COCA-COLA BOTTLING CO. CONSOLIDATED (NASDAQ:COKE) Files An 8-K Entry into a Material Definitive Agreement
Item1.01.
| Entry into a Material Definitive Agreement. |
On March31, 2017, Coca-Cola Bottling Co. Consolidated (the
Company) completed the final transactions contemplated by
the September 2016 Distribution APA and the September 2016
Manufacturing APA, as described in Item 8.01 below, representing
the latest in a series of previously-announced transactions the
Company has engaged in with The Coca-Cola Company and Coca-Cola
Refreshments USA, Inc. (CCR), a wholly-owned subsidiary of
The Coca-Cola Company, since April 2013 as part of The Coca-Cola
Companys plans to refranchise its North American bottling
territories, by which the Company has significantly expanded its
distribution and manufacturing operations through the acquisition
of additional distribution territories (collectively, the
Expansion Territories) and regional manufacturing
facilities (collectively, the Expansion Facilities).
Final Comprehensive
Beverage Agreement. In
connection with the closings under the September 2016
Distribution APA described in Item 8.01 below, the Company, The
Coca-Cola Company and CCR entered into a comprehensive beverage
agreement (the Final CBA) on March31, 2017, to which CCR
granted the Company certain exclusive rights to distribute,
promote, market and sell the Covered Beverages and Related
Products distinguished by the Trademarks (as such terms are
defined in the Final CBA) in the March 2017 Distribution
Territories (as defined below), in exchange for the Company
agreeing to make a quarterly sub-bottling payment to CCR on a
continuing basis, based on sales of certain beverages and
beverage products that are sold under the same trademarks that
identify a Covered Beverage, Related Product or certain
cross-licensed beverage brands not owned or licensed by The
Coca-Cola Company. Other than the Covered Beverages, Related
Products and expressly permitted existing cross-licensed brands,
the Final CBA provides that, subject to certain limited
exceptions, the Company will not be permitted to produce,
manufacture, prepare, package, distribute, sell, deal in or
otherwise use or handle any Beverages, Beverage Components (as
such terms are defined in the Final CBA) or other beverage
products unless otherwise consented to by The Coca-Cola Company.
The Final CBA has a term of ten years and is renewable by the
Company indefinitely for successive additional terms of ten years
each unless earlier terminated as provided therein.
The Final CBA is similar in many respects to the initial
comprehensive beverage agreements entered into by the Company,
The Coca-Cola Company and CCR for the Expansion Territories the
Company previously acquired from CCR (the Initial CBAs), a
copy of which was filed as Exhibit 10.1 to the Companys Quarterly
Report on Form 10-Q filed with the Securities and Exchange
Commission (the SEC) on August8, 2014 (as amended by the
Amendment to Comprehensive Beverage Agreement filed as Exhibit
10.1 to the Companys Quarterly Report on Form 10-Q filed with the
SEC on August7, 2015). As described below under Bottling
Agreement and RMA Conversions, each of the Companys Initial CBAs
and other Bottling Agreements (as defined below) has been
amended, restated and converted into the Final CBA as of March31,
2017.
As compared to the Initial CBAs, the Final CBA includes certain
modifications and new business, operational, governance and sale
process provisions. First, the Final CBA contains provisions that
apply in the event of a potential sale of the Company or its
aggregate businesses directly and primarily related to the
marketing, promotion, distribution, and sale of Covered Beverages
and Related Products (collectively, the Business). Under
the Final CBA, the Company may only sell the Business to either
The Coca-Cola Company or third-party buyers approved by The
Coca-Cola Company. The Company can obtain a list of such approved
third-party buyers from The Coca-Cola Company on an annual basis
or, upon receipt of a third-party offer to purchase the Business,
may seek approval of such buyer by The Coca-Cola Company. The
Final CBA also sets forth the sale process that would apply if
the Company notifies The Coca-Cola Company that it wishes to sell
the Business to The Coca-Cola Company. In such event, if the
Company and The Coca-Cola Company are unable in good faith to
negotiate terms and conditions of a binding purchase and sale
agreement, including the purchase price for the Business, then
the Company may either withdraw from negotiations with The
Coca-Cola Company or initiate a third-party valuation process
described in the Final CBA to determine the purchase price for
the Business and, upon such third partys determination of the
purchase price, may decide to continue with its potential sale of
the Business to The Coca-Cola Company. The Coca-Cola Company
would then have the option to (i)purchase the Business for such
purchase price to defined terms and conditions set forth in the
Final CBA (including, to the extent not otherwise agreed by the
Company and The Coca-Cola Company, default non-price terms and conditions
of the acquisition agreement), or (ii)elect not to purchase the
Business, in which case the Final CBA would automatically be
amended to, among other things, permit the Company to sell the
Business to any third party without obtaining The Coca-Cola
Companys prior approval of such third party.
Second, the Final
CBA includes terms that would apply in the event The Coca-Cola
Company terminates the Final CBA following the Companys default
thereunder. These terms include a requirement that The Coca-Cola
Company (or its designee) acquire the Business upon any such
termination, as well as the purchase price payable to the Company
in the event of such a sale. The Final CBA specifies that the
purchase price would be determined in accordance with a
third-party valuation process equivalent to that employed if the
Company notifies The Coca-Cola Company that it desires to sell
the Business to The Coca-Cola Company; provided, the purchase
price would be 85% of the valuation of the Business determined in
the third-party valuation process if the Final CBA is terminated
as a result of (i)the Companys willful misconduct in violating
certain obligations in the Final CBA with respect to dealing in
other beverage products and other business activities, (ii)the
occurrence of a change in control without the consent of The
Coca-Cola Company or (iii)the Companys disposal of a majority of
the voting power of any subsidiary of the Company that is a party
to an agreement regarding the distribution or sale of Covered
Beverages or Related Products.
Third, the Final
CBA requires the Company to maintain an annual equivalent case
volume per capita change rate that is not less than one standard
deviation below the median of such rates for all U.S. Coca-Cola
bottlers for such period. If the Company fails to comply with the
equivalent case volume per capita change rate obligation for two
consecutive years, the Company will have a twelve-month cure
period to achieve an equivalent case volume per capita change
rate within such standard before it is deemed to be in breach
under the Final CBA, triggering the termination provisions
described above. The Final CBA also requires the Company to make
minimum, ongoing capital expenditures at a specified
level.
An initial form of
the Final CBA was included with the Companys Current Report on
Form 8-K filed with the SEC on September28, 2015 (the
September 2015 Form 8-K) as Exhibit 1.1 to the Territory
Conversion Agreement filed as Exhibit 10.1 thereto. The Final CBA
contains certain changes to the form of the Final CBA filed with
the September 2015 Form 8-K, including changes related to the
development of the national product supply system for The
Coca-Cola Company since October 2015.
The foregoing
description of the Final CBA is qualified in its entirety by
reference to the full text of such agreement and all exhibits
thereto, which will be filed with the Companys Quarterly Report
on Form 10-Q for the fiscal quarter ending April2, 2017.
Final
Regional Manufacturing
Agreement. In connection with the closing under
the September 2016 Manufacturing APA described in Item 8.01
below, the Company and The Coca-Cola Company entered into a
regional manufacturing agreement (the Final RMA) on
March31, 2017, to which The Coca-Cola Company granted the Company
the rights to manufacture, produce and package Authorized Covered
Beverages (as defined in the Final RMA) at the March 2017
Expansion Facilities (as defined below) for distribution by the
Company for its own account in accordance with the Final CBA and
for sale by the Company to certain other U.S. Coca-Cola bottlers
and to the Coca-Cola North America division of The Coca-Cola
Company (CCNA) in accordance with the Final RMA. Under the
Final RMA, CCNA will, from time to time, unilaterally establish
the prices (or certain elements of the formula used to determine
the prices) that the Company charges for sales of Authorized
Covered Beverages to CCNA or to certain U.S. Coca-Cola bottlers.
Subject to the right of The Coca-Cola Company to terminate the
Final RMA in the event of an uncured default by the Company, the
Final RMA has a term that continues for the duration of the term
of the Final CBA. Other than Authorized Covered Beverages,
certain cross-licensed brands that the Company is permitted to
distribute under the Final CBA, and certain other expressly
permitted cross-licensed brands, the Final RMA provides that the
Company will not manufacture any Beverages, Beverage Components
or other beverage products unless otherwise consented to by The
Coca-Cola
Company.
The Final RMA is similar in
many respects to the initial regional manufacturing agreements
entered into by the Company and The Coca-Cola Company for the
Expansion Facilities the Company previously acquired from CCR
(the Initial RMAs), a copy of which was filed as Exhibit
10.1 to the Companys Current Report on Form 8-K filed with the
SEC on May5, 2016 (the May 2016 Form8-K). As described
below under Bottling Agreement and RMA Conversions, each of the
Companys Initial RMAs has been amended, restated and converted
into the Final RMA as of March31, 2017. The Final RMA provides
the Company the rights to manufacture, produce and package
Authorized Covered Beverages at the Companys four legacy
manufacturing facilities (the Legacy
Facilities), which
rights were previously granted to the Company to certain Bottling
Agreements that have now been amended, restated and converted
into the Final CBA as part of the Bottling Agreement Conversion
described below.
As compared to the Initial
RMAs, the Final RMA includes certain modifications and new
business, operational, governance and sale process provisions.
First, the Final RMA requires that the Companys aggregate
business directly and primarily related to the manufacture of
Authorized Covered Beverages, permitted cross-licensed brands and
other beverages and beverage products for The Coca-Cola Company
be subject to the same agreed upon sale process provisions
included in the Final CBA, which include the need to obtain The
Coca-Cola Companys prior approval of a potential purchaser of
such manufacturing business. Second, The Coca-Cola Company has
the right to terminate the Final RMA under certain circumstances,
including in the event of (i)an uncured default by the Company
under the Final CBA or (ii)an uncured breach by the Company of
any of its material obligations under the Final RMA or the NPSG
Governance Agreement entered into by the Company, The Coca-Cola
Company and certain other Coca-Cola bottlers on
October30, 2015 regarding the governance of the national product
supply system, as described in the Companys Current Report on
Form8-K filed November2, 2015 (the November 2015 Form 8-K)
and filed as Exhibit 10.1 thereto. Third, the Final RMA requires
the Company to make minimum, ongoing capital expenditures at a
specified level.
An initial form of the Final
RMA was included with the May 2016 Form 8-K as Schedule 9.4 to
the Initial RMA filed as Exhibit10.1 thereto. The Final RMA
contains certain changes to the form of the Final RMA filed with
the May 2016 Form 8-K, including the incorporation of relevant
concepts addressed in the letter agreement entered into by the
Company and The Coca-Cola Company on April29, 2016 (the CCNA
Exchange Letter), as described in the May 2016 Form
8-K and filed as
Exhibit 10.2 thereto.
The foregoing description of
the Final RMA is qualified in its entirety by reference to the
full text of such agreement and all exhibits thereto, which will
be filed with the Companys Quarterly Report on Form 10-Q for the
fiscal quarter ending April2, 2017.
Bottling
Agreement and
RMA Conversions. Upon the
consummation of the final distribution territory expansion
transactions contemplated by the September 2016 Distribution APA
on March31, 2017, each of the Companys existing bottling
agreements for The Coca-Cola Company beverage brands, including
each of the Companys Initial CBAs, master bottle contracts,
allied bottle contracts and other bottling agreements with The
Coca-Cola Company or CCR that authorize the Company to produce
and/or distribute the Covered Beverages or Related Products
(collectively, the Bottling Agreements), were
automatically amended, restated and converted into the Final CBA
(the Bottling Agreement Conversion) to the territory
conversion agreement entered into by the Company, The Coca-Cola
Company and CCR on September23, 2015, as described in the
September 2015 Form 8-K and filed as Exhibit 10.1 thereto (as
amended by the First Amendment to Territory Conversion Agreement
filed as Exhibit 10.47 to the Companys Annual Report on Form 10-K
filed with the SEC on March18, 2016, the Territory Conversion
Agreement). The Bottling Agreement Conversion included all of
the Companys Bottling Agreements for the Expansion Territories
and for all other territories in the United States where the
Company (or one of its affiliates) has rights to market, promote,
distribute and sell beverage products owned or licensed by The
Coca-Cola Company (the Legacy Territories), provided that
the sub-bottling payment required under the Final CBA will not
apply with regards to the Legacy
Territories.
Concurrent with the Bottling
Agreement Conversion on March31, 2017, each of the Companys
Initial RMAs were also automatically amended, restated and
converted, to their terms, into the Final RMA (the RMA
Conversion). The Final RMA also provides the Company the
rights to manufacture, produce and package Authorized Covered
Beverages at the Companys Legacy
Facilities.
to the Territory Conversion
Agreement, on March31, 2017 CCR paid the Company and its
subsidiaries a one-time fee (which is subject to final
adjustment) of approximately $87.1million upon the Bottling
Agreement Conversion, an amount equivalent to 0.5 times the
EBITDA the Company and its subsidiaries generated during the
twelve-month period ended January1, 2017 from sales in the Legacy
Territories of Beverages either (i)owned by The Coca-Cola Company
or licensed to The Coca-Cola Company and sublicensed to the
Company and its subsidiaries, or (ii)owned by or licensed to
Monster Energy Company on which the Company and its subsidiaries
pay, and The Coca-Cola Company receives, a facilitation
fee.
Piedmont
Final Comprehensive
Beverage Agreement. In
connection with the Bottling Agreement Conversion, the existing
Bottling Agreements between The Coca-Cola Company and Piedmont
Coca-Cola Bottling Partnership (Piedmont), a partnership
formed by a wholly-owned subsidiary of the Company and a
wholly-owned subsidiary of The Coca-Cola Company to distribute
and market finished bottle, can and fountain beverage products
under trademarks of The Coca-Cola Company and other third-party
licensors in portions of the Legacy Territories located in North
Carolina, South Carolina, Virginia and Georgia (the Piedmont
Territories), also were amended, restated and converted into
a final comprehensive beverage agreement (the Piedmont
CBA). to the Piedmont CBA, The Coca-Cola Company granted
Piedmont certain exclusive rights to distribute, promote, market
and sell the Covered Beverages and Related Products distinguished
by the Trademarks in the Piedmont Territories. The Piedmont CBA
is substantially similar to the Final CBA and, as with the
treatment of the Legacy Territories under the Final CBA, there is
no requirement for Piedmont to make quarterly sub-bottling
payments to CCR for the Piedmont Territories. Piedmont did not
enter into a Final RMA with The Coca-Cola Company, as Piedmont
does not own any regional manufacturing
facilities.
The foregoing description of
the Piedmont CBA is qualified in its entirety by reference to the
full text of such agreement and all exhibits thereto, which will
be filed with the Companys Quarterly Report on Form 10-Q for the
fiscal quarter ending April2, 2017.
Omnibus
Letter Agreement. On March31,
2017, the Company, certain of its subsidiaries and The
Coca-Cola Company
entered into a letter agreement (the Omnibus Letter
Agreement) to which the parties agreed that, for purposes of
determining compliance with (i)the equivalent case volume per
capita change rate obligation under the Final CBA, the Piedmont
CBA and any other comprehensive beverage agreements between The
Coca-Cola Company and a subsidiary of the Company (collectively,
the CCBCC Group CBAs) (the Equivalent Case Volume
Obligation) and (ii)the capital expenditures obligation under
the CCBCC Group CBAs and the Final RMA (the Capital
Expenditures Obligation), the equivalent case volume per
capita and the capital expenditures of the Company and its
subsidiaries, in both instances, will be calculated in the
aggregate. For instance, the Capital Expenditures Obligation will
apply to the entire territory covered by the CCBCC Group CBAs and
the Final RMA in the aggregate, and not with respect to any
individual territory under a particular agreement, and will
include all expenditures in such respect made by the Company and
its subsidiaries. In addition, the Omnibus Letter Agreement
provides that a breach of the Equivalent Case Volume Obligation
or the Capital Expenditures Obligation would result in a default
of the CCBCC Group CBAs and/or of the Final RMA, as applicable.
Further, to the Omnibus Letter Agreement, the Company and The
Coca-Cola Company also agreed that the Final RMA supersedes the
CCNA Exchange Letter and, consequently, terminated the CCNA
Exchange Letter as of March31,
2017.
The foregoing description of
the Omnibus Letter Agreement is qualified in its entirety by
reference to the full text of such agreement and all exhibits
thereto, which are filed as Exhibit 10.1 to this Current Report
on Form 8-K and incorporated herein by
reference.
Expansion
Facilities Discount
and Legacy
Facilities Credit
Letter Agreement. In connection
with the Companys acquisitions of the Expansion Facilities and
the impact on transaction value from certain adjustments made by
CCNA to the authorized pricing under the Final RMA on sales of
Authorized Covered Beverages produced by the Company at the
Expansion Facilities and sold to CCNA and certain U.S. Coca-Cola
bottlers, the Company and The Coca-Cola Company also entered into
a letter agreement on March31, 2017 (the Manufacturing
Facilities Letter Agreement) to which The Coca-Cola Company
agreed to provide the Company with an aggregate valuation
adjustment discount of $33.1million (the Expansion Facilities
Discount) on the purchase prices for the Expansion
Facilities. On March31, 2017, upon the Companys acquisition of
the March 2017 Expansion Facilities, the parties agreed to apply
$22.9million of the total Expansion Facilities Discount, which
represents the portion of the Expansion Facilities Discount
applicable to (i)the March 2017 Expansion Facilities and (ii)the
Expansion Facilities previously acquired by the Company from CCR.
The portion of the Expansion Facilities Discount attributable to
each of the remaining Expansion Facilities to be acquired by the
Company will be applied at the closing of each such future
transaction.
The Manufacturing Facilities
Letter Agreement also establishes a mechanism to compensate the
Company with a payment or credit for the net economic impact to
the Legacy Facilities of the changes made by CCNA to
the
authorized pricing under the
Final RMA on sales of Authorized Covered Beverages produced by
the Company at the Legacy Facilities and sold to CCNA and certain
U.S. Coca-Cola bottlers versus the Companys historical returns
for products produced at the Legacy Facilities prior to the RMA
Conversion (the Legacy Facilities Credit). CCNA and the
Company have agreed to work together to calculate the Legacy
Facilities Credit as promptly as reasonably
practicable.
The foregoing description of
the Manufacturing Facilities Letter Agreement is qualified in its
entirety by reference to the full text of such agreement and all
exhibits thereto, which will be filed with the Companys Quarterly
Report on Form 10-Q for the fiscal quarter ending April2,
2017.
Amended
and Restated
Ancillary Business
Letter. On March31, 2017, the Company and The
Coca-Cola Company amended and restated the letter agreement dated
October30, 2015, a copy of which was filed as Exhibit 10.2 to the
November 2015 Form 8-K (as amended and restated, the AR
Ancillary Business Letter), to grant the Company advance
waivers to acquire or develop certain lines of business involving
the preparation, distribution, sale, dealing in or otherwise
using or handling of certain beverage products that would
otherwise be prohibited under the Final CBA or any similar
agreement. Subject to certain limited exceptions described
therein, the Company is prohibited from acquiring or developing
any line of business inside or outside of its territories
governed by the Final CBA or any similar agreement during the
term of a focus period expiring January1, 2020 (the Focus
Period) without the consent of The Coca-Cola Company, which
consent may not be unreasonably
withheld.
After the expiration of the
Focus Period, only the acquisition or development by the Company
of (i)any grocery, quick service restaurant, or convenience and
petroleum store business engaged in the sale of Beverages,
Beverage Components and other beverage products not otherwise
authorized or permitted by the Final CBA, or (ii)any other line
of business for which beverage activities otherwise prohibited
under the Final CBA represent more than a certain threshold of
net sales will require the consent of The Coca-Cola Company (which
consent may not be unreasonably withheld) under the AR Ancillary
Business Letter, subject to certain limited exceptions described
therein.
The foregoing description of
the AR Ancillary Business Letter is qualified in its entirety by
reference to the full text of such agreement and all exhibits
thereto, which are filed as Exhibit 10.2 to this Current Report
on Form 8-K and incorporated herein by
reference.
| Item8.01. | Other Events. |
Distribution
Territory Expansion
Transaction. On March31, 2017, the Company
completed the final two distribution territory expansion
transactions contemplated by the distribution asset purchase
agreement entered into by the Company and CCR on September1,
2016, as described in the Companys Current Report on Form 8-K
filed with the SEC on September6, 2016 (the September 2016
Form 8-K) and filed as Exhibit 2.1 thereto (as amended
by Amendment No.1 to Asset Purchase Agreement filed as Exhibit
2.1 to the Companys Current Report on Form 8-K filed with the SEC
on January27, 2017, the September 2016 Distribution APA),
at which CCR granted the Company the exclusive rights for the
distribution, promotion, marketing and sale of products owned and
licensed by The Coca-Cola Company in territories located in
Indiana and Ohio served by distribution facilities in
Indianapolis and Bloomington, Indiana and Columbus and Mansfield,
Ohio (the March 2017 Distribution Territories) and sold
certain assets to the Company related
thereto.
Indianapolis and
Portland, Indiana Manufacturing Facilities Transaction.
On March31, 2017, the Company completed the final manufacturing
facilities acquisitions contemplated by the manufacturing asset
purchase agreement entered into by the Company and CCR on
September1, 2016 (the September 2016 Manufacturing APA),
as described in the September 2016 Form 8-K and filed as Exhibit
2.2 thereto, at which CCR sold to the Company two Expansion
Facilities located in Indianapolis and Portland, Indiana (the
March 2017 Expansion Facilities) and related manufacturing
assets as the Company continues to expand its role as a regional
producing bottler in The Coca-Cola Companys national product
supply system.
Relationship
between the
Parties. The business of the Company consists
primarily of the production, marketing and distribution of
nonalcoholic beverage products of The Coca-Cola Company in the
territories the Company currently serves. Accordingly, the
Company engages routinely in various transactions with The
Coca-Cola
Company, CCR and their
affiliates. The Coca-Cola Company also owns approximately 34.8%
of the outstanding common stock of the Company, which represents
approximately 4.9% of the total voting power of the Companys
common stock and class B common stock voting together. The
Coca-Cola Company also has a designee serving on the Companys
Board of Directors. For more information about the relationship
between the Company and The Coca-Cola Company, including
additional information regarding Piedmont, see the description
thereof included under Related Person Transactions in the
Companys Notice of Annual Meeting and Proxy Statement for the
Companys 2017 Annual Meeting of Stockholders filed with the SEC
on March20,
2017.
Forward-Looking
Statements. This Current Report on Form 8-K
contains forward-looking statements made to the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements typically are identified by use
of terms such as may, project, should, plan, expect, anticipate,
believe, estimate and similar words. Except as required by law,
the Company undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise. The Companys actual
results could differ materially from those contained in
forward-looking statements due to a number of factors, including
the statements under Risk Factors found in the Companys Annual
Reports on Form 10-Ks and its Quarterly Reports on Form
10-Qs on file with
the SEC.
| Item9.01. | Financial Statements and Exhibits. |
| (d) | Exhibits. |
|
Exhibit No. |
Description |
IncorporatedBy Reference To |
||
| 10.1 |
Omnibus Letter Agreement, dated March31, 2017, by and between Coca-Cola Refreshments USA, Inc. and Coca-Cola Bottling Co. Consolidated. |
Filedherewith. | ||
| 10.2 |
Amended Restated Ancillary Business Letter, dated March31, 2017, by and between The Coca-Cola Company and Coca-Cola Bottling Co. Consolidated. |
Filed herewith. |
About COCA-COLA BOTTLING CO. CONSOLIDATED (NASDAQ:COKE)
Coca-Cola Bottling Co. Consolidated produces, markets and distributes nonalcoholic beverages, primarily products of The Coca-Cola Company, which include beverage brands. The Company is an independent Coca-Cola bottler in the United States. The Company’s segments are Nonalcoholic Beverages and All Other. The Company holds various agreements, under which it produces, distributes and markets sparkling beverages of The Coca-Cola Company, as well as still beverages of The Coca-Cola Company, such as POWERade, vitaminwater, Minute Maid Juices To Go and Dasani water products, and various other products, including Dr Pepper, Sundrop and Monster Energy products. Its operational footprint includes markets located in North Carolina, South Carolina, South Alabama, South Georgia, Central Tennessee, Western Virginia and West Virginia. It develops, markets and distributes certain products, which it owns, such as Tum-E Yummies, a vitamin-C enhanced flavored drink, and Fuel in a Bottle power shots. COCA-COLA BOTTLING CO. CONSOLIDATED (NASDAQ:COKE) Recent Trading Information
COCA-COLA BOTTLING CO. CONSOLIDATED (NASDAQ:COKE) closed its last trading session down -6.71 at 199.31 with 48,044 shares trading hands.
