ABC Beverage Corp., f.k.a. Beverage America, Inc. - Page 5

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          a tight timetable to complete their financing before competing              
          bidders could.                                                              
          The Lease                                                                   
               One portion of the LBO financing was both a capital                    
          contribution and asset financing from a sale-leaseback entity               
          called Corporate Property Associates 7 (CPA7).  In this LBO                 
          financing arrangement, CPA7 agreed to purchase the bottling                 
          facilities Bottlers used to bottle its products (located in seven           
          locations in three States) and lease them to Bottlers on terms              
          favorable to CPA7.  The lease had a 25-year term and contained              
          significant rent escalators.  As a result, the lease offered a              
          premium to CPA7 because it would eventually rent at premium or              
          above-market rates as the rent escalated.                                   
               Because of the onerous lease provisions, the management                
          group knew Bottlers eventually had to renegotiate or buy out the            
          lease to avoid the rent escalators.  Six years after the LBO, the           
          management group was considering buying the bottling facilities             
          from CPA7 to avoid further rent escalators, but the prospect of             
          Bottlers owning the bottling facilities posed three problems.               
               First, the management group wanted Bottlers to be salable to           
          Coke or Pepsi.  Neither Coke nor Pepsi, however, would buy                  
          Bottlers if it owned bottling facilities because Coke and Pepsi             
          already had bottling facilities.                                            

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Last modified: May 25, 2011