ABC Beverage Corp., f.k.a. Beverage America, Inc. - Page 12

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               After the entities combined, BevAm conducted appraisals of             
          all the bottling facilities.  The facilities were appraised for             
          approximately $8 million based on their fee-simple (not                     
          lease-fee) value.  BevAm’s accounting firm advised BevAm that it            
          had a potential worthless debt because the collateral securing              
          the debt was worth less than the debt.  In addition, the                    
          accounting firm noted that Properties had not been making full              
          loan payments to Bottlers (because Bottlers had not been making             
          full rent payments to Properties), and Properties was therefore             
          in default.                                                                 
               In addition, BevAm preferred to own the facilities outright            
          for three reasons.  First, BevAm wanted the flexibility to make             
          certain changes to the facilities without lease restrictions.               
          Second, BevAm did not want certain members of the management                
          group owning equity in Properties while others did not.  Third,             
          the rationale for not owning the bottling facilities (i.e.,                 
          keeping Bottlers salable to Coke or Pepsi) no longer existed                
          after the BevAm transaction.  For these reasons, BevAm declared             
          Properties in default, seized the bottling facilities and some              
          cash in exchange for releasing Properties from the loan, and                
          deducted the difference between the value of the assets ($8                 
          million) and the unpaid principal on the Properties loan ($18               
          million) on its consolidated return for 1995.                               

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Last modified: May 25, 2011