company was also simplified with the merger
of all the Company's subsidiaries, except Post and Delta, into the Company. The
mergers were also consummated on January 11, 1994.
F-36
148
=========================================================
NO DEALER, SALESPERSON, OR OTHER 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 OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. 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.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary...................... 3
The Company............................. 3
Risk Factors............................ 13
The Exchange Offer...................... 19
Certain Federal Income Tax Consequences
of the Exchange Offer................. 26
The Transactions........................ 26
Use of Proceeds......................... 28
Capitalization.......................... 29
Selected AmeriServe Historical Financial
Data.................................. 30
Selected PFS Historical Financial
Data.................................. 31
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 32
The Business............................ 38
The Acquisition......................... 48
Management.............................. 49
Security Ownership of Certain Beneficial
Holders and Management................ 54
Certain Relationships and Related Party
Transactions.......................... 55
Description of Indebtedness............. 57
Description of New Notes................ 60
Description of Certain Federal Income
Tax Consequences...................... 90
Plan of Distribution.................... 94
Legal Matters........................... 95
Experts................................. 95
Change in Company's Accountant.......... 96
Index of Certain Defined Terms.......... 97
Index to Unaudited Pro Forma Financial
Statements............................ P-1
Index to Historical Financial
Statements............................ F-1
---------------------------------------------------------
- ---------------------------------------------------------
=========================================================
$500,000,000
AMERISERVE FOOD
DISTRIBUTION, INC.
OFFER TO EXCHANGE
10 1/8% NEW SENIOR
SUBORDINATED NOTES
DUE 2007
---------------------------------------------------------
- ---------------------------------------------------------
149
PAGES TO BE USED IN MARKET-MAKING PROSPECTUS
150
[ALTERNATE COVER FOR MARKET-MAKING PROSPECTUS]
[AMERISERVE LOGO]
AMERISERVE FOOD DISTRIBUTION, INC.
10-1/8% NEW SENIOR SUBORDINATED NOTES DUE 2007
------------------------
The 10 1/8% New Senior Subordinated Notes due 2007 (the "New Senior
Subordinated New Notes" or "New Notes") were issued in exchange for the 10 1/8%
Senior Subordinated Notes due 2007 (the "Senior Subordinated Notes" or "Notes")
by AmeriServe Food Distribution, Inc. (the "Company"), a Nebraska corporation.
The New Notes are guaranteed on a senior subordinated basis by AmeriServ Food
Company, a Delaware corporation and a subsidiary of the Company, AmeriServe
Transportation, Inc., a Nebraska corporation and a subsidiary of the Company,
Chicago Consolidated Corporation, an Illinois corporation and a subsidiary of
the Company, Northland Transportation Services, Inc., a Nebraska corporation and
a subsidiary of the Company, The Harry H. Post Company, a Colorado corporation
and a subsidiary of the Company, and Delta Transportation, Ltd., a Wisconsin
corporation and a subsidiary of the company (the "Subsidiary Guarantors"). See
"Description of New Notes."
The New Senior Subordinated Notes bear interest from July 11, 1997, the
date of issuance of the Senior Subordinated Notes that are tendered in exchange
for the New Senior Subordinated Notes (or the most recent Interest Payment Date
(as defined herein) to which interest on such Notes has been paid), at a rate
equal to 10 1/8% per annum. Interest on the New Senior Subordinated Notes will
be payable semiannually on January 15 and July 15 of each year, commencing
January 15, 1998.
The New Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after July 15, 2002 in cash at the redemption prices set
forth herein, plus accrued and unpaid interest and liquidated damages, if any,
thereon to the date of redemption. Prior to July 15, 2000, up to 33% of the
initially outstanding aggregate principal amount of New Senior Subordinated
Notes will be redeemable at the option of the Company, on one or more occasions,
from the net proceeds of public or private sales of common stock of, or
contributions to the common equity capital of, the Company, at a price of
110.125% of the principal amount of the New Senior Subordinated Notes, together
with accrued and unpaid interest, and liquidated damages, if any, to the date of
redemption; provided that at least 67% of the initially outstanding aggregate
principal amount of New Senior Subordinated Notes remains outstanding
immediately after such redemption. Upon the occurrence of a Change of Control
(as defined herein), each Holder of New Notes may require the Company to
repurchase all or a portion of such Holder's New Notes at 101% of the aggregate
principal amount of the New Senior Subordinated Notes, together with accrued and
unpaid interest, and Liquidated Damages, if any, to the date of repurchase. See
"Risk Factors -- Payment Upon a Change of Control" and "Description of New
Notes -- Repurchase at the Option of Holders."
The New Notes are general, unsecured obligations of the Company, are
subordinated to all Senior Debt and rank senior or pari passu in right of
payment to all existing and future subordinated indebtedness of the Company. The
claims of holders of the New Notes are effectively subordinated to the Senior
Debt, which, as of July 11, 1997, on a pro forma basis, after giving effect to
the Acquisition, the related financing transactions, and other transactions
described herein, would have been approximately $217.5 million, $205.0 million
of which would have been fully secured borrowings under the New Credit Facility.
See "Capitalization."
------------------------
SEE "RISK FACTORS," COMMENCING ON PAGE [ ], FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NEW
NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus is to be used by Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") and BancAmerica Securities, Inc. ("BancAmerica") in
connection with the offers and sales in market-making transactions at negotiated
prices related to prevailing market prices at the time of sale. The Company does
not intend to list the New Notes on any securities exchange or to seek admission
thereof to trading in the National Association of Securities Dealers Automated
Quotation System. DLJ and BancAmerica have advised the Company that they intend
to make a market in the New Notes; however, they are not obligated to do so and
any market-making may be discontinued at any time. The Company will receive no
portion of the proceeds of the sale of the New Notes and will bear expenses
incident to the registration thereof.
DONALDSON, LUFKIN & JENRETTE BANCAMERICA SECURITIES, INC.
SECURITIES CORPORATION
------------------------
The date of this Prospectus is , 1997.
A-1
151
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
No dealer, salesperson or other person has been authorized to give
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company, DLJ or BancAmerica. This
Prospectus does not constitute an offer to sell or the solicitation of an offer
to buy any security other than the New Notes offered hereby, nor does it
constitute an offer to sell or the solicitation of an offer to buy any of the
New Notes to any person in any jurisdiction in which it is unlawful to make such
an offer or solicitation to such person. Neither the delivery of this Prospectus
nor any sale made hereunder shall under any circumstances create any implication
that the information contained herein is correct as of any date subsequent to
the date hereof.
AVAILABLE INFORMATION
The Company and the Subsidiary Guarantors have filed with the Securities
and Exchange Commission ("SEC") a Registration Statement on Form S-4 under the
Securities Act for the registration of the New Notes offered hereby (the
"Registration Statement"). This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in exhibits and
schedules to the Registration Statement as permitted by the rules and
regulations of the SEC. For further information with respect to the Company or
the New Notes offered hereby, reference is made to the Registration Statement,
including the exhibits and financial statement schedules thereto, which may be
inspected without charge at the public reference facility maintained by the SEC
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and copies of
which may be obtained from the SEC at prescribed rates. Statements made in this
Prospectus concerning the contents of any document referred to herein are not
necessarily complete. With respect to each such document filed with the SEC as
an exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.
Upon the effectiveness of the Registration Statement, the Company became
subject to the information requirements of the Securities Exchange Act of 1934
(the "Exchange Act"), and in accordance therewith will file reports and other
information with the SEC. Such reports and other information filed by the
Company can be inspected and copied at the public reference facilities of the
SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at the Website
(http://www.sec.gov.) maintained by the SEC, and the regional offices of the SEC
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60661.
Copies of such materials may be obtained from the Public Reference Section of
the SEC, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
its public reference facilities in New York, New York and Chicago, Illinois at
prescribed rates.
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it is required to furnish the information required to be filed
with the SEC to (i) State Street Bank and Trust Company as trustee (the "Senior
Subordinated Note Trustee"), under the Indenture dated as of July 11, 1997 (the
"Senior Subordinated Note Indenture") among the Company, the Subsidiary
Guarantors and the Senior Subordinated Note Trustee, pursuant to which the
outstanding 10 1/8% Senior Subordinated Notes due 2007 of the Company (the
"Senior Subordinated Notes") were, and the New Senior Subordinated New Notes
will be, issued and (ii) the holders of the Notes and the New Notes. The Company
has agreed that, even if they are not required under the Exchange Act to furnish
such information to the SEC, they will nonetheless continue to furnish
information that would be required to be furnished by the Company by Section 13
of the Exchange Act to the Trustees and the holders of the Notes or New Notes as
if they were subject to such periodic reporting requirements.
In addition, the Company and the Subsidiary Guarantors have agreed that for
so long as any of the Notes remain outstanding, they will make available to any
prospective purchaser of the Notes or Holder of the Notes in connection with any
sale thereof, the information required by Rule 144A(d)(4) under the Securities
Act.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
AMERISERVE FOOD DISTRIBUTION, INC., 17975 WEST SARAH LANE, SUITE 100,
BROOKFIELD, WISCONSIN 53045, (414) 792-9300. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY AUGUST , 1997.
A-2
152
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
TRADING MARKET FOR THE NEW NOTES
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes or the
ability of the Holders of the New Notes to sell their New Notes or the price at
which such Holders may be able to sell their New Notes. If such market were to
develop, the New Notes could trade at prices that may be higher or lower than
their initial offering price depending on many factors, including prevailing
interest rates, the Company's operating results and the market for similar
securities. Although they are not obligated to do so, DLJ and BancAmerica intend
to make a market in the New Notes. Any such market-making activity may be
discontinued at any time, for any reason, without notice at the sole discretion
of DLJ and BancAmerica. No assurance can be given as to the liquidity of or the
trading market for the New Notes.
DLJ and BancAmerica may be deemed to be affiliates of the Company and, as
such, may be required to deliver a prospectus in connection with their
market-making activities in the New Notes. Pursuant to the Registration Rights
Agreement, the Company and the Subsidiary Guarantors agreed to use their
respective best efforts to file and maintain a registration statement that would
allow DLJ and BancAmerica to engage in market-making transactions in the New
Notes for up to 120 days from the date on which the Exchange Offer is
consummated. The Company has agreed to bear substantially all the costs and
expenses related to such registration statement.
A-3
153
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
USE OF PROCEEDS
This Prospectus is delivered in connection with the sale of the New Notes
by DLJ and BancAmerica in market-making transactions. The Company will not
receive any of the proceeds from such transactions.
A-4
154
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
PLAN OF DISTRIBUTION
This Prospectus is to be used by DLJ and BancAmerica (the "Initial
Purchasers") in connection with offers and sales of the New Notes in
market-making transactions effected from time to time. The Initial Purchasers
may act as a principal or agent in such transactions, including as agent for the
counterparty when acting as principal or as agent for both counterparties, and
may receive compensation in the form of discounts and commissions, including
from both counterparties when it acts as agent for both. Such sales will be made
at prevailing market prices at the time of sale, at prices related thereto or at
negotiated prices.
DLJMB, an affiliate of DLJ, and certain of its affiliates beneficially own
approximately 36.1% of the common stock of NEHC. Peter T. Grauer, a principal of
DLJ, is a member of the Board of Directors of NEHC and the Company; Benoit
Jamar, a principal of DLJ, became a member of the Board of Directors of NEHC and
the Company as of Closing. Further, DLJ Capital Funding, Inc., an affiliate of
DLJ, is acting as documentation agent in connection with the New Credit Facility
for which it is receiving certain customary fees and expenses. In addition, DLJ
received a merger advisory fee of $4.0 million in cash from the Company after
consummation of the Transactions. DLJ has informed the Company that it does not
intend to confirm sales of the New Notes to any accounts over which it exercises
discretionary authority without the prior specific written approval of such
transactions by the customer.
The Company has been advised by the Initial Purchasers that, subject to
applicable laws and regulations, the Initial Purchasers currently intend to make
a market in the New Notes following completion of the Exchange Offer. However,
the Initial Purchasers are not obligated to do so and any such market-making may
be interrupted or discontinued at any time without notice. In addition, such
market-making activity will be subject to the limits imposed by the Securities
Act and the Exchange Act. There can be no assurance that an active trading
market will develop or be sustained. See "Risk Factors -- Trading Market for the
New Notes."
DLJ has provided investment banking services to the Company in the past and
may provide such services and financial advisory services to the Company in the
future. DLJ acted as purchasers in connection with the initial sale of the Notes
and received an underwriting discount of approximately $12.0 million in
connection therewith. See "Certain Relationships and Related Party
Transactions."
The Initial Purchasers and the Company have entered into the Registration
Rights Agreement with respect to the use by the Initial Purchasers of this
Prospectus. Pursuant to such agreement, the Company agreed to bear all
registration expenses incurred under such agreement, and the Company agreed to
indemnify the Initial Purchasers against certain liabilities, including
liabilities under the Securities Act.
A-5
155
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
=========================================================
NO DEALER, SALESPERSON, OR OTHER 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 OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. 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.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary......................
The Company.............................
Risk Factors............................
The Exchange Offer......................
Certain Federal Income Tax Consequences
of the Exchange Offer.................
The Transactions........................
Use of Proceeds.........................
Capitalization..........................
Selected AmeriServe Historical Financial
Data..................................
Selected PFS Historical Financial
Data..................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................
The Business............................
The Acquisition.........................
Management..............................
Security Ownership of Certain Beneficial
Holders and Management................
Certain Relationships and Related Party
Transactions..........................
Description of Indebtedness.............
Description of New Notes................
Description of Certain Federal Income
Tax Consequences......................
Plan of Distribution....................
Legal Matters...........................
Experts.................................
Change in Company's Accountant..........
Index of Certain Defined Terms..........
Index to Unaudited Pro Forma Financial
Statements............................ P-1
Index to Historical Financial
Statements............................ F-1
---------------------------------------------------------
- ---------------------------------------------------------
=========================================================
$500,000,000
AMERISERVE FOOD
DISTRIBUTION, INC.
10 1/8% NEW SENIOR
SUBORDINATED NOTES
DUE 2007
------------------------------
PROSPECTUS
------------------------------
---------------------------------------------------------
- ---------------------------------------------------------
156
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 103 of the Nebraska Business Corporation Act ("NBCA"), permits
indemnification of directors and officers for judgments, fines, settlements, and
expenses, including attorney's fees, incurred in connection with any threatened,
pending, or completed action, suit, or proceeding other than an action by or in
the right of the Company. This applies to any civil, criminal, investigative or
administrative action provided that the director or officer involved acted in
good faith, in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Indemnification of directors and officers may be also provided for
judgments, fines, settlements, and expenses, including attorney's fees, incurred
in connection with any threatened, pending, or completed action, or suit by or
in the right of the corporation if such director or officer acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation. However, no indemnification shall be made in
respect of any claim, issue or matter in which such person is adjudged to be
liable for negligence or misconduct in the performance of his duties to the
corporation unless the court in which the action is brought deems indemnity
proper.
Under NBCA, Section 107 the grant of indemnification to a director or
officer shall be made by a majority of a quorum of disinterested directors, by a
written opinion from independent legal counsel, or by the shareholders.
Under NBCA, Section 104 indemnification shall be provided to any directors
and officers for expenses, including attorney's fees, actually and reasonably
incurred in the defense of any action, suit or proceeding to the extent that he
or she has been successful on the merits.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
2.1 Purchase Agreement, by and among the Company, the Subsidiary Guarantors, Donaldson,
Lufkin & Jenrette Securities Corporation and BancAmerica Securities dated as of July
9, 1997.
2.2 Asset Purchase Agreement between PepsiCo, Inc. and Nebco Evans Holding Company.
2.3 Sales and Distribution Agreement by and among PFS, Pizza Hut, Inc., Taco Bell Corp.,
Kentucky Fried Chicken Corporation and Kentucky Fried Chicken of California, Inc.*
3.1 Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
3.3 Certificate of Incorporation of AmeriServ Food Company.
3.4 By-Laws of AmeriServ Food Company.
3.5 Articles of Incorporation of AmeriServe Transportation, Inc.
3.6 By-Laws of AmeriServe Transportation, Inc.
3.7 Articles of Incorporation of Chicago Consolidated Corporation.
3.8 By-Laws of Chicago Consolidated Corporation.
3.9 Articles of Incorporation of Northland Transportation Services, Inc.
3.10 By-Laws of Northland Transportation Services, Inc.
3.11 Articles of Incorporation of The Harry H. Post Company.
3.12 By-Laws of The Harry H. Post Company.
3.13 Articles of Incorporation of Delta Transportation, Ltd.
II-1
157
3.14 By-Laws of Delta Transportation, Ltd.
4.1 Indenture, dated as of July 11, 1997, by and among the Company, the Subsidiary
Guarantors and State Street Bank and Trust Company, with respect to the New Senior
Subordinated Notes.
4.2 Form of New Senior Subordinated Note.
4.3 Form of New Note Guarantee.
5.1 Opinion of Wachtell, Lipton, Rosen & Katz.*
10.1 Registration Rights Agreement, dated as of July 11, 1997, by and among the Company,
the Subsidiary Guarantors and Donaldson, Lufkin & Jenrette Securities Corporation.
10.2 Second Amended and Restated Credit Agreement, dated as of July 11, 1997 among the
Company, Bank of America National Trust and Savings Association, as Administrative
Agent, Donaldson, Lufkin & Jenrette Securities Corporation, as Documentation Agent,
Bank of America National Trust and Savings Association as Letter of Credit Issuing
Lender, the Other Financial Institutions Party thereto and BancAmerica Securities,
Inc. as Arranger.
10.3 Employment Agreement, dated as of December 23, 1986 between the Company and Raymond
E. Marshall, as amended by Amendment to Employment Agreement, dated as of January 1,
1995.
12.1 Statements re computation of ratios.
16.1 Letter from Deloitte & Touche LLP.
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1).*
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1 of State Street
Bank and Trust Company under the Trust Indenture Act of 1939.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal for the 10 1/8% New Senior Subordinated Notes due 2007.
99.2 Guidelines for Certification of Taxpayer Identification Number on Substitute Form
W-9.
99.3 Form of Notice of Guaranteed Delivery.
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedule.
II-2
158
22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(c) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(d) 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 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
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
jurisdiction the question of whether indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
159
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 the City of New York, State of New
York, on August 8, 1997.
AMERISERVE FOOD DISTRIBUTION, INC.
By /s/ RAYMOND E. MARSHALL
------------------------------------
Raymond E. Marshall
President
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Raymond E. Marshall, Petter Ostberg and Donald J.
Rogers, and each of them, his attorney-in-fact with power of substitution for
him in any and all capacities, to sign any amendments, supplements, subsequent
registration statements relating to the offering to which this Registration
Statement relates, or other instruments he deems necessary or appropriate, and
to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact or his substitute may do or cause to
be done by virtue hereof.
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 August 8, 1997.
NAME TITLE
- --------------------------------------------- ----------------------------------------------
/s/ RAYMOND E. MARSHALL President, Treasurer and Director
- ---------------------------------------------
Raymond Marshall
/s/ DANIEL W. CRIPPEN Chief Operating Officer and Director
- ---------------------------------------------
Daniel W. Crippen
/s/ DONALD J. ROGERS Chief Financial Officer and Secretary
- ---------------------------------------------
Donald J. Rogers
/s/ JOHN R. EVANS Director
- ---------------------------------------------
John R. Evans
/s/ JOHN V. HOLTEN Chief Executive Officer and Director
- ---------------------------------------------
John V. Holten
/s/ GUNNAR E. KLINTBERG Director
- ---------------------------------------------
Gunnar E. Klintberg
II-4
160
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 the City of New York, State of New
York, on August 8, 1997.
AMERISERV FOOD COMPANY.
By /s/ RAYMOND E. MARSHALL
------------------------------------
Raymond E. Marshall
President
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Raymond E. Marshall, Petter Ostberg and Donald J.
Rogers, and each of them, his attorney-in-fact with power of substitution for
him in any and all capacities, to sign any amendments, supplements, subsequent
registration statements relating to the offering to which this Registration
Statement relates, or other instruments he deems necessary or appropriate, and
to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact or his substitute may do or cause to
be done by virtue hereof.
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 August 8, 1997.
NAME TITLE
- --------------------------------------------- ----------------------------------------------
/s/ RAYMOND E. MARSHALL President, Treasurer and Director
- ---------------------------------------------
Raymond E. Marshall
/s/ DONALD J. ROGERS Chief Financial Officer and Secretary
- ---------------------------------------------
Donald J. Rogers
II-5
161
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 the City of New York, State of New
York, on August 8, 1997.
NORTHLAND TRANSPORTATION SERVICES, INC.
By /s/ RAYMOND E. MARSHALL
------------------------------------------
Raymond E. Marshall
President
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Raymond E. Marshall, Petter Ostberg and Donald J.
Rogers, and each of them, his attorney-in-fact with power of substitution for
him in any and all capacities, to sign any amendments, supplements, subsequent
registration statements relating to the offering to which this Registration
Statement relates, or other instruments he deems necessary or appropriate, and
to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact or his substitute may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the capacities
and on August 8, 1997.
NAME TITLE
- --------------------------------------------- ----------------------------------------------
/s/ RAYMOND E. MARSHALL President and Director
- ---------------------------------------------
Raymond E. Marshall
/s/ DONALD J. ROGERS Chief Financial Officer and Secretary
- ---------------------------------------------
Donald J. Rogers
II-6
162
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 the City of New York, State of New
York, on August 8, 1997.
DELTA TRANSPORTATION, LTD.
By /s/ RAYMOND E. MARSHALL
----------------------------------------
Raymond E. Marshall
President
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Raymond E. Marshall, Petter Ostberg and Donald J.
Rogers, and each of them, his attorney-in-fact with power of substitution for
him in any and all capacities, to sign any amendments, supplements, subsequent
registration statements relating to the offering to which this Registration
Statement relates, or other instruments he deems necessary or appropriate, and
to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact or his substitute may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the capacities
and on August 8, 1997.
NAME TITLE
- --------------------------------------------- ----------------------------------------------
/s/ RAYMOND E. MARSHALL President, Treasurer and Director
- ---------------------------------------------
Raymond E. Marshall
II-7
163
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 the City of New York, State of New
York, on August 8, 1997.
THE HARRY H. POST COMPANY
By /s/ RAYMOND E. MARSHALL
------------------------------------
Raymond E. Marshall
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Raymond E. Marshall, Petter Otbserg and Donald J.
Rogers, and each of them, his attorney-in-fact with power of substitution for
him in any and all capacities, to sign any amendments, supplements, subsequent
registration statements relating to the offering to which this Registration
Statement relates, or other instruments he deems necessary or appropriate, and
to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact or his substitute may do or cause to
be done by virtue hereof.
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 August 8, 1997.
NAME TITLE
- ------------------------------------------ -------------------------------------
/s/ RAYMOND E. MARSHALL
- ------------------------------------------
Raymond E. Marshall Chief Executive Officer and Director
/s/ DANIEL W. CRIPPEN
- ------------------------------------------
Daniel W. Crippen Director
/s/ JOHN R. EVANS
- ------------------------------------------
John R. Evans Director
/s/ A. PETTER Ostberg
- ------------------------------------------
A. Petter Ostberg Assistant Treasurer & Director
/s/ DONN SCHAIBLE
- ------------------------------------------
Donn Schaible Director
II-8
164
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 the City of New York, State of New
York, on August 8, 1997.
CHICAGO CONSOLIDATED CORPORATION
By /s/ RAYMOND E. MARSHALL
------------------------------------
Raymond E. Marshall
Vice President and Director
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Raymond E. Marshall, Petter Ostberg and Donald J.
Rogers, and each of them, his attorney-in-fact with power of substitution for
him in any and all capacities, to sign any amendments, supplements, subsequent
registration statements relating to the offering to which this Registration
Statement relates, or other instruments he deems necessary or appropriate, and
to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact or his substitute may do or cause to
be done by virtue hereof.
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 August 8, 1997.
NAME TITLE
- ------------------------------------------ --------------------------------------
/s/ RAYMOND E. MARSHALL
- ------------------------------------------
Raymond E. Marshall Vice President and Director
/s/ DONALD J. ROGERS
- ------------------------------------------
Donald J. Rogers Chief Financial Officer and Secretary
II-9
165
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the consolidated financial statements of AmeriServe Food
Distribution, Inc. as of December 30, 1995 and December 28, 1996, and for each
of the three years in the period ended December 28, 1996, and have issued our
report thereon dated August 6 1997 (included elsewhere in this Registration
Statement). Our audit also included the financial statement schedule for each of
the three years in the period ended December 28, 1996, listed in Item 21(b) of
this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Milwaukee, Wisconsin ERNST & YOUNG LLP
August 6, 1997
II-10
166
SCHEDULE II
AMERISERVE FOOD DISTRIBUTION, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
-------------------------------
BALANCE CHARGED CHARGED
AT TO TO BALANCE
BEGINNING COSTS AND OTHER ACQUIRED AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS BALANCE(2) DEDUCTIONS(1) OF YEAR
- ------------------------------------ --------- --------- --------- --------- --------- ---------
Year ended December 31, 1994:
Deducted from asset accounts
Allowance for doubtful
accounts..................... $ 1,142 $ 359 $ -- $ -- $ (61) $ 1,440
====== ====== ====== ====== ====== ======
Reserve for inventory obsolescence .. $ 50 $ 5 $ -- $ -- $ -- $ 55
====== ====== ====== ====== ====== ======
Year ended December 30, 1995:
Deducted from asset accounts
Allowance for doubtful
accounts..................... $ 1,440 $ 134 $ -- $ -- $ (404) $ 1,170
====== ====== ====== ====== ====== ======
Reserve for inventory obsolescence .. $ 55 $ -- $ -- $ -- $ -- $ 55
====== ====== ====== ====== ====== ======
Year ended December 28, 1996:
Deducted from asset accounts
Allowance for doubtful
accounts..................... $ 1,170 $ 1,075 $ -- $ 3,173 $ (522) $ 4,896
====== ====== ====== ====== ====== ======
Reserve for inventory obsolescence .. $ 55 $ 317 $ -- $ 430 $ (51) $ 751
====== ====== ====== ====== ====== ======
- ---------------
(1) Represents uncollectible accounts written off, net of recoveries.
(2) Balance of acquired company at date of acquisition.
II-11
167
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------------
2.1 Purchase Agreement, by and among the Company, the Subsidiary Guarantors,
Donaldson, Lufkin & Jenrette Securities Corporation and BancAmerica
Securities dated as of July 9, 1997.
2.2 Asset Purchase Agreement between PepsiCo, Inc. and Nebco Evans Holding
Company.
2.3 Sales and Distribution Agreement by and among PFS, Pizza Hut, Inc., Taco
Bell Corp., Kentucky Fried Chicken Corporation and Kentucky Fried Chicken
of California, Inc.*
3.1 Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
3.3 Certificate of Incorporation of AmeriServ Food Company.
3.4 By-Laws of AmeriServ Food Company.
3.5 Articles of Incorporation of AmeriServe Transportation, Inc.
3.6 By-Laws of AmeriServe Transportation, Inc.
3.7 Articles of Incorporation of Chicago Consolidated Corporation.
3.8 By-Laws of Chicago Consolidated Corporation.
3.9 Articles of Incorporation of Northland Transportation Services, Inc.
3.10 By-Laws of Northland Transportation Services, Inc.
3.11 Articles of Incorporation of The Harry H. Post Company.
3.12 By-Laws of The Harry H. Post Company.
3.13 Articles of Incorporation of Delta Transportation, Ltd.
3.14 By-Laws of Delta Transportation, Ltd.
4.1 Indenture, dated as of July 11, 1997, by and among the Company, the
Subsidiary Guarantors and State Street Bank and Trust Company, with
respect to the New Senior Subordinated Notes.
4.2 Form of New Senior Subordinated Note.
4.3 Form of New Note Guarantee.
5.1 Opinion of Wachtell, Lipton, Rosen & Katz.*
10.1 Registration Rights Agreement, dated as of July 11, 1997, by and among the
Company, the Subsidiary Guarantors and Donaldson, Lufkin & Jenrette
Securities Corporation.
10.2 Second Amended and Restated Credit Agreement, dated as of July 11, 1997
among the Company, Bank of America National Trust and Savings Association,
as Administrative Agent, Donaldson, Lufkin & Jenrette Securities
Corporation, as Documentation Agent, Bank of America National Trust and
Savings Association as Letter of Credit Issuing Lender, the Other
Financial Institutions Party thereto and BancAmerica Securities, Inc. as
Arranger.
10.3 Employment Agreement, dated as of December 23, 1986 between the Company
and Raymond E. Marshall as amended by Amendment to Employment Agreement,
dated as of January 1, 1995.
12.1 Statements re computation of ratios.
16.1 Letter from Deloitte & Touche LLP.
21.1 Subsidiaries of the Company.
168
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------------
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1).*
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1 of State
Street Bank and Trust Company under the Trust Indenture Act of 1939.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal for the 10 1/8% New Senior Subordinated
Notes due 2007.
99.2 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
99.3 Form of Notice of Guaranteed Delivery.
- ---------------
* To be filed by amendment.