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Exhibit 10.5
THIS MANAGEMENT AGREEMENT dated the 16th day of December, 1993, as
amended and restated the 12th day of January, 1996;
B E T W E E N:
SPARKLING SPRING WATER LIMITED ("SSWL")
OF THE FIRST PART
- and -
C.F. CAPITAL CORPORATION ("C.F.")
OF THE SECOND PART
- and -
G. JOHN KREDIET ("Krediet")
OF THE THIRD PART
- and -
STEPHEN L. LARSON ("Larson")
OF THE FOURTH PART
WHEREAS C.F. provides management services to SSWL pursuant to the terms
and premises of that certain management agreement (the "Management Agreement")
dated the 16th day of December, 1993, among SSWL, C.F., Krediet and Larson;
AND WHEREAS Krediet and Larson are principles of C.F.;
AND WHEREAS the parties hereto desire to amend and restate the terms
and premises
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of the Management Agreement;
NOW THEREFORE in consideration of the premises and the mutual
agreements and covenants herein contained and the sum of Ten Dollars ($10.00)
now paid by each of the parties hereto to the other (the receipt and sufficiency
whereof as to each of the parties is mutually admitted), the parties covenant
and agrees as follows:
ARTICLE I
INTERPRETATION
1.01 Words importing the singular include the plural and vice versa and words
importing gender include all genders.
1.02 The titles or headings contained herein are included solely for
convenience, are not intended to be full accurate descriptions of the context
thereof and shall not be considered part of this Agreement.
1.03 The Management Agreement is hereby amended and restated and replaced by the
provisions of this agreement.
ARTICLE II
SERVICES AGREEMENT
2.01 C.F. agrees to provide management services to SSWL including, without
restricting the generality of the foregoing, managing the operations of SSWL and
negotiating such contracts, financial agreements and other arrangements and
performing such other services as may be directed from time to time by the Board
of Directors of SSWL.
2.02. The parties acknowledge that nothing in this Agreement shall be construed
as a delegation of any of the duties or powers of the Board of Directors of SSWL
to manage the business
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and affairs of SSWL and all of such powers and duties, including policy and
decision making powers, are hereby expressly reserved. For greater certainty,
and without limiting the generality of the foregoing, C.F. shall not, and shall
ensure that management of SSWL shall not, authorize or take any action in
furtherance of the following matters without the approval of the Board of
Directors of SSWL;
(i) any acquisition over One Million ($1,000,000)
Canadian dollars;
(ii) capital expenditures which, in the aggregate, would
exceed the annual budget of SSWL by in excess of ten
(10%) percent thereof;
(iii) any issuance of debt or equity securities or options
to acquire such securities;
(iv) any sale or disposition of any material part of the
business of SSWL other than the sale of all or
substantially all of the assets of SSWL in
circumstances in which either Clairvest Group Inc.'s
("Clairvest") realized price per share yields
Clairvest a simple annual rate of return of at least
twelve (12%) percent, or after June 12, 1997, SSWL
has achieved the fully-diluted per share earnings
before tax, depreciation and amortization ("EBTDAPS")
projections as shown on Schedule "A" hereto;
(v) any winding-up, liquidation or dissolution of SSWL or
any of its subsidiaries;
(vi) any merger, amalgamation or arrangement with any
other identity, corporate or otherwise;
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(vii) any approval of the annual budget of SSWL, or any
amendments or modifications thereof;
(viii) any transaction or course of action which may cause
SSWL to deviate materially from its annual budget;
(ix) any determination concerning compensation of C.F.;
and
(x) any declaration or payment of a dividend or other
distribution to any shareholder of SSWL.
2.03 The parties agree that Krediet and Larson shall be the individuals who
shall provide, on behalf of C.F., the services to SSWL described above. Krediet
shall devote the majority of his time and attention to the affairs of SSWL and
shall use his best efforts to promote the best interests of SSWL, and covenants
and agrees that SSWL shall be his principle business interest; it being
understood and acknowledged that, subject to Section 2.05 hereof, Krediet has
and may continue to have other investments in which he undertakes a passive
function. Larson shall devote his entire time and attention during business
hours to the affairs of SSWL and shall use his best efforts to promote the best
interests of SSWL; it being acknowledge that Larson currently and may continue
to hold the office of a director of companies including and other than SSWL.
2.04 In consideration for C.F.'s services to SSWL hereunder, SSWL agrees to
pay to C.F.:
(a) Base Fee:
(i) a base fee of Four Hundred (U.S. $400,000.00) United
States Dollars for services rendered by C.F. to SSWL
hereunder during the fiscal year ended December 31, 1996;
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(ii) in each successive fiscal year of SSWL, a base fee equal
to the base fee paid to C.F. in the immediately preceding
fiscal year of SSWL multiplied by the percentage increase
or decrease, as the case may be, of the total annual
revenue of SSWL for the fiscal year then ended from the
total annual revenue of SSWL in the immediately preceding
fiscal year, such base fee to be calculated and payable
monthly and commencing March 31, 1997, to be adjusted
quarterly; provided that the base fee payable by SSWL to
C.F. in any particular fiscal year shall not in any event
exceed Seven Hundred and Fifty (U.S. $750,000.00)
Thousand United States Dollars.
(b) Bonus:
(i) in each fiscal year of SSWL through the fiscal year
ended December 31, 2002, a bonus equal to fifty (50%)
percent of the base fee paid to C.F. in such fiscal
year, provided that SSWL achieves the fully-diluted
per share earnings before tax depreciation and
amortization ("EBTDAPS") target for such fiscal year
as set out in Schedule "A" hereto;
(ii) in the event that the SSWL does not achieve the
EBTDAPS target for the fiscal year ended December 31,
1997 as set out in Schedule "A" hereto, C.F. shall,
provided that SSWL achieves an EBTDAPS for the fiscal
year ended December 31, 1997 equal to one hundred and
five (105%) percent of the EBTDAPS for the fiscal
year ended December 31, 1996, be entitled to a bonus
equal to that fraction of the base fee paid to C.F.
for the fiscal year ended December 31, 1997 that is
obtained by multiplying (i) the quotient of (A) the
number obtained by subtracting one hundred and five
(105%) percent of the EBTDAPS for the fiscal year
ended December 31,
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1996 from the EBTDAPS achieved by SSWL during the
fiscal year ended December 31, 1997, and (B) the
number obtained by subtracting one hundred and five
(105%) of the EBTDAPS achieved by SSWL during the
fiscal year ended December 31, 1996 from the EBTDAPS
target for the fiscal year ended December 31, 1997 as
set out in Schedule "A" hereto, by (ii) 0.5; and,
(iii) in the event that SSWL does not achieve the EBTDAPS
target for any fiscal year ended after December 31,
1997 as set out in Schedule "A" hereto, C.F. shall,
provided that SSWL achieves an EBTDAPS for such
fiscal year then ended equal to one hundred and three
(103%) percent of the EBTDAPS achieved by SSWL in the
immediately preceding fiscal year ended, be entitled
to a bonus equal to that fraction of the base fee
paid to C.F. for the fiscal year then ended that is
obtained by multiplying (i) the quotient of (A) the
number obtained by subtracting one hundred and three
(103%) percent of the EBTDAPS achieved by SSWL in the
immediately preceding fiscal year ended from the
EBTDAPS achieved by SSWL during the fiscal year then
ended, and (B) the number obtained by subtracting one
hundred and three (103%) of the EBTDAPS achieved by
SSWL in the immediately preceding fiscal year ended
from the EBTDAPS target for the fiscal year then
ended as set out in Schedule "A" hereto, by (ii) 0.5;
provided, that for the purposes of this paragraph (b), all EBTDAPS calculations
shall be calculated without giving effect to the payment of base salary under
paragraph (a) of this Section 2.04, and all revenue calculations shall be
calculated on a consolidated basis; provided further that no bonus calculated
pursuant to this Section 2.04 may be less than zero ($0.00) dollars.
2.05 Neither C.F., Krediet nor Larson shall, directly or indirectly, pursue,
participate, provide
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advice with respect to or have any interest in any transaction (a "Corporate
Opportunity") involving the manufacturing, bottling, sale or distribution of
beverages unless such participation or interest shall have first been offered to
SSWL. C.F. will also be permitted to charge, and SSWL hereby agrees to pay,
reasonable and customary fees in respect of investment banking advisory services
provided by C.F. to SSWL from time to time in connection with successful
acquisitions of Corporate Opportunities but, in any case, not for raising
capital whether or not in connection with an acquisition. Provided, however,
that such fees will be on a cash basis only and will be a percentage of the
value of the transaction subject to the following limits:
2% on the first Cdn. $3,000,000;
1% on any amount in excess thereof;
2.06 In addition to the fees described in Section 2.03 and 2.04 hereof, SSWL
shall reimburse C.F. for all reasonable out-of-pocket disbursements and office
expenses incurred by C.F. from time to time in the performance of its services
pursuant to this Agreement, not to exceed One Hundred Thousand (U.S.
$100,000.00) United States Dollars per annum;
2.07 C.F., Krediet and Larson recognize and acknowledge that in the course of
carrying out, performing and fulfilling their respective obligations to SSWL
hereunder, each will have access to and will be entrusted with information that
would reasonably be considered confidential to SSWL, the disclosure of which to
competitors of SSWL or to the general public, will be highly detrimental to the
best interest of SSWL. Such information includes, without limitation, trade
secrets, know-how, marketing plans, cost figures, client lists, software, and
information relating to employees, suppliers and persons in contractual
relationships with SSWL. Except as may be required in the course of carrying out
their respective duties hereunder, C.F., Krediet and Larson covenant and agree
that they will not disclose, for the duration of this Agreement or at any time
thereafter, any of such information to any person, other than to the directors,
officers or employees of SSWL that have a need to know of such information, nor
shall they use, nor exploit,
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directly or indirectly, the same information for any purpose other than for the
purpose of SSWL. Without limiting the generality of the foregoing, neither C.F.,
Krediet and Larson shall for the duration of this Agreement or for a period of
three (3) years thereafter have any interest or investment in any corporation,
joint venture or other enterprise, directly or indirectly, involved in the
manufacturing, bottling, sale or distribution of bottled water or the rental of
coolers.
ARTICLE III
TERM, RENEWAL AND TERMINATION
3.01 The term of this Agreement (the "initial term") is ten (10) years
commencing December 16, 1993. Unless otherwise cancelled or extended in
accordance with the terms of this Agreement, this Agreement expires on December
15, 2003.
3.02 This Agreement shall be automatically renewed for a further term of ten
(10) years upon the expiration of any term hereof unless at least thirty (30)
days prior to the expiration of any such term, either party hereto notifies the
other that the Agreement is to terminate on the expiration of that term.
3.03 Either party may terminate this Agreement at any time upon one hundred and
eighty (180) days written notice to the other party, and all payments due to
each party hereunder shall be paid in full as at the effective date of such
termination.
ARTICLE IV
AMENDMENTS
4.01 Subject to Section 4.02 hereof, no amendment of this Agreement shall be
binding unless executed or initialled in writing by each of the parties hereto.
No waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions hereof
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(whether or not similar) nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided. Furthermore, any amendment of this
Agreement and any waiver by SSWL of any provision of this Agreement must be
approved by each director of SSWL.
4.02 SSWL hereby expressly acknowledges and agrees that additional non-cash
management options, incentives or other remuneration consistent with industry
standards may be granted from time to time to C.F., Krediet and Larson and that
the entering into of this Agreement shall not preclude the future negotiation
and payment of such options, incentives and remuneration. In no event shall any
such additional option, incentive or other remuneration arrangement exceed 15%
of the fully diluted common share ownership of SSWL as such ownership exists
from time to time. Any option, incentive or other remuneration granted pursuant
to this Section 4.02 shall be at a price that is no less than the fair market
value at the time of such grant.
ARTICLE V
GENERAL
5.01 The parties hereto shall with reasonable diligence do all such things,
provide all such reasonable assurances as may be required to consummate the
transactions contemplated by this Agreement and carry out its provisions whether
in the present or future.
5.02 This Agreement shall be binding upon and enure to the benefit of the
parties hereto and their respective successors and assigns.
5.03 This Agreement shall be governed by and construed in accordance with the
laws of the province of Nova Scotia.
5.04 This Agreement may be executed in one or more counterparts each of which
shall be deemed to be an original and all of which taken together shall
constitute one and the same
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instrument.
ARTICLE VI
ARBITRATION
6.01 In the event that any disagreement arises between the parties hereto with
reference to this Agreement, any matter arising hereunder or any matter arising
in connection herewith in respect of which the parties cannot agree, then every
such disagreement may be submitted by either party hereto to arbitration in
Halifax pursuant to the provisions of the Arbitration Act (Nova Scotia). The
party desiring arbitration shall give written notice thereof to the other
parties hereto setting forth the matter or matters to be arbitrated. The
reference to arbitration shall be made to one arbitrator who shall be mutually
agreeable to all parties or, if they are unable to agree, pursuant to the
provisions of the Arbitration Act (Nova Scotia). The decision of the arbitrator,
where practicable, shall be within one (1) month of the appointment as
arbitrator. The decision of the arbitrator shall be final and be binding upon
the parties with the cost of the arbitrator borne equally by C.F. and SSWL.
IN WITNESS WHEREOF the parties hereto have set their hands and affixed
their seals on the day and year first above written.
SIGNED, SEALED AND DELIVERED SPARKLING SPRING WATER LIMITED
in the presence of:
Per: /s/Stephen Larson
- ---------------------------------- ----------------------------------------
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C.F. CAPITAL CORPORATION
Per: /s/Stephen Larson
- ---------------------------------- ----------------------------------------
/s/G. John Krediet
- ---------------------------------- ----------------------------------------
G. JOHN KREDIET
/s/Stephen Larson
- ---------------------------------- ----------------------------------------
STEPHEN L. LARSON
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SCHEDULE A - PAGE 1
(Management Agreement)
CONSOLIDATED SPARKLING SPRING WATER INCOME STATEMENT
(C$ Thousands)
Revenue 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ----
Buxton 5,770 7,440 7,876 8,902 11,436 13,151 14,729
Aquaporte 0 1,224 1,592 2,324 2,823 3,244 3,568
SSW 3,813 4,595 4,975 6,109 7,246 8,129 8,775
CS 5,419 6,461 8,079 10,179 12,138 13,331 14,853
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15,002 19,720 22,522 27,515 33,642 37,856 41,926
Growth 31.5% 14.2% 22.2% 22.3% 12.5% 10.8%
Cost of Sales and Operating
Costs
Buxton 6,273 6,682 6,266 6,624 7,724 8,627 9,226
Aquaporte 0 1,146 1,224 1,763 1,874 1,945 2,030
SSW 2,908 3,873 3,925 4,728 5,440 5,938 6,346
CS 3,650 4,491 6,392 7,601 9,205 9,707 9,860
-------------------------------------------------------------------------------------------------
12,831 16,172 17,808 20,713 24,243 26,217 27,463
Operating Cash Flow
Buxton (503) 778 1,609 2,278 3,711 4,524 5,503
Aquaporte 0 78 368 562 949 1,299 1,538
SSW 905 722 1,050 1,384 1,806 2,191 2,439
CS 1,769 1,970 1,687 2,578 2,933 3,624 4,993
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2,171 3,548 4,714 6,801 9,399 11,639 14,463
Margin % 14.5% 18.0% 20.9% 24.7% 27.9% 30.7% 34.5%
Growth % 63.4% 32.9% 44.3% 38.2% 23.8% 24.3%
Corporate Overhead, which
includes Larson & Krediet
Compensation & C.F. Capital 1,367 1,469
------------------------
EBITDA 10,272 12,994
Depreciation and Amort. 4,205 4,289
Interest Expense 3,059 2,852
Other Expense/(Income) 126 126
------------------------
2881 5,727
Income Tax 299 2,205
Dividends 0 0
------------------------
Net Income Available to Common 2,582 3,522
Revenue 1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Buxton 16,202 17,822 19,605 21,565 23,721
Aquaporte 3,925 4,318 4,750 5,225 5,747
SSW 9,464 10,208 11,013 11,882 12,823
CS 16,338 17,972 19,419 20,603 21,861
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45,930 50,320 54,785 59,275 64,152
Growth 9.5% 9.6% 8.9% 8.25 8.2%
Cost of Sales and Operating
Costs
Buxton 10,028 10,908 11,874 12,934 14,102
Aquaporte 2,229 2,392 2,588 2,760 2,970
SSW 6,787 7,262 7,775 8,330 8,930
CS 10,817 11,888 12,799 13,560 14,366
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29,862 82,430 35,016 37,585 40,368
Operating Cash Flow
Buxton 6,174 6,914 7,731 8,631 9,619
Aquaporte 1,696 1,926 2,181 2,484 2,777
SSW 2,677 2,946 3,237 3,552 3,893
CS 5,521 6,104 6,620 7,043 7,494
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16,068 17,890 19,769 21,690 23,783
Margin % 35.0% 35.6% 36.1% 36.6% 37.1%
Growth % 11.1% 11.3% 10.5% 9.7% 9.6%
Corporate Overhead, which
includes Larson & Krediet
Compensation & C.F. Capital 1,569 1,679 1,790 1,903 2,024
--------------------------------------------------------
EBITDA 14,499 16,211 17,979 19,788 21,759
Depreciation and Amort. 4,024 4,043 3,882 2,395 2,403
Interest Expense 2,404 1,840 1,153 379 (465)
Other Expense/(Income) 126 83 0 0 0
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7,945 10,265 12,945 17,014 19,811
Income Tax 3,059 3,952 4,984 6,550 7,627
Dividends 0 0 0 0 0
--------------------------------------------------------
Net Income Available to Common 4,886 6,313 7,961 10,463 12,184
Notes
(1) Prior to 1996 CS figures represent a March 31 Year-end. (The 3/31/95 year
is placed in the 1994 column.)
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SCHEDULE A - PAGE 2
(Management Agreement)
EBTDAPS PROJECTION
For the purposes of section 5.04(b) of the Shareholders Agreement and sections
2.02 and 2.04 of the Management Agreement EBTDAPS shall mean: Net Income plus
(i) Income Taxes, (ii) Depreciation, (iii) Amortization, and (iv) payments made
to Krediet, Larson and C.F. as described in sections 2.04(a) and (b) of the
Management Agreement, DIVIDED BY the number of fully diluted shares outstanding
at the time. The depreciation of assets and amortization of goodwill will
utilize the same accounting practices as in the December 31, 1995 audited
financials for the company as prepared by Ernst & Young. For greater clarity,
the calculation will be on an after interest expense basis.
EBTDAPS Target in Canadian Dollars
1996 $ 3.86
1977 $ 5.31
1998 $ 6.30
1999 $ 7.45
2000 $ 8.68
2001 $ 9.98
2002 $ 11.16