Filed Pursuant to Rule 424(b)(3)
Registration No. 333-97849
Prospectus
[BERRY PLASTICS CORPORATION LOGO]
BERRY PLASTICS CORPORATION
$250,000,000
10 3/4% SENIOR SUBORDINATED NOTES DUE 2012
Interest payable January 15 and July 15
The 10 3/4% senior subordinated notes due 2012 offered hereby were issued on or
about September 17, 2002 in exchange for the 10 3/4% senior subordinated notes
due 2012 originally issued on July 22, 2002. We refer to the notes issued in the
exchange and the original notes collectively as the notes.
The notes will mature on July 15, 2012. Interest accrues from July 22, 2002, and
the first interest payment date will be January 15, 2003.
We may redeem the notes, in whole or part, at any time beginning on July 15,
2007. In addition, before July 15, 2005, we may redeem up to 35% of the notes
with the net cash proceeds of certain equity offerings. The redemption prices
are described on page 82. If we sell certain of our assets or experience
specific kinds of changes in control, we must offer to purchase the notes.
The notes are guaranteed by BPC Holding Corporation, and all of our existing and
future domestic subsidiaries, except as provided herein. The notes are not
guaranteed by our foreign subsidiaries: Berry Plastics Acquisition Corporation
II, NIM Holdings Limited, Berry Plastics U.K. Limited, Norwich Acquisition
Limited, CBP Holdings S.r.l., Capsol Berry Plastics S.p.a. or Ociesse S.r.l. The
notes will not be guaranteed by any foreign subsidiaries in the future unless
any such foreign subsidiary guarantees any senior indebtedness of ours or any of
our subsidiaries (other than that of another foreign subsidiary). The notes are
subordinated in right of payment to all obligations of our non-guarantors
subsidiaries. The notes are also subordinated in right of payment to all
existing and future senior indebtedness, rank equally in right of payment with
any existing and future senior subordinated indebtedness and are senior in right
of payment to all future subordinated obligations. The notes are also
effectively subordinated to all of our secured indebtedness and our
subsidiaries' to the extent of the value of the assets securing such
indebtedness.
We do not intend to apply for listing of the notes on any securities exchange or
automated quotation system.
Certain private equity funds managed by affiliates of Goldman, Sachs & Co. and
J.P. Morgan Securities Inc. will own a substantial majority of the equity of BPC
Holding, our parent company.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN RISKS THAT
YOU SHOULD CONSIDER IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
This prospectus has been prepared for and will be used by J.P. Morgan Securities
Inc. and Goldman, Sachs & Co. in connection with offers and sales of the notes
in market-making transactions in the notes. These transactions may occur at
prices related to prevailing market prices at the time of sales or at negotiated
prices. J.P. Morgan Securities Inc. and Goldman, Sachs & Co. may act as
principal or agent in these transactions. We will not receive any proceeds of
such sales.
JPMORGAN GOLDMAN, SACHS & CO.
August 19, 2002
TABLE OF CONTENTS
IN MAKING YOUR INVESTMENT DECISION, YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
ANY OTHER INFORMATION. IF YOU RECEIVE ANY OTHER INFORMATION YOU SHOULD NOT RELY
ON IT.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
ACCURATE AS OF ANY OTHER DATE THAN ON THE FRONT COVER OF THIS PROSPECTUS.
PAGE
Prospectus summary.................... 1
Risk factors.......................... 6
The acquisition....................... 16
Use of proceeds....................... 18
Capitalization........................ 19
Unaudited pro forma financial
information......................... 20
Selected consolidated financial
data................................ 29
Management's discussion and analysis
of financial condition and results
of operations....................... 31
Business.............................. 40
Management............................ 53
Principal stockholders................ 60
PAGE
Related party transactions............ 61
Description of other indebtedness..... 63
Description of notes.................. 67
Registration rights; additional
interest............................ 118
Material U.S. federal tax
considerations...................... 120
ERISA considerations.................. 127
Plan of distribution.................. 129
Legal matters......................... 129
Independent auditors.................. 129
Incorporation of certain documents by
reference........................... 130
Index to financial statements......... F-1
---------------------
Berry Plastics Corporation is a Delaware corporation. Our principal executive
offices are located at 101 Oakley Street, Evansville, Indiana, 47710, and our
telephone number at that address is 812-424-2904.
In this prospectus, unless the context otherwise requires, "BPC Holding" or
"Holding" refers to BPC Holding Corporation, "we," "our" or "us" refer to BPC
Holding Corporation together with its consolidated subsidiaries, "Berry
Plastics" refers to Berry Plastics Corporation, a wholly owned subsidiary of BPC
Holding and the issuer of the notes, and "initial purchasers" refers to the
firms listed on the cover of this prospectus. Unless otherwise indicated, all
references in this prospectus to fiscal years are to the 52/53 week period
ending on the Saturday closest to December 31. Unless the context requires
otherwise, all references in this prospectus to "2001," "2000," "1999," "1998"
and "1997," or to such periods as fiscal years, relate to the fiscal years ended
December 29, 2001, December 30, 2000, January 1, 2000, January 2, 1999 and
December 27, 1997, respectively.
---------------------
"Outstanding notes" refers to all the 10 3/4% senior subordinated notes due 2012
that were issued on July 22, 2002 and "exchange notes" refers to the 10 3/4%
senior subordinated notes due 2012 offered pursuant to this prospectus. We
sometimes refer to the outstanding notes and the exchange notes collectively as
the "notes." In addition, we may issue additional notes, under the Indenture
subject to the terms of the Indenture, and these additional notes would also be
included in the term "notes".
---------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
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 US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH AN OFFER TO SELL OR SOLICITATION WOULD BE UNLAWFUL. 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 TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
i
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement of Form S-4 that we filed
with the Securities and Exchange Commission (the "SEC"). This prospectus does
not contain all of the information in that registration statement. For further
information with respect to us and the notes, see the registration statement,
including the exhibits.
We are subject to the reporting requirements of the Securities Exchange Act of
1934 and in accordance with its requirements file annual, quarterly and current
reports, proxy statements and other information with the SEC. These reports,
proxy statements and other information may be obtained:
- at the public reference room of the SEC, Room 1024-Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549;
- from the SEC, Public Reference Room, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549; or
- from the Internet site maintained by the SEC at http://.www.sec.gov,
which contains reports, proxy and information statements and other
information regarding issuers, including us, that file electronically
with the SEC.
Some locations may charge prescribed rates or modest fees for copies. For more
information on the public reference room, call the SEC at 1-800-SEC-0330. Our
filings will also be available to the public from commercial document retrieval
services.
Statements made in this prospectus as to the contents of any contract,
agreement, or other documents referred to are not necessarily complete. For a
more complete understanding and description of each contract, agreement or other
document filed as an exhibit to the registration statement, we encourage you to
read the documents contained in the exhibits.
Following the consummation of the exchange offer, whether or not required by the
SEC, we will file a copy of all the information mentioned above with the SEC for
public availability within the time periods specified in the SEC's rule and
regulations (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospectus investors upon
request.
In addition, we have agreed that we will furnish to holders and securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act until such
time as we have either exchanged the notes pursuant to the exchange offer or
until such time as holders of the notes have disposed of their notes pursuant to
an effective registration statement under the Securities Act.
ii
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements," within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), with respect to our financial
condition, results of operations and business and our expectations or beliefs
concerning future events. Such statements include, in particular, statements
about our plans, strategies and prospects under the headings "Prospectus
summary," "Management's discussion and analysis of financial condition and
results of operations" and "Business." You can identify certain forward-looking
statements by our use of forward-looking terminology such as, but not limited
to, "believes," "expects," "anticipates," "estimates," "intends," "plans,"
"targets," "likely," "will," "would," "could" and similar expressions identify
forward-looking statements.
All forward-looking statements involve risks and uncertainties. Many risks and
uncertainties are inherent in our industry and markets. Others are more specific
to our operations. The occurrence of the events described and the achievement of
the expected results depend on many events, some or all of which are not
predictable or within our control. Actual results may differ materially from the
forward-looking statements contained in this prospectus.
Factors that could cause actual results to differ materially from those
expressed or implied by the forward-looking statements include:
- risks associated with our substantial indebtedness and debt service;
- performance of our business and future operating results;
- risks of competition in our existing and future markets;
- changes in prices and availability of resin and other raw materials and
our ability to pass on changes in raw material prices;
- catastrophic loss of our key manufacturing facility;
- risks related to our acquisition strategy and integration of acquired
businesses;
- general business and economic conditions, particularly an economic
downturn;
- increases in the cost of compliance with laws and regulations,
including environmental laws and regulations; and
- the other risks described under the heading "Risk factors" beginning on
page 6.
All future written and verbal forward-looking statements attributable to us or
any person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. We undertake no
obligation, and specifically decline any obligation, to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this prospectus might not
occur.
iii
MARKET DATA
The data included in this prospectus regarding markets, product categories and
ranking, including, but not limited to, the size of certain markets and product
categories and our position and the positions of our competitors within these
markets and product categories, are based on our estimates and definitions,
which have been derived from our management's knowledge and experience in the
areas in which we operate, and information obtained from our customers,
distributors, suppliers, trade and business organizations and other contacts in
the areas in which we operate. Unless otherwise specified, all our market share
and product category data relate to the injection-molding segment of the
plastics packaging industry. Although we believe that these sources are
generally reliable, we have not independently verified data from these sources
or obtained third party verification of this data and we do not guarantee the
accuracy or completeness of this information. In addition, data within our
industry are intended to provide general guidance but is inherently imprecise.
References herein to our being a leader in a product segment or product category
refer to our having a leading position based on sales in 2001 of injected-molded
plastic products in such segment or product category, unless the context
otherwise requires.
The plastics packaging industry consists of rigid and non-rigid plastic
products. There are three primary manufacturing processes used in the rigid
plastics packaging segment of the plastics packaging industry: injection-molding
and thermoforming, which we use, and blow molding, which we currently do not
use. Each of these processes may be interchangeable depending on the product and
the cost. Blow molding is used to produce most plastic drinking bottles, which
constitutes approximately three-fourths of the U.S. plastic container demand by
weight.
iv
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This
summary is not complete and does not contain all of the information that may be
important to you. We urge you to read this entire prospectus carefully,
including the "Risk factors" section and our consolidated financial statements
and related notes.
THE COMPANY
We are one of the world's leading manufacturers and suppliers of a diverse mix
of injection-molded plastics packaging products focusing on the open-top
container, closure, aerosol overcap, drink cup and housewares markets. We sell a
broad product line to over 12,000 customers. We concentrate on manufacturing
higher quality, value-added products sold to image-conscious marketers of
institutional and consumer products. We believe that our large operating scale,
low-cost manufacturing capabilities, purchasing leverage, proprietary
thermoforming technology and extensive collection of over 1,000 active
proprietary molds provide us with a competitive advantage in the marketplace. We
have been able to leverage our broad product offering, value-added manufacturing
capabilities and long-standing customer relationships into leading positions
across a number of products. We believe that over 60% of our 2001 revenues were
generated from the sale of products that held a number one position relative to
competing injection-molded products. Our products are primarily sold to
customers in industries that exhibit relatively stable demand characteristics
and are considered less sensitive to overall economic conditions, such as
pharmaceuticals, food, dairy and health and beauty. Additionally, we operate 13
high-volume manufacturing facilities and have extensive distribution
capabilities.
We organize our product categories into three business divisions: containers;
closures; and consumer products. The following table displays our net sales by
division for each of the past five fiscal years.
-------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS) 1997 1998 1999 2000 2001
-------------------------------------------------------------------------------------------
Containers..................................... $124.8 $154.0 $188.7 $231.2 $234.4
Closures....................................... 47.1 56.4 81.0 112.2 132.4
Consumer products.............................. 55.1 61.4 59.1 64.7 94.8
------------------------------------------
Total net sales........................... $227.0 $271.8 $328.8 $408.1 $461.6
-------------------------------------------------------------------------------------------
1
COMPETITIVE STRENGTHS
We believe that our consistent financial performance is the direct result of the
following competitive strengths:
- Leading positions across a broad product offering.
- Significant scale resulting in low-cost position and strong cash flow.
- Ability to pass through changes in the cost of resin.
- Large, diverse and stable customer base.
- Proven ability to integrate strategic acquisitions.
- Unique, proprietary thermoforming drink cup manufacturing process.
- Proven and motivated management team.
BUSINESS STRATEGY
Our goal is to maintain and enhance our market position and leverage our core
strengths to increase profitability. Our strategy to achieve this goal includes
the following elements:
- Increase sales to our existing customers.
- Aggressively pursue new customers.
- Continue to effectively manage costs.
- Selectively pursue strategic acquisitions in our core businesses.
RECENT DEVELOPMENTS
THE ACQUISITION
On July 22, 2002, GS Berry Acquisition Corp., a newly formed entity controlled
by GS Capital Partners 2000, L.P. ("GSCP 2000") and related private equity funds
merged with and into BPC Holding. BPC Holding was the surviving corporation in
the merger. The total amount of consideration paid in the merger, including
amounts related to the repayment of indebtedness, the redemption of the
outstanding preferred stock of BPC Holding and the payment of transaction costs
incurred by BPC Holding and its stockholders, was approximately $870.4 million
(which includes the amount of certain indebtedness which remains outstanding and
the value of certain shares of BPC Holding common stock held by our employees
which were contributed to GS Berry Acquisition Corp. immediately prior to the
effective time of the merger). The purchase price is subject to post-closing
adjustments related to the level of working capital of BPC Holding at the time
of closing. BPC Holding and GS Berry Acquisition Corp. closed the merger
simultaneously with the issuance of the outstanding notes and the closing of our
senior secured credit facilities. The transaction is referred to in this
prospectus as the "Acquisition." See "The acquisition."
2
THE EXCHANGE NOTES
The following is a brief summary of the terms of the exchange notes. For a more
complete description of the terms of the exchange notes, see "Description of the
exchange notes" in this prospectus.
ISSUER..................Berry Plastics Corporation, a Delaware Corporation
SECURITIES OFFERED......$250,000,000 in aggregate principal amount of 10 3/4%
senior subordinated notes due 2012
MATURITY DATE...........July 15, 2012
INTEREST PAYMENT DATES..January 15 and July 15, commencing on January 15, 2003
GUARANTORS..............The exchange notes will be fully and unconditionally
guaranteed by BPC Holding Corporation, our parent
company, and each of our and future domestic
subsidiaries. These guarantees can be released upon the
circumstances described under "Description of the
exchange notes--Certain covenants--Future note
guarantors and release of note guarantees." If we cannot
make payments on the notes when they are due, the note
guarantors will be obligated to make them instead.
RANKING.................The notes will be unsecured and:
- will be subordinated in right of payment to all
existing and future senior debt;
- will rank equally in right of payment with any
existing and future senior subordinated debt;
- will rank senior in right of payment to all future
subordinated debt;
- will be effectively subordinated to our secured debt
to the extent of the value of the assets securing such
debt; and
- will be effectively subordinated to all liabilities
and preferred stock of our subsidiaries that do not
guarantee the notes.
Similarly, the guarantees of the notes by BPC Holding
and our guarantor subsidiaries will be unsecured and:
- will be subordinated in right of payment to all of the
applicable note guarantor's existing and future senior
debt;
- will rank equally in right of payment with any of the
applicable note guarantors' existing and future senior
subordinated debt;
- will rank senior in right of payment to all of the
applicable note guarantors' future subordinated debt;
3
- will be effectively subordinated to all secured debt
of such note guarantor to the extent of the value of the
assets securing such debt; and
- will be effectively subordinated to the obligations of
any subsidiary of a note guarantor if that subsidiary is
not a note guarantor.
As of June 29, 2002, after giving pro forma effect to
the Acquisition and related financings:
- we would have had approximately $351.6 million of
senior debt to which the notes and the note guarantees
would be subordinated (which amount excludes $5.7
million of letters of credit and the remaining
availability of $94.3 million under our revolving credit
facility and $50.0 million of availability under our
delayed draw term loan facility);
- we would not have had any senior subordinated debt
(other than the notes);
- we would not have had any subordinated debt; and
- our subsidiaries that are not guarantors of the notes
would have had $10.0 million of liabilities including
trade payables, but excluding liabilities owed to us.
OPTIONAL REDEMPTION.....We may redeem the notes, in whole or in part, at any
time beginning on July 15, 2007 at the redemption prices
listed under "Description of the exchange
notes--Optional redemption."
In addition, before July 15, 2005, we may redeem up to
35% of the notes with the net cash proceeds from certain
equity offerings at the price listed under "Description
of the exchange notes--Optional redemption."
CHANGE OF CONTROL.......Upon the occurrence of a change of control, unless we
have exercised our right to redeem all of the notes as
described above, you will have the right to require us
to purchase all or a portion of your notes at a purchase
price in cash equal to 101% of the principal amount plus
accrued and unpaid interest to the date of purchase. See
"Description of the exchange notes--Change of control."
BASIC COVENANTS.........We will issue the exchange notes under the same
indenture which governs the issuance of the outstanding
notes. This indenture contains covenants that impose
significant restrictions on our business. The
restrictions these covenants place on us and our
restricted subsidiaries include limitations on our
ability and the ability of our restricted subsidiaries
to:
- incur indebtedness;
- pay dividends or make distributions in respect of our
capital stock or to make certain other restricted
payments or investments;
4
- sell assets, including capital stock of restricted
subsidiaries;
- agree to payment restrictions affecting our restricted
subsidiaries;
- consolidate, merge, sell or otherwise dispose of all
or substantially all of our assets;
- enter into transactions with our affiliates; and
- designate our subsidiaries as unrestricted
subsidiaries.
These covenants are subject to important exceptions and
qualifications, which are described under "Description
of the exchange notes--Certain covenants."
REGISTRATION RIGHTS;
ADDITIONAL INTEREST.....In connection with the offering of the outstanding
notes, we and our guarantors entered into a registration
rights agreement pursuant to which we are obligated to
file with the Commission this registration statement.
Alternatively, if the exchange offer is not available or
cannot be completed or some holders are not able to
participate in the exchange offer, we are required to
file a shelf registration statement to cover resales of
the notes under the Securities Act. If we do not comply
with these obligations, we will be required to pay
additional interest on the notes under specified
circumstances. See "Registration rights; additional
interest."
RISK FACTORS
You should carefully consider all the information in this prospectus prior to
participating in the exchange offer. In particular, we urge you to consider
carefully the factors set forth under "Risk factors" beginning on page 6 of this
prospectus.
5
RISK FACTORS
You should read and consider carefully each of the following factors, as well as
the other information contained in this prospectus before participating in the
exchange offer.
RISKS RELATED TO THE NOTES
WE HAVE SUBSTANTIAL DEBT AND WE MAY INCUR SUBSTANTIALLY MORE DEBT, WHICH COULD
AFFECT OUR ABILITY TO MEET OUR OBLIGATIONS UNDER THE NOTES AND MAY OTHERWISE
RESTRICT OUR ACTIVITIES.
We have substantial debt, and we may be able to incur substantial additional
debt in the future. On a pro forma basis as of June 29, 2002, after giving
effect to the Acquisition and relating financings, we had total indebtedness of
approximately $601.6 million, excluding $5.7 million in letters of credit under
our revolving credit facility and, subject to certain conditions to borrowing,
$144.3 million available for future borrowings under our revolving credit
facility and delayed draw term loan facility. We are also permitted by the terms
of the notes to incur substantial additional indebtedness, subject to the
restrictions therein. See "Description of other indebtedness--The senior secured
credit facilities."
Our substantial debt could have important consequences to you. For example, it
could:
- make it more difficult for us to satisfy our obligations under the
notes;
- require us to dedicate a substantial portion of our cash flow to
payments on our indebtedness, which would reduce the amount of cash flow
available to fund working capital, capital expenditures, product
development and other corporate requirements;
- increase our vulnerability to general adverse economic and industry
conditions, including changes in raw material costs;
- limit our ability to respond to business opportunities;
- limit our ability to borrow additional funds, which may be necessary;
and
- subject us to financial and other restrictive covenants, which, if we
fail to comply with these covenants and our failure is not waived or
cured, could result in an event of default under our debt.
TO SERVICE OUR DEBT, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR ABILITY
TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on our debt, including the notes, and to fund
planned capital expenditures and research and development efforts will depend on
our ability to generate cash in the future. This, to an extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors, including those described in this "Risk factors" section, that are
beyond our control.
We cannot assure you that our business will generate sufficient cash flow from
operations or that future borrowings will be available to us under our new
senior secured credit facilities in an amount sufficient to enable us to pay our
debt, including the notes, or to fund our other liquidity needs. We may need to
refinance all or a portion of our indebtedness, including the notes, on or
before maturity. We cannot assure you that we will be able to refinance any of
6
our debt, including our new senior secured credit facilities and the notes, on
commercially reasonable terms or at all.
THE AGREEMENTS GOVERNING THE NOTES AND OUR OTHER DEBT IMPOSE RESTRICTIONS ON OUR
BUSINESS.
The indenture governing the notes and the agreements governing our senior
secured credit facilities contain a number of covenants imposing significant
restrictions on our business. These restrictions may affect our ability to
operate our business and may limit our ability to take advantage of potential
business opportunities as they arise. The restrictions these covenants place on
us and our restricted subsidiaries include limitations on our ability and the
ability of our restricted subsidiaries to:
- incur indebtedness or issue preferred shares;
- pay dividends or make distributions in respect of our capital stock or
to make certain other restricted payments;
- create liens;
- agree to payment restrictions affecting our restricted subsidiaries;
- make acquisitions;
- consolidate, merge, sell or lease all or substantially all of our
assets;
- enter into transactions with our affiliates; and
- designate our subsidiaries as unrestricted subsidiaries.
Our senior secured credit facilities also require us to meet a number of
financial ratios.
Our ability to comply with these agreements may be affected by events beyond our
control, including prevailing economic, financial and industry conditions and
are subject to the risks in this "Risk factors" section. The breach of any of
these covenants or restrictions could result in a default under the indenture
governing the notes or our senior secured credit facilities. An event of default
under our debt agreements would permit some of our lenders to declare all
amounts borrowed from them to be immediately due and payable. If we were unable
to repay debt to our lenders, these lenders could proceed against the collateral
securing that debt. In addition, acceleration of our other indebtedness may
cause us to be unable to make interest payments on the notes and repay the
principal amount of the notes.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS JUNIOR TO OUR EXISTING
INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS. FURTHER, THE GUARANTEES
OF THE NOTES ARE JUNIOR TO ALL OF OUR GUARANTORS' EXISTING INDEBTEDNESS AND
POSSIBLY TO ALL OF THEIR FUTURE BORROWINGS.
The notes and the guarantees rank behind all of our and our guarantors' existing
indebtedness, and all of our and their future borrowings, except any future
indebtedness that expressly provides that it ranks equal with, or subordinated
in right of payment to, the notes and the guarantees. As a result, upon any
distribution to our creditors or the creditors of the guarantors in a
bankruptcy, liquidation or reorganization or similar proceeding relating to us
or the guarantors or our or their property, the holders of our senior debt and
senior debt of
7
the guarantors will be entitled to be paid in full before any payment may be
made with respect to the notes or the guarantees.
In addition, all payments on the notes and the guarantees will be blocked in the
event of a payment default on senior debt and may be blocked for up to 179 of
360 consecutive days in the event of specified non-payment defaults on senior
debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the guarantors, holders of the notes will
participate with trade creditors and all other holders of our and the
guarantors' subordinated indebtedness in the assets remaining after we and the
guarantors have paid all of our and their senior debt. However, because the
senior debt is secured and because the indenture requires that amounts otherwise
payable to holders of the notes in a bankruptcy or similar proceeding be paid to
holders of senior debt instead, holders of the notes may receive less, ratably,
than holders of trade payables in the proceeding. In any of these cases, we and
the guarantors may not have sufficient funds to pay all of our creditors and
holders of notes may receive less, ratably, than the holders of our senior debt.
THE NOTES ARE NOT SECURED BY ANY OF OUR ASSETS. HOWEVER, OUR SENIOR SECURED
CREDIT FACILITIES ARE SECURED AND, THEREFORE, OUR BANK LENDERS HAVE A PRIOR
CLAIM ON SUBSTANTIALLY ALL OF OUR ASSETS.
The notes are not secured by any of our assets. However, our senior secured
credit facilities are secured by (1) a pledge of 100% of the stock of our
existing and future domestic subsidiaries and 65% of the stock of our existing
and future first-tier foreign subsidiaries, and (2) substantially all of our
assets. If we become insolvent or are liquidated, or if payment under any of the
instruments governing our secured debt is accelerated, the lenders under these
instruments will be entitled to exercise the remedies available to a secured
lender under applicable law and pursuant to instruments governing such debt.
Accordingly, the lenders under our senior secured credit facilities have a prior
claim on our guarantors' assets. In that event, because the notes are not
secured by any of our assets, it is possible that our remaining assets might be
insufficient to satisfy your claims in full.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES COULD BE ADVERSELY AFFECTED IF ANY
OF OUR NONGUARANTOR SUBSIDIARIES DECLARE BANKRUPTCY, LIQUIDATE, OR REORGANIZE;
THE NOTES WILL BE STRUCTURALLY SUBORDINATED TO THE OBLIGATIONS OF OUR
NON-GUARANTOR SUBSIDIARIES.
Some but not all of our subsidiaries guarantee the notes. Our foreign
subsidiaries are not guarantors on the notes, and will become so in the future
only if they guarantee other debt of Berry Plastics or Berry Plastics'
non-foreign subsidiaries. Furthermore, the guarantee of the notes may be
released under the circumstances described under "Description of the exchange
notes--Certain covenants--Future note guarantors and release of note
guarantees." Our obligations under the notes are structurally subordinated to
the obligations of our non-guarantor subsidiaries. In the event of a bankruptcy,
liquidation or reorganization of any of our non-guarantor subsidiaries, holders
of their indebtedness and their trade creditors will generally be entitled to
payment of their claims from the assets of those subsidiaries before any assets
are made available for distribution to us. Assuming we had completed the
Acquisition on June 29, 2002, our non-guarantor subsidiaries would have held
5.6% of our
8
consolidated assets as of that date. These non-guarantor subsidiaries would have
accounted for 4.6% of our revenues and 2.2% of our pro forma Adjusted EBITDA for
fiscal year 2001.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTE HOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, a guarantee could be voided, or claims in respect of a guarantee
could be subordinated to all other debts of that guarantor under specific
circumstances, including circumstances where the guarantor, at the time it
incurred the indebtedness evidenced by its guarantee:
- received less than reasonably equivalent value or fair consideration
for the incurrence of such guarantee; and
- was insolvent or rendered insolvent by reason of such incurrence; or
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could be
voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws will
vary depending upon the law applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater
than the fair saleable value of all of its assets; or
- if the present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute
and mature; or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history and
other factors, we believe that each guarantor, after giving effect to its
guarantee of the notes, will not be insolvent, will not have unreasonably small
capital for the business in which it is engaged and will not have incurred debts
beyond its ability to pay such debts as they mature. We cannot assure you,
however, as to what standard a court would apply in making these determinations
or that a court would agree with our conclusions in this regard.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
OF CONTROL OFFER REQUIRED BY THE INDENTURE.
Upon the occurrence of specific kinds of change of control events, we will be
required to offer to repurchase all then-outstanding notes at 101% of the
principal amount thereof plus accrued and unpaid interest and additional
interest, if any, to the date of repurchase. However, it is
9
possible that we will not have sufficient funds at the time of the change of
control to make the required repurchase of notes or that restrictions in our new
senior secured credit facilities will not allow such repurchases. In addition,
various important corporate events, such as leveraged recapitalizations that
would increase the level of our indebtedness, would not constitute a "Change of
Control" under the indenture. See "Description of the exchange notes--Change of
control."
WE HAVE EXPERIENCED CONSOLIDATED NET LOSSES.
Our net losses were $14.4 million for fiscal 1997, $7.6 million for fiscal 1998,
$9.1 million for fiscal 1999, $23.1 million for fiscal 2000 and $2.1 million for
fiscal 2001. Consolidated earnings have been insufficient to cover fixed charges
by $13.9 million for fiscal 1997, by $7.0 million for fiscal 1998, by $7.1
million for fiscal 1999, by $20.5 million for fiscal 2000, and by $0.8 million
for fiscal 2001. See "Management's discussion and analysis of financial
condition and results of operations."
THE NOTES HAVE NO PRIOR PUBLIC MARKET, AND WE CANNOT ASSURE YOU THAT ANY PUBLIC
MARKET FOR THE NOTES WILL DEVELOP OR BE SUSTAINED.
The outstanding notes were issued to, and we believe these securities are
currently owned by, a relatively small number of beneficial owners. The
outstanding notes have not been registered under the Securities Act and will
remain subject to restrictions on transferability if they are not exchanged for
the exchange notes. Although the exchange notes may be resold or otherwise
transferred by the holders (who are not our affiliates) without compliance with
the registration requirements under the Securities Act, they will constitute a
new issue of securities with no established trading market. We cannot assure you
that such a market will develop or be sustained. In addition, the exchange notes
will not be listed on any national securities exchange. The exchange notes may
trade at a discount from the initial offering price of the outstanding notes,
depending upon prevailing interest rates, the market for similar securities, our
operating results and other factors. We have been advised by the initial
purchasers that they currently intend to make a market in the exchange notes, as
permitted by applicable laws and regulations; however, the initial purchasers
are not obligated to do so, and any such market-making activities may be
discounted at any time without notice. In addition, such market-making activity
may be limited during the exchange offer and the pendency of a shelf
registration. Therefore, we cannot assure you that an active market for any of
the exchange notes will develop, either prior to or after our performance of our
obligations under the registration rights agreement. If an active public market
does not develop, the market price and liquidity of the exchange notes may be
adversely affected.
Historically, the market for non-investment grade debt has been volatile in
terms of price. It is possible that the market for the exchange notes will be
volatile. This volatility in price may affect your ability to resell your
exchange notes or the timing of their sale.
Notwithstanding the registration of the exchange notes in the exchange offer,
holders who are "affiliates" (as defined under Rule 405 of the Securities Act)
of us may publicly offer for sale or resale the exchange notes only in
compliance with the provisions of Rule 144 under the Securities Act.
Each broker-dealer that receives exchange notes for its own account in exchange
for outstanding notes, where such outstanding notes were acquired by such
broker-dealer as a
10
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such exchange
notes. See "Plan of distribution."
Because we are an affiliate of Goldman, Sachs & Co. and J.P. Morgan Securities
Inc., two of the initial purchasers of the outstanding notes, following
consummation of this exchange offer, Goldman, Sachs & Co. and J.P. Morgan
Securities Inc. are required to deliver a current "market-maker" prospectus and
otherwise comply with the registration requirements of the Securities Act in
connection with any secondary market sale of the notes, which may affect their
ability to continue market-making activities. Following completion of the
exchange offer, we have agreed to make a "market-maker" prospectus generally
available to Goldman, Sachs & Co. and J.P. Morgan Securities Inc. to permit them
to engage in market-making transactions. However, the registration rights
agreement also provides that at any time after consummation of the exchange
offer we may, for valid business reasons, allow the market-maker prospectus to
cease to be effective and usable for a period of time not to exceed 60 days in
the aggregate in any consecutive 12-month period, including without limitation,
a potential acquisition, divestiture of assets or other material corporate
transaction. As a result, the liquidity of the secondary market for the notes
may be materially adversely affected by the unavailability of a current
"market-maker" prospectus following the exchange offer.
RISKS RELATED TO OUR BUSINESS
WE DO NOT HAVE FIRM CONTRACTS WITH PLASTIC RESIN SUPPLIERS.
We source plastic resin primarily from major industry suppliers such as Dow
Chemical, Chevron, ExxonMobil and Equistar. We have long-standing relationships
with certain of these suppliers but have not entered into a firm supply contract
with any of our resin vendors. We may not be able to arrange for other sources
of resin in the event of an industry-wide general shortage of resins used by us,
or a shortage or discontinuation of certain types of grades of resin purchased
from one or more of our suppliers. Any such shortage may negatively impact our
competitive position versus companies that are able to better or more cheaply
source resin. Additionally, we may be subject to significant increases in prices
that may materially impact our financial condition.
IF MARKET CONDITIONS DO NOT PERMIT US TO PASS ON THE COST OF PLASTIC RESINS TO
OUR CUSTOMERS ON A TIMELY BASIS, OR AT ALL, OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS COULD SUFFER MATERIALLY.
To produce our products we use large quantities of plastic resins, which in
fiscal 2001 cost us approximately $116.0 million, or 34.3% of our total cost of
goods sold. Plastic resins are subject to cyclical price fluctuations, including
those arising from supply shortages and changes in the prices of natural gas,
crude oil and other petrochemical intermediates from which resins are produced.
The instability in the world markets for petroleum and natural gas could
materially adversely affect the prices and general availability of raw materials
quickly. Historically, we have generally been able to pass on a significant
portion of the increases in resin prices to our customers over a period of time,
but even in such cases there have been negative short-term impacts to our
financial performance. Certain of our customers (currently fewer than 10% of our
net revenues) purchase our products pursuant to fixed-price arrangements in
respect of which we have at times and may continue to enter into hedging or
similar arrangements. In the future, we may not be able to pass on substantially
all of the increases in resin prices to
11
our customers on a timely basis, if at all, which would have a material adverse
effect on our competitive position and financial performance.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AND OUR CUSTOMERS MAY NOT CONTINUE TO
PURCHASE OUR PRODUCTS.
We face intense competition in the sale of our products. We compete with
multiple companies in each of our product lines, including divisions or
subsidiaries of larger companies. We compete on the bases of a number of
considerations, including price, service, quality, product characteristics and
the ability to supply products to customers in a timely manner. Our products
also compete with metal and glass, paper and other packaging materials as well
as plastic packaging materials made through different manufacturing processes.
Many of our product lines also compete with plastic products in other lines and
segments. Many of our competitors have financial and other resources that are
substantially greater than ours and may be better able than us to withstand
price competition. In addition, some of our customers do and could in the future
choose to manufacture the products they require for themselves. Each of our
product lines faces a different competitive landscape. We may not be able to
compete successfully with respect to any of the foregoing factors. Competition
could result in our products losing market share or our having to reduce our
prices, either of which would have a material adverse effect on our business and
results of operations and financial condition. In addition, since we don't have
long-term arrangements with many of our customers, these competitive factors
could cause our customers to shift suppliers and/or packaging material quickly.
IN THE EVENT OF A CATASTROPHIC LOSS OF OUR KEY MANUFACTURING FACILITY, OUR
BUSINESS WOULD BE ADVERSELY AFFECTED.
Our primary manufacturing facility is in Evansville, Indiana, where we produce
approximately one-third of our products. While we maintain insurance covering
the facility, including business interruption insurance, a catastrophic loss of
the use of all or a portion of the facility due to accident, labor issues,
weather conditions, other natural disaster or otherwise, whether short or
long-term, could have a material adverse effect on us.
OUR ACQUISITION STRATEGY MAY BE UNSUCCESSFUL.
As part of our growth strategy, we plan to pursue the acquisition of other
companies, assets and product lines that either complement or expand our
existing business. We cannot assure you that we will be able to consummate any
such transactions at all or that any future acquisitions will be able to be
consummated at acceptable prices and terms. We continually evaluate potential
acquisition opportunities in the ordinary course of business, including those
that could be material in size and scope. Acquisitions involve a number of
special risks and factors, including:
- the focus of management's attention to the assimilation of the acquired
companies and their employees and on the management of expanding
operations;
- the incorporation of acquired products into our product line;
- the increasing demands on our operational systems;
- adverse effects on our reported operating results; and
- the loss of key employees and the difficulty of presenting a unified
corporate image.
12
We may be unable to make appropriate acquisitions because of competition for the
specific acquisition. In pursuing acquisitions, we compete against other plastic
product manufacturers, some of which are larger than we are and have greater
financial and other resources than we have. We compete for potential
acquisitions based on a number of factors, including price, terms and
conditions, size and ability to offer cash, stock or other forms of
consideration. Increased competition for acquisition candidates could result in
fewer acquisition opportunities for us and higher acquisition prices. As a
company without public equity, we may not be able to offer attractive equity to
potential sellers. Additionally, our acquisition strategy may result in
significant increases in our outstanding indebtedness and debt service
requirements. In addition, the negotiation of potential acquisitions may require
members of management to divert their time and resources away from our
operations.
THE INTEGRATION OF ACQUIRED BUSINESSES MAY RESULT IN SUBSTANTIAL COSTS, DELAYS
OR OTHER PROBLEMS.
We may not be able to successfully integrate our acquisitions without
substantial costs, delays or other problems. We will have to continue to expend
substantial managerial, operating, financial and other resources to integrate
our businesses. The costs of such integration could have a material adverse
effect on our operating results and financial condition. Such costs include
non-recurring acquisition costs including accounting and legal fees, investment
banking fees, recognition of transaction-related obligations, plant closing and
similar costs and various other acquisition-related costs. In addition, although
we conduct what we believe to be a prudent level of investigation regarding the
businesses we purchase, in light of the circumstances of each transaction, an
unavoidable level of risk remains regarding the actual condition of these
businesses. Until we actually assume operating control of such business assets
and their operations, we may not be able to ascertain the actual value or
understand the potential liabilities of the acquired entities and their
operations.
Once we acquire a business, we are faced with risks, including:
- the possibility that it will be difficult to integrate the operations
into our other operations;
- the possibility that we have acquired substantial undisclosed
liabilities;
- the risks of entering markets or offering services for which we have no
prior experience;
- the potential loss of customers as a result of changes in management;
and the possibility we may be unable to recruit additional managers with
the necessary skills to supplement the incumbent management of the
acquired business.
We may not be successful in overcoming these risks.
WE RELY ON UNPATENTED PROPRIETARY KNOW-HOW AND TRADE SECRETS.
In addition to relying on patent and trademark rights, we rely on unpatented
proprietary know-how and trade secrets, and employ various methods, including
confidentiality agreements with employees and consultants, to protect our
know-how and trade secrets. However, these methods and our patents and
trademarks may not afford complete protection and there can be no assurance that
others will not independently develop the know-how and trade secrets or develop
better production methods than us. Further, we may not be able to deter current
and former employees, contractors and other parties from breaching
confidentiality
13
agreements and misappropriating proprietary information and it is possible that
third parties may copy or otherwise obtain and use our information and
proprietary technology without authorization or otherwise infringe on our
intellectual property rights. Additionally, we have licensed, and may license in
the future, patents, trademarks, trade secrets, and similar proprietary rights
to and from third parties. While we attempt to ensure that our intellectual
property and similar proprietary rights are protected and that the third party
rights we need are licensed to us when entering into business relationships,
third parties may take actions that could materially and adversely affect our
rights or the value of our intellectual property, similar proprietary rights or
reputation. Furthermore, no assurance can be given that claims or litigation
asserting infringement of intellectual property rights will not be initiated by
third parties seeking damages, the payment of royalties or licensing fees and/or
an injunction against the sale of our products or that we would prevail in any
litigation or be successful in preventing such judgment. See "Business--Legal
proceedings." In the future, we may also rely on litigation to enforce our
intellectual property rights and contractual rights, and, if not successful, we
may not be able to protect the value of our intellectual property. Any
litigation could be protracted and costly and could have a material adverse
effect on our business and results of operations regardless of its outcome.
Although we believe that our intellectual property rights are sufficient to
allow us to conduct our business without incurring liability to third parties,
our products may infringe on the intellectual property rights of third parties
and our intellectual property rights may not have the value we believe them to
have.
CURRENT AND FUTURE ENVIRONMENTAL AND OTHER GOVERNMENTAL REQUIREMENTS COULD
ADVERSELY AFFECT OUR FINANCIAL CONDITION AND OUR ABILITY TO CONDUCT OUR
BUSINESS.
Certain of our operations are subject to federal, state, local and foreign
environmental laws and regulations that impose limitations on the discharge of
pollutants into the air and water and establish standards for the treatment,
storage and disposal of solid and hazardous wastes. While we have not been
required historically to make significant capital expenditures in order to
comply with applicable environmental laws and regulations, we cannot predict
with any certainty our future capital expenditure requirements because of
continually changing compliance standards and environmental technology.
Furthermore, violations or contaminated sites that we do not know about
(including contamination caused by prior owners and operators of such sites)
could result in additional compliance or remediation costs or other liabilities.
We have limited insurance coverage for environmental liabilities and we do not
anticipate increasing such coverage in the future. We may also assume
significant environmental liabilities in acquisitions. In addition, federal,
state and local governments could enact laws or regulations concerning
environmental matters that increase the cost of producing, or otherwise
adversely affect the demand for, plastic products. Legislation that would
prohibit, tax or restrict the sale or use of certain types of plastic and other
containers, and would require diversion of solid wastes such as packaging
materials from disposal in landfills, has been or may be introduced in the U.S.
Congress, in state legislatures and other legislative bodies. While container
legislation has been adopted in a few jurisdictions, similar legislation has
been defeated in public referenda in several states, local elections and many
state and local legislative sessions. Although we believe that the laws
promulgated to date have not had a material adverse effect on us, there can be
no assurance that future legislation or regulation would not have a material
adverse effect on us. Furthermore, a decline in consumer preference for plastic
products due to environmental considerations could have a negative effect on our
business.
14
The Food and Drug Administration ("FDA") regulates the material content of
direct-contact food containers and packages we manufacture pursuant to the
Federal Food, Drug and Cosmetic Act. Furthermore, some of our products are
regulated by the Consumer Product Safety Commission ("CPSC") pursuant to various
federal laws, including the Consumer Product Safety Act. Both the FDA and the
CPSC can require the manufacturer of defective products to repurchase or recall
these products and may also impose fines or penalties on the manufacturer.
Similar laws exist in some states, cities and other countries in which we sell
products. In addition, laws exist in certain states restricting the sale of
packaging with certain levels of heavy metals and imposing fines and penalties
for noncompliance. Although we use FDA-approved resins and pigments in
containers that directly contact food products and we believe our products are
in material compliance with all applicable requirements, we remain subject to
the risk that our products could be found to be not in compliance with these and
other requirements. A recall of any of our products or any fines and penalties
imposed in connection with non-compliance could have a materially adverse effect
on us. See "Business -- Environmental matters and government regulation."
OUR OPERATIONS OUTSIDE OF THE UNITED STATES ARE SUBJECT TO ADDITIONAL CURRENCY
EXCHANGE, POLITICAL, INVESTMENT AND OTHER RISKS.
We currently operate two facilities and made approximately 5% of our 2001 sales
outside the United States. This amount may change in the future. As we are
subject to the risks associated with selling and operating in foreign countries,
including devaluations and fluctuations in foreign currencies, unstable
political conditions, imposition of limitations on conversion of foreign
currencies into U.S. dollars and remittance of dividends and payments by foreign
subsidiaries. The imposition of taxes and imposition or increase of investment
and other restrictions, tariffs or quotas may also have a negative effect on our
business and profitability.
WE ARE CONTROLLED BY AFFILIATES OF GOLDMAN, SACHS & CO. AND J.P. MORGAN
SECURITIES INC., AND THEIR INTERESTS AS EQUITY HOLDERS MAY CONFLICT WITH YOUR
INTERESTS AS A CREDITOR.
As a result of the Acquisition, certain private equity funds affiliated with
Goldman, Sachs & Co. and J.P. Morgan Securities Inc. own a substantial majority
of our common stock. The interests of Goldman, Sachs & Co. and J.P. Morgan
Securities Inc. and their respective affiliates may not in all cases be aligned
with your interests as a holder of the notes.
15
THE ACQUISITION
THE MERGER AGREEMENT
The following is a summary of the material terms of the merger agreement, dated
as of May 25, 2002, among GS Berry Acquisition Corp., GS Capital Partners 2000,
L.P., GS Capital Partners 2000 Offshore, L.P., GS Capital Partners 2000 GmbH &
Co. Beteiligungs KG, Bridge Street Special Opportunities Fund 2000, L.P. and GS
Capital Partners 2000 Employees Fund, L.P., BPC Holding, certain of BPC
Holding's stockholders, us and the designated representatives of BPC Holding's
stockholders. The summary is qualified in its entirety by reference to the
merger agreement.
THE MERGER
Pursuant to the terms of the merger agreement, GS Berry Acquisition Corp. merged
with and into BPC Holding with BPC Holding continuing as the surviving
corporation. Pursuant to the terms of the merger agreement, the amount available
for payment to BPC Holding's common stockholders in the merger was $837,500,000
less the amounts related to the (i) repayment of substantially all of the
outstanding indebtedness of BPC Holding on a consolidated basis, (ii) redemption
all of BPC Holding's issued and outstanding shares of preferred stock, (iii)
payment of transaction costs incurred by BPC Holding and its stockholders and
(iv) amount of remaining outstanding indebtedness and the value of BPC Holding
common stock held by our employees that was contributed to GS Berry Acquisition
Corp. Some of our employees who were stockholders of BPC Holding agreed to
contribute their shares of BPC Holding common stock to GS Berry Acquisition
Corp. immediately prior to the effective time of the merger and received capital
stock of the surviving corporation instead of cash in the merger. BPC Holding
and GS Berry Acquisition Corp. closed the Acquisition simultaneously with the
issuance of the outstanding notes and the closing of our senior secured credit
facilities. Under the terms of the merger agreement, a portion of the
consideration paid to BPC Holding's stockholders in the merger (including a
portion of the shares of common stock of the surviving corporation issued to our
employees who contributed shares of BPC Holding common stock to GS Berry
Acquisition Corp. prior to the effective time) were held in escrow to secure the
payment of any claims arising under BPC Holding's stockholders' indemnification
obligations. Additionally, the consideration paid in the merger is subject to a
post-closing adjustment based on the amount of BPC Holding's consolidated
working capital at the time of the closing of the merger.
WORKING CAPITAL ADJUSTMENT
Following the closing of the merger, the consideration available for payment to
BPC Holding's stockholders will be subject to a working capital adjustment. We
are in the process of determining the amount of the post-closing adjustment.
DEBT TENDER OFFERS
Pursuant to the terms of the merger agreement, Berry Plastics commenced a tender
offer and consent solicitation for all of its outstanding 11% Senior
Subordinated Notes due 2007 (the "11% Notes") and 12.25% Senior Subordinated
Notes due 2004 and 12.25% Series B Senior Subordinated Notes due 2004 (together,
the "12.25% Notes"), and BPC Holding commenced a
16
tender offer and consent solicitation for all of its outstanding 12.5% Senior
Secured Notes due 2006 (the "12.5% Notes"). The tender offers expired on July
22, 2002 and we repurchased 100% of the then-outstanding 11% Notes, 93% of the
then-outstanding 12.25% Notes and 93% of the then-outstanding 12.5% Notes. We
intend to redeem all of the 12.25% Notes and 12.5% Notes not purchased in the
debt tender offers within 30 days after the closing of the Acquisition.
17
USE OF PROCEEDS
This prospectus is delivered in connection with the sale of notes by Goldman,
Sachs & Co. or J.P. Morgan Securities Inc. in market-making transactions. We
will not receive any of the proceeds from such transaction.
18
CAPITALIZATION
The following table sets forth our (i) capitalization as of June 29, 2002 and
(ii) capitalization as of such date as adjusted to give effect to the
Acquisition, including the financing thereof. This table should be read in
conjunction with "The acquisition," our combined financial statements and
related notes and the unaudited pro forma financial statements included
elsewhere in the offering memorandum.
-----------------------------------------------------------------------------------
AS OF JUNE 29, 2002
(UNAUDITED) ---------------------
(DOLLARS IN THOUSANDS) ACTUAL ADJUSTED
-----------------------------------------------------------------------------------
Long-term debt (including current portion thereof):
Senior secured credit facilities
Previous credit facility(1)........................... $ 135,364 $ -
Revolving credit facility(1).......................... - -
Term loan facility(1)................................. - 330,000
Delayed draw term loan facility(1).................... - -
Previous notes(2)........................................ 335,714 -
Exchange Notes........................................... - 250,000
Capital lease obligations(3)............................. 26,123 19,058
Nevada industrial revenue bonds.......................... 2,500 2,500
Debt premium............................................. 313 -
---------------------
Total debt............................................ 500,014 601,558
Preferred stock............................................. 48,303 -
Common stock, paid-in capital and warrants.................. 28,261 123,855
Retained earnings (deficit)................................. (210,281) -
Accumulated other comprehensive loss........................ (650) -
---------------------
Total stockholders' equity (deficit).................. (134,367) 123,855
---------------------
Total capitalization........................................ $ 365,647 $ 725,413
-----------------------------------------------------------------------------------
(1) As of June 29, 2002, on a pro forma basis after giving effect to the
offering and the Acquisition, including the financing thereof, we would have had
unused borrowing capacity under the revolving credit facility of $94.3 million,
with $5.7 million in letters of credit outstanding thereunder, and unused
borrowing capacity under our delayed draw term loan facility of $50.0 million.
(2) Assumes all of the previous notes are purchased in the tender offers or
redeemed at the closing of the Acquisition. The previous notes consist of the
11% Notes and the 12.25% Notes and the 12.5% Notes.
(3) We may repay a portion of these capital leases with additional borrowings.
19
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Set forth below are the unaudited pro forma combined balance sheet of BPC
Holding as of June 29, 2002, assuming the Acquisition occurred on June 29, 2002,
and the unaudited pro forma combined statements of operations of BPC Holding for
the year ended December 29, 2001, the twenty-six week period ended June 29, 2002
and the 52 week period ended June 29, 2002, assuming the transactions described
below occurred at the beginning of the respective period.
The unaudited pro forma combined financial information is presented for
informational purposes only and does not purport to represent the financial
condition of BPC Holding had the Acquisition occurred on June 29, 2002 or the
results of operations of us for the year ended December 29, 2001, the twenty-six
week period ended June 29, 2002 or the 52 weeks ended June 29, 2002 had the
Acquisition or the other transactions described below occurred on December 31,
2000, or to project the results for any future date or period.
The unaudited pro forma combined statements of operations of BPC Holding give
effect to (a) the Acquisition, including the financing thereof and (b) our
acquisitions of Mt. Vernon Plastics Corporation and Pescor Plastics, Inc., as if
they occurred at the beginning of the periods presented. The pro forma
statements of operations do not reflect the premiums to be paid to prepay the
debt being repaid in connection with the Acquisition, the write-off of
historical deferred financing fees, transaction costs and employee-related
compensation charges related to the amendment, modification and vesting of
options and Acquisition bonuses. See "Management's discussion and analysis of
financial condition and results of operations" and "The acquisition."
The unaudited pro forma combined financial information should be read in
conjunction with the financial statements and related notes thereto included
elsewhere in this prospectus and the information set forth in "Management's
discussion and analysis of financial condition and results of operations."
20
BPC HOLDING
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 29, 2002
-------------------------------------------------------------------------------------------------
ADJUSTMENTS PRO FORMA
BPC HOLDING FOR THE FOR THE
(DOLLARS IN THOUSANDS) HISTORICAL ACQUISITION ACQUISITION
-------------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents......................... $ 1,107 $ - $ 1,107
Accounts receivable............................... 66,632 - 66,632
Inventories....................................... 59,311 - 59,311
Other current assets.............................. 4,130 - 4,130
------------------------------------------
Total current assets........................... 131,180 - 131,180
Property and equipment (less accumulated
depreciation)..................................... 210,703 - 210,703
Intangible assets.................................... 129,874 322,832(1) 452,706
Other assets......................................... 4,433 (4,000)(2) 433
------------------------------------------
Total assets.................................... $ 476,190 $ 318,832 $795,022
------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 38,617 $ - $ 38,617
Accrued interest.................................. 7,878 (7,868)(3) 10
Other liabilities................................. 27,741 - 27,741
Current portion of long-term debt................. 19,328 (11,268)(4) 8,060
------------------------------------------
Total current liabilities...................... 93,564 (19,136) 74,428
Long-term debt (less current portion)................ 480,686 112,812(5) 593,498
Accrued dividends on preferred stock................. 33,066 (33,066)(6) -
Other liabilities.................................... 3,241 - 3,241
------------------------------------------
Total liabilities.............................. 610,557 60,610 671,167
Stockholders' equity (deficit):
Preferred stock................................... 48,303 (48,303)(7) -
Common stock...................................... 28,261 95,594(8) 123,855
Retained earnings (deficit)....................... (210,281) 210,281(8) -
Accumulated other comprehensive loss.............. (650) 650(8) -
------------------------------------------
Total stockholders' equity (deficit)........... (134,367) 258,222 123,855
------------------------------------------
Total liabilities and stockholders' equity
(deficit)................................... $ 476,190 $ 318,832 $795,022
-------------------------------------------------------------------------------------------------
21
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(1) The Acquisition will be accounted for as a purchase. Preliminarily, we have
allocated the excess of the purchase price over the net assets acquired to
goodwill (included in intangible assets). Under generally accepted accounting
principles, goodwill is not amortized but is reviewed for impairment annually.
We have not begun the process of reviewing our assets to determine the amount of
any write-up or write-down to fair value of our net assets in connection with
the Acquisition. Accordingly, the allocation described below is subject to
change when we determine the purchase price allocation. If our non-goodwill
assets are written up to fair value in connection with the Acquisition, our
expenses in the future will be higher as a result of increased depreciation and
amortization of our assets. Similarly, if our non-goodwill assets are written
down to fair value, our depreciation and amortization will decrease in the
future.
-----------------------------------------------------------------------
Purchase price.............................................. $ 837,500
Estimated transaction costs................................. 32,859
---------
Total consideration......................................... 870,359
Less: Net assets acquired(a)................................ 402,591
Adjustment of carryover basis of continuing
stockholders(b).......................................... (144,936)
---------
Net adjustment.............................................. $ 322,832
-----------------------------------------------------------------------
(a) Net assets acquired equals the historical basis of the assets acquired
($472.2 million) less liabilities assumed in the Acquisition not
reflected in the purchase price above ($69.6 million).
(b) Represents the pro rata basis of the continuing stockholders in the
stockholders' deficit of BPC Holding less a deemed cash distribution to
such continuing stockholders.
(2) This adjustment reflects the elimination of a security deposit on a lease
that was refunded at the closing of the Acquisition.
(3) This adjustment reflects the elimination of the accrued interest as of June
29, 2002 on the debt being repaid in connection with the Acquisition.
(4) This adjustment reflects the elimination of the current portion of long-term
debt being repaid in connection with the Acquisition offset by the current
portion of the long-term debt being incurred to finance the Acquisition.
----------------------------------------------------------------------
Current portion of debt being repaid........................ $(14,568)
Current portion of debt being incurred...................... 3,300
--------
Net adjustment.............................................. $(11,268)
----------------------------------------------------------------------
(5) This adjustment reflects the incurrence of long-term debt being incurred to
finance the Acquisition offset by the elimination of the long-term debt being
repaid in connection with the Acquisition.
22
-----------------------------------------------------------------------
Term loan................................................... $ 326,700
Exchange Notes.............................................. 250,000
Long-term debt being repaid................................. (463,888)
---------
Net adjustment.............................................. $ 112,812
-----------------------------------------------------------------------
This adjustment assumes all of our existing notes are purchased in the tender
offers or redeemed at or after the closing of the Acquisition.
(6) This adjustment reflects the payment of the accrued dividends as of June 29,
2002, on the preferred stock being redeemed in connection with the Acquisition.
(7) This adjustment reflects the repurchase of the preferred stock in connection
with the Acquisition.
(8) This adjustment reflects the increase to stockholders' equity resulting from
the equity capital being contributed less an adjustment for the carryover basis
of continuing stockholders.
-----------------------------------------------------------------------
Equity contribution......................................... $ 268,791
Adjustment of carryover basis of continuing
stockholders(a).......................................... (144,936)
---------
Total stockholders' equity.................................. $ 123,855
-----------------------------------------------------------------------
(a) Represents the pro rata basis of the continuing stockholders in the
stockholders' deficit of BPC Holding less a deemed cash distribution to
such continuing stockholders.
23
BPC HOLDING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 29, 2001
--------------------------------------------------------------------------------------------------
PRO FORMA FOR THE
MT. VERNON AND
MT. VERNON ADJUSTMENTS PESCOR
BPC HOLDING AND PESCOR FOR THE ACQUISITIONS AND
(DOLLARS IN THOUSANDS) HISTORICAL ACQUISITIONS ACQUISITION THE ACQUISITION
--------------------------------------------------------------------------------------------------
Net sales......................... $ 461,659 $ 28,665(1) $ - $ 490,324
Cost of goods sold................ 338,000 25,328(2) - 363,328
--------------------------------------------------------------
Gross margin...................... 123,659 3,337 - 126,996
Operating expenses................ 70,192 2,448 10,341(3) 82,981
--------------------------------------------------------------
Operating income (loss)........... 53,467 889 (10,341) 44,015
Other expenses.................... 473 - - 473
Interest expense, net............. 54,355 266 (6,828)(4) 47,793
--------------------------------------------------------------
Income (loss) before income
taxes.......................... (1,361) 623 (3,513) (4,251)
Income taxes...................... 734 117 -(5) 851
--------------------------------------------------------------
Net income (loss)................. (2,095) 506 (3,513) (5,102)
Preferred stock dividends......... 9,790 - (9,790)(6) -
Amortization of preferred stock
dividend....................... 1,024 - (1,024)(7) -
--------------------------------------------------------------
Net income (loss) attributable to
common stockholders............ $ (12,909) $ 506 $ 7,301 $ (5,102)
--------------------------------------------------------------
OTHER DATA:
Depreciation and amortization..... 50,907 1,593 11,112(3) 63,612
Adjusted EBITDA(8)................ 110,852 2,482 - 113,334
Adjusted EBITDA margin............ 24.0% 8.7% - 23.1%
--------------------------------------------------------------------------------------------------
24
BPC HOLDING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
TWENTY-SIX WEEKS ENDED JUNE 29, 2002
--------------------------------------------------------------------------------------------------
PRO FORMA FOR THE
ADJUSTMENTS MT. VERNON
BPC HOLDING MT. VERNON FOR THE ACQUISITION AND
(DOLLARS IN THOUSANDS) HISTORICAL ACQUISITION ACQUISITION THE ACQUISITION
--------------------------------------------------------------------------------------------------
Net sales......................... $250,923 $ 1,111(1) $ - $252,034
Cost of goods sold................ 185,273 943(2) - 186,216
--------------------------------------------------------------
Gross margin...................... 65,650 168 - 65,818
Operating expenses................ 29,449 105 (378)(3) 29,176
--------------------------------------------------------------
Operating income.................. 36,201 63 378 36,642
Other expenses.................... 291 - - 291
Interest expense, net............. 25,583 - (1,517)(4) 24,066
--------------------------------------------------------------
Income before income taxes........ 10,327 63 1,895 12,285
Income taxes...................... 345 - -(5) 345
--------------------------------------------------------------
Net income........................ 9,982 63 1,895 11,940
Preferred stock dividends......... 5,620 - (5,620)(6) -
Amortization of preferred stock
discount....................... 512 - (512)(7) -
--------------------------------------------------------------
Net income attributable to common
stockholders................... $ 3,850 $ 63 $ 8,027 $ 11,940
--------------------------------------------------------------
OTHER DATA:
Depreciation and amortization..... 21,973 49 - 22,022
Adjusted EBITDA(8)................ 60,677 112 - 60,789
Adjusted EBITDA margin............ 24.2% 10.1% - 24.1%
--------------------------------------------------------------------------------------------------
25
BPC HOLDING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
52 WEEK PERIOD ENDED JUNE 29, 2002
---------------------------------------------------------------------------------------------------
PRO FORMA FOR THE
ADJUSTMENTS MT. VERNON
BPC HOLDING MT. VERNON FOR THE ACQUISITION AND
(DOLLARS IN THOUSANDS) HISTORICAL ACQUISITION ACQUISITION THE ACQUISITION
---------------------------------------------------------------------------------------------------
Net sales......................... $ 471,568 $ 11,910(1) $ - $483,478
Cost of goods sold................ 350,253 10,737(2) - 360,990
---------------------------------------------------------------
Gross margin...................... 121,315 1,173 - 122,488
Operating expenses................ 62,646 738 4,699(3) 68,083
---------------------------------------------------------------
Operating income (loss)........... 58,669 435 (4,699) 54,405
Other expenses.................... 808 - - 808
Interest expense, net............. 51,955 - (3,797)(4) 48,158
---------------------------------------------------------------
Income (loss) before income
taxes.......................... 5,906 435 (902) 5,439
Income taxes...................... 948 - -(5) 948
---------------------------------------------------------------
Net income (loss)................. 4,958 435 (902) 4,491
Preferred stock dividends......... 10,926 - (10,926)(6) -
Amortization of preferred stock
discount....................... 1,024 - (1,024)(7) -
---------------------------------------------------------------
Net income (loss) attributable to
common stockholders............ $ (6,992) $ 435 $ 11,048 $ 4,491
---------------------------------------------------------------
OTHER DATA:
Depreciation and amortization..... 48,742 485 5,358(3) 54,585
Adjusted EBITDA(8)................ 113,308 920 - 114,228
Adjusted EBITDA margin............ 24.0% 7.7% - 23.6%
---------------------------------------------------------------------------------------------------
26
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(1) This amount represents adjusted net sales of Mt. Vernon and Pescor during
the relevant period after the elimination of sales made by Mt. Vernon during the
relevant period to a customer which informed Mt. Vernon that it intended to stop
purchasing products from Mt. Vernon after the closing of the Mt. Vernon
acquisition.
-----------------------------------------------------------------------------------------------
TWENTY-SIX FIFTY-TWO
FISCAL YEAR ENDED WEEKS ENDED WEEKS ENDED
DECEMBER 29, 2001 JUNE 29, 2002 JUNE 29, 2002
-----------------------------------------------------------------------------------------------
Net sales of Mt. Vernon and Pescor.......... $ 34,066 $ 1,111 $ 11,910
Eliminated sales............................ (5,401) - -
-------------------------------------------------
Adjusted net sales.......................... $ 28,665 $ 1,111 $ 11,910
-----------------------------------------------------------------------------------------------
(2) This amount represents adjusted cost of sales of Mt. Vernon and Pescor
during the relevant period after the elimination of the cost of sales with
respect to the sales being eliminated in note (1) above.
-----------------------------------------------------------------------------------------------
TWENTY-SIX FIFTY-TWO
FISCAL YEAR ENDED WEEKS ENDED WEEKS ENDED
DECEMBER 29, 2001 JUNE 29, 2002 JUNE 29, 2002
-----------------------------------------------------------------------------------------------
Cost of sales of Mt. Vernon and Pescor...... $ 30,729 $ 943 $ 10,737
Eliminated cost of sales.................... (5,401) - -
-------------------------------------------------
Adjusted cost of sales...................... $ 25,328 $ 943 $ 10,737
-----------------------------------------------------------------------------------------------
(3) This adjustment represents in the relevant periods (i) the elimination of
the annual management fee charged by our largest voting stockholder prior to the
Acquisition, (ii) the elimination of professional fees incurred by BPC Holding
principally relating to indebtedness of BPC Holding that was not guaranteed by
Berry Plastics and that will not remain outstanding after the Acquisition and
(iii) the inclusion of amortization of goodwill resulting from the Acquisition
on a 20-year straight line basis offset by the elimination of the amortization
of historical goodwill. Goldman, Sachs & Co. and J.P. Morgan Chase & Co. and
their respective affiliates will not receive any ongoing annual management fee
after the Acquisition. Effective January 1, 2002 goodwill is no longer amortized
in accordance with the new accounting standard SFAS 142, "Goodwill and Other
Intangible Assets." We recorded pro forma amortization of $21,076 in the 52
weeks ended December 29, 2001 and $10,538 in the 52 weeks ended June 29, 2002.
In addition, the pro forma financial statements assume that the excess of the
purchase price of the Acquisition over the net assets acquired will all be
allocated to goodwill. As described, goodwill is not amortized but is reviewed
for impairment annually. We have not begun the process of reviewing our assets
to determine the amount of any write-up or write-down to fair value of our net
assets in connection with the Acquisition. If in connection with our
finalization of our purchase price accounting our non-goodwill assets are
written up to fair value, our expenses in the future will be higher as a result
of increased
27
depreciation and amortization of our assets. Similarly, if our non-goodwill
assets are written down to fair value in connection with the Acquisition, our
depreciation and amortization will decrease in the future. See Note (1) to Notes
to Pro Forma Condensed Balance Sheet.
(4) This adjustment reflects in the relevant periods the elimination of the
historical interest expense incurred on the debt being repaid in connection with
the Acquisition, including the elimination of the amortization of debt financing
costs, offset by the interest expense on the estimated debt being incurred in
connection with the Acquisition and the amortization of deferred financing costs
incurred in connection therewith. This adjustment assumes an interest rate of
10 3/4% on the notes and an interest rate of 5 1/4% on the term loan. The
deferred financing costs are being amortized based on the maturity of the loans.
-----------------------------------------------------------------------------------------------
TWENTY-SIX FIFTY-TWO
FISCAL YEAR ENDED WEEKS ENDED WEEKS ENDED
DECEMBER 29, 2001 JUNE 29, 2002 JUNE 29, 2002
-----------------------------------------------------------------------------------------------
Elimination of historical interest expense
on debt being repaid...................... $ (53,243) $ (24,725) $ (50,212)
Interest on notes offered hereby............ 26,875 13,438 26,875
Interest on term loan....................... 17,325 8,662 17,325
Amortization of deferred financing costs
associated with notes offered hereby..... 840 420 840
Amortization of deferred financing costs
associated with term loan................ 1,375 688 1,375
-------------------------------------------------
Adjustment to net interest expense.......... $ (6,828) $ (1,517) $ (3,797)
-----------------------------------------------------------------------------------------------
(5) No adjustment has been made to tax expense attributable to the pro forma
adjustments on the assumption that an offsetting adjustment to the valuation
allowance would be recorded with respect to the resultant tax loss carryforward
asset.
(6) This adjustment reflects the elimination of preferred stock dividends on the
preferred stock redeemed in connection with the Acquisition.
(7) This adjustment reflects the elimination of the amortization of preferred
stock discount on the preferred stock redeemed in connection with the
Acquisition.
(8) See footnote (d) to "Selected consolidated financial data."
28
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth Holding's selected consolidated historical
financial data for each of the fiscal years 1997, 1998, 1999, 2000 and 2001,
which have been derived from the consolidated financial statements of Holding
which have been audited by Ernst & Young LLP, independent auditors and for the
twenty-six weeks ended June 29, 2002 and June 30, 2001, which is derived from
our unaudited consolidated financial statements included elsewhere in this
prospectus. In the opinion of management, the unaudited interim financial data
includes all adjustments, consisting of only normal nonrecurring adjustments,
considered necessary for a fair presentation of this information. The results of
operations for interim periods are not necessarily indicative of the results
that may be expected for the entire year. Holding's fiscal year is a 52/53 week
period ending on the Saturday closest to December 31. All references herein to
fiscal "2001," "2000," "1999," "1998," and "1997," relate to the fiscal years
ended December 29, 2001, December 30, 2000, January 1, 2000, January 2, 1999,
and December 27, 1997, respectively. The following data should be read in
conjunction with our consolidated financial statements and related notes,
"Management's discussion and analysis of financial condition and results of
operations," "Unaudited pro forma financial information" and other financial
information included elsewhere in this prospectus.
TWENTY-SIX WEEKS
FISCAL ENDED
-------------------
---------------------------------------------------- JUNE 30, JUNE 29,
(DOLLARS IN THOUSANDS) 1997 1998 1999 2000 2001 2001 2002
----------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
Statement of operations data:
Net sales.............................. $226,953 $271,830 $328,834 $408,088 $461,659 $241,014 $250,923
Cost of goods sold..................... 180,249 199,227 241,067 312,119 338,000 173,020 185,273
--------------------------------------------------------------------------
Gross margin........................... 46,704 72,603 87,767 95,969 123,659 67,994 65,650
Operating expenses
Selling............................. 11,320 14,780 17,383 21,630 21,996 11,426 10,934
General and administrative.......... 11,505 19,308 22,034 24,408 28,535 16,248 14,210
Research and development............ 1,310 1,690 2,338 2,606 1,948 931 1,305
Amortization of intangibles......... 2,226 4,139 7,215 10,579 12,802 6,096 875
Other expenses...................... 4,144 4,084 5,148 6,639 4,911 2,294 2,125
--------------------------------------------------------------------------
Total operating expenses............ 30,505 44,001 54,118 65,862 70,192 36,995 29,449
Operating income....................... 16,199 28,602 33,649 30,107 53,467 30,999 36,201
Other expense (income)(a).............. 226 1,865 1,416 877 473 (44) 291
Interest expense, net(b)............... 30,246 34,556 40,817 51,457 54,355 27,983 25,583
--------------------------------------------------------------------------
Income (loss) before income taxes and
extraordinary item.................. (14,273) (7,819) (8,584) (22,227) (1,361) 3,060 10,327
Income taxes (benefit)................. 138 (249) 554 (142) 734 131 345
--------------------------------------------------------------------------
Net income (loss) before extraordinary
item................................ (14,441) (7,570) (9,138) (22,085) (2,095) 2,929 9,982
Extraordinary item net of tax(c)....... - - - 1,022 - - -
--------------------------------------------------------------------------
Net income (loss)...................... (14,441) (7,570) (9,138) (23,107) (2,095) 2,929 9,982
Preferred stock dividends.............. 2,558 3,551 3,776 6,655 9,790 4,484 5,620
Amortization of preferred stock
discount............................ 74 292 292 768 1,024 512 512
--------------------------------------------------------------------------
Net income (loss) attributable to
common stockholders................. $(17,043) $(11,413) $(13,206) $(30,530) $(12,909) $ (2,067) $ 3,850
--------------------------------------------------------------------------
29
TWENTY-SIX WEEKS
FISCAL ENDED
-------------------
---------------------------------------------------- JUNE 30, JUNE 29,
(DOLLARS IN THOUSANDS) 1997 1998 1999 2000 2001 2001 2002
----------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
Other financial data:
Adjusted EBITDA(d)..................... $ 40,269 $ 59,764 $ 71,541 $ 80,391 $110,852 $ 58,221 $ 60,677
Adjusted EBITDA margin(e).............. 17.7% 22.0% 21.8% 19.7% 24.4% 24.2% 24.2%
Depreciation and amortization(f)....... $ 19,026 $ 24,829 $ 31,795 $ 42,148 $ 50,907 24,138 21,973
Cash provided by operating
activities.......................... 14,154 34,131 36,001 36,106 54,348 30,891 17,040
Cash used for investing activities..... (102,102) (52,120) (106,978) (108,715) (56,290) (37,118) (22,235)
Cash provided by financing
activities.......................... 80,444 17,619 71,135 72,037 580 7,970 5,805
Capital expenditures................... 16,774 22,595 30,738 31,530 32,834 14,124 17,675
Ratio of earnings to fixed
charges(g).......................... - - - - - 1.1x 1.4x
Balance sheet data (at end of period):
Working capital........................ $ 20,863 $ 4,762 $ 10,527 $ 20,470 $ 19,327 $ 23,490 $ 37,616
Property and equipment, net............ 108,218 120,005 146,792 179,804 203,217 196,846 210,703
Total assets........................... 239,444 255,317 340,807 413,122 446,876 459,070 476,190
Total debt............................. 306,335 323,298 403,989 468,806 485,881 485,399 500,014
----------------------------------------------------------------------------------------------------------------------
(a) Other expenses consist of net losses (gains) on disposal of property and
equipment for the respective years.
(b) Includes non-cash interest expense of $13,260, $14,824, $15,567, $18,047 and
$11,268, in fiscal 1997, 1998, 1999, 2000 and 2001, respectively, and $9,975 and
$1,262 for the twenty-six weeks ended June 30, 2001 and June 29, 2002,
respectively.
(c) Extraordinary item relates to deferred financing fees written off as a
result of amending our senior credit facility.
(d) Adjusted EBITDA should not be considered in isolation or as an alternative
to income from operations or to cash flows from operating activities (as
determined in accordance with accounting principles generally accepted in the
United States) and should not be construed as an indication of a company's
operating performance or as a measure of liquidity. We believe this information
enhances an investor's understanding of our ability to satisfy our obligations
with respect to indebtedness or otherwise. In addition, our calculation of
Adjusted EBITDA differs from that presented by certain other companies and thus
is not necessarily comparable to similarly titled measures used by other
companies. The following table reconciles operating income to Adjusted EBITDA
for each respective period.
TWENTY-SIX WEEKS
FISCAL ENDED
---------------------
------------------------------------------------ JUNE 30, JUNE 29,
(DOLLARS IN THOUSANDS) 1997 1998 1999 2000 2001 2001 2002
-------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
Operating income............................... $16,199 $28,602 $33,649 $30,107 $ 53,467 30,999 36,201
Depreciation and amortization.................. 19,026 24,829 31,795 42,148 50,907 24,138 21,973
------------------------------------------------------------------------
EBITDA......................................... 35,225 53,431 65,444 72,255 104,374 55,137 58,174
One-time expenses:
Plant shutdown expenses.................. 849 2,556 1,499 3,702 2,194 1,154 1,396
Acquisition integration expenses......... 3,267 1,525 3,649 2,237 2,717 1,140 729
Litigation expenses related to drink cup
patent................................ 100 631 - 700 - - -
Corporate expenses:
Non-cash compensation.................... - 600 - 459 796 300 -
Holding professional fees(1)............. - 149 76 165 134 65 50
Management fees and expenses(2).......... 828 872 873 873 637 425 328
------------------------------------------------------------------------
Adjusted EBITDA................................ $40,269 $59,764 $71,541 $80,391 $110,852 $58,221 $60,677
-------------------------------------------------------------------------------------------------------------------------
(1) Represents fees paid by BPC Holding for professional services
principally relating to indebtedness of BPC Holding that was not guaranteed
by Berry Plastics and that are not outstanding after the Acquisition.
(2) Represents fees paid to First Atlantic, our largest voting stockholder
prior to the Acquisition. GSCP 2000 and J.P. Morgan Partners Global
Investors, L.P. and their respective affiliates will not receive any annual
management fees after the Acquisition.
(e) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of net
sales.
(f) Depreciation and amortization excludes non-cash amortization of deferred
financing fees and debt premium discount amortization, which are included in
interest expense.
(g) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent net income (loss) before extraordinary items. "Fixed
charges" consist of interest expense, including amortization of debt issuance
costs and that portion of rental expenses which we consider to be a reasonable
approximation of the interest factor of operating lease payments. For fiscal
1997, 1998, 1999, 2000 and 2001, our fixed charges exceeded our earnings by
$13,932, $7,042, $7,137, $20,520 and $772, respectively.
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion of our financial condition and results
of operations with our consolidated financial statements and related notes
included elsewhere in this prospectus. This discussion contains forward-looking
statements and involves numerous risks and uncertainties, including, but not
limited to, those described in the "Risk factors" section of this prospectus.
Our actual results may differ materially from those contained in any forward-
looking statements.
CRITICAL ACCOUNTING POLICIES
We disclose those accounting policies that we consider to be significant in
determining the amounts to be utilized for communicating our consolidated
financial position, results of operations and cash flows in the second note to
our consolidated financial statements included elsewhere herein. Our discussion
and analysis of our financial condition and results of operations are based on
our consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of financial statements in conformity with these principles requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Actual results are likely to differ
from these estimates, but management does not believe such differences will
materially affect our financial position or results of operations. We believe
that the following accounting policies are the most critical because they have
the greatest impact on the presentation of our financial condition and results
of operations.
Accounts receivable. We evaluate our allowance for doubtful accounts on a
quarterly basis and review any significant customers with delinquent balances to
determine future collectibility. We base our determinations on legal issues
(such as bankruptcy status), past history, current financial and credit agency
reports, and the experience of our credit representatives. We reserve accounts
that we deem to be uncollectible in the quarter in which we make the
determination. We maintain additional reserves based on our historical bad debt
experience. We believe, based on past history and our credit policies, that the
net accounts receivable are of good quality.
Medical. We offer our employees medical insurance that is primarily self-insured
by us. We evaluate our medical claims liability on a quarterly basis and obtain
an independent actuarial analysis on an annual basis. We accrue as a liability
expected claims incurred but not reported and any known claims. Based on our
analysis, we believe that our recorded medical claims liability is sufficient.
Workers' compensation. Starting in fiscal 2000, we converted the majority of our
facilities to a large deductible program for workers' compensation insurance. On
a quarterly basis, we evaluate our liability based on third-party adjusters'
independent analyses by claim. Based on our analysis, we believe that our
recorded workers' compensation liability is sufficient.
Based on a critical assessment of its accounting policies and the underlying
judgements and uncertainties affecting the application of those policies,
management believes that our consolidated financial statements provide a
meaningful and fair perspective of BPC Holding and its consolidated
subsidiaries. This is not to suggest that other risk factors such as changes
31
in economic conditions, changes in material costs, and others could not
adversely impact our consolidated financial position, results of operations and
cash flows in future periods.
ACQUISITIONS
We maintain a selective and disciplined acquisition strategy, which is focused
on improving our financial performance in the long-term, enhancing our market
positions and expanding our product lines or, in some cases, providing us with a
new or complementary product line. We have historically acquired businesses with
EBITDA margins that are lower than that of our existing business, which results
in a temporary decrease in our margins. We have historically achieved
significant reductions in manufacturing and overhead costs of acquired companies
by introducing advanced manufacturing processes, exiting low-margin businesses
or product lines, reducing headcount, rationalizing facilities and machinery,
applying best practices and capitalizing on economies of scale. In connection
with our acquisitions, we have in the past and may in the future incur
non-recurring charges related to these reductions and rationalizations. In
connection with the Acquisition, we will incur charges related to premiums paid
to prepay debt being repaid, the write-off of historical deferred financing
fees, transaction costs and employee-related compensation charges related to the
amendment, modification and vesting of options and Acquisition bonuses.
RESULTS OF OPERATIONS
COMPARISON OF THE 26 WEEKS ENDED JUNE 29, 2002 (THE "YTD") TO THE 26 WEEKS ENDED
JUNE 30, 2001 (THE "PRIOR YTD")
Net Sales. Net sales increased $9.9 million, or 4%, to $250.9 million for the
YTD from $241.0 million for the Prior YTD with an approximate 3% decrease in net
selling price due to the cyclical impact of lower resin costs. Container net
sales decreased $0.3 million from the Prior YTD, including approximately $6.3
million of YTD sales from the Mount Vernon acquisition, due primarily to lower
selling prices and a large promotion in the Prior YTD. Closure net sales
decreased $0.6 million from the Prior YTD. Consumer product sales for the YTD
increased $10.8 million from the Prior YTD primarily attributable to the Pescor
acquisition and increased sales from the thermoformed drink cup line.
Gross Margin. Gross margin decreased by $2.3 million to $65.7 million (26% of
net sales) for the YTD from $68.0 million (28% of net sales) for the Prior YTD.
This decrease of 3% includes the combined impact of the added Pescor and Mount
Vernon sales volume, the effect of net selling prices and raw material costs,
acquisition integration and productivity improvement initiatives. The historical
margin percentage of the Mount Vernon acquired business is significantly less
than the Company's historical gross margins thereby reducing consolidated
margins until the business is fully integrated. Also, depreciation for the YTD
exceeded the Prior YTD by $3.1 million. In addition, the Company has continued
to consolidate products and business of recent acquisitions to the most
efficient tooling, providing customers with improved products and customer
service. As part of the integration, the Company removed molding operations from
its Fort Worth, Texas facility (acquired in the Pescor acquisition). The
business from this location was distributed throughout Berry's facilities. Also,
significant productivity improvements were made during the year, including the
addition of state-of-the-art injection molding equipment, molds and printing
equipment at several of the Company's facilities.
Operating Expenses. Selling expenses decreased by $0.5 million to $10.9 million
for the YTD from $11.4 million for the Prior YTD, principally a result of cost
reduction efforts. General and
32
administrative expenses decreased from $16.2 million for the Prior YTD to $14.2
million for the YTD. This decrease of $2.0 million is primarily attributable to
decreased accrued bonus expenses and cost reduction efforts. During the YTD,
one-time transition expenses were $0.7 million related to acquisitions and $1.4
million related to the shutdown and reorganization of facilities. In the Prior
YTD, one-time transition expenses related to acquisitions were $1.1 million and
$1.2 million related to the shutdown and reorganization of facilities.
Interest Expense, Net. Net interest expense decreased $2.4 million to $25.6
million for the YTD compared to $28.0 million for the Prior YTD primarily due to
decreased rates of interest on borrowings and reduced borrowings under the
senior credit facility.
Income Tax. For the YTD, the Company recorded income tax expense of $0.3 million
compared to $0.1 million for the Prior YTD. The Company continues to operate in
a net operating loss carryforward position for federal income tax purposes.
Net Income. The Company recorded net income of $10.0 million for the YTD
compared to net income of $2.9 million for the Prior YTD for the reasons
discussed above.
COMPARISON OF THE YEAR ENDED DECEMBER 29, 2001 TO THE YEAR ENDED DECEMBER 30,
2000
Net sales. Net sales increased 13% to $461.7 million in 2001, up $53.6 million
from $408.1 million in 2000, including an approximate 1% increase in net selling
price. Container net sales increased $3.2 million, primarily due to a large
promotion in 2001. Closure net sales increased $20.2 million with the Poly-Seal
acquisition and Capsol acquisition representing $25.4 million of the increase,
partially offset by a general slowdown in the market. Consumer products net
sales increased $30.2 million in 2001 primarily as a result of the Pescor
acquisition which contributed 2001 net sales of approximately $19.9 million,
continued strong demand in the retail housewares market, and the introduction of
a thermoformed drink cup line.
Gross margin. Gross margin increased $27.7 million from $96.0 million (24% of
net sales) in 2000 to $123.7 million (27% of net sales) in 2001. This increase
of 29% includes the combined impact of the added Poly-Seal, Capsol, and Pescor
sales volume, the effect of net selling prices and decreases in raw material
costs, acquisition integration, and productivity improvement initiatives. The 1%
increase in net selling price was primarily the result of partially recovering
raw material costs increases incurred in 2000. In addition, we continued to
consolidate the products and businesses of recent acquisitions to the most
efficient tooling, providing customers with improved products and customer
service. As part of the integration, we closed our York, Pennsylvania facility
in the third quarter of 2000 and removed remaining production from our
Minneapolis, Minnesota facility (acquired in the Cardinal acquisition) in the
fourth quarter of 2000. Also, in the fourth quarter of 2001, we removed molding
operations from our Fort Worth, Texas facility (acquired in the Pescor
acquisition). The business from these locations was distributed throughout our
facilities. Also, significant productivity improvements were made during both
years, including the addition of state-of-the-art injection-molding equipment,
molds and decorating equipment at several of our facilities. Additional cost
reductions were achieved in connection with our realignment in the third quarter
of 2000 from a functional based organization to a divisional structure. This
realignment has enabled us to reduce personnel costs and improve employee
productivity.
Operating expenses. Selling expenses increased $0.4 million as a result of
acquired businesses partially offset by savings from the organizational
realignment in the third quarter of 2000. General and administrative expenses
increased $4.1 million in 2001 primarily as a result of acquired businesses and
increased accrued bonus expenses partially offset by savings from the
33
organizational realignment in the third quarter of 2000. Research and
development costs decreased $0.7 million to $1.9 million in 2001 primarily as a
result of savings from the organizational realignment in the third quarter of
2000. Intangible asset amortization increased from $10.6 million in 2000 to
$12.8 million for 2001, primarily as a result of the amortization of goodwill
ascribed to acquired companies in 2000 and 2001. Other expenses were $4.9
million for 2001 compared to $6.6 million for 2000. Other expenses in 2001
include one-time transition expenses of $2.7 million related to recently
acquired businesses and $2.2 million related to the shutdown and reorganization
of facilities. Other expenses in 2000 include one-time transition expenses of
$2.2 million related to recent acquisitions, $3.7 million related to the
shutdown and reorganization of facilities, and $0.7 million of litigation
expenses related to a drink cup patent.
Interest expense, net. Net interest expense, including amortization of deferred
financing costs for 2001, was $54.4 million (12% of net sales) compared to $51.5
million (13% of net sales) in 2000, an increase of $2.9 million. This increase
was due to interest on borrowings related to the acquired businesses in 2000 and
2001 but was offset partially by principal reductions. Cash interest paid in
2001 was $44.2 million as compared to $32.8 million for 2000.
Income taxes. During fiscal 2001, we recorded an expense of $0.7 million for
income taxes compared to a benefit of $0.1 million for fiscal 2000. We continue
to operate in a net operating loss carryforward position for federal income tax
purposes.
Extraordinary item. As a result of amending our senior credit facility, $1.0
million of deferred financing and organization fees related to the facility was
charged to expense in 2000 as an extraordinary item.
Net loss. We recorded a net loss of $2.1 million in 2001 compared to a $23.1
million net loss in 2000 for the reasons stated above.
COMPARISON OF THE YEAR ENDED DECEMBER 30, 2000 TO THE YEAR ENDED JANUARY 1, 2000
Net sales. Net sales increased 24% to $408.1 million in 2000, up $79.3 million
from $328.8 million in 1999, including an approximate 5% increase in net selling
price due to increased raw material costs. Closure net sales increased $31.2
million due to the Poly-Seal acquisition and Capsol acquisition which provided
combined 2000 net sales of $32.3 million. Container sales increased $42.5
million, primarily due to the Cardinal acquisition and increased selling prices,
despite a large promotional program in 1999 that did not reoccur in 2000. Net
sales in the consumer division increased $5.6 million in 2000 primarily as a
result of a significant new drink cup and strong retail demand in housewares.
Gross margin. Gross margin increased $8.2 million or 9% from $87.8 million (27%
of net sales) in 1999 to $96.0 million (24% of net sales) in 2000. This increase
of 9% includes the combined impact of the added Poly-Seal, Capsol, and Cardinal
sales volume, acquisition integration, and productivity improvement initiatives
offset partially by the cyclical impact of higher raw material costs. The cost
of our primary raw material, resin, increased approximately 29% in 2000 when
compared to 1999. A major focus during this period and going forward was the
consolidation of products and business of recent acquisitions to the most
efficient tooling, providing customers with improved products and customer
service. As part of the integration, we closed our York, Pennsylvania facility
and removed remaining production from our Minneapolis, Minnesota facility
(acquired in the Cardinal acquisition) in the fourth quarter of 2000.
Additionally, we closed our Arlington Heights, Illinois facility (acquired in
the Knight acquisition) in the first quarter of 1999 and our Ontario, California
facility (acquired in the
34
Cardinal acquisition) in the third quarter of 1999. In addition, we made two
configuration changes that were completed in the fourth quarter of 1999 with the
Minneapolis, Minnesota and Iowa Falls, Iowa locations closing their molding
operations. The business from these locations are distributed throughout our
facilities. Also, significant productivity improvements were made during both
years, including the addition of state-of-the-art injection-molding equipment,
molds and printing equipment at several of our facilities.
Operating expenses. Operating expenses during 2000 were $65.9 million (16% of
net sales), compared with $54.1 million (16% of net sales) for 1999. Selling
expenses increased $4.2 million, almost all as a result of acquired businesses.
General and administrative expenses increased $2.4 million in 2000 primarily as
a result of recent acquisitions, but was partially offset by decreased accrued
bonus expenses. Research and development costs increased $0.3 million to $2.6
million in 2000 primarily as a result of increased new product requests from
customers and productivity improvement initiatives. Intangible asset
amortization increased from $7.2 million in 1999 to $10.6 million for 2000,
primarily as a result of the amortization of goodwill ascribed to acquired
companies in 1999 and 2000. Other expenses were $6.6 million for 2000 compared
to $5.1 million for 1999. Other expenses in 2000 include business start-up and
machine integration expenses of $2.2 million related to recent acquisitions,
plant consolidation expenses of $3.7 million related to the shutdown and
reorganization of facilities, and $0.7 million of litigation expenses related to
a drink cup patent. Other expenses in 1999 include business start-up and machine
integration expenses of $3.6 million related to recent acquisitions and plant
consolidation expenses of $1.5 million related to the shutdown and
reorganization of facilities.
Interest expense, net. Net interest expense, including amortization of deferred
financing costs for 2000, was $51.5 million (13% of net sales) compared to $40.8
million (12% of net sales) in 1999, an increase of $10.7 million. This increase
was due to interest on borrowings related to the acquired businesses in 1999 and
2000, but was offset partially by principal reductions. Cash interest paid in
2000 was $32.8 million as compared to $29.8 million for 1999.
Income taxes. During fiscal 2000, we recorded a benefit of $0.1 million for
income taxes compared to an expense of $0.6 million for fiscal 1999. We continue
to operate in a net operating loss carryforward position for federal income tax
purposes.
Extraordinary item. As a result of amending our senior credit facility, $1.0
million of deferred financing and origination fees related to the facility was
charged to expense in 2000 as an extraordinary item.
Net Loss. We recorded a net loss of $23.1 million in 2000 compared to a $9.1
million net loss in 1999 for the reasons stated above.
INCOME TAX MATTERS
As of December 29, 2001, BPC Holding had unused operating loss carryforwards of
$37.7 million for federal income tax purposes which begin to expire in 2010.
Alternative minimum tax credit carryforwards of approximately $3.1 million are
available to Holding indefinitely to reduce future years' federal income taxes.
As a result of the Acquisition, the amount of the carryforward which can be used
in any given year will be limited to approximately $12.0 million.
35
LIQUIDITY AND CAPITAL RESOURCES
BEFORE THE ACQUISITION
We have historically generally funded our ongoing obligations from cash flow
from operations, borrowings under our revolving credit facilities, term loans
and capital leases. We also incurred approximately $335.7 million of debt from
high yield bond issuances since 1994.
Net cash provided by operating activities was $17.0 million for the twenty-six
weeks ended June 29, 2002 compared to $30.9 million for the twenty-six weeks
ended June 30, 2001. The decrease is primarily the result of the $8.5 million
interest payment on the 1996 Notes and increased working capital.
Net cash used for investing activities decreased from $37.1 million for the
twenty-six weeks ended June 30, 2001 to $22.2 million for the twenty-six weeks
ended June 29, 2002 primarily as a result of the Pescor acquisition in the
twenty-six weeks ended June 30, 2001. Capital spending during the twenty-six
weeks ended June 29, 2002 of $17.7 million included $0.9 million for buildings
and systems, $6.1 million for molds, $8.4 million for molding and printing
machines, and $2.3 million for accessory equipment and systems.
Net cash provided by financing activities was $5.8 million for the twenty-six
weeks ended June 29, 2002 compared to $8.0 million for the twenty-six weeks
ended June 30, 2001. The decrease of $2.2 million can be attributed to decreased
borrowings due to the Pescor acquisition in the twenty-six weeks ended June 30,
2001.
Net cash provided by operating activities was $54.3 million in 2001 as compared
to $36.1 million in 2000. Net cash provided by operating activities was $36.0
million in 1999. The increase in 2001 was primarily the result of improved
operating performance as our net loss plus non-cash expenses improved $21.8
million.
Net cash used by investing activities decreased from $108.7 million in 2000 to
$56.3 million in 2001 due in part as a result of the Poly-Seal Acquisition in
2000. Capital expenditures in 2001 were $32.8 million, an increase of $1.3
million from $31.5 million in 2000. Capital expenditures totaled $30.7 million
in 1999.
Capital expenditures in 2001 included investments of $2.6 million for facility
renovations, production systems and offices necessary to support production
operating levels throughout the company, $16.3 million for molds, $8.2 million
for molding and printing machines, and $5.7 million for accessory equipment and
systems. The capital expenditure budget for 2002 is expected to be approximately
$38 million.
Net cash provided by financing activities was $0.6 million in 2001 as compared
to $72.0 million in 2000. The decrease of $71.4 million can be primarily
attributed to reduced acquisition related activities as noted above. Net cash
provided by financing activities was $71.1 million in 1999.
AFTER THE ACQUISITION
We intend to fund our ongoing obligations from cash flow from operations,
capital leases and borrowings under our $100.0 million revolving credit facility
and $50.0 million delayed draw term loan facility. In connection with the
Acquisition, we incurred a $330.0 million term loan and the outstanding notes.
Borrowings under our revolving credit facility and delayed draw term loan
facility will be subject to certain conditions described under "Description of
other indebtedness."
36
Our credit facilities contain significant financial and operating covenants,
including prohibitions on our ability to incur certain additional indebtedness
or to pay dividends, and restrictions on our ability to make capital
expenditures. Amounts available under the delayed draw term loan facility may be
borrowed (but not reborrowed) during the 18-month period beginning on July 22,
2002, provided that, among other things, no default or event of default exists
at the time of borrowing, and the leverage ratio is not in excess of 5.20:1.00
if the borrowing is made on or prior to June 29, 2003 or 5.00:1.00 if the
borrowing is made thereafter. Delayed draw term loans may only be made in
connection with permitted acquisitions.
The senior secured credit facilities also contain (i) a minimum interest
coverage ratio as of the last day of any quarter, beginning with the quarter
ending December 2002, of 2.00:1.00 per quarter through the quarter ending March
2004, 2.10:1.00 per quarter for the quarters ending June 2004 and September
2004, 2.15:1.00 per quarter for the quarters ending December 2004 and March
2005, 2.25:1.00 per quarter for the quarters ending June 2005 through the
quarter ending March 2006, 2.35:1.00 per quarter for the quarters ending June
2006 through the quarter ending December 2006 and 2.50:1.00 per quarter
thereafter, (ii) a maximum amount of capital expenditures (subject to the
rollover of certain unexpended amounts from the prior year) of $45 million for
the year ending 2002, $50 million for the years ending 2003 and 2004, $60
million for the years ending 2005, 2006 and 2007, and $65 million for each year
thereafter, and (iii) a maximum total leverage ratio as of the last day of any
quarter, beginning with the quarter ending December 2002, of 5.90:1.00 per
quarter through the quarter ending June 2003, 5.75:1.00 per quarter for the
quarters ending September 2003 through the quarter ending March 2004, 5.50:1.00
per quarter for the quarters ending June 2004 and September 2004, 5.25:1.00 per
quarter for the quarters ending December 2004 through the quarter ending June
2005, 5.00:1.00 per quarter for the quarters ending September 2005 and December
2005, 4.75:1.00 per quarter for the quarters ending March 2006 and June 2006,
4.50:1.00 per quarter for the quarters ending September 2006 through the quarter
ending March 2007, 4.25:1.00 per quarter for the quarters ending June 2007
through the quarter ending December 2007, and 4.00:1.00 per quarter thereafter.
Our credit facilities also contain borrowing conditions and customary events of
default, including nonpayment of principal or interest, violation of covenants,
inaccuracy of representations and warranties, cross-defaults to other
indebtedness, bankruptcy and other insolvency events (other than in the case of
certain foreign subsidiaries). The occurrence of a default, an event of default
or a material adverse effect on our company would result in our inability to
obtain further borrowings under our revolving credit facility and could also
result in the acceleration of our obligations under any or all of our credit
agreements, each of which could materially and adversely affect our business.
TERM LOAN/DELAYED DRAW TERM LOAN FACILITY/PREPAYMENT
The term loan will amortize quarterly as follows:
- $825,000 each quarter beginning September 30, 2002 and ending June 30,
2009; and
- $76,725,000 each quarter beginning September 30, 2009 and ending June
30, 2010.
The delayed draw term loan facility will amortize quarterly commencing March 31,
2004 based on the amounts outstanding as of that date as follows: (i) 2% per
quarter in 2004, (ii) 4% per quarter in 2005, (iii) 6% per quarter in 2006, (iv)
8% per quarter in 2007 and (v) 10% per quarter in each of the first two quarters
in 2008.
37
Borrowings and commitments under the senior secured facilities will be subject
to mandatory prepayment under specified circumstances, including some assets
sales and issuance of equity securities and from our excess cash flow (as
defined in our senior secured credit facilities).
There will be no required amortization of the revolving credit facility.
Outstanding borrowings under the revolving credit facility may be repaid at any
time, and may be reborrowed at any time prior to July 22, 2008. The revolving
credit facility will allow us to obtain up to $15 million of letters of credit
instead of borrowing and up to $10 million of swingline loans.
Our contractual cash obligations as of December 29, 2001, on a pro forma basis
to give effect to the Acquisition and the Mt. Vernon acquisition, are summarized
in the following table.
------------------------------------------------------------------------------------------
PAYMENTS DUE BY PERIOD AT DECEMBER 29, 2001
-------------------------------------------------
<1 1-3 4-5 >5
(DOLLARS IN THOUSANDS) TOTAL YEARS YEARS YEARS YEARS
------------------------------------------------------------------------------------------
Long-term debt, excluding capital
leases.............................. $583,000 $ 3,800 $ 7,600 $ 7,600 $564,000
Capital leases......................... 18,131 3,123 3,911 3,315 7,782
Operating leases....................... 24,065 7,594 10,521 5,219 731
Other long-term obligations............ 3,815 2,554 1,261 - -
-------------------------------------------------
Total contractual cash obligations..... $629,011 $17,071 $23,293 $16,134 $572,513
------------------------------------------------------------------------------------------
We believe that our existing working capital, borrowings available under our
revolving credit facility and internally generated funds should provide
sufficient resources to support current business activities. We expect to fund
acquisitions through our $50 million delayed draw term loan facility, the other
sources described above and to the extent required additional debt or equity
financing. To the extent we accelerate our growth plans, consummate acquisitions
or have lower than anticipated sales or increases in expenses, we may also need
to raise additional capital. In particular, increased working capital needs
occur whenever we consummate acquisitions or experience strong incremental
demand or there is a significant rise in the cost of raw materials, particularly
resin.
Our ability to make payments on and to refinance our indebtedness, including the
notes, and to fund planned capital expenditures and research and development
efforts will depend on our ability to generate cash in the future. This is
subject to general economic, financial, competitive, legislative, regulatory and
other factors that are beyond our control as well as factors described under
"Risk factors." We may need to refinance all or a portion of our indebtedness,
including the notes, on or before maturity. We cannot assure you that we will be
able to refinance any of our indebtedness, including our senior secured credit
facilities and the notes, on commercially reasonable terms or at all.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, which we adopted at the beginning of fiscal 2001. This pronouncement
establishes accounting and reporting standards for derivative financial
instruments and hedging activities. SFAS No. 133 requires, among other things,
us to recognize all derivatives as either assets or liabilities on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the
38
hedge, changes in its fair value are either offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through income or
recognized in accumulated other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value is immediately recognized in earnings. The adoption of SFAS No. 133 did
not have a material effect on our earnings and financial position.
In June 2001, the FASB issued SFAS No. 141, BUSINESS COMBINATIONS and SFAS No.
142, GOODWILL AND OTHER INTANGIBLE ASSETS. These pronouncements significantly
change the accounting for business combinations, goodwill, and intangible
assets. SFAS No. 142 eliminates the pooling-of-interests method of accounting
for business combinations and further clarifies the criteria to recognize
intangible assets separately from goodwill. The requirements of SFAS No. 142 are
effective for any business combination that is completed after June 30, 2001.
SFAS No. 142 states goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed for impairment annually (or more frequently if
impairment indicators arise). Separable intangible assets that are deemed to
have an indefinite life will continue to be amortized over their useful lives.
We adopted SFAS Nos. 141 and 142 as of the beginning of fiscal 2002. Prior to
reporting our second quarter results, we will perform the first of the required
impairment tests of goodwill and indefinite lived intangible assets.
In October 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS. This statement addresses the financial accounting
and reporting for the impairment and disposal of long-lived assets. It
supersedes and addresses significant issues relating to the implementation of
SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 144 retains many of the
fundamental provisions of SFAS No. 121 and establishes a single accounting
model, based on the framework established in SFAS No. 121, for long-lived assets
to be disposed of by sale, whether previously held and used or newly acquired.
We adopted this standard as of the beginning of fiscal 2002. The application of
SFAS No. 144 is not expected to have a material impact on our results of
operations and financial position.
INFLATION
We believe that we are not affected by inflation except to the extent that the
economy in general is thereby affected. Should inflationary pressures drive
costs higher, we believe that general industry competitive price increases would
sustain operating results, although we can give you no assurance that this will
be the case.
SEASONALITY
Our business is somewhat seasonal with a higher percentage of our sales
generally realized in the second and third quarters of the year. However, the
timing of acquisitions may impact the effects of seasonality on our business. We
build inventory throughout the fourth and first quarters of each year to satisfy
the seasonal demands of the spring and summer months when consumption increases.
39
BUSINESS
GENERAL
We are one of the world's leading manufacturers and suppliers of a diverse mix
of injection-molded plastics packaging products focusing on the open-top
container, closure, aerosol overcap, drink cup and housewares markets. We sell a
broad product line to over 12,000 customers. We concentrate on manufacturing
higher quality, value-added products sold to image-conscious marketers of
institutional and consumer products. We believe that our large operating scale,
low-cost manufacturing capabilities, purchasing leverage, proprietary
thermoforming technology and extensive collection of over 1,000 active
proprietary molds provide us with a competitive advantage in the marketplace. We
have been able to leverage our broad product offering, value-added manufacturing
capabilities and long-standing customer relationships into leading positions
across a number of products. We believe that over 60% of our 2001 revenues were
generated from the sale of products that held a number one position relative to
competing injection-molded products. Our products are primarily sold to
customers in industries that exhibit relatively stable demand characteristics
and are considered less sensitive to overall economic conditions, such as
pharmaceuticals, food, dairy and health and beauty. Additionally, we operate 13
high-volume manufacturing facilities and have extensive distribution
capabilities.
We organize our product categories into three business divisions: containers;
closures; and consumer products. The following table displays our net sales by
division for each of the past five fiscal years.
-------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS) 1997 1998 1999 2000 2001
-------------------------------------------------------------------------------------------
Containers..................................... $124.8 $154.0 $188.7 $231.2 $234.4
Closures....................................... 47.1 56.4 81.0 112.2 132.4
Consumer products.............................. 55.1 61.4 59.1 64.7 94.8
------------------------------------------
Total net sales.............................. $227.0 $271.8 $328.8 $408.1 $461.6
-------------------------------------------------------------------------------------------
COMPETITIVE STRENGTHS
We believe that our consistent financial performance is the direct result of the
following competitive strengths:
LEADING POSITIONS ACROSS A BROAD PRODUCT OFFERING. We believe that over 60% of
our fiscal 2001 sales were in product categories in which we were the nation's
leading supplier relative to competing injection-molded products, including:
- thinwall open-top containers; pry-off open-top containers;
- aerosol overcaps;
- drink cups; and
- seasonal semi-disposable housewares.
We use over 1,000 proprietary molds to provide our customers with a wide range
of products, which favorably positions us to benefit from ongoing vendor
consolidation among our
40
customers. We believe that our extensive product offerings, market experience,
product quality and focus on customer satisfaction allow us to maintain and grow
our positions in our key businesses.
SIGNIFICANT SCALE RESULTING IN LOW-COST POSITION AND STRONG CASH FLOW. We are
one of the largest domestic manufacturers and suppliers of injection-molded
plastics packaging products, and we have reported ten consecutive years of
positive year-over-year growth in net sales and Adjusted EBITDA. In addition,
our low-cost manufacturing position allowed us to generate Adjusted EBITDA
margins of approximately 20% or better in each of the last four fiscal years and
an Adjusted EBITDA margin of 23.6% on a pro forma basis for the fifty-two weeks
ended June 29, 2002. We believe our size enables us to achieve superior
operating efficiencies and financial results through several scale-driven
advantages:
- Large, high-volume manufacturing equipment results in lower unit
production costs than many of our competitors. For example, our largest
injection-molded presses can produce as many as thirty-two 32-ounce drink
cups per molding cycle versus a typical competitor's press that can only
produce 12 to 24 cups of this size.
- Flexible, cross-facility and cross-product manufacturing capabilities
further lower our unit-production costs as a result of higher capacity
utilization and longer production runs.
- Enhanced purchasing power lowers our cost of raw materials such as
resin.
- Broad, low-cost distribution capabilities, as a result of the strategic
location of our manufacturing facilities near our customers, reduce
shipping costs. We operate 11 manufacturing facilities in the United
States and two facilities in Western Europe.
- Modern and extensive post-molding capabilities, including printing,
silk screening, lining, hot stamping, labeling, assembly, packing and
distribution enable us to tailor products to our clients' needs and
produce higher value-added products.
- Our ability to produce high volumes of a wide variety of products
favorably positions us to capitalize on the ongoing trend toward vendor
consolidation.
ABILITY TO PASS THROUGH CHANGES IN THE COST OF RESIN. The majority of our
revenues are derived from customers to which we are able to pass through changes
in the costs of resin, the principal raw material used in manufacturing our
products. We have contractual price escalators and de-escalators tied to the
price of resin representing approximately 40% of net sales that result in price
increases to many of our customers in a relatively short period of time,
typically quarterly. In addition, we have experienced high success rates in
quickly passing through price increases and decreases in the price of resin to
customers without indexed price agreements. Pricing flexibility is enhanced by
the fact that our products typically represent a very small component of the
overall cost of production for the end customer. Fewer than 10% of our net sales
are generated from fixed-price arrangements, and we have at times entered into
negotiated purchase agreements with resin suppliers to lock in the cost of resin
related to these fixed-price arrangements. We can further mitigate the effect of
resin price movements through our ability to accommodate raw material switching
for certain products between HDPE and PP as prices fluctuate. We estimate that
we pass on approximately 75% of an increase in the price of resin within the
first three months, and the remainder within one year of the price increase. For
example, in 2000, the price of resin increased significantly and we estimate
that we were able to pass on approximately 85% of the increase to our customers
during 2000.
41
LARGE, DIVERSE AND STABLE CUSTOMER BASE. We sell our products to over 12,000
customers that are principally engaged in industries that are considered to be
generally less sensitive to changing economic conditions, including dairy, food,
health and beauty and pharmaceuticals. We believe that this provides us with a
stable client base that is generally less affected by economic market
fluctuations. In addition, our sales force of over 50 dedicated professionals
focuses on working with customers to develop customized packaging and allows us
to maintain close working relationships with our clients. The average length of
our relationship with our top 10 customers in fiscal 2001 was over 15 years. We
also believe that we are the single-source or largest supplier of plastic
aerosol overcaps, containers and drink cups to a majority of our customers. Our
top ten customers represented approximately 20% of our fiscal 2001 net sales
with no customer accounting for more than 5% of our fiscal 2001 net sales.
PROVEN ABILITY TO INTEGRATE STRATEGIC ACQUISITIONS. We have successfully
integrated 15 acquisitions since 1992. We maintain a selective and disciplined
acquisition strategy, which is focused on improving our financial performance in
the long-term and expanding our product lines or, in some cases, providing us
with a new or complementary product line. For example, the acquisition of
Poly-Seal in 2000 enabled us to enter the United States closures business, which
now represents approximately 10% of our net sales. We have historically achieved
significant reductions in manufacturing and overhead costs of acquired companies
by introducing advanced manufacturing processes, exiting low-margin businesses
or product lines, reducing headcount, rationalizing facilities and tools,
applying best practices and capitalizing on economies of scale. We estimate the
weighted average EBITDA margin of the 11 businesses we acquired since the
beginning of 1997 was approximately 13% during the year prior to acquisition,
while our overall business, including the businesses we acquired, has achieved
Adjusted EBITDA margins of approximately 20% or better in each of the last four
fiscal years.
UNIQUE, PROPRIETARY THERMOFORMING DRINK CUP MANUFACTURING PROCESS. Over a period
of several years, we have invested approximately $17 million to develop and
implement a proprietary thermoforming molding process utilizing polypropylene
that enables us to produce large drink cups (22-ounce to 44-ounce) at a lower
cost than competitors that use polystyrene in thermoform production. This cost
advantage is driven by the fact that polypropylene typically costs approximately
20% less per pound than polystyrene. We are the only producer in North America
capable of thermoforming polypropylene in high cavitation, deep draw molds for
large drink cups. The core elements of this in-line process include continuous
feed, high cavitation, high output and deep-draw technology. Our thermoformed
polypropylene cups, like our injection-molded cups, offer a number of advantages
over traditional paper, including decreased sogginess, increased rigidity,
unique designs and the ability for larger size cups to fit into automobile cup
holders. Our thermoforming production line is currently operating at full
capacity and we expect to introduce additional capacity in the third quarter of
2002, enabling us to leverage our proprietary manufacturing technique to further
penetrate the market. Existing customers driving demand of our thermoformed
drink cups include Aramark, Hardee's, Wendy's and Applebee's.
PROVEN AND MOTIVATED MANAGEMENT TEAM. The five members of our senior management
team provide significant packaging expertise, with an average of 15 years of
experience with us, including companies acquired by us, and an average of 18
years of industry experience. The senior management team includes President and
CEO Ira Boots, who has been with us for 24 years, and CFO Jim Kratochvil, who
has been with us for 17 years. This team has been responsible for developing and
executing our strategy that has generated a track record of growth and strong
cash flow. Additionally, the team has extensive experience in developing
42
and maintaining customer relationships, expanding product offerings and
implementing innovative technological manufacturing enhancements. The senior
management team is investing approximately 70% of their net proceeds from the
Acquisition in the company and the management team as a whole will own, or have
the right to acquire, over 15% of the company on a fully diluted basis upon
completion of the Acquisition.
BUSINESS STRATEGY
Our goal is to maintain and enhance our market position and leverage our core
strengths to increase profitability. Our strategy to achieve this goal includes
the following elements:
INCREASE SALES TO OUR EXISTING CUSTOMERS. We believe we have significant
opportunities to increase sales to our over 12,000 existing customers as we
expand our product portfolio and extend our existing product lines. For example,
our container and closures divisions are penetrating new markets with new
products such as tamper-resistant lids and child-resistant closures. Also, we
recently introduced a leak-proof milk jug closure to the dairy market at the
request of one of our customers. This product has been rapidly accepted by our
customers, and as a result, we have already reached full production capacity and
are adding additional capacity. We believe our broad and growing product lines
will allow us to capitalize on the corporate consolidation occurring among our
customers and the continuing consolidation of their vendor relationships. With
our extensive manufacturing capabilities, product breadth and national
distribution capabilities, we can provide our customers with a cost-effective,
single source from which to purchase substantially all of their injection-molded
plastic packaging products. For example, after many years serving as Marigold
Foods' primary supplier for its institutional dairy packaging products, we
recently were awarded Marigold's business to supply its retail dairy packaging
needs, thereby making us their single source supplier for dairy packaging.
AGGRESSIVELY PURSUE NEW CUSTOMERS. We intend to aggressively pursue new customer
relationships in order to drive additional growth. We believe that our large
direct sales force, our ability to offer new customers a cost effective, single
source from which to purchase substantially all of their injection-molded
plastic packaging products and our proven ability to create innovative new
products do position us well to continue growing and diversifying our customer
base. For example, our proprietary thermoforming process, which offers a
substantial competitive advantage with respect to cost, was introduced to the
drink cup market in the first half of 2001 and has been highly successful to
date in allowing us to win new customer relationships, including Hardee's and
Jack in the Box. We believe there is a significant growth opportunity from our
thermoforming process in both drink cups and in a variety of container
applications.
CONTINUE TO EFFECTIVELY MANAGE COSTS. We continually focus on reducing our costs
in order to maintain and enhance our low-cost position. We employ a number of
cost-reducing strategies including:
- leveraging our increasing scale to reduce resin costs;
- reinvesting capital into our manufacturing processes to maintain
technological leadership and achieve productivity gains; focusing on ways
to streamline operations through plant and overhead rationalization; and
- monitoring and rationalizing the number of vendors from which we
purchase nonresin materials in order to increase our purchasing power.
43
We expect to continue to increase the size of our business and our operating
efficiencies through both organic growth and selective acquisitions.
SELECTIVELY PURSUE STRATEGIC ACQUISITIONS IN OUR CORE BUSINESSES. We believe
that there is significant opportunity for future growth through selective
acquisitions given the high degree of industry fragmentation and the increasing
trend of our customers to focus on fewer key vendors. As a result of our scale
and prior successes in acquiring and integrating acquisitions, we believe that
we are well-positioned to capitalize on potential future acquisition
opportunities in new and existing product lines. We intend to continue to apply
a selective and disciplined acquisition strategy, which is focused on improving
our financial performance in the long-term and expanding our product lines or,
in some cases, providing us with a new or complementary product line and we
regularly evaluate potential acquisition candidates that we believe could fit
our strategy, which may or may not be material in size and scope.
PRODUCT OVERVIEW
We organize our product lines into three categories: containers, closures and
consumer products.
CONTAINERS
We classify our containers into six product lines: thinwall, pry-off, dairy,
industrial, polypropylene and specialty. We believe that we have leading
positions in key injection-molded plastic container segments including thinwall
(household products and food) and pry-off (building materials), as well as
strong positions in frozen dessert (ice cream and yogurt) and clear
polypropylene (high value food and consumer applications). The following table
describes our container product lines.
PRODUCT LINE DESCRIPTION SIZES MAJOR END-USES
------------ ----------- ----- --------------
Thinwall Thinwalled, multi-purpose 8 oz. to 2 gallons Food, promotional products,
containers with or without toys and a wide variety of
handles and lids other uses
Pry-off Containers having a tight 4 oz. to 2 gallons Building products,
lid-fit and requiring an adhesives, chemicals and
opening device other industrial uses
Dairy Thinwall containers in 4 oz. to 5 lbs. Cultured dairy products,
traditional dairy market Multi-pack including yogurt, cottage
sizes and styles cheese, sour cream and dips
and frozen desserts
Polypropylene Usually clear containers in 6 oz. to 5 lbs Food, deli, sauces and
round, oblong or salads
rectangular shapes
Industrial Thick-walled, larger pails 2.5 to 5 gallons Building products,
designed to accommodate chemicals, paints and other
heavy loads industrial uses
Specialty Customer specific Various Premium consumer items,
such as tobacco and drink
mixes
The largest end-uses for our containers are food products, building products,
chemicals and dairy products. We have a diverse customer base for our container
lines, and no single container customer exceeded 4% of our total net sales in
fiscal 2001.
44
We believe that we offer the broadest product line among U.S.-based
injection-molded plastic container manufacturers. Our container capacities range
from 4 ounces to 5 gallons and are offered in various styles with accompanying
lids, bails and handles, some of which we produce, as well as a wide array of
decorating options. In addition to a complete product line, we have
sophisticated printing capabilities, an in-house graphic arts department,
low-cost manufacturing capability with eleven plants strategically located
throughout the United States and a dedication to high-quality products and
customer service. Our product engineers work with customers to design and
commercialize new containers. In addition, as part of our dedication to customer
service, on occasion, we provide filling machine equipment to some of our
customers, primarily in the dairy market, and we also provide the services
necessary to operate such equipment. We believe providing such equipment and
services increases customer retention by increasing the customer's production
efficiency. The cost of, and revenue from, such equipment is not material.
We seek to develop niche container products and new applications by taking
advantage of our state-of-the-art decorating and graphic arts capabilities and
dedication to service and quality. We believe that these capabilities have given
us a significant competitive advantage in certain high-margin niche container
applications for specialized products. Examples include popcorn containers for
new movie promotions and professional and college sporting and entertainment
events, where the ability to produce sophisticated and colorful graphics is
crucial to the product's success. In order to identify new applications for
existing products, we rely extensively on our national sales force. Once these
opportunities are identified, our sales force interfaces with our product design
engineers to satisfy customers' needs.
In non-industrial containers, our strongest competitors include Airlite,
Sweetheart, Landis, and Polytainers. We also produce commodity industrial pails
for a market that is dominated by large volume competitors such as Letica,
Plastican, NAMPAC and Ropak. We do not participate heavily in this large market.
CLOSURES
Our closures division focuses on aerosol overcaps and closures.
AEROSOL OVERCAPS
We believe we are the worldwide leading producer of injection-molded aerosol
overcaps. Our aerosol overcaps are used in a wide variety of consumer goods
including spray paints, household and personal care products, insecticides and
numerous other commercial and consumer products. Most U.S. manufacturers of
aerosol products, and companies that fill aerosol products on a contractual
basis, are our customers for some portion of their needs.
Approximately 19% of the U.S. injection-molded market consists of manufacturers
who produce overcaps in-house for their own needs. We believe that a portion of
these in-house producers will increase the outsourcing of their production to
high-technology, low-cost manufacturers, such as us, as a means of reducing
manufacturing assets and focusing on their core marketing objectives.
We believe that, over the years, we have developed several significant
competitive advantages, including (i) a reputation for outstanding quality, (ii)
short lead-time requirements to fill customer orders, (iii) long-standing
relationships with major customers, (iv) the ability to accurately reproduce
over 3,500 colors, (v) proprietary packing technology that minimizes freight
cost and warehouse space, (vi) high-speed, low-cost molding and decorating
capability
45
and (vii) a broad product line of proprietary molds. We continue to develop new
products in the overcap market, including a "spray-thru" line of aerosol
overcaps that has a built-in release button.
In fiscal 2001, no single aerosol overcap customer accounted for over 2% of our
total net sales. Competitors include Dubuque Plastics, Cobra and Plasticum. In
addition, a number of companies, including several of our customers, currently
produce aerosol overcaps for their own use.
CLOSURES
We believe our combined product line offerings to the closures market establish
us as a leading provider of closures. Our product line offerings include
continuous thread, dispensing, tamper evident, and child resistant closures. In
addition, we are a leading provider of (i) fitments and plugs for medical
applications, (ii) cups and spouts for liquid laundry detergent, (iii) dropper
bulb assemblies for medical and personal care applications and (iv) jiggers for
mouthwash products.
Our closures are used in a wide variety of consumer goods markets, including
health and beauty aids, pharmaceutical, household chemicals, commercial
chemicals, and food and dairy. We are a major provider of closures to many of
the leading companies in these markets.
We believe the capabilities and expertise we have established as a closure
provider create significant competitive advantages, including the latest in
single and bi-injection technology, molding of thermoplastic and thermoset
resins, compression molding of thermoplastic resins, and lining and assembly
applications applying the latest in computerized vision inspection technology.
In addition, we have an in-house package development and design group focused on
developing new closures to meet customers' proprietary needs. We have a strong
reputation for quality and have received numerous "Supplier Quality Achievement
Awards" from customers in different markets.
In fiscal 2001, no single closure customer accounted for over 2% of our total
net sales. Competitors include Owens-Illinois, Kerr/Suncoast, Phoenix Closures,
Portola, Rexam Closures and Seaquist Closures.
CONSUMER PRODUCTS
Our consumer product division focuses on drink cups and housewares.
DRINK CUPS
We believe that we are the largest provider of injection-molded plastic drink
cups in the U.S. As beverage producers, convenience stores and fast food
restaurants increase their marketing efforts for larger sized drinks, we believe
that the plastic drink cup market will expand because of plastic's desirability
over paper for larger drink cups. We produce injection-molded plastic cups that
range in size from 12 to 64 ounces. Primary markets are fast food and family
dining restaurants, convenience stores, stadiums, and retail stores. Virtually
all cups are decorated, often as promotional items, and we are known in the
industry for our innovative, state-of-threat graphics capability.
We launched our thermoformed drink cup line in fiscal 2001. Our thermoformed
product line offers sizes ranging from 22 to 44 ounces. Our thermoform process
is unique in the industry in that it uses polypropylene instead of more
expensive polystyrene in producing deep draw drink
46
cups. This offers a material competitive advantage versus competitive
thermoformed drink cups.
In fiscal 2001, no single drink cup customer accounted for more than 5% of our
total net sales. Drink cup competitors include Huhtamaki (formerly Packaging
Resources Incorporated) and WNA (formerly Cups Illustrated).
HOUSEWARES
Our participation in the housewares market is focused on producing seasonal
(spring and summer) semi-disposable plastic housewares and plastic garden
products. Examples of our products include plates, bowls, pitchers, tumblers and
outdoor flowerpots. We sell virtually all of our products in this market through
major national retail marketers and national chain stores, such as Wal-Mart.
PackerWare is our recognized brand name in these markets and PackerWare branded
products are often co-branded by our customers.
Our position in this market has been to provide high value to consumers at a
relatively modest price, consistent with the key price points of the retail
marketers. We believe outstanding service and ability to deliver products with
timely combination of color and design further enhance our position in this
market. This focus allowed PackerWare to be named Wal-Mart's category manager
for its seasonal housewares department.
In fiscal 2001, no single housewares customer accounted for more than 5% of our
total net sales. Housewares competitors include imported products from China,
Arrow Plastics and United Plastics.
MARKETING AND SALES
We reach our large and diversified base of over 12,000 customers primarily
through our direct field sales force of over 50 dedicated professionals. Our
field sales, production and support staff meet with customers to understand
their needs and improve our product offerings and services. While these field
sales representatives are focused on individual product lines, they are also
encouraged to sell all our products to serve the needs of our customers. We
believe that a direct field sales force is able to better focus on target
markets and customers, with the added benefit of permitting us to control
pricing decisions centrally. We also utilize the services of manufacturing
representatives to assist our direct sales force.
We believe that we produce a high level of customer satisfaction. Highly skilled
customer service representatives are located in each of our facilities to
support the national field sales force. In addition, telemarketing
representatives, marketing managers and sales/marketing executives oversee the
marketing and sales efforts. Manufacturing and engineering personnel work
closely with field sales personnel to satisfy customers' needs through the
production of high-quality, value-added products and on-time deliveries.
Our sales force is supported by technical specialists and our in-house graphics
and design personnel. Our Graphic Arts department includes computer-assisted
graphic design capabilities and in-house production of photopolymer printing
plates. We also have a centralized Color Matching and Materials Blending
department that utilizes a computerized spectrophotometer to insure that colors
match those requested by customers.
47
MANUFACTURING
We primarily manufacture our products using the plastic injection-molding
process. The process begins when plastic resin, in the form of small pellets, is
fed into an injection-molding machine. The injection-molding machine then melts
the plastic resin and injects it into a multi-cavity steel mold, forcing the
plastic resin to take the final shape of the product. At the end of each molding
cycle (generally five to 25 seconds), the plastic parts are ejected from the
mold into automated handling systems from which they are packed in corrugated
containers for further processing or shipment. After molding, the product may be
either decorated (printing, silkscreening, labeling) or assembled (e.g., bail
handles fitted to containers). We believe that our molding and post-molding
capabilities are among the best in the industry.
In 2001, after several years of development, we introduced our proprietary
thermoforming molding process that enables us to mass-produce large drink cups
(22-ounce to 44-ounce) less expensively than our competitors. The thermoforming
machine used in our process was built by a third-party manufacturer to standard
specifications. We modified the machine on-site in order to produce
high-cavitation, deep draw cups using our process. These modifications were made
without the help of outside consultants. There are currently three manufacturers
that build basic thermoforming machines that we can modify to produce deep draw
cups made from polypropylene. The company that built our initial thermoforming
machine has declared bankruptcy and a new manufacturer is building our next
thermoforming machine, which is scheduled to be delivered to us in the third
quarter of 2002.
Our overall manufacturing philosophy is to be a low-cost producer by using (i)
high-speed molding machines, (ii) modern multi-cavity hot runner, cold runner
and insulated runner molds, (iii) extensive material handling automation and
(iv) sophisticated printing technology. We utilize state-of-the-art robotic
packaging processes for large volume products, which enables us to reduce
breakage while lowering warehousing and shipping costs. Each plant has complete
tooling maintenance capability to support molding and decorating operations. We
have historically made, and intend to continue to make, significant capital
investments in plant and equipment because of our objectives to improve
productivity, maintain competitive advantages and foster continued growth. Over
the past five fiscal years our capital expenditures in plant and equipment,
exclusive of acquisitions, were $134.5 million.
RESEARCH AND PRODUCT DEVELOPMENT AND DESIGN
We believe our technology base and research and development support are among
the best in the rigid plastics packaging industry. Our full-time product
engineers use three-dimensional computer-aided-design (CAD) technology to design
and modify new products and prepare mold drawings. In addition, our engineers
use an in-house model shop, which includes a thermoforming machine, to produce
prototypes and sample parts. We can simulate the molding environment by running
unit-cavity prototype molds in a small injection-molding machine dedicated to
research and development of new products. Production molds are then designed and
outsourced for production by various companies with which we have extensive
experience and established relationships. Our engineers oversee the
mold-building process from start to finish. Many of our customers work in
partnership with our technical representatives to develop new, more competitive
products. We have enhanced our relationships with these customers by providing
the technical service needed to develop products combined with our internal
graphic arts support.
48
We spent $1.9 million, $2.6 million and $2.3 million on research and development
in 2001, 2000, and 1999, respectively, and $1.3 million in the first two
quarters of 2002.
We also utilize our in-house graphic design department to develop color and
styles for new products. Our design professionals work directly with our
customers to develop new styles and use computer-generated graphics to enable
our customers to visualize the finished product.
QUALITY ASSURANCE
Each plant extensively utilizes Total Quality Management philosophies, including
the use of statistical process control and extensive involvement of employees to
increase productivity. This teamwork approach to problem-solving increases
employee participation and provides necessary training at all levels. The
Evansville, Henderson, Iowa Falls, Charlotte, Lawrence, Suffolk, Monroeville,
Woodstock, Streetsboro, Baltimore, and Milan plants have been ISO certified,
which demonstrates compliance by a company with a set of shipping, trading and
technology standards promulgated by the International Standardization
Organization ("ISO"). We are actively pursuing ISO certification in all of our
remaining facilities. Extensive testing of parts for size, color, strength and
material quality using statistical process control (SPC) techniques and
sophisticated technology is also an ongoing part of our quality assurance
activities.
SYSTEMS
We utilize a fully integrated computer software system at each of our plants
that produces complete financial and operational reports. This accounting and
control system is easily expandable to add new features and/or locations as we
grow. In addition, we have in place a sophisticated quality assurance system, a
bar code based material management system and an integrated manufacturing
system.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The most important raw material purchased by us is plastic resin. We purchased
approximately $110.5 million of resin in fiscal 2001. Approximately 50% of the
resin pounds purchased were high density polyethylene ("HDPE"), 13% linear low
density polyethylene and 37% polypropylene. Polypropylene is generally a lower
cost material than polyethylene. The price of these materials is subject to
cyclical fluctuation. Based on information from Plastics News, the price of
polypropylene ranged from $0.27 to $0.44 per pound between 1997 and 2001 and the
price of HDPE ranged from $0.285 to $0.465 per pound during that period. HDPE
averaged approximately five cents per pound less than polypropylene during 2001,
according to information from industry sources. We are able to pass through
price changes through contractual price escalators and de-escalators tied to raw
material costs and due to the relatively short lead time we have in implementing
price changes to our other customers without such contracts. Fewer than 10% of
our net sales are generated from fixed-price arrangements, and we have at times
and may continue to enter into negotiated purchase agreements with resin
suppliers related to these fixed price arrangements. We estimate we pass on
approximately 85% of an increase in the price of resin within the first three
months, and the remainder within one year of the price increase. For example, in
2000, the price of resin increased significantly and we estimate that we were
able to pass on approximately 85% of the increase to our customers during that
calendar year.
Our purchasing strategy is to deal with only high-quality, dependable suppliers,
such as Dow, Chevron, Nova, Equistar, and ExxonMobil. Although we do not have
any supply requirements
49
contracts with our key suppliers, we believe that we have maintained strong
relationships with these key suppliers and expect that such relationships will
continue into the foreseeable future. Based on our experience, we believe that
adequate quantities of plastic resins will be available at market prices, but we
can give you no assurances as to such availability or the prices thereof.
EMPLOYEES
As of June 29, 2002, we had approximately 3,300 employees. Poly-Seal
Corporation, a wholly owned subsidiary, and the United Steelworkers of America
are parties to a collective bargaining agreement which expires on April 24,
2005. As of June 29, 2002, approximately 350 employees of Poly-Seal Corporation,
all of which are located in our Baltimore facility, were covered by this
agreement. None of our other employees are covered by collective bargaining
agreements. We believe our relations with our employees are good.
PATENTS AND TRADEMARKS
We rely on a combination of patents, trade secrets, unpatented know-how,
trademarks, copyrights and other intellectual property rights, nondisclosure
agreements and other protective measures to protect our proprietary rights. We
do not believe that any individual item of our intellectual property portfolio
is material to our current business. We employ various methods, including
confidentiality and non-disclosure agreements with third parties, employees and
consultants, to protect our trade secrets and know-how. We have licensed, and
may license in the future, patents, trademarks, trade secrets, and similar
proprietary rights to and from third parties.
PROPERTIES
Our principal executive offices are located at 101 Oakley Street, Evansville,
Indiana 47710.
We own most of the real property used in our operations. We believe that our
properties and equipment are in good operating condition and are adequate for
our present needs.
The following table sets forth our principal manufacturing facilities:
-----------------------------------------------------------------
APPROXIMATE
SQUARE OWNED/
LOCATION ACRES FOOTAGE USE LEASED
-----------------------------------------------------------------
Evansville, IN 18.7 420,000 Headquarters and Owned
manufacturing
Evansville, IN 2.8 123,000 Manufacturing Leased
Henderson, NV 12.3 175,000 Manufacturing Owned
Iowa Falls, IA 14.0 100,000 Manufacturing Owned
Charlotte, NC 37.3 150,000 Manufacturing Owned
Lawrence, KS 19.3 500,000 Manufacturing Owned
Suffolk, VA 14.0 110,000 Manufacturing Owned
Monroeville, OH 34.7 220,000 Manufacturing Owned
Norwich, England 5.0 88,000 Manufacturing Owned
Woodstock, IL 11.7 170,000 Manufacturing Owned
Streetsboro, OH 12.0 140,000 Manufacturing Owned
50
-----------------------------------------------------------------
APPROXIMATE
SQUARE OWNED/
LOCATION ACRES FOOTAGE USE LEASED
-----------------------------------------------------------------
Baltimore, MD 9.9 225,000 Manufacturing Owned
Milan, Italy 11.6 125,000 Manufacturing Leased
Fort Worth, TX 9.8 160,000 Manufacturing Leased
-----------------------------------------------------------------
ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION
Our past and present operations and our past and present ownership and
operations of real property are subject to extensive and changing federal,
state, local and foreign environmental laws and regulations pertaining to the
discharge of materials into the environment, the handling and disposition of
wastes or otherwise relating to the protection of the environment. We believe
that we are in substantial compliance with applicable environmental laws and
regulations. However, we cannot predict with any certainty that we will not in
the future incur liability under environmental statutes and regulations with
respect to non-compliance with environmental laws, contamination of sites
formerly or currently owned or operated by us (including contamination caused by
prior owners and operators of such sites) or the off-site disposal of hazardous
substances.
Like any manufacturer, we are subject to the possibility that we may receive
notices of potential liability in connection with materials that were sent to
third-party recycling, treatment, and/or disposal facilities under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
and comparable state statutes, which impose liability for investigation and
remediation of contamination without regard to fault or the legality of the
conduct that contributed to the contamination. Liability under CERCLA is
retroactive and joint and several.
The FDA regulates the material content of direct-contact food containers and
packages, including certain thinwall containers we manufacture pursuant to the
Federal Food, Drug and Cosmetics Act. Certain of our products are also regulated
by the Consumer Product Safety Commission ("CPSC") pursuant to various federal
laws, including the Consumer Product Safety Act. Both the FDA and the CPSC can
require the manufacturer of defective products to repurchase or recall such
products and may also impose fines or penalties on the manufacturer. Similar law
exists in some states, cities and other countries in which we sell our products.
In addition, laws exist in certain states restricting the sale of packaging with
certain levels of heavy metals, imposing fines and penalties for non-compliance.
Although we use FDA approved resins and pigments in containers that directly
contact food products and believe they are in material compliance with all such
applicable FDA regulations, and we believe our products are in material
compliance with all applicable requirements, we remain subject to the risk that
our products could be found not to be in compliance with such requirements.
The plastics industry, including us, is subject to existing and potential
federal, state, local and foreign legislation designed to reduce solid wastes by
requiring, among other things, plastics to be degradable in landfills, minimum
levels of recycled content, various recycling requirements, disposal fees and
limits on the use of plastic products. In addition, various consumer and special
interest groups have lobbied from time to time for the implementation of these
and other similar measures. The principal resins used in our products, HDPE and
polypropylene, are recyclable, and, accordingly, we believe that the legislation
promulgated to date and such initiatives to date have not had a material adverse
effect on us. There can be no assurance that any such future legislative or
regulatory efforts or future initiatives would not have a material
51
adverse effect on us. On January 1, 1995, legislation in Oregon, California and
Wisconsin went into effect requiring products packaged in rigid plastic
containers to comply with standards intended to encourage recycling and
increased use of recycled materials. Although the regulations vary by state,
they principally require the use of post consumer regrind ("PCR") as an
ingredient in containers or the reduction of their weight. These regulations do
not apply to food, cosmetic or drug containers. Oregon and California provide
for an exemption from these regulations if statewide recycling rates for rigid
plastic containers reach or exceeds 25%. We assist our customers in complying
with these regulations.
Oregon's aggregate recycling rate for rigid plastic containers has exceeded the
25% goal since the effective date of the law, and the Oregon Department of
Environmental Quality has estimated that Oregon will continue to exceed the 25%
goal for the foreseeable future. Therefore, rigid plastic containers are exempt
from the requirements of the Oregon statute. However, California has failed to
reach its 25% recycling rate goal for rigid plastic containers since 1996.
Accordingly, California has been enforcing its recycled content requirements on
non-food plastic containers from eight ounces to five gallons. In order to
facilitate individual customer compliance with these regulations, we are
providing customers the option of purchasing containers with limited amounts of
PCR or reduced weight.
LEGAL PROCEEDINGS
We are a defendant in a lawsuit brought by Cobra Plastics, a competitor,
alleging that we engaged in antitrust violations in our alleged aerosol overcap
market. The antitrust lawsuit was filed in June 2002 shortly after we filed a
patent infringement lawsuit against the antitrust plaintiff. There have been no
material proceedings or discovery in the litigation to date. We intend to
vigorously defend against the allegations of the antitrust lawsuit and believe
that it will not have a material adverse effect on our financial condition. On
July 8, 2002, a complaint was filed against us by Aptargroup, Inc. and Seaquist
Closures Foreign, Inc. alleging infringement of an Aptar patent relating to
certain plastic closures which accounted for less than 1% of our net sales in
fiscal 2001. The complaint has not yet been served on us. We are investigating
the matter and intend to vigorously defend against the allegations contained in
the complaint and believe that it will not have a material adverse effect on our
financial condition. We recently received a letter alleging infringement of a
Plas-Tool Company patent relating to certain plastic lids which accounted for
less than 0.5% of our net sales in fiscal 2001. We believe the claim has no
merit and intend to vigorously defend against the allegations in the letter. We
are party to other legal proceedings arising in the normal course of business
that we believe, based on available information, will not have a material
adverse effect on our financial condition.
52
MANAGEMENT
Our directors and executive officers and their ages, are as follows:
---------------------------------------------------------------------------------------------------
NAME AGE TITLE
---------------------------------------------------------------------------------------------------
Ira G. Boots 48 President, Chief Executive Officer, and Director
James M. Kratochvil 45 Executive Vice President, Chief Financial Officer, Treasurer
and Secretary
R. Brent Beeler 49 Executive Vice President and General Manager-Containers
William J. Herdrich 52 Executive Vice President and General Manager-Closures
Bruce J. Sims 53 Executive Vice President and General Manager-Consumer
Products
Joseph H. Gleberman 44 Chairman of the Board
Christopher C. Behrens 41 Director
Patrick J. Dalton 34 Director
Douglas F. Londal 36 Director
Mathew J. Lori 38 Director
---------------------------------------------------------------------------------------------------
Ira G. Boots has been our President and Chief Executive Officer since June 2001,
and a director since April 1992. Prior to that, Mr. Boots served as Chief
Operating Officer since August 2000 and Vice President of Operations,
Engineering and Product Development of the Company since April 1992. Mr. Boots
was employed by us from 1984 to December 1990 as Vice President, Operations.
James M. Kratochvil has been our Executive Vice President, Chief Financial
Officer, Secretary and Treasurer since December 1997. He formerly served as Vice
President, Chief Financial Officer and Secretary of the Company since 1991, and
as Treasurer of the Company since May 1996. Mr. Kratochvil was employed by us
from 1985 to 1991 as Controller.
R. Brent Beeler has been our Executive Vice President and General
Manager-Containers since August 2000. Prior to that, Mr. Beeler was Executive
Vice President, Sales and Marketing of the Company since February 1996 and Vice
President, Sales and Marketing of the Company since December 1990. Mr. Beeler
was employed by us from October 1988 to December 1990 as Vice President, Sales
and Marketing.
William J. Herdrich has been our Executive Vice President and General
Manager-Closures since August 2000. From May 2000 to August 2000, Mr. Herdrich
was a consultant to the Company. From April 1994 to May 2000, Mr. Herdrich was
President, Executive Vice President and General Manager of Poly-Seal
Corporation. Mr. Herdrich was employed by Seaquist Closures from 1990 to April
1994 as Executive Vice President.
Bruce J. Sims has been our Executive Vice President and General Manager-Consumer
Products since August 2000. He formerly served as Executive Vice President,
Sales and Marketing, Housewares of the Company since January 1997. Prior to the
PackerWare acquisition, Mr. Sims served as President of PackerWare from March
1996 to January 1997 and as Vice President from October 1994 to March 1996. From
January 1990 to October 1994 he was Vice President of the Miner Container
Corporation, a national injection-molder.
53
Joseph H. Gleberman has been our chairman of the board of directors since the
closing of the Acquisition and has been a Managing Director at Goldman, Sachs &
Co. since 1996. Prior to joining GS Capital Partners in 1993, he worked in the
Mergers & Acquisitions Department of Goldman, Sachs & Co. from 1982 to 1993. He
serves on the Board of Directors of aaiPharma, BackWeb Technologies, Dade
Behring Holdings, iFormation Group, IPC Information Systems, MCG Credit, and
Starpoint Solutions. Mr. Gleberman received his M.B.A in 1982 from Stanford
University Graduate School of Business and a M.A./B.A. from Yale University in
1980.
Christopher C. Behrens has been a director since the closing of the Acquisition
and has been a Partner of J.P. Morgan Partners, LLC and its predecessor, Chase
Capital Partners, since 1999. Prior to joining Chase Capital Partners, Mr.
Behrens served as Vice President in Chase's Merchant Banking Group. Mr. Behrens
serves on the Board of Directors of Dominos Pizza, Carrizo Oil & Gas, and
Portola Packaging Inc. as well as a number of private companies. Mr. Behrens
received a B.A. from the University of California at Berkeley and an M.A. from
Columbia University.
Patrick J. Dalton has been a director since the closing of the Acquisition and
has been a Vice President at Goldman, Sachs & Co. since 2001. Prior to joining
GS Capital Partners in 2000, Mr. Dalton was at The Chase Manhattan Bank from
1990 to 1997 and Chase Securities Inc. from 1997 to 2000. He serves on the Board
of Directors of First Asset Management and Waddington North America. Mr. Dalton
received his M.B.A. in 1997 from Columbia University Graduate School of Business
and a B.S. from Boston College in 1990.
Douglas F. Londal has been a director since the closing of the Acquisition and
has been a Managing Director at Goldman, Sachs & Co. since 1999. Prior to
joining GS Capital Partners in 1995, he worked in the Mergers & Acquisitions
Department of Goldman, Sachs & Co. from 1991 to 1995. He serves on the Board of
Directors of 21st Century Newspapers, NextMedia Group, Ruth's Chris Steak House,
and Village Voice Media. Mr. Londal received his M.B.A in 1991 from the
University of Chicago and a B.A. from the University of Michigan in 1987.
Mathew J. Lori has been a director since the closing of the Acquisition and has
been a principal with J.P. Morgan Partners, LLC and its predecessor, Chase
Capital Partners, since 1998, and prior to that, he had been an Associate. Mr.
Lori has been on the board of Berry Plastics since 1996, and is also a director
of Doane Pet Care Company. Mr. Lori received an M.B.A. from Kellogg Graduate
School of Management at Northwestern University.
BOARD OF DIRECTORS
Our board of directors currently consists of six directors. Pursuant to the
stockholders' agreement entered into with affiliates of Goldman, Sachs & Co. and
affiliates of J.P. Morgan Securities Inc., described below, affiliates of
Goldman, Sachs & Co. have the right to designate an additional member of our
board of directors. Our board of directors will appoint our executive officers.
COMMITTEES OF THE BOARD OF DIRECTORS
Our audit committee is comprised of Patrick J. Dalton, Douglas F. Londal and
Mathew J. Lori. The audit committee recommends the annual appointment of
auditors with whom the audit committee reviews the scope of audit and non-audit
assignments and related fees, accounting principles we use in financial
reporting, internal auditing procedures and the adequacy of our internal control
procedures. Our compensation committee is comprised of Ira G. Boots, Joseph H.
Gleberman, Christopher C. Behrens and Douglas F. Londal. The compensation
committee
54
reviews and approves the compensation and benefits for our employees, directors
and consultants, administers our employee benefit plans, authorizes and ratifies
stock option grants and other incentive arrangements and authorizes employment
and related agreements.
COMPENSATION OF DIRECTORS
Directors who are also our employees or employees of our principal stockholders
will receive no additional compensation for their services as directors.
STOCKHOLDERS' AGREEMENT
In connection with the Acquisition, we entered into a stockholders' agreement
with GSCP 2000 and other private equity funds affiliated with Goldman, Sachs &
Co., which in the aggregate own a majority of our common stock. and J.P. Morgan
Partners Global Investors, L.P. and other private equity funds affiliated with
J.P. Morgan Securities Inc., which own approximately 29% of our common stock.
GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co.
have the right to designate five members of our board of directors, one of which
shall be a member of our management, and J.P. Morgan Partners Global Investors,
L.P. and other private equity funds affiliated with J.P. Morgan Securities Inc.
have the right to designate two members of our board of directors, one of which
will be designated by J.P. Morgan Partners Global Investors, L.P. The
stockholders' agreement contains customary terms including terms regarding
transfer restrictions, rights of first offer, tag along rights, drag along
rights, preemptive rights and veto rights.
55
MANAGEMENT COMPENSATION
The following table sets forth a summary of the compensation paid by the Company
to its Chief Executive Officers during the 2001 fiscal year and the four other
most highly compensated executive officers of the Company (collectively, the
"Named Executive Officers") for services rendered in all capacities to the
Company during fiscal 2001, 2000 and 1999.
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------------------------
LONG TERM
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES
---------------------- UNDERLYING
SALARY BONUS OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) COMPENSATION($)(1)
--------------------------------------------------------------------------------------------------
Ira G. Boots(2)................ 2001 316,461 87,500 - 1,670
President and Chief 2000 289,328 150,000 - 1,670
Executive Officer 1999 251,163 95,486 - 1,620
Martin R. Imbler............... 2001 208,522 99,300 - 242,638(3)
Former President and Chief 2000 390,122 137,235 - 1,670
Executive Officer (Retired) 1999 362,940 121,201 - 1,620
James M. Kratochvil............ 2001 231,919 64,166 - 1,670
Executive Vice President, 2000 212,049 120,000 - 1,604
Chief Financial Officer, 1999 200,894 80,083 - 1,620
Treasurer and Secretary
R. Brent Beeler................ 2001 284,251 78,750 - 1,670
Executive Vice President and 2000 257,236 135,000 - 1,670
General Manager--Containers 1999 226,504 79,350 - 1,620
William J. Herdrich............ 2001 258,690 62,800 - 1,670
Executive Vice President and 2000 99,003 18,986 2,000(4) -
General Manager--Closures 1999 - - - -
Bruce J. Sims.................. 2001 207,500 49,875 - 1,627
Executive Vice President and 2000 201,500 114,000 - 1,627
General Manager--Consumer 1999 190,000 95,486 - 1,620
Products
--------------------------------------------------------------------------------------------------
(1) Amounts shown reflect contributions by the Company under the Company's
401(k) plan.
(2) Ira G. Boots has been President and Chief Executive Officer since June 2001.
(3) Amount also reflects twice-monthly payments beginning June 15, 2001 in the
amount of $17,212 that were made by the Company pursuant to Mr. Imbler's
separation agreement.
(4) Taking into account adjustments required in connection with the Acquisition,
Mr. Herdrich's option to purchase 2,000 shares became an option to purchase
6,244 shares.
56
FISCAL YEAR-END OPTION HOLDINGS
The following table provides information with respect to the number of
exercisable and unexercisable management stock options held by the Named
Executive Officers at December 29, 2001.
FISCAL YEAR-END OPTION VALUES
-----------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR-END(#)(1) YEAR-END($)(2)
-------------------------------- ------------------------------
NAME EXERCISABLE(3) UNEXERCISABLE EXERCISABLE(4) UNEXERCISABLE
-----------------------------------------------------------------------------------------------------
Ira G. Boots...................... 4,171 0 1,205,477 0
Martin R. Imbler.................. 6,778 0 1,958,726 0
James M. Kratochvil............... 2,607 0 753,481 0
R. Brent Beeler................... 2,607 0 753,481 0
William J. Herdrich............... 667 1,333 108,721 217,279
Bruce J. Sims..................... 1,300 0 365,300 0
-----------------------------------------------------------------------------------------------------
(1) All options granted to management of the Company are exercisable for shares
of common stock, par value $.01 per share of Holding.
(2) None of Holding's capital stock is currently publicly traded. The values set
forth in the table reflect management's estimate of the fair market value on
December 29, 2001.
(3) Taking into account adjustments required in connection with the Acquisition
and exercises immediately prior to the Acquisition, Mssrs. Boots, Kratochvil,
Beeler, Herdrich and Sims currently have outstanding exercisable options to
acquire 16,278, 10,175, 10,175, 6,244 and 4,059 shares of common stock,
respectively. Mr. Imbler exercised all of his options immediately prior to the
Acquisition.
(4) Taking into account adjustments required in connection with the Acquisition,
exercises immediately prior to the Acquisition and a per share price of $312
paid in the Acquisition, the value of vested and unexercised in-the-money
options as of the date of the Acquisition held by Mssrs. Boots, Imbler,
Kratochvil, Beeler, Herdrich and Sims was $1,106,416, $691,595, $691,595,
$172,397 and $265,499, respectively. Mr. Imbler exercised all of his options
immediately prior to the Acquisition.
The following is a summary of BPC Holding's employee equity plans and certain
employment agreements Berry Plastics has entered into with Berry Plastics' Chief
Executive Officer and each of its other four most highly compensated executive
officers, based on compensation paid for services rendered during the 2001
fiscal year.
1996 OPTION PLAN
BPC Holding currently maintains the Amended and Restated BPC Holding Corporation
1996 Stock Option Plan ("1996 Option Plan") pursuant to which nonqualified
options to purchase 150,536 shares are outstanding. All outstanding options
under the 1996 Option Plan are scheduled to expire on July 22, 2012 and no
additional options will be granted under it. Option agreements issued pursuant
to the 1996 Option Plan generally provide that options become vested and
exercisable at a rate of 10% per year based on continued service. Additional
options also vest in years during which certain financial targets are attained.
Notwithstanding the vesting provisions in the option agreements, all options
that were scheduled to vest prior to December 31, 2002 accelerated and became
vested immediately before the Acquisition.
2002 OPTION PLAN
BPC Holding has adopted a new employee stock option plan ("2002 Option Plan")
pursuant to which options to acquire up to 437,566 shares of BPC Holding's
common stock may be granted
57
to its employees, directors and consultants. Options granted under the 2002
Option Plan will have an exercise price per share that either (1) is fixed at
the fair market value of a share of common stock on the date of grant or (2)
commences at the fair market value of a share of common stock on the date of
grant and increases at the rate of 15% per year during the term. Generally,
options will have a ten-year term, subject to earlier expiration upon the
termination of the optionholder's employment and other events. Some options
granted under the plan will become vested and exercisable over a five-year
period based on continued service with BPC Holding. Other options will become
vested and exercisable based on the achievement by BPC Holding of certain
financial targets, or if such targets are not achieved, based on continued
service with BPC Holding. Upon a change in control of BPC Holding, the vesting
schedule with respect to certain options may accelerate for a portion of the
shares subject to such options.
EMPLOYEE STOCK PURCHASE PLAN
In connection with the Acquisition, a number of senior employees of BPC Holding
acquired a new class of shares of BPC Holding common stock pursuant to an
employee stock purchase program. Such employees paid for these shares with any
combination of: (1) shares of BPC Holding common stock that they held prior to
the Acquisition; (2) their cash transaction bonus, if any; and (3) a promissory
note. In this manner, the senior employees acquired 182,699 shares in the
aggregate. In the event that any employee defaults on a promissory note used to
purchase shares, BPC Holding would be entitled only to the shares of BPC Holding
securing such note.
BPC Holding has adopted another employee stock purchase program pursuant to
which a number of employees other than those senior employees who acquired
shares in the manner described in the immediately preceding paragraph will also
have the opportunity to invest in BPC Holding on a leveraged basis. Each
eligible employee will be permitted to purchase shares of BPC Holding common
stock having an aggregate value of up to the greater of (1) 150% of the value
attributable to shares of BPC Holding held by such employee immediately prior to
the Acquisition or (2) $60,000. Employees participating in this program will be
permitted to finance two-thirds of their purchases of shares of BPC Holding
common stock under the program with a promissory note. In the event that an
employee defaults on a promissory note used to purchase such shares, BPC
Holding's only recourse will be to the shares of BPC Holding securing the note.
EMPLOYMENT AGREEMENTS
Berry Plastics has entered into employment agreements with each of Messrs.
Boots, Kratochvil, Beeler, Herdrich and Sims. Messrs. Boots, Kratochvil and
Beeler's employment agreements expire on January 1, 2007, Mr. Herdrich's expires
on December 31, 2003 and Mr. Sims' expires on January 2, 2007. During the fiscal
year 2001, these executive officers received base compensation of $316,461,
$231,919, $284,251, $256,054 and $211,851, respectively. Each of their
employment agreements provides that base salary is subject to review and may be
increased by Holding. In addition, the agreements provide that the executives
are entitled to participate in all other benefit arrangements and incentive
compensation programs established for executive officers of Holding and its
subsidiaries. They also include customary noncompetition, nondisclosure and
nonsolicitation provisions.
The employment agreements provide for severance in the event of termination
under enumerated circumstances. Specifically, if any of Messrs. Boots,
Kratochvil, Beeler and Sims is
58
terminated by Berry Plastics without "cause" or resigns for "good reason" (as
such terms are defined in the employment agreements), that individual is
entitled to: (1) the greater of (a) base salary until the later of (i) July 22,
2004 or (ii) one year after termination or (b) 1/12 of 1 year's base salary for
each year of employment up to 30 years (up to 24 years for Sims) by Berry
Plastics or a predecessor in interest and (2) the pro rata portion of his annual
bonus. In the event of a termination in connection with certain enumerated
transactions, Messrs. Kratochvil, Boots and Beeler's employment agreements
further provide for payment of their accrued bonus as of the termination date.
If Mr. Herdrich is terminated without "cause" or by Berry Plastics at the end of
the employment term (which is December 31, 2003), he is entitled to: (1)
one-year's base salary; (2) a pro rata portion of his annual bonus; and (3) the
remaining of 30 monthly payments of $20,833.33, the first of which was paid in
May of 2000.
Effective May 31, 2001, Berry Plastics entered into a separation agreement with
Mr. Imbler which expires on or before December 31, 2003. The separation
agreement terminated his employment agreement and provides for monthly payments
until May 31, 2002 ranging from $17,212 to $34,424, plus a one-time payment of
$158,695 on March 15, 2002. However, such payments cease to be payable following
a "sale of the corporation," the definition of which includes the Acquisition.
The separation agreement contains customary noncompetition, nondisclosure and
nonsolicitation provisions and provides for the use of his consulting services
through May 31, 2002.
59
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the estimated beneficial
ownership of the shares of BPC Holding after giving effect to the Acquisition.
The address for each of GS Capital Partners 2000, L.P., GS Capital Partners 2000
Offshore, L.P., GS Capital Partners 2000 GmbH & Co. Beteiligungs KG., GS Capital
Partners 2000 Employee Fund, L.P., Stone Street Fund 2000, L.P., Bridge Street
Special Opportunities Fund 2000, L.P. and Goldman Sachs Direct Investment Fund
2000, L.P. is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York
10004. The address for each of J.P. Morgan Partners Global Investors, L.P., J.P.
Morgan Partners Global Investors (Cayman), L.P., J.P. Morgan Partners Global
Investors (Cayman) II, L.P., J.P. Morgan Partners Global Investors A, L.P. and
J.P. Morgan Partners (BHCA), L.P. is 1221 Avenue of the Americas, New York, New
York 10020. The address of Ira G. Boots, James M. Kratochvil, R. Brent Beeler,
William J. Herdrich, and Bruce J. Sims is c/o Berry Plastics Corporation, 101
Oakley Street, Evansville, Indiana 47710.
-------------------------------------------------------------------------------------------
NUMBER OF PERCENTAGE OF COMMON
NAME SHARES STOCK OUTSTANDING
-------------------------------------------------------------------------------------------
GS Capital Partners 2000, L.P. .......................... 960,705 35.2%
GS Capital Partners 2000 Offshore, L.P. ................. 349,083 12.8%
GS Capital Partners 2000 GmbH & Co. Beteiligungs KG...... 40,155 1.5%
GS Capital Partners 2000 Employee Fund, L.P. ............ 305,057 11.2%
Stone Street Fund 2000, L.P. ............................ 30,000 1.1%
Bridge Street Special Opportunities Fund 2000, L.P. ..... 15,000 *
Goldman Sachs Direct Investment Fund 2000, L.P. ......... 50,000 1.8%
J.P. Morgan Partners Global Investors, L.P. ............. 97,239 3.6%
J.P. Morgan Partners Global Investors (Cayman), L.P. .... 48,209 1.8%
J.P. Morgan Partners Global Investors (Cayman) II,
L.P. ................................................. 5,762 *
J.P. Morgan Partners Global Investors A, L.P. ........... 3,578 *
J.P. Morgan Partners (BHCA), L.P. ....................... 638,800 23.4%
Ira G. Boots............................................. 54,063(1) *
James M. Kratochvil...................................... 32,132(2) *
R. Brent Beeler.......................................... 32,383(3) *
William J. Herdrich...................................... 21,648(4) *
Bruce J. Sims............................................ 18,075(5) *
-------------------------------------------------------------------------------------------
* less than 1%
(1) Includes 16,278 shares subject to options which are currently exercisable or
exercisable within 60 days of the date of this prospectus.
(2) Includes 10,175 shares subject to options which are currently exercisable or
exercisable within 60 days of the date of this prospectus.
(3) Includes 10,175 shares subject to options which are currently exercisable or
exercisable within 60 days of the date of this prospectus.
(4) Includes 6,244 shares subject to options which are currently exercisable or
exercisable within 60 days of the date of this prospectus.
(5) Includes 4,059 shares subject to options which are currently exercisable or
exercisable within 60 days of the date of this prospectus.
60
RELATED PARTY TRANSACTIONS
FIRST ATLANTIC
Prior to the Acquisition, First Atlantic was our largest voting stockholder.
Pursuant to a management agreement, First Atlantic provided us with financial
advisory and management consulting services in exchange for an annual fee of
$750,000 and reimbursement for out-of-pocket costs and expenses. In
consideration of such services, we paid First Atlantic fees and expenses of
approximately $756,000 for fiscal 2001, $821,000 for fiscal 2000, and $792,000
for fiscal 1999. First Atlantic received advisory fees of approximately $580,000
in May 2000 for originating, structuring and negotiating the Poly-Seal
acquisition. First Atlantic received advisory fees of approximately $139,000 in
March 2001 and $250,000 in June 2001 for originating, structuring and
negotiating the Capsol and Pescor acquisitions, respectively.
GS CAPITAL PARTNERS 2000 AND J.P. MORGAN PARTNERS GLOBAL INVESTORS, L.P.
As of the closing of the Acquisition, GSCP 2000 and other private equity funds
affiliated with Goldman, Sachs & Co. own a majority of the common stock of BPC
Holding and received a transaction fee of $6.0 million in connection with the
Acquisition. Goldman, Sachs & Co., an affiliate of GSCP 2000 and its related
investment funds, provided advisory and other services to GSCP 2000 and the
issuer in connection with sourcing, structuring and arranging the Acquisition
and received fees of $2.0 million for these services. Goldman, Sachs & Co. acted
as an initial purchaser in the offering of the outstanding notes. Goldman, Sachs
& Co. and/or its affiliates may also purchase goods and services from us from
time to time in the future. Goldman Sachs Credit Partners, L.P., an affiliate of
GSCP 2000 and its related investment funds, acted as the joint lead arranger,
joint bookrunner and administrative agent under our senior secured credit
facilities. In addition, Goldman, Sachs & Co. and its affiliates may in the
future engage in commercial banking, investment banking or other financial
advisory transactions with the issuer and its affiliates.
As of the closing of the Acquisition, J.P. Morgan Partners Global Investors,
L.P. and other private equity funds affiliated with J.P. Morgan Chase & Co.
(each of which are affiliates of an entity that was a stockholder prior to the
Acquisition) own approximately 29% of the common stock of BPC Holding. J.P.
Morgan Securities Inc. provided advisory and other services to the issuer in
connection with the Acquisition and received fees of $5.2 million for these
services. J.P. Morgan Securities Inc. acted as an initial purchaser in the
offering of the outstanding notes and as a dealer-manager in connection with our
debt tender offers. JPMorgan Chase Bank and/or its affiliates may also purchase
goods and services from us from time to time in the future. J.P. Morgan
Securities Inc., an affiliate of J.P. Morgan Partners Global Investors, L.P. and
its related investment funds, acted as the joint lead arranger and joint
bookrunner under our senior secured credit facilities. JPMorgan Chase Bank acted
as syndication agent under our senior credit facilities. In addition, J.P.
Morgan Securities Inc. and its affiliates may in the future engage in commercial
banking, investment banking or other financial advisory transactions with the
issuer and its affiliates.
STOCKHOLDERS' AGREEMENTS
In connection with the Acquisition, we entered into a stockholders' agreement
with GSCP 2000 and other private equity funds affiliated with Goldman, Sachs &
Co., which in the aggregate own a majority of our common stock. and J.P. Morgan
Partners Global Investors, L.P. and other
61
private equity funds affiliated with J.P. Morgan Securities Inc., which own
approximately 29% of our common stock. GSCP 2000 and other private equity funds
affiliated with Goldman, Sachs & Co., have the right to designate five members
of our board of directors, one of which shall be a member of our management, and
J.P. Morgan Partners Global Investors, L.P. and other private equity funds
affiliated with J.P. Morgan Securities Inc. have the right to designate two
members of our board of directors, one of which will be designated by J.P.
Morgan Partners Global Investors, L.P. The stockholders' agreement contains
customary terms including terms regarding transfer restrictions, rights of first
offer, tag along rights, drag along rights, preemptive rights and veto rights.
62
DESCRIPTION OF OTHER INDEBTEDNESS
THE SENIOR SECURED CREDIT FACILITIES
In connection with the Acquisition, we and BPC Holding and our domestic
subsidiaries entered into the senior secured credit facilities with the lenders
from time to time party thereto, Goldman Sachs Credit Partners L.P., as
administrative agent, JPMorgan Chase Bank, as syndication agent, Fleet National
Bank, as collateral agent, issuing bank and swing line lender, and The Royal
Bank of Scotland plc and General Electric Capital Corporation, as co-
documentation agents. For purposes of this section, "we," "our" and "us" refer
to Berry Plastics Corporation.
Set forth below is a summary of the terms and conditions of the senior secured
credit facilities.
The senior secured credit facilities are comprised of (i) a $330.0 million term
loan, (ii) a $50.0 million delayed draw term loan facility, and (iii) a $100.0
million revolving credit facility. We are the borrower under the senior secured
credit facilities. The maturity date of the term loan is July 22, 2010 and the
maturity date of the revolving credit facility is July 22, 2008. The term loan
was funded on the closing date.
TERM LOAN/DELAYED DRAW TERM LOAN FACILITY/PREPAYMENT
The term loan will amortize quarterly as follows:
- $825,000 each quarter beginning September 30, 2002, and ending June 30,
2009; and
- $76,725,000 each quarter beginning September 30, 2009 and ending June
30, 2010.
The delayed draw term loan facility will amortize quarterly commencing March 31,
2004 based on the amounts outstanding as of that date as follows: (i) 2% per
quarter in 2004, (ii) 4% per quarter in 2005, (iii) 6% per quarter in 2006, (iv)
8% per quarter in 2007 and (v) 10% per quarter in each of the first two quarters
in 2008.
The senior secured credit facilities may be prepaid at any time; provided,
however, that voluntary prepayments will be applied first to repay swingline
loans, and second, as between revolving loans on the one hand and the term loan
and delayed draw term loans on the other hand, as we direct. Voluntary
prepayments of the term loan and the delayed draw term loan facility will be
made pro rata in accordance with the then outstanding principal amount under
each loan and will be applied pro rata across scheduled amortization payments.
Borrowings and commitments under our credit facilities will be subject to
mandatory prepayment under specified circumstances, including some asset sales,
receipt of proceeds of casualty insurance or condemnation, issuances of equity
securities and from our excess cash flow (as defined in our senior secured
credit facilities).
DELAYED DRAW TERM LOAN FACILITY
Amounts available under the delayed draw term loan facility may be borrowed (but
not reborrowed) during the 18-month period beginning on July 22, 2002, provided
that, among other things, no default or event of default exists at the time of
borrowing, and the leverage ratio is not in excess of 5.20:1.00 if the borrowing
is made on or prior to June 29, 2003 or 5.00:1.00 if the borrowing is made
thereafter. Delayed draw term loans may only be made in connection with
permitted acquisitions.
63
REVOLVING LOANS
There will be no required amortization of the revolving credit facility.
Outstanding borrowings under the revolving credit facility may be repaid at any
time and may be reborrowed at any time prior to July 22, 2008. The revolving
credit facility will allow us to obtain up to $15 million of letters of credit
instead of borrowing and up to $10 million of swingline loans. Revolving loans
in connection with permitted acquisitions will only be made if a leverage ratio
is met.
INTEREST RATE AND FEES
Borrowings under the senior secured credit facilities bear interest, at our
option, at either (i) a base rate (defined as a rate per annum equal to the
greater of the prime rate and the federal funds effective rate in effect on the
date of determination plus 1/2 of 1.00%) plus the applicable margin (as defined
below) (the "Base Rate Loans") or (ii) an adjusted Eurodollar Rate (defined as
the rate (as adjusted for statutory reserve requirements for eurocurrency
liabilities) for Eurodollar deposits for a period of one, two, three or six
months, as we select) (the "Eurodollar Rate Loans") plus the applicable margin.
With respect to the term loan, the "applicable margin" is (i) with respect to
Base Rate Loans, 2.00% per annum and (ii) with respect to Eurodollar Rate Loans,
3.00% per annum. With respect to the delayed draw term loan facility and the
revolving credit facility, the "applicable margin" is, with respect to
Eurodollar Rate Loans, initially 2.75% per annum. After the end of the quarter
ending March 30, 2003, the "applicable margin" with respect to Eurodollar Rate
Loans will be subject to a pricing grid which ranges from 2.75% per annum to
2.00% per annum, depending on our leverage ratio. The "applicable margin" with
respect to Base Rate Loans will always be 1.00% per annum less than the
"applicable margin" for Eurodollar Rate Loans. Interest will be payable
quarterly for Base Rate Loans and at the end of the relevant interest period of
one, two, three, or six months (or quarterly in certain cases) for all
Eurodollar Rate Loans. The interest rate applicable to overdue payments and to
outstanding amounts following an event of default under the senior secured
credit facilities is equal to the interest rate at the time of an event of
default plus 2.00%. The senior secured credit facilities also require us to pay
commitment fees equal to 0.75% per annum on the average daily unused portion of
the delayed draw term loan facility and 0.50% per annum on the average daily
unused portion of the revolving credit facility, which fee is subject to a
pricing grid ranging from 0.50% per annum to 0.375% per annum after the end of
the quarter ending March 30, 2003, letter of credit fees (equal to the
"applicable margin" for revolving loans that are Eurodollar Rate Loans) and
fronting fees (not to exceed 0.25%) on the average daily unused portion of the
letters of credit, as well as annual agency fees.
SECURITY
Our obligations under the senior secured credit facilities are secured by a
first priority security interest (with certain exceptions) in substantially all
of our assets and the assets of the guarantors described below and, in addition,
by a pledge of 100% of our shares and 100% of the shares of our domestic
subsidiaries and up to 65% of the shares of our foreign subsidiaries and all
intercompany debt with the exception of debt owed to our foreign subsidiaries.
GUARANTORS
BPC Holding and each of our domestic subsidiaries have guaranteed our
obligations under the senior secured credit facilities.
64
REPRESENTATIONS AND WARRANTIES
The senior secured credit facilities contain representations and warranties
customary for this type of financing.
COVENANTS AND CONDITIONS
In addition to customary affirmative covenants, the senior secured credit
facilities require us to enter into interest rate hedging agreements to the
extent necessary for at least 50% of the total indebtedness (not including
indebtedness owed under the revolving credit facility) to be at a fixed rate and
require us to provide funding protections customary for this type of financing,
including breakage costs, gross-up for withholding, compensation for increased
costs and compliance with capital adequacy and other regulatory restrictions.
The senior secured credit facilities include negative covenants that restrict
our and the guarantors' ability to, among other things:
- incur additional indebtedness;
- incur liens;
- enter into agreements with negative pledge clauses;
- make investments;
- guarantee obligations;
- pay dividends or make redemptions or other payments in respect of
capital stock;
- make payments with respect to subordinated debt;
- engage in mergers and make acquisitions;
- sell assets;
- make capital expenditures;
- enter into leases;
- engage in transactions with affiliates; and
- make investments in foreign subsidiaries.
The senior secured credit facilities also contain (i) a minimum interest
coverage ratio as of the last day of any quarter, beginning with the quarter
ending December 2002, of 2.00:1.00 per quarter through the quarter ending March
2004, 2.10:1.00 per quarter for the quarters ending June 2004 and September
2004, 2.15:1.00 per quarter for the quarters ending December 2004 and March
2005, 2.25:1.00 per quarter for the quarters ending June 2005 through the
quarter ending March 2006, 2.35:1.00 per quarter for the quarters ending June
2006 through the quarter ending December 2006 and 2.50:1.00 per quarter
thereafter, (ii) a maximum amount of capital expenditures (subject to the
rollover of certain unexpended amounts from the prior year) of $45 million for
the year ending 2002, $50 million for the years ending 2003 and 2004, $60
million for the years ending 2005, 2006 and 2007, and $65 million for each year
thereafter, and (iii) a maximum total leverage ratio as of the last day of any
quarter, beginning with the quarter ending December 2002, of 5.90:1.00 per
quarter through the quarter ending June 2003, 5.75:1.00 per quarter for the
quarters ending September 2003 through the quarter ending March 2004, 5.50:1.00
per quarter for the quarters ending June 2004 and September 2004, 5.25:1.00 per
quarter for the quarters ending December 2004 through the quarter ending
65
June 2005, 5.00:1.00 per quarter for the quarters ending September 2005 and
December 2005, 4.75:1.00 per quarter for the quarters ending March 2006 and June
2006, 4.50:1.00 per quarter for the quarters ending September 2006 through the
quarter ending March 2007, 4.25:1.00 per quarter for the quarters ending June
2007 through the quarter ending December 2007, and 4.00:1.00 per quarter
thereafter.
Certain conditions must be met for us to borrow under the revolving credit
facility or the delayed draw term loan facility in the future, including that
there has been no material adverse change to the business, operations,
properties, assets, condition (financial or otherwise) or prospects of the
company and the guarantors, taken as a whole.
EVENTS OF DEFAULT
The senior secured credit facilities contain customary and appropriate events of
default, which are subject to customary grace periods and materiality standards.
CAPITAL LEASES
We and our subsidiaries are also party to capital leases entered into in the
ordinary course of business. As of June 29, 2002, we had $26.1 million of
capital leases outstanding. We repaid approximately $7.1 million of the
outstanding capital leases at the time of the Acquisition.
NEVADA INDUSTRIAL REVENUE BONDS
We are party to a Financing Agreement with the City of Henderson, Nevada Public
Improvement Trust, pursuant to which we have agreed to pay amounts sufficient to
pay principal, interest and any premium on an issue of Nevada Industrial Revenue
Bonds.
The Nevada Industrial Revenue Bonds had $2.5 million outstanding as of June 29,
2002, bear interest at a variable rate (1.4% at June 29, 2002), require annual
principal payments of $0.5 million on each April 1 until maturity, are
collateralized by an irrevocable letter of credit issued by JPMorgan Chase Bank
under our revolving credit facility and mature in April 2007.
66
DESCRIPTION OF THE EXCHANGE NOTES
Definitions of certain terms used in this Description of the exchange notes may
be found under the heading "Certain definitions." Defined terms used in this
description but not defined below under the heading "Certain definitions" have
the meanings assigned to them in the Indenture. For purposes of this section,
(i) the term "Company" refers only to Berry Plastics Corporation and not to any
of its subsidiaries and (ii) the term "Holding" refers to BPC Holding
Corporation, the parent company of the Company, and not to any of its
Subsidiaries. Certain of the Company's Subsidiaries and Holding will guarantee
the exchange notes and therefore will be subject to many of the provisions
contained in this "Description of the exchange notes". Each company which
guarantees the Notes is referred to in this section as a "Note Guarantor." Each
such guarantee is termed a "Note Guarantee."
The Company will issue the exchange notes under the Indenture, dated as of July
22, 2002 (the "Indenture"), among the Company, the Note Guarantors and U.S. Bank
Trust National Association, as trustee (the "Trustee"), filed as an exhibit to
the registration statement of which this prospectus is a part. The Indenture
contains provisions which define your rights under the Notes. In addition, the
Indenture governs the obligations of the Company and of each Note Guarantor
under the Notes. The terms of the exchange notes include those stated in the
Indenture and, upon effectiveness of a registration statement with respect to
the exchange notes, those made part of the Indenture by reference to the TIA.
Any outstanding notes that remain outstanding after completion of the exchange
offer, together with the exchange notes issued in the exchange offer, will be
treated as a single class of securities under the Indenture, including for
purposes of amending the Indenture.
The following description is meant to be only a summary of certain provisions of
the Indenture. It does not restate the terms of the Indenture in their entirety.
We urge that you carefully read the Indenture as it, and not this description,
governs our obligations and your rights as Holders.
OVERVIEW OF THE NOTES AND THE NOTE GUARANTEES
THE NOTES
These Notes:
- are general unsecured obligations of the Company;
- are equally in right of payment with any existing and future Senior
Subordinated Indebtedness of the Company;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of the Company;
- are senior in right of payment to all future Subordinated Obligations
of the Company;
- are effectively subordinated to all Secured Indebtedness of the Company
and its Subsidiaries to the extent of the value of the assets securing
such Indebtedness; and
- are effectively subordinated to all liabilities (including Trade
Payables) and Preferred Stock of each Subsidiary of the Company that is
not a Note Guarantor.
67
THE NOTE GUARANTEES
These Notes are guaranteed by Holding, and all existing and future Domestic
Subsidiaries of the Company, except as provided below.
The Note Guarantee of each Note Guarantor:
- is general unsecured obligations of such Note Guarantor;
- ranks equally in right of payment with any existing and future Senior
Subordinated Indebtedness of such Note Guarantor;
- is subordinated in right of payment to all existing and future Senior
Indebtedness of such Note Guarantor;
- is senior in right of payment to all future Subordinated Obligations of
such Note Guarantor;
- is effectively subordinated to all Secured Indebtedness of such Note
Guarantor and its Subsidiaries to the extent of the value of the assets
securing such Indebtedness; and
- is effectively subordinated to the obligations of any Subsidiary of a
Note Guarantor if that Subsidiary is not a Note Guarantor.
The Notes will not be guaranteed by Berry Plastics Acquisition Corporation II,
NIM Holdings Limited, Berry Plastics U.K. Limited, Norwich Acquisition Limited,
CBP Holdings S.r.l., Capsol Berry Plastics S.p.a. or Ociesse S.r.l. The Notes
will not be guaranteed by any Foreign Subsidiaries in the future unless any such
Foreign Subsidiary Guarantees any Senior Indebtedness of the Company or any of
the Company's Subsidiaries (other than that of another Foreign Subsidiary). The
Note Guarantee of any Note Guarantor may be released in certain circumstances as
described under "Certain covenants--Future note guarantors and release of note
guarantees." As of and for the fifty-two weeks ended June 29, 2002, after giving
effect to the Transactions and eliminating intercompany activity, these
non-guarantor Subsidiaries would have (i) had approximately $10 million of total
liabilities (including trade payables), (ii) had approximately 5.6% of the
Company's Consolidated assets and (iii) generated approximately 4.2% of the
Company's Consolidated revenues and 1.8% of its EBITDA.
PRINCIPAL, MATURITY AND INTEREST
We initially issued Notes in an aggregate principal amount of $250.0 million.
The Notes will mature on July 15, 2012. We will issue the Notes in fully
registered form, without coupons, in denominations of $1,000 and any integral
multiple of $1,000.
Each Note we issue will bear interest at a rate of 10 3/4% per annum beginning
on July 22, 2002 or from the most recent date to which interest has been paid or
provided for. We will pay interest semiannually to Holders of record at the
close of business on the January 1 or July 1 immediately preceding the interest
payment date on January 15 and July 15 of each year. We will begin paying
interest to Holders on January 15, 2003.
We will also pay additional interest ("Additional Interest") to Holders if we
fail to file a registration statement relating to the Notes or if the
registration statement is not declared effective on a timely basis or if certain
other conditions are not satisfied. These Additional Interest provisions are
more fully explained under the heading "Registration rights; additional
interest." Interest on the Notes will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
68
INDENTURE MAY BE USED FOR FUTURE ISSUANCES
We may issue from time to time additional Notes having identical terms and
conditions to the Notes we are currently offering (the "Additional Notes"). We
will only be permitted to issue such Additional Notes if at the time of such
issuance we are in compliance with the covenants contained in the Indenture, but
the amount of such Additional Notes will not otherwise be restricted by the
Indenture. Any Additional Notes will be part of the same issue as the Notes that
we are currently offering and will vote on all matters with such Notes.
PAYING AGENT AND REGISTRAR
We will pay the principal of, premium, if any, interest (including Additional
Interest), if any, on the Notes at any office of ours or any agency designated
by us which is located in the Borough of Manhattan, The City of New York. We
have initially designated the corporate trust office of the Trustee to act as
the agent of the Company in such matters. The location of the corporate trust
office is 100 Wall Street, 16th Floor, New York, New York 10005. We, however,
reserve the right to pay interest to Holders by check mailed directly to Holders
at their registered addresses.
Holders may exchange or transfer their Notes at the same location given in the
preceding paragraph. No service charge will be made for any registration of
transfer or exchange of Notes. We, however, may require Holders to pay any
transfer tax or other similar governmental charge payable in connection with any
such transfer or exchange.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, we may not redeem the Notes
prior to July 15, 2007. After this date, we may redeem the Notes, in whole or in
part, on one or more occasions, on not less than 30 nor more than 60 days' prior
notice, at the following redemption prices (expressed as percentages of
principal amount), plus accrued and unpaid interest and Additional Interest
thereon, if any, to, but not including, the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest,
including Additional Interest, if any, due on the relevant interest payment
date), if redeemed during the 12-month period commencing on July 15 of the years
set forth below:
------------------------------------------------------------------------
REDEMPTION
YEAR PRICE
------------------------------------------------------------------------
2007........................................................ 105.375%
2008........................................................ 103.583%
2009........................................................ 101.792%
2010 and thereafter......................................... 100.000%
------------------------------------------------------------------------
Prior to July 15, 2005, we may, on one or more occasions, also redeem up to a
maximum of 35% of the original aggregate principal amount of the Notes
(calculated giving effect to any issuance of Additional Notes) with the Net Cash
Proceeds of one or more Equity Offerings (1) by the Company or (2) by Holding to
the extent the Net Cash Proceeds thereof are contributed to the Company or used
to purchase Capital Stock (other than Disqualified Stock) of the Company from
the Company, at a redemption price equal to 110.75% of the principal amount
thereof, plus accrued and unpaid interest and Additional Interest thereon, if
any, to, but not including, the redemption date (subject to the right of Holders
of record on the
69
relevant record date to receive interest due on the relevant interest payment
date); provided, however, that after giving effect to any such redemption:
(1) at least 65% of the original aggregate principal amount of the Notes
(calculated giving effect to any issuance of Additional Notes) remains
outstanding; and
(2) any such redemption by the Company must be made within 60 days of such
Equity Offering and must be made in accordance with certain procedures set
forth in the Indenture.
SELECTION
If we partially redeem Notes, the Trustee will select the Notes to be redeemed
on a pro rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and reasonable, although no Note of $1,000 in
original principal amount or less will be redeemed in part. If we redeem any
Note in part only, the notice of redemption relating to such Note shall state
the portion of the principal amount thereof to be redeemed. A 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 Note. On and after
the redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption so long as we have deposited with the Paying Agent funds
sufficient to pay the principal of, plus accrued and unpaid interest and
Additional Interest thereon, if any, the Notes to be redeemed.
RANKING
The Notes will be unsecured Senior Subordinated Indebtedness of the Company,
will be subordinated in right of payment to all existing and future Senior
Indebtedness of the Company, will rank equally in right of payment with any
existing and future Senior Subordinated Indebtedness of the Company and will be
senior in right of payment to all future Subordinated Obligations of the
Company. The Notes also will be effectively subordinated to all Secured
Indebtedness of the Company and its Subsidiaries to the extent of the value of
the assets securing such Indebtedness. However, payment from the money or the
proceeds of U.S. Government Obligations held in any defeasance trust described
below under the caption "Defeasance" will not be subordinated to any Senior
Indebtedness or subject to the restrictions described herein.
The Note Guarantees will be unsecured Senior Subordinated Indebtedness of the
applicable Note Guarantor, will be subordinated in right of payment to all
existing and future Senior Indebtedness of such Note Guarantor, will rank
equally in right of payment with any existing and future Senior Subordinated
Indebtedness of such Note Guarantor and will be senior in right of payment to
all future Subordinated Obligations of such Note Guarantor. The Note Guarantees
also will be effectively subordinated to all Secured Indebtedness of the
applicable Note Guarantor and its Subsidiaries to the extent of the value of the
assets securing such Secured Indebtedness and effectively subordinated to the
obligations of any Subsidiary of a Note Guarantor if that Subsidiary is not a
Note Guarantor.
The Company currently conducts most of its operations through its Subsidiaries.
To the extent such Subsidiaries are not Guarantors, creditors of such
Subsidiaries, including trade creditors, and preferred stockholders, if any, of
such Subsidiaries generally will have priority with respect to the assets and
earnings of such Subsidiaries over the claims of creditors of the Company,
including Holders. The Notes, therefore, will be effectively subordinated to the
claims of creditors, including trade creditors, and preferred stockholders, if
any, of Subsidiaries of the
70
Company that are not Note Guarantors. For example, except under certain
circumstances, the Company's Foreign Subsidiaries will not guarantee the Notes.
Assuming that we had completed the Transactions and applied the net proceeds we
receive from the Transactions in the manner described under the heading "Use of
proceeds," as of June 29, 2002:
- we would have had approximately $351.6 million of Senior Indebtedness
to which the Notes and the Note Guarantees would be subordinated (which
amount excludes $5.7 million of letters of credit and the remaining
availability of $94.3 million under our revolving credit facility and
$50.0 million of availability under our delayed draw term loan facility);
- we would not have had any Senior Subordinated Indebtedness (other than
the Notes);
- we would not have had any Subordinated Obligations; and
- our Subsidiaries that are not Note Guarantors would have had $8.5
million of liabilities, excluding liabilities owed to us.
Although the Indenture will limit the Incurrence of Indebtedness by the Company
and the Restricted Subsidiaries and the issuance of Preferred Stock by the
Restricted Subsidiaries, such limitation is subject to a number of significant
qualifications. The Company and its Subsidiaries may be able to Incur
substantial amounts of additional Indebtedness in certain circumstances. Such
Indebtedness may be Senior Indebtedness. In addition, the Indenture will not
limit the Incurrence of Indebtedness by Holding or have any other restrictions
on Holding.
"Senior Indebtedness" of the Company or any Note Guarantor means Bank
Indebtedness and the principal of, premium (if any) and accrued and unpaid
interest on (including interest accruing on or after the filing of any petition
in bankruptcy or for reorganization of the Company or any Note Guarantor,
regardless of whether or not a claim for post-filing interest is allowed in such
proceedings), and fees and other amounts owing in respect of, all other
Indebtedness of the Company or any Note Guarantor, as applicable, whether
outstanding on the Closing Date or thereafter Incurred, unless in the instrument
creating or evidencing the same or pursuant to which the same is outstanding it
is provided that such obligations are pari passu with or subordinated in right
of payment to the Notes or such Note Guarantor's Note Guarantee, as applicable;
provided, however, that Senior Indebtedness of the Company or any Note Guarantor
shall not include:
(1) any obligation of the Company or any Subsidiary of the Company or of
such Note Guarantor to the Company or any other Subsidiary of the Company;
(2) any liability for federal, state, local or other taxes owed or owing by
the Company or such Note Guarantor, as applicable;
(3) any accounts payable or other liability to trade creditors arising in
the ordinary course of business (including Guarantees thereof or instruments
evidencing such liabilities);
(4) any Indebtedness or obligation of the Company or such Note Guarantor, as
applicable (and any accrued and unpaid interest in respect thereof) that by
its terms is subordinate in right of payment to any other Indebtedness or
obligation of the Company or such Note Guarantor, as applicable, including
any Senior Subordinated Indebtedness and any Subordinated Obligations of the
Company or such Note Guarantor, as applicable;
71
(5) any obligations with respect to any Capital Stock; or
(6) any Indebtedness (or portion thereof) Incurred in violation of the
Indenture.
Only Indebtedness of the Company that is Senior Indebtedness will rank senior to
the Notes. The Notes will rank equally in all respects with all other Senior
Subordinated Indebtedness of the Company. The Company will not Incur, directly
or indirectly, any Indebtedness which is subordinate in right of payment to
Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness
or is expressly subordinated in right of payment to Senior Subordinated
Indebtedness. Unsecured Indebtedness is not deemed to be subordinate in right of
payment to Secured Indebtedness merely because it is unsecured and Indebtedness
which has different security or different priorities in the same security will
not be deemed subordinate in right of payment to Secured Indebtedness due to
such differences.
The Company may not pay principal of, premium (if any) or interest on the Notes,
or make any further deposit pursuant to the provisions described under
"Defeasance" below, and may not otherwise purchase, repurchase, redeem or
otherwise acquire or retire for value any Notes (collectively, "pay the Notes")
(except in Permitted Junior Securities or except from a previously created trust
described under "Defeasance") if:
(1) any Designated Senior Indebtedness of the Company is not paid when due,
whether upon acceleration or otherwise, or
(2) any other default on Designated Senior Indebtedness of the Company
occurs and the maturity of such Designated Senior Indebtedness is
accelerated in accordance with its terms
unless, in either case,
(x) the default has been cured or waived and any such acceleration has been
rescinded, or
(y) such Designated Senior Indebtedness has been paid in full;
provided, however, that the Company may pay the Notes without regard to the
foregoing if the Company and the Trustee receive written notice approving such
payment from the Representative of the Designated Senior Indebtedness with
respect to which either of the events set forth in clause (1) or (2) above has
occurred and is continuing.
In addition, during the continuance of any default (other than a default
described in clause (1) or (2) of the immediately preceding paragraph) with
respect to any Designated Senior Indebtedness of the Company pursuant to which
the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods, we may not pay the Notes (except in
Permitted Junior Securities or except from a previously created trust described
under "Defeasance") for a period (a "Payment Blockage Period") commencing upon
the receipt by the Trustee (with a copy to us) of written notice (a "Blockage
Notice") of such default from the Representative of such Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period and
ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated:
(1) by written notice to the Trustee and the Company from the Person or
Persons who gave such Blockage Notice,
(2) by repayment in full of such Designated Senior Indebtedness, or
(3) because the default giving rise to such Blockage Notice is no longer
continuing).
72
Notwithstanding the provisions described in the immediately preceding paragraph
(but subject to the provisions contained in the second preceding and in the
immediately succeeding paragraph), unless the holders of such Designated Senior
Indebtedness or the Representative of such holders have accelerated the maturity
of such Designated Senior Indebtedness, the Company may resume payments on the
Notes after the end of such Payment Blockage Period, including any missed
payments.
Not more than one Blockage Notice may be given in any consecutive 360-day
period, irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period. However, if any Blockage Notice within such
360-day period is given by or on behalf of any holders of Designated Senior
Indebtedness other than the Bank Indebtedness, the Representative of the Bank
Indebtedness may give another Blockage Notice within such period. In no event,
however, may the total number of days during which any Payment Blockage Period
or Periods (including any periods in respect of any additional Blockage Notices
delivered by the Representative pursuant to the prior sentence) is in effect
exceed 179 days in the aggregate during any 360 consecutive day period. For
purposes of this paragraph, no default or event of default that existed or was
continuing on the date of the commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period shall be, or be made, the basis of the commencement of a subsequent
Payment Blockage Period by the Representative of such Designated Senior
Indebtedness, whether or not within a period of 360 consecutive days, unless
such default or event of default shall have been cured or waived for a period of
not less than 90 consecutive days.
Upon any payment or distribution of the assets of the Company to creditors upon
a total or partial liquidation or a total or partial dissolution of the Company
or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property (except that Holders of Notes
may receive and retain Permitted Junior Securities and payments made from the
trust described under "Defeasance"):
(1) the holders of Senior Indebtedness of the Company will be entitled to
receive payment in full of such Senior Indebtedness before the Holders are
entitled to receive any payment of principal of or interest on the Notes;
and
(2) until such Senior Indebtedness is paid in full any payment or
distribution to which Holders would be entitled but for the subordination
provisions of the Indenture will be made to holders of such Senior
Indebtedness as their interests may appear.
If a distribution is made to Holders that due to the subordination provisions of
the Indenture should not have been made to them, such Holders will be required
to hold it in trust for the holders of Senior Indebtedness of the Company and
pay it over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee (provided that the Trustee shall have received written
notice from the Company, on which notice the Trustee shall be entitled to
conclusively rely) shall promptly notify the holders of the Designated Senior
Indebtedness of the Company (or their Representative) of the acceleration. If
any Designated Senior Indebtedness of the Company is outstanding, the Company
may not pay the Notes until five Business Days after such holders or the
Representative of such Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the Notes only if the subordination
provisions of the Indenture otherwise permit payment at that time.
73
By reason of the subordination provisions of the Indenture, in the event of
insolvency, creditors of the Company who are holders of Senior Indebtedness of
the Company may recover more, ratably, than the Holders, and creditors of the
Company who are not holders of Senior Indebtedness of the Company or of Senior
Subordinated Indebtedness of the Company (including the Notes) may recover less,
ratably, than holders of Senior Indebtedness of the Company and may recover
more, ratably, than the holders of Senior Subordinated Indebtedness of the
Company.
The Indenture will contain substantially identical subordination provisions
relating to each Guarantor's obligations under its Note Guarantee.
NOTE GUARANTEES
BPC Holding Corporation, each of the Company's Domestic Subsidiaries, and
certain future subsidiaries of the Company (as described below), as primary
obligors and not merely as sureties, will jointly and severally irrevocably and
unconditionally Guarantee on an unsecured senior subordinated basis the
performance and full and punctual payment when due, whether at Stated Maturity,
by acceleration or otherwise, of all obligations of the Company under the
Indenture (including obligations to the Trustee) and the Notes, whether for
payment of principal of, interest (including Additional Interest) on, if any, in
respect of the Notes, expenses, indemnification or otherwise (all such
obligations guaranteed by such Note Guarantors being herein called the
"Guaranteed Obligations"). Such Note Guarantors will agree to pay, in addition
to the amount stated above, any and all costs and expenses (including reasonable
counsel fees and expenses) Incurred by the Trustee or the Holders in enforcing
any rights under the Note Guarantees. Each Note Guarantee will be limited in
amount to an amount not to exceed the maximum amount that can be Guaranteed by
the applicable Note Guarantor without rendering the Note Guarantee, as it
relates to such Note Guarantor, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally. After the Closing Date, the Company will cause
(1) each Domestic Subsidiary, other than a Domestic Subsidiary the only activity
of which is to participate in a Receivables Facility, and (2) each Foreign
Subsidiary that enters into a Guarantee of any Senior Indebtedness (other than a
Foreign Subsidiary that Guarantees Senior Indebtedness Incurred by another
Foreign Subsidiary), to execute and deliver to the Trustee a supplemental
indenture pursuant to which such Subsidiary will Guarantee payment of the Notes
to the extent described in "Certain covenants--Future note guarantors and
release of note guarantees" below. A Note Guarantor will be released from its
obligations under the Indenture, the Note Guarantee and the registration rights
agreement if (x) the Company designates such Note Guarantor as an Unrestricted
Subsidiary and such designation complies with the other applicable provisions of
the Indenture or (y) such Subsidiary is sold in accordance with the Indenture.
See "Certain covenants--Future note guarantors and release of note guarantees."
The obligations of a Note Guarantor under its Note Guarantee are senior
subordinated obligations. As such, the rights of Holders to receive payment by a
Note Guarantor pursuant to its Note Guarantee will be subordinated in right of
payment to the rights of holders of Senior Indebtedness of such Note Guarantor.
The terms of the subordination provisions described above with respect to the
Company's obligations under the Notes apply equally to a Note Guarantor and the
obligations of such Note Guarantor under its Note Guarantee.
74
Each Note Guarantee is a continuing guarantee and shall (a) remain in full force
and effect until payment in full of all the Guaranteed Obligations, (b) be
binding upon each Note Guarantor and its successors and (c) inure to the benefit
of, and be enforceable by, the Trustee, the Holders and their successors,
transferees and assigns.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of Control"),
each Holder will have the right to require the Company to purchase all or any
part of such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest and Additional
Interest, if any, to the date of purchase (subject to the right of Holders of
record on the relevant record date to receive interest, including Additional
Interest, if any, due on the relevant interest payment date); provided, however,
that notwithstanding the occurrence of a Change of Control, the Company shall
not be obligated to purchase the Notes pursuant to this section in the event
that it has mailed the notice to exercise its right to redeem all the Notes
under the terms of the section titled "Optional redemption" at any time prior to
the requirement to consummate the Change of Control and redeem the Notes in
accordance with such notice:
(1) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, of more than 50% of the total voting power of
the Voting Stock of the Company or Holding, whether as a result of issuance
of securities of Holding or the Company, any merger, consolidation,
liquidation or dissolution of Holding or the Company, any direct or indirect
transfer of securities by any Permitted Holder or otherwise;
(2) the sale, lease or transfer, in one transaction or a series of related
transactions, of all or substantially all the assets of the Company and its
Subsidiaries, taken as a whole, to a "person" (as defined above) other than
one or more Permitted Holders;
(3) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of the Company
or Holding, as the case may be (together with any new directors whose
election by such board of directors of the Company or Holding, as the case
may be, or whose nomination for election by the shareholders of the Company
or Holding, as the case may be, was approved by a vote of a majority of the
directors of the Company or Holding, as the case may be, then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved), and any
directors who are designees of a Principal or a Related Party of a Principal
or were nominated by a Principal or a Related Party of a Principal, cease
for any reason to constitute a majority of the board of directors of the
Company or Holding, as the case may be, then in office; or
(4) the merger or consolidation of the Company or Holding with or into
another Person or the merger of another Person with or into the Company or
Holding, other than, in each case, a transaction following which securities
that represented at least a majority of the voting power of the Voting Stock
of the Company immediately prior to such transaction (or other securities
into which such securities are converted as part of such merger or
consolidation transaction) constitute at least a majority of the voting
power of the Voting Stock of the surviving Person.
75
In the event that at the time of such Change of Control the terms of the Bank
Indebtedness restrict or prohibit the repurchase of Notes pursuant to this
covenant, then prior to the mailing of the notice to Holders provided for in the
immediately following paragraph but in any event within 30 days following any
Change of Control, the Company shall:
(1) repay in full all Bank Indebtedness or, if doing so will allow the
purchase of Notes, offer to repay in full all Bank Indebtedness and repay
the Bank Indebtedness of each lender who has accepted such offer, or
(2) obtain the requisite consent under the agreements governing the Bank
Indebtedness to permit the repurchase of the Notes as provided for in the
immediately following paragraph.
Within 30 days following any Change of Control, or, at the Company's option,
prior to such Change of Control but after it is publicly announced, the Company
shall mail a notice to each Holder with a copy to the Trustee (the "Change of
Control Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the right
to require the Company to purchase all or a portion of such Holder's Notes
at a purchase price in cash equal to 101% of the principal amount thereof,
plus accrued and unpaid interest and Additional Interest, if any, to the
date of purchase (subject to the right of Holders of record on the relevant
record date to receive interest, including Additional Interest, if any, on
the relevant interest payment date);
(2) the circumstances and relevant facts and financial information regarding
such Change of Control;
(3) the purchase date (which shall be no earlier than the greater of (x) 30
days and (y) the Change of Control date and no later than 60 days from the
date such notice is mailed);
(4) that the Change of Control Offer is conditioned on the Change of Control
occurring if the notice is mailed prior to a Change of Control; and
(5) the instructions determined by the Company, consistent with this
covenant, that a Holder must follow in order to have its Notes purchased.
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 Notes validly tendered and not withdrawn under such Change of
Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the purchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant by virtue thereof.
The Change of Control purchase feature is a result of negotiations between the
Company and the initial purchasers of the outstanding notes. Management has no
present intention to engage in a transaction involving a Change of Control,
although it is possible that the Company would decide to do so in the future.
Subject to the limitations discussed below, the Company could, in the future,
enter into certain transactions, including acquisitions, refinanc-
76
ings or recapitalizations, that would not constitute a Change of Control under
the Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
Restrictions on the ability of the Company to Incur additional Indebtedness are
contained in the covenant described under "--Limitation on indebtedness." Such
restrictions can only be waived with the consent of the Holders of a majority in
principal amount of the Notes then outstanding. Except for the limitations
contained in such covenant, however, the Indenture will not contain any
covenants or provisions that may afford Holders protection in the event of a
highly leveraged transaction.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of the Company may contain prohibitions of certain events which
would constitute a Change of Control or require such Senior Indebtedness to be
repurchased or repaid upon a Change of Control. Moreover, the exercise by the
Holders of their right to require the Company to purchase the Notes could cause
a default under such Senior Indebtedness, even if the Change of Control itself
does not, due to the financial effect of such repurchase on the Company.
Finally, the Company's ability to pay cash to the Holders upon a purchase may be
limited by the Company's then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required purchases. The provisions under the Indenture relative to the Company's
obligation to make an offer to purchase the Notes as a result of a Change of
Control may be waived or modified with the written consent of the Holders of a
majority in principal amount of the Notes.
CERTAIN COVENANTS
The Indenture will contain covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS. (a) The Company will not, and will not permit any
Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Company or any Restricted Subsidiary that is a Note
Guarantor may Incur Indebtedness (including any Receivables Facility) if, on the
date of such Incurrence and after giving effect thereto the Consolidated
Coverage Ratio would be greater than 2:1.
(b) Notwithstanding the foregoing paragraph (a), the Company and its Restricted
Subsidiaries may Incur the following Indebtedness:
(1) Indebtedness in an aggregate principal amount Incurred pursuant to any
Credit Facility and Indebtedness in an aggregate amount outstanding under
any Receivables Facility which together do not exceed $555.0 million less
the aggregate amount of all mandatory repayments of the principal of any
term Indebtedness under the Credit Agreement that have been made by the
Company or any of its Restricted Subsidiaries since the date of the
Indenture with the Net Available Cash of an Asset Disposition pursuant to
clause (a)(3)(A) of "Certain covenants--Limitation on sales of assets and
subsidiary stock"; provided, however, that Indebtedness in excess of $505.0
million may be Incurred only if at the time of Incurrence (or at the time of
any other Incurrence of Indebtedness pursuant to this clause (1) in excess
of $505.0 million) the Company receives an amount equal to such excess in
cash from the issue or sale of Capital Stock (other than Disqualified Stock)
or from other capital contributions;
(2) Indebtedness of the Company owed to and held by any Restricted
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by
the Company or any Restricted Subsidiary; provided, however, that (A) any
subsequent issuance or transfer of any Capital
77
Stock or any other event that results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of any such
Indebtedness (except to the Company or a Restricted Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such Indebtedness by
the issuer thereof, (B) if the Company is the obligor on such Indebtedness,
such Indebtedness is expressly subordinated to the prior payment in full in
cash of all obligations with respect to the Notes and (C) if a Restricted
Subsidiary that is a Note Guarantor is the obligor on such Indebtedness and
such Indebtedness is owed to and held by a Restricted Subsidiary that is not
a Note Guarantor, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all obligations of such Restricted Subsidiary
with respect to its Note Guarantee;
(3) Indebtedness (A) represented by the Notes (not including any Additional
Notes) and the Note Guarantees, (B) represented by the exchange Notes to be
issued in exchange for the Notes pursuant to the registration rights
agreement, (C) outstanding on the Closing Date (other than the Indebtedness
described in clauses (1) and (2) above), (D) consisting of Refinancing
Indebtedness Incurred in respect of any Indebtedness described in this
clause (3) or the foregoing paragraph (a) (including in any such case
Indebtedness that is Refinancing Indebtedness) and (E) consisting of
Guarantees of any Indebtedness permitted under the foregoing paragraph (a)
or this paragraph (b);
(4) Indebtedness (A) in respect of workers' compensation self-insurance
obligations, indemnities, performance bonds, bankers' acceptances, letters
of credit and surety, appeal or similar bonds provided by the Company and
the Restricted Subsidiaries in the ordinary course of their business and in
any such case any reimbursement obligations in connection therewith, (B)
under Interest Rate Agreements entered into for bona fide hedging purposes
of the Company in the ordinary course of business; provided, however, that
such Interest Rate Agreements do not increase the Indebtedness of the
Company outstanding at any time other than as a result of fluctuations in
interest rates or by reason of fees, indemnities and compensation payable
thereunder, (C) under any Currency Agreements; provided that such agreements
are designed to protect the Company or its Subsidiaries against fluctuations
in foreign currency exchange rates or interest rates or by reason of fees,
indemnities and compensation payable under Currency Agreements or (D) under
any Commodity Price Protection Agreements; provided that such agreements are
designed to protect the Company or its Subsidiaries against fluctuations in
commodity prices or by reason of fees, indemnities and compensation payable
under such Commodity Price Protection Agreements;
(5) Purchase Money Indebtedness and Capitalized Lease Obligations in an
aggregate principal amount not in excess of $30.0 million at any time
outstanding;
(6) Indebtedness of any Foreign Subsidiary in an aggregate principal amount
which does not exceed $15.0 million plus any Indebtedness of a Foreign
Subsidiary existing at the time it is acquired by the Company and not
Incurred in contemplation thereof, so long as after giving effect to such
acquisition, the Company could Incur $1.00 of additional Indebtedness under
paragraph (a) of this covenant;
(7) obligations arising from agreements by the Company or a Restricted
Subsidiary to provide for indemnification, adjustment of purchase price or
similar obligations, earn-outs or other similar obligations or from
guarantees or letters of credit, surety bonds or performance bonds securing
any obligation of the Company or a Restricted Subsidiary
78
pursuant to such an agreement, in each case, Incurred in connection with the
acquisition or disposition of any business, assets or Capital Stock of a
Restricted Subsidiary;
(8) shares of Preferred Stock of a Restricted Subsidiary issued to the
Company or another Restricted Subsidiary; provided that any subsequent
transfer of any Capital Stock or any other event which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other
subsequent transfer of any such shares of Preferred Stock (except to the
Company or another Restricted Subsidiary) shall be deemed, in each case, to
be an issuance of Preferred Stock;
(9) Indebtedness of the Company and any Restricted Subsidiary to the extent
the net proceeds thereof are promptly deposited to defease the Notes as
described below under "Defeasance;"
(10) contingent liabilities arising out of endorsements of checks and other
negotiable instruments for deposit or collection or overdraft protection in
the ordinary course of business; and
(11) Indebtedness (other than Indebtedness permitted to be Incurred pursuant
to the foregoing paragraph (a) or any other clause of this paragraph (b)) in
an aggregate principal amount on the date of Incurrence that, when added to
all other Indebtedness Incurred pursuant to this clause (11) and then
outstanding, will not exceed $30.0 million.
(c) The Company may not Incur any Indebtedness if such Indebtedness is
subordinate in right of payment to any Senior Indebtedness unless such
Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in
right of payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is
not deemed to be subordinate in right of payment to Secured Indebtedness merely
because it is unsecured and Indebtedness which has different security or
different priorities in the same security will not be deemed subordinate in
right of payment to Secured Indebtedness due to such differences. The Company
may not Incur any Secured Indebtedness which is not Senior Indebtedness unless
contemporaneously therewith effective provision is made to secure the Notes
equally and ratably with (or on a senior basis to, in the case of Indebtedness
subordinated in right of payment to the Notes) such Secured Indebtedness for so
long as such Secured Indebtedness is secured by a Lien. A Note Guarantor may not
Incur any Indebtedness if such Indebtedness is by its terms expressly
subordinate in right of payment to any Senior Indebtedness of such Note
Guarantor unless such Indebtedness is Senior Subordinated Indebtedness of such
Note Guarantor or is expressly subordinated in right of payment to Senior
Subordinated Indebtedness of such Note Guarantor. Unsecured Indebtedness is not
deemed to be subordinate in right of payment to Secured Indebtedness merely
because it is unsecured and Indebtedness which has different security or
different priorities in the same security will not be deemed subordinate in
right of payment to Secured Indebtedness due to such differences. A Note
Guarantor may not Incur any Secured Indebtedness that is not Senior Indebtedness
of such Note Guarantor unless contemporaneously therewith effective provision is
made to secure the Note Guarantee of such Note Guarantor equally and ratably
with (or on a senior basis to, in the case of Indebtedness subordinated in right
of payment to such Note Guarantee) such Secured Indebtedness for as long as such
Secured Indebtedness is secured by a Lien.
(d) For purposes of determining compliance with this covenant:
(1) Indebtedness Incurred pursuant to the Credit Agreement prior to or on
the Closing Date shall be treated as Incurred pursuant to clause (1) of
paragraph (b) above;
79
(2) Indebtedness permitted by this covenant need not be permitted solely by
reference to one provision permitting such Indebtedness but may be permitted
in part by one such provision and in part by one or more other provisions of
this covenant permitting such Indebtedness;
(3) in the event that Indebtedness meets the criteria of more than one of
the types of Indebtedness described in this covenant, the Company, in its
sole discretion, shall classify such Indebtedness on the date of Incurrence
and shall later be permitted to reclassify all or a portion of such item of
Indebtedness, in any manner that complies with this covenant, and only be
required to include the amount of such Indebtedness in one of such clauses;
(4) for purpose of determining compliance with any dollar-denominated
restriction on the Incurrence of Indebtedness, denominated in a foreign
currency, the dollar-equivalent principal amount of such Indebtedness
Incurred pursuant thereto shall be calculated based on the relevant currency
exchange rate in effect on the date that such Indebtedness was Incurred, and
any such foreign denominated Indebtedness may be refinanced or replaced, or
subsequently refinanced or replaced, in an amount equal to the
dollar-equivalent principal amount of such Indebtedness on the date of such
refinancing or replacement whether or not such amount is greater or less
than the dollar equivalent principal amount of the Indebtedness on the date
of initial Incurrence;
(5) if Indebtedness is secured by a letter of credit that serves only to
secure such Indebtedness, then the total amount deemed Incurred shall be
equal to the greater of (x) the principal of such Indebtedness and (y) the
amount that may be drawn under such letter of credit; and
(6) the amount of Indebtedness issued at a price less than the amount of the
liability thereof shall be determined in accordance with GAAP.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company will not, and will not permit
any Restricted Subsidiary, directly or indirectly, to:
(1) declare or pay any dividend, make any distribution on or in respect of
its Capital Stock or make any similar payment on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving the Company or any Subsidiary of the Company) to the
direct or indirect holders of its Capital Stock, except (x) dividends or
distributions payable solely in its Capital Stock (other than Disqualified
Stock or Preferred Stock) or in options, warrants or rights to purchase such
Capital Stock and (y) dividends or distributions payable to the Company or a
Restricted Subsidiary (and, if such Restricted Subsidiary has shareholders
other than the Company or other Restricted Subsidiaries, to its other
shareholders on a pro rata basis),
(2) purchase, repurchase, redeem, retire or otherwise acquire for value any
Capital Stock of Holding, the Company or any Restricted Subsidiary held by
Persons other than the Company or a Restricted Subsidiary,
(3) purchase, repurchase, redeem, retire, defease or otherwise acquire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment any Subordinated Obligations, except a purchase, repurchase,
redemption, retirement, defeasance or acquisition within one year of the
final maturity thereof, or
(4) make any Investment (other than a Permitted Investment) in any Person
(any such dividend, distribution, payment, purchase, redemption, repurchase,
defeasance, retirement,
80
or other acquisition or Investment set forth in these clauses (1) through
(4) being herein referred to as a "Restricted Payment") if at the time the
Company or such Restricted Subsidiary makes such Restricted Payment:
(A) a Default will be continuing (or would result therefrom);
(B) the Company could not Incur at least $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under "--Limitation on
indebtedness"; or
(C) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors, whose determination
will be conclusive and delivered to the Trustee and evidenced by a
resolution of the Board of Directors) declared or made subsequent to the
Closing Date would exceed the sum, without duplication, of:
(i) 50% of the sum of Consolidated Net Income and Consolidated Step-Up
Depreciation and Amortization accrued during the period (treated as
one accounting period) from the beginning of the fiscal quarter in
which the Closing Date occurs to the end of the most recent fiscal
quarter for which financial statements are available (or, in case such
Consolidated Net Income will be a deficit, minus 100% of such
deficit);
(ii) 100% of the aggregate Net Cash Proceeds and Fair Market Value of
property or assets (other than Indebtedness and Capital Stock, except
that Capital Stock of a Person that is or becomes a Restricted
Subsidiary shall be valued in accordance with the Company's interest
in the Fair Market Value of such Person's property and assets,
exclusive of goodwill or any similar intangible asset) received by the
Company from the issue or sale of its Capital Stock (other than
Disqualified Stock) or from other capital contributions subsequent to
the Closing Date (other than an issuance or sale (x) to a Subsidiary
of the Company, (y) to an employee stock ownership plan or other trust
established by the Company or any of its Subsidiaries with respect to
amounts funded or guaranteed by the Company or (z) in exchange for the
proceeds of loans or advances made pursuant to clause (17) under the
definition "Permitted Investment");
(iii) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Closing Date of any Indebtedness of the Company or
its Restricted Subsidiaries issued after the Closing Date which is
convertible or exchangeable for Capital Stock (other than Disqualified
Stock) of the Company (less the amount of any cash or the Fair Market
Value of other property distributed by the Company or any Restricted
Subsidiary upon such conversion or exchange);
(iv) the amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from (x) payments of dividends,
repayments of the principal of loans or advances or other transfers of
assets to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries or (y) the redesignation of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the
definition of "Investment");
(v) the net reduction in any Investment (other than a Permitted
Investment) that was made after the date of the Indenture resulting
from payments of dividends,
81
repayments of the principal of loans or advances or other transfers of
assets to the Company or any Restricted Subsidiary and the cash return
of capital with respect to any Investment (other than a Permitted
Investment); and
(vi) any amount which previously qualified as a Restricted Payment on
account of any Guarantee entered into by the Company or any Restricted
Subsidiary; provided that such Guarantee has not been called upon and
the obligation arising under such Guarantee no longer exists.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(1) any purchase, repurchase, redemption, retirement or other acquisition
for value of Capital Stock of the Company made by exchange for, or out of
the proceeds of the sale within 30 days of, Capital Stock of the Company
(other than Disqualified Stock and other than Capital Stock issued or sold
to a Subsidiary of the Company or an employee stock ownership plan or other
trust established by the Company or any of its Subsidiaries with respect to
amounts funded or guaranteed by the Company); provided, however, that:
(A) such purchase, repurchase, redemption, retirement or other
acquisition for value will be excluded in the calculation of the amount
of Restricted Payments, and
(B) the Net Cash Proceeds from such sale applied in the manner set forth
in this clause (1) will be excluded from the calculation of amounts under
clause (4)(C)(ii) of paragraph (a) above;
(2) any prepayment, repayment, purchase, repurchase, redemption, retirement,
defeasance or other acquisition for value of Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the sale within 30
days of, Subordinated Obligations or Capital Stock (other than Disqualified
Stock) of the Company that is permitted to be Incurred pursuant to the
covenant described under "--Limitation on indebtedness"; provided, however,
that:
(A) such prepayment, repayment, purchase, repurchase, redemption,
retirement, defeasance or other acquisition for value will be excluded in
the calculation of the amount of Restricted Payments; and
(B) the Net Cash Proceeds from such sale applied in the manner set forth
in this clause (2) will be excluded from the calculation of amounts under
clause (4)(C)(ii) of paragraph (a) above to the extent Capital Stock is
used in such prepayment, repayment, purchase, repurchase, redemption,
retirement, defeasance or other acquisition for value;
(3) any prepayment, repayment, purchase, repurchase, redemption, retirement,
defeasance or other acquisition for value of Subordinated Obligations from
Net Available Cash to the extent permitted by the covenant described under
"--Limitation on sales of assets and subsidiary stock"; provided, however,
that such prepayment, repayment, purchase, repurchase, redemption,
retirement, defeasance or other acquisition for value will be excluded in
the calculation of the amount of Restricted Payments;
(4) dividends paid within 60 days after the date of declaration thereof if
at such date of declaration such dividends would have complied with this
covenant; provided, however, that such dividends will be included in the
calculation of the amount of Restricted Payments;
82
(5) any payment of dividends, other distributions or other amounts by the
Company for the purposes set forth in clauses (A) through (C) below;
provided, however, that such dividend, distribution or other amount set
forth in clauses (A) and (B) will be excluded and in clause (C) will be
included in the calculation of the amount of Restricted Payments:
(A) to Holding in amounts equal to the amounts required for Holding to
pay franchise taxes and other fees required to maintain its corporate
existence and provide for other operating costs of up to $1.0 million per
fiscal year;
(B) to Holding in amounts equal to amounts required for Holding to pay
federal, state, local and foreign income taxes to the extent such income
taxes are attributable to the income of the Company and its Restricted
Subsidiaries (and, to the extent of amounts actually received from its
Unrestricted Subsidiaries, in amounts required to pay such taxes to the
extent attributable to the income of such Unrestricted Subsidiaries) or
otherwise in accordance with the Tax Sharing Agreement as in effect on
the date of the Indenture, as the same may be amended from time to time
to add additional Subsidiaries or in a manner not materially less
favorable to the Holders of the Notes;
(C) to Holding in amounts equal to amounts expended by Holding to
purchase, repurchase, redeem, retire or otherwise acquire for value
Capital Stock of Holding owned by employees, former employees, directors
or former directors, consultants or foreign consultants of the Company or
any of its Subsidiaries (or permitted transferees of such employees,
former employees, directors or former directors, consultants or foreign
consultants); provided, however, that the aggregate amount paid, loaned
or advanced to Holding pursuant to this clause (C) will not, in the
aggregate, exceed $2.5 million per fiscal year of the Company, plus any
amounts contributed by Holding to the Company as a result of sales of
shares of Capital Stock to employees, directors and consultants, plus the
net proceeds of any key person life insurance received by the Company
after the date of the Indenture;
(6) the repurchase of any Subordinated Obligation or Disqualified Stock of
the Company at a purchase price not greater than 101% of the principal
amount or liquidation preference of such Subordinated Obligation or
Disqualified Stock in the event of a Change of Control pursuant to a
provision similar to "Change of Control"; provided that prior to
consummating any such repurchase, the Company has made the Change of Control
Offer required by the Indenture and has repurchased all Notes validly
tendered for payment in connection with such Change of Control Offer;
provided, however, that such repurchase will be included in the calculation
of the amount of Restricted Payments;
(7) the repurchase of any Subordinated Obligation or Disqualified Stock of
the Company at a purchase price not greater than 100% of the principal
amount or liquidation preference of such Subordinated Obligation or
Disqualified Stock in the event of an Asset Sale pursuant to a provision
similar to the "--Limitation on sales of assets and subsidiary stock"
covenant; provided that prior to consummating any such repurchase, the
Company has made the Asset Sale Offer required by the Indenture and has
repurchased all Notes validly tendered for payment in connection with such
Asset Sale Offer; provided, however, that such repurchase will be included
in the calculation of the amount of Restricted Payments;
(8) repurchases of Capital Stock deemed to occur upon exercise of stock
options to the extent that shares of such Capital Stock represent a portion
of the exercise price of such options; provided, however, that such
repurchases will be excluded in the calculation of the amount of Restricted
Payments;
83
(9) the declaration and payment of dividends or distributions to holders of
any class or series of Disqualified Stock of the Company or Preferred Stock
of its Restricted Subsidiaries issued or Incurred in accordance with the
covenant "--Limitation on indebtedness"; provided, however, that such
declaration and payment of dividends or distributions to holders will be
excluded in the calculation of the amount of Restricted Payments;
(10) any of the transactions completed in connection with the Acquisition
and the financing thereof; provided, however, that such transactions will be
excluded in the calculation of the amount of Restricted Payments;
(11) any purchase, redemption, retirement or other acquisition for value of
Disqualified Stock of the Company made by exchange for, or out of the
proceeds of the sale within 30 days of, Disqualified Stock of the Company;
provided that any such new Disqualified Stock is issued in accordance with
paragraph (a) of the covenant "--Limitation on indebtedness" and has an
aggregate liquidation preference that does not exceed the aggregate
liquidation preference of the amount so refinanced; provided, however, such
purchase, repurchase, redemption, retirement or other acquisition for value
will be excluded in the calculation of the amount of Restricted Payments; or
(12) other Restricted Payments in an aggregate amount not to exceed $15.0
million since the date of the Indenture; provided, however, that such other
Restricted Payments will be included in the calculation of the amount of
Restricted Payments.
The amount of all Restricted Payments (other than cash) will be the Fair Market
Value on the date of the Restricted Payment of the assets) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The Fair
Market Value of any assets or securities that are required to be valued by this
covenant will be determined by the Board of Directors whose resolution with
respect thereto will be conclusive and delivered to the Trustee and evidenced by
a resolution of the Board of Directors.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES. The
Company will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock or
pay any Indebtedness or other obligations owed to the Company;
(2) make any loans or advances to the Company; or
(3) transfer any of its property or assets to the Company,
except:
(A) any encumbrance or restriction pursuant to applicable law;
(B) any encumbrance or restriction in any agreement with respect to
Indebtedness (including the Credit Agreement) as in effect or entered
into on the Closing Date, and any amendments, modifications,
restatements, renewals, extensions, replacements Andre financings thereof
on terms and conditions with respect to such encumbrances and
restrictions that are not materially more restrictive, taken as a whole,
than those encumbrances and restrictions with respect to such
Indebtedness as in effect on the date of the Indenture;
84
(C) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred
as consideration in or in contemplation of, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became
a Restricted Subsidiary or was otherwise acquired by the Company) and
outstanding on such date;
(D) any encumbrance or restriction pursuant to an agreement for the sale
or other disposition of a Restricted Subsidiary or assets that restrict
distributions by that Restricted Subsidiary or distributions of those
assets pending the sale or other disposition;
(E) any encumbrance or restriction existing by reason of provisions with
respect to the disposition or distribution of assets or property in joint
venture agreements, asset sale agreements, stock sale agreements and
other similar agreements;
(F) any encumbrance or restriction existing by reason of restrictions on
cash or other deposits or net worth imposed by customers under contracts
entered into in the ordinary course of business;
(G) any encumbrance or restriction existing by reason of restrictions on
the transfer of assets that are the subject of a Capitalized Lease
Obligation permitted under "--Limitation on indebtedness";
(H) in the case of clause (3), any encumbrance or restriction
(i) that restricts in a customary manner the subletting, assignment or
transfer of any property or asset that is subject to a lease, license
or similar contract,
(ii) contained in security agreements securing Indebtedness of a
Restricted Subsidiary to the extent such encumbrance or restriction
restricts the transfer of the property subject to such security
agreements or
(iii) pursuant to Purchase Money Indebtedness for property acquired in
the ordinary course of business that imposes restrictions on that
property;
(I) encumbrances or restrictions that are or were created by virtue of
any transfer of, agreement to transfer, or option or right with respect
to any property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by the Indenture;
(J) encumbrances and restrictions contained in Indebtedness of Foreign
Subsidiaries permitted pursuant to the covenant described under
"--Limitation on indebtedness" or industrial revenue or similar bonds
Incurred by the Company or any Restricted Subsidiary and permitted
pursuant to the covenant described under "--Limitation on indebtedness";
(K) encumbrances or restrictions contained in indentures or other debt
instruments, facilities or arrangements that are not materially more
restrictive, taken as a whole, than those contained in the Indenture
governing the Notes or the Credit Agreement on the date of the Indenture;
(L) encumbrances and restrictions on the date of the Acquisition (and not
Incurred in contemplation thereof) with respect to any assets or other
property acquired by the
85
Company or any Restricted Subsidiary (including pursuant to the
acquisition of the Capital Stock of a Person);
(M) customary restrictions imposed on the transfer of, or in licenses
related to, copyrighted or patented materials or other intellectual
property and customary provisions in agreements that restrict the
assignment of such agreements or any rights thereunder or the use of any
such rights;
(N) customary restrictions on real property interests set forth in
easements and similar arrangements of the Company or any Restricted
Subsidiary;
(O) any encumbrance or restriction existing under or by reason of a
Receivables Facility or other contractual requirements of a Receivables
Facility permitted pursuant to the covenant described under "--Limitation
on indebtedness"; provided that such restrictions apply only to such
Receivables Facility; and
(P) any encumbrance or restriction pursuant to (x) an agreement effecting
a Refinancing of Indebtedness Incurred pursuant to an agreement referred
to in clauses (A) through (P) of this covenant or contained in any
amendment, modification or replacement to an agreement referred to in
clauses (A) through (P) of this covenant, in each case as applicable;
provided, however, that the encumbrances and restrictions contained in
any such Refinancing agreement or amendment, modification or replacement
are no less favorable to the Holders taken as a whole than the
encumbrances and restrictions contained in such predecessor agreements or
(y) any Credit Facility which is no less favorable to the Holders taken
as a whole than the encumbrances contained in the Credit Agreement on the
date of the Indenture.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) The Company will not,
and will not permit any Restricted Subsidiary to, make any Asset Disposition
unless:
(1) the Company or such Restricted Subsidiary receives consideration
(including by way of relief from, or by any other Person assuming sole
responsibility for, any liabilities, contingent or otherwise) at the time of
such Asset Disposition at least equal to the Fair Market Value of the shares
and assets subject to such Asset Disposition,
(2) at least 75% of the consideration thereof received by the Company or
such Restricted Subsidiary is in the form of cash or Cash Equivalents, and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as the
case may be)
(A) first, to the extent the Company elects (or is required by the terms
of any Indebtedness), to prepay, repay, purchase, repurchase, redeem,
retire, defease or otherwise acquire for value (i) Senior Indebtedness of
the Company or Senior Indebtedness (other than obligations in respect of
Preferred Stock) of a Restricted Subsidiary or (ii) any Indebtedness of a
non-guarantor Restricted Subsidiary only if the assets sold were of a
non-guarantor Restricted Subsidiary (in each case other than Indebtedness
owed to the Company or an Affiliate of the Company and other than
obligations in respect of Disqualified Stock), in each case, within 365
days after the later of the date of such Asset Disposition or the receipt
of such Net Available Cash;
(B) second, to the extent of the balance of Net Available Cash after
application in accordance with clause (A), to the extent the Company or
such Restricted Subsidiary elects, to reinvest in Additional Assets
(including by means of an Investment in
86
Additional Assets by a Restricted Subsidiary with Net Available Cash
received by the Company or another Restricted Subsidiary) within 365 days
from the later of such Asset Disposition or the receipt of such Net
Available Cash or pursuant to arrangements in place within the 365-day
period;
(C) third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an Offer (as
defined in paragraph (b) of this covenant below) to purchase Notes
pursuant to and subject to the conditions set forth in paragraph (b) of
this covenant; provided, however, that if the Company elects (or is
required by the terms of any other Senior Subordinated Indebtedness),
such Offer may be made ratably to purchase the Notes and other Senior
Subordinated Indebtedness of the Company, and
(D) fourth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), for any general
corporate purpose not restricted by the terms of the Indenture;
provided, however that in connection with any prepayment, repayment, purchase,
repurchase, redemption, retirement, defeasance or other acquisition for value of
Indebtedness pursuant to clause (A) above, the Company or such Restricted
Subsidiary will retire such Indebtedness and will cause the related loan
commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid, purchased, repurchased, redeemed, retired,
defeased or otherwise acquired for value.
Pending the final application of the Net Available Cash, the Company and its
Restricted Subsidiaries may temporarily reduce revolving credit borrowings or
otherwise invest the Net Available Cash in any manner that is not prohibited by
the Indenture.
Notwithstanding the foregoing provisions of this covenant, the Company and the
Restricted Subsidiaries will not be required to apply any Net Available Cash in
accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions that is not applied in accordance
with this covenant exceeds $5.0 million.
For the purposes of this covenant, the following are deemed to be cash:
- the assumption of Indebtedness of the Company (other than obligations
in respect of Disqualified Stock of the Company) or any Restricted
Subsidiary (other than obligations in respect of Disqualified Stock and
Preferred Stock of a Restricted Subsidiary that is a Note Guarantor) and
the release of the Company or such Restricted Subsidiary from all
liability on such Indebtedness in connection with such Asset Disposition;
- any Designated Noncash Consideration received by the Company or any of
its Restricted Subsidiaries in the Asset Disposition; and
- securities or other obligations received by the Company or any
Restricted Subsidiary from the transferee that are (subject to ordinary
settlement periods) converted, sold or exchanged within 30 days of
receipt by the Company or such Restricted Subsidiary into cash (to the
extent of the cash received in that conversion, sale or exchange). In the
case of an Asset Swap constituting part of an Asset Disposition, the
Company or any such Restricted Subsidiary shall only be required to
receive cash in an amount equal to at least 75% of the proceeds of the
Asset Disposition which are not received in connection with the Asset
Swap.
87
(b) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (a)(3)(C) of this covenant, the Company will be required (i)
to purchase Notes tendered pursuant to an offer by the Company for the Notes
(the "Offer") at a purchase price of 100% of their principal amount plus accrued
and unpaid interest and Additional Interest thereon, if any, to the date of
purchase (subject to the right of Holders of record on the relevant date to
receive interest due on the relevant interest payment date) in accordance with
the procedures (including prorating in the event of oversubscription) set forth
in the Indenture and (ii) to purchase other Senior Subordinated Indebtedness of
the Company on the terms and to the extent contemplated thereby (provided that
in no event shall the Company offer to purchase such other Senior Subordinated
Indebtedness of the Company at a purchase price in excess of 100% of its
principal amount, plus accrued and unpaid interest thereon). If the aggregate
purchase price of Notes (and other Senior Subordinated Indebtedness) tendered
pursuant to the Offer is less than the Net Available Cash allotted to the
purchase of the Notes (and other Senior Subordinated Indebtedness), the Company
will apply the remaining Net Available Cash in accordance with clause (a)(3)(D)
of this covenant. The Company will not be required to make an Offer for Notes
(and other Senior Subordinated Indebtedness) pursuant to this covenant if the
Net Available Cash available therefor (after application of the proceeds as
provided in clauses (a)(3)(A) and (B)) is less than $5.0 million for any
particular Asset Disposition (which lesser amount will be carried forward for
purposes of determining whether an Offer is required with respect to the Net
Available Cash from any subsequent Asset Disposition).
(c) The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of any covenant of the Indenture, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the Indenture by virtue thereof.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into or
conduct any transaction or series of related transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") unless
such transaction is on terms:
(1) that are no less favorable, taken as a whole, to the Company or such
Restricted Subsidiary, as the case may be, than those that could be obtained
at the time of such transaction in arm's-length dealings with a Person who
is not such an Affiliate,
(2) that, in the event such Affiliate Transaction involves an aggregate
amount in excess of $5.0 million,
(A) are set forth in writing, and
(B) have been approved in good faith by a majority of the members of the
Board of Directors and,
(3) that, in the event such Affiliate Transaction involves an aggregate
amount in excess of $20.0 million,
(A) are set forth in writing, and
(B) have either (x) been approved in good faith by a majority of the
members of the Board of Directors or (y) have been determined by a
recognized appraisal or investment
88
banking firm to be fair, from a financial standpoint, to the Company and
its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) will not prohibit or restrict:
(1) any Restricted Payment or Investment permitted to be made pursuant to
the covenant described under "--Limitation on restricted payments,"
(2) any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board
of Directors,
(3) the grant of stock options or similar rights to employees, directors and
consultants of the Company pursuant to plans approved by the Board of
Directors,
(4) loans or advances to employees in the ordinary course of business (or
guarantees in respect thereof or otherwise made on their behalf (including
payment on any such guarantees)), but in any event not to exceed $3.0
million in the aggregate outstanding at any one time, plus any amounts
loaned pursuant to clause (17) under the definition of "Permitted
Investment,"
(5) the payment of reasonable fees paid to, and indemnity provided on behalf
of, officers, directors, employees or consultants of the Company and its
Subsidiaries,
(6) any transaction between the Company and a Restricted Subsidiary or
between Restricted Subsidiaries,
(7) any transaction effected in connection with a Receivables Facility
permitted under the covenant "--Limitation on indebtedness,"
(8) any redemption of Capital Stock held by current or former employees,
directors or consultants upon death, disability or termination of employment
at a price not in excess of the Fair Market Value thereof or pursuant to the
terms of any agreement entered into in accordance with the Indenture with
such Person,
(9) sales or issuances of Capital Stock (other than Disqualified Stock) to
Affiliates of the Company,
(10) transactions involving the Company or any of its Restricted
Subsidiaries, on the one hand, and J.P. Morgan Securities Inc. or Goldman
Sachs & Co. or any of their respective affiliates, on the other hand, in
connection with the Acquisition and transactions related thereto, Bank
Indebtedness and any amendment, modification, supplement, extension,
refinancing, replacement, work-out, restructuring and other transactions
related thereto, or any management, financial advisory, financing,
underwriting or placement services or any other investment banking, banking
or similar services, which payments are approved by a majority of the Board
of Directors in good faith,
(11) transactions pursuant to the Stockholders' Agreement as in effect on
the date of the Indenture as the same may be amended from time to time in
any manner not materially less favorable taken as a whole to the Holders of
the Notes,
(12) transactions pursuant to any agreement disclosed in the Offering
Memorandum, including any agreement entered into in connection with the
Acquisition, as in effect on the date of the Indenture as the same may be
amended from time to time in any manner not materially less favorable taken
as a whole to the Holders of the Notes,
89
(13) any employment, compensation or indemnification agreements entered into
by the Company or any of its Restricted Subsidiaries, in the ordinary course
of business with employees, directors, or consultants, or
(14) sales of inventory or other product to any Affiliate in the ordinary
course of business.
SEC REPORTS. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the SEC (unless the SEC will not accept such a filing) and
provide the Trustee and Holders and prospective Holders (upon request) within 15
days after it files them with the SEC, copies of its annual report and the
information, documents and other reports that are specified in Sections 13 and
15(d) of the Exchange Act. The Company also will comply with the other
provisions of Section 314(a) of the TIA.
FUTURE NOTE GUARANTORS AND RELEASE OF NOTE GUARANTEES. (a) The Company will
cause (1) each Domestic Subsidiary, other than a Domestic Subsidiary the only
activity of which is to participate in a Receivables Facility, and (2) each
Foreign Subsidiary that enters into a Guarantee of any Senior Indebtedness
(other than a Foreign Subsidiary that Guarantees Senior Indebtedness Incurred by
another Foreign Subsidiary), to become a Note Guarantor, and if applicable,
execute and deliver to the Trustee a supplemental indenture in the form set
forth in the Indenture pursuant to which such Subsidiary will Guarantee payment
of the Notes; provided that this covenant shall not apply to any Subsidiary that
has been properly designated as an Unrestricted Subsidiary in accordance with
the Indenture. Each Note Guarantee will be limited to an amount not to exceed
the maximum amount that can be Guaranteed by that Note Guarantor, without
rendering the Note Guarantee, as it relates to such Note Guarantor voidable
under applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally.
(b) The Note Guarantee of a Note Guarantor will be released:
(1) in connection with any sale or other disposition of all or substantially
all of the assets of that Note Guarantor (including by way of merger or
consolidation) to a Person that is not (either before or after giving effect
to such transaction) a Subsidiary of the Company, if the sale or other
disposition complies with the "Asset Sale" provisions of the Indenture;
(2) in connection with any sale of Capital Stock of a Note Guarantor to a
Person that is not (either before or after giving effect to such
transaction) a Subsidiary of the Company, if the sale complies with the
"Asset Sale" provisions of the Indenture;
(3) if the Company designates any Restricted Subsidiary that is a Note
Guarantor as an Unrestricted Subsidiary in accordance with the applicable
provisions of the Indenture; or
(4) if the Note Guarantor participates in a Receivables Facility and such
participation is such Note Guarantor's only on-going activity.
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey, transfer
or lease all or substantially all its assets, in one or more related
transactions, to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor Company")
will be a corporation, limited liability company, trust, partnership or
similar entity organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor
Company (if not the Company) will expressly assume, by a
90
supplemental indenture, executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, all the obligations of the Company
under the Notes and the Indenture; provided that if the Successor Company is
not a corporation, the Notes will also be assumed by a corporate co-obligor;
(2) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Company or such Restricted Subsidiary at the time
of such transaction), no Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness under
paragraph (a) of the covenant described under "--Limitation on
indebtedness"; and
(4) the Company shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture, but the predecessor
Company in the case of a lease of all or substantially all its assets will not
be released from the obligation to pay the principal of and interest on the
Notes.
In addition, the Company will not permit any Note Guarantor to consolidate with
or merge with or into, or convey, transfer or lease all or substantially all of
its assets to any Person unless:
(1) the resulting, surviving or transferee Person (the "Successor
Guarantor") will be a corporation, limited liability company, trust,
partnership or similar entity organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia, and
such Person (if not such Note Guarantor) will expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, all the obligations of such Note
Guarantor under its Note Guarantee;
(2) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Guarantor or any
Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Guarantor or such Restricted Subsidiary at the
time of such transaction), no Default shall have occurred and be continuing;
and
(3) the Company will have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the Indenture.
Notwithstanding the foregoing:
(A) any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company or any
Restricted Subsidiary and
(B) the Company may merge with an Affiliate incorporated solely for the
purpose of reincorporating the Company in another jurisdiction to realize
tax or other benefits.
91
DEFAULTS
Each of the following is an Event of Default:
(1) a default in any payment of interest on any Note when due and payable or
in any payment of Additional Interest whether or not prohibited by the
provisions described under "Ranking" above, continued for 30 days,
(2) a default in the payment of principal of any Note when due and payable
at its Stated Maturity, upon required redemption or repurchase, upon
declaration or otherwise, whether or not such payment is prohibited by the
provisions described under "Ranking" above,
(3) the failure by the Company or any Note Guarantor to comply with its
obligations under the covenant described under "Merger and consolidation"
above,
(4) the failure by the Company or any Restricted Subsidiary to comply for 60
days after notice with any of its obligations under the covenants described
under "Change of Control" or "Certain covenants" above (in each case, other
than a failure to purchase Notes),
(5) the failure by the Company or any Restricted Subsidiary to comply for 60
days after notice with its other agreements contained in the Notes, the
Indenture or the Note Guarantees,
(6) the failure by the Company or any Significant Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders thereof because of a
default if the total amount of such Indebtedness unpaid or accelerated
exceeds $20.0 million or its foreign currency equivalent (the "cross
acceleration provision"),
(7) certain events of bankruptcy, insolvency or reorganization of the
Company or a Significant Subsidiary (the "bankruptcy provisions"),
(8) the rendering of any judgment or decree for the payment of money in
excess of $20.0 million or its foreign currency equivalent (net of any
amounts covered by insurance) against the Company or a Significant
Subsidiary if such judgment or decree remains outstanding for a period of 60
days following such judgment and is not discharged, waived or stayed (the
"judgment default provision") or
(9) any Note Guarantee of a Significant Subsidiary ceases to be in full
force and effect (except as contemplated by the terms thereof) or any
Significant Subsidiary Note Guarantor or Person acting by or on behalf of
such Significant Subsidiary Note Guarantor denies or disaffirms such
Significant Subsidiary Note Guarantor's obligations under the Indenture or
any Significant Subsidiary Note Guarantee and such Default continues for 10
days after receipt of the notice specified in the Indenture.
The foregoing will constitute Events of Default whatever the reason for any such
Event of Default and whether it is voluntary or involuntary or is effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (4), (5) or (6) will not constitute an Event of
Default until the Trustee notifies the Company or the Holders of at least 25% in
principal amount of the outstanding Notes notify the Company and the Trustee of
the default and the Company or the
92
Note Guarantor, as applicable, does not cure such default within the time
specified in clauses (4), (5) or (6) hereof after receipt of such notice.
If an Event of Default (other than an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding Notes by notice to the Company and the Trustee may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest will be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs, the principal of
and interest on all the Notes will become immediately due and payable without
any declaration or other act on the part of the Trustee or any Holders. Under
certain circumstances, the Holders of a majority in principal amount of the
outstanding Notes may rescind any such acceleration with respect to the Notes
and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless:
(1) such Holder has previously given the Trustee notice that an Event of
Default is continuing,
(2) Holders of at least 25% in principal amount of the outstanding Notes
have requested the Trustee in writing to pursue the remedy,
(3) such Holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense,
(4) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and
(5) the Holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request within
such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal amount
of the outstanding Notes will be given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
Holder or that would involve the Trustee in personal liability. Prior to taking
any action under the Indenture, the Trustee will be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
If a Default occurs and is continuing and is known to the Trustee, the Trustee
must mail to each Holder notice of the Default within the earlier of 90 days
after it occurs or 30 days after it is known to a Trust Officer or written
notice of it is received by the Trustee. Except in the case of a Default in the
payment of principal of, premium (if any) or interest on any Note (including
payments pursuant to the redemption provisions of such Note), the Trustee may
93
withhold notice if and so long as a committee of its Trust Officers in good
faith determines that withholding notice is in the interests of the Holders. In
addition, the Company will be required to deliver to the Trustee, within 120
days after the end of each fiscal year, a certificate indicating whether the
signers thereof know of any Default that occurred during the previous year. The
Company will also be required to deliver to the Trustee, within 30 days after
the occurrence thereof, written notice of any event which would constitute
certain Events of Default, their status and what action the Company is taking or
proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture, the Notes or the Note Guarantees
may be amended with the written consent of the Holders of a majority in
principal amount of the Notes then outstanding and any past default or
compliance with any provisions may be waived with the consent of the Holders of
a majority in principal amount of the Notes then outstanding. However, without
the consent of each Holder of an outstanding Note affected, no amendment may,
among other things:
(1) reduce the amount of Notes whose Holders must consent to an amendment,
(2) reduce the rate of or extend the time for payment of interest, including
Additional Interest, if any, on any Note,
(3) reduce the principal of or extend the Stated Maturity of any Note,
(4) reduce the premium payable upon the redemption of any Note or change the
time at which any Note may be redeemed as described under "Optional
redemption" above,
(5) make any Note payable in money other than that stated in the Note,
(6) make any change to the subordination provisions of the Indenture that
adversely affects the rights of any Holder,
(7) impair the right of any Holder to receive payment of principal of, and
interest, including Additional Interest, if any, on, such Holder's Notes on
or after the due dates therefore or to institute suit for the enforcement of
any payment on or with respect to such Holder's Notes,
(8) make any change in the amendment provisions which require each Holder's
consent or in the waiver provisions or
(9) release the Note Guarantees, other than in accordance with the
Indenture, or modify the Note Guarantees in any manner adverse to the
Holders.
Without the consent of any Holder, the Company, the Note Guarantors and the
Trustee may amend the Indenture, the Notes or the Note Guarantees to:
- cure any ambiguity, omission, defect or inconsistency,
- provide for the assumption by a successor of the obligations of the
Company under the Indenture,
- provide for uncertificated Notes in addition to or in place of
certificated Notes (provided, however, that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or
in a manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code),
94
- to make any change in the subordination provisions of the Indenture
that would limit or terminate the benefits available to any holder of
Senior Indebtedness of the Company or a Note Guarantor (or any
Representative thereof under such subordination provisions,
- add additional Guarantees with respect to the Notes,
- secure the Notes,
- add to the covenants of the Company or provide any additional rights or
benefits to the Holders or to surrender any right or power conferred upon
the Company,
- make any change that does not adversely affect the rights of any
Holder,
- provide for the issuance of the Exchange Notes or Additional Notes,
- comply with any requirement of the SEC in connection with the
qualification of the Indenture under the TIA or
- to evidence and provide the acceptance of the appointment of a
successor Trustee under the Indenture.
However, no amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any holder of Senior Indebtedness
of the Company or a Note Guarantor then outstanding unless the holders of such
Senior Indebtedness (or any group or Representative thereof authorized to give a
consent) consent to such change.
The consent of the Holders will not be necessary to approve the particular form
of any proposed amendment. It will be sufficient if such consent approves the
substance of the proposed amendment.
After an amendment becomes effective, the Company is required to mail to Holders
a notice briefly describing such amendment. However, the failure to give such
notice to all Holders, or any defect therein, will not impair or affect the
validity of the amendment.
TRANSFER AND EXCHANGE
A Holder will be able to transfer or exchange Notes. Upon any transfer or
exchange, 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 required by law or permitted by
the Indenture. The Company will not be required to transfer or exchange any Note
selected for redemption or to transfer or exchange any Note for a period of 15
days prior to a selection of Notes to be redeemed. The Notes will be issued in
registered form and the Holder will be treated as the owner of such Note for all
purposes.
DEFEASANCE
The Company may at any time terminate all its obligations under the Notes and
the Indenture ("legal defeasance"), except for certain obligations, including
those respecting the defeasance trust and obligations to register the transfer
or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes
and to maintain a registrar and paying agent in respect of the Notes.
95
In addition, the Company may at any time terminate:
(1) its obligations under the covenants described under "Certain covenants,"
(2) the operation of the covenant default provisions, cross acceleration
provision, the bankruptcy provisions with respect to Significant
Subsidiaries and the judgment default provision described under "Defaults"
above and the limitations contained in clauses (3) and (4) under the first
paragraph of "Merger and consolidation" above ("covenant defeasance").
In the event that the Company exercises its legal defeasance option or its
covenant defeasance option, each Note Guarantor will be released from all of its
obligations with respect to its Note Guarantee.
The Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If the Company exercises its legal
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (3), (4), (6) or (7) (with respect only to
Significant Subsidiaries), (8) or (9) under "Defaults" above or because of the
failure of the Company to comply with clause (3) or (4) under the first
paragraph of "Merger and consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money in an amount
sufficient or U.S. Government Obligations, the principal of and interest on
which will be sufficient, or a combination thereof sufficient, to pay the
principal of, premium, if any, and interest (including Additional Interest) on,
if any, in respect of the Notes to redemption or maturity, as the case may be,
and must comply with certain other conditions, including delivery to the Trustee
of an Opinion of Counsel to the effect that Holders will not recognize income,
gain or loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amounts and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable federal income tax law).
CONCERNING THE TRUSTEE
U.S. Bank Trust National Association is to be the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in accordance
with, the laws of the State of New York without giving effect to applicable
principles of conflicts of law to the extent that the application of the law of
another jurisdiction would be required thereby.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company, as
such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or the Note Guarantees or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and
96
release are part of the consideration for issuance of the Notes. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the SEC that such a waiver is against public policy.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as to
all Notes issued thereunder, when:
(1) either
(a) all Notes that have been authenticated, except lost, stolen or
destroyed Notes that have been replaced or paid, have been delivered to
the Trustee for cancellation; or
(b) all Notes that have not been delivered to the Trustee for
cancellation have become due and payable by reason of the mailing of a
notice of redemption or otherwise or will become due and payable within
one year and the Company or any Note Guarantor has irrevocably deposited
or caused to be deposited with the Trustee as trust funds in trust solely
for the benefit of the Holders, cash in U.S. dollars, non-callable U.S.
Government Obligations, or a combination of cash in U.S. dollars and
non-callable U.S. Government Obligations, in amounts as will be
sufficient without consideration of any reinvestment of interest, to pay
and discharge the entire Indebtedness on the Notes not delivered to the
Trustee for cancellation for principal, premium, if any, and accrued and
unpaid interest (including Additional Interest), if any, to the date of
maturity or redemption;
(2) no Default or Event of Default has occurred and is continuing on the
date of the deposit;
(3) the Company or any Note Guarantor has paid or caused to be paid all sums
payable by it under the Indenture; and
(4) the Company has delivered irrevocable instructions to the Trustee under
the Indenture to apply the deposited money toward the payment of the Notes
at maturity or the redemption date, as the case may be.
In addition, in the case of paragraph (b) above, (i) the Company must deliver an
Officers' Certificate and an Opinion of Counsel to the Trustee stating that all
conditions precedent to satisfaction and discharge have been satisfied and (ii)
the Company's obligations that would survive legal defeasance will remain
outstanding.
CERTAIN DEFINITIONS
"Acquisition" means that transaction defined in the "Acquisition" section of the
Offering Memorandum.
"Additional Assets" means:
(1) any property or assets (other than Indebtedness and Capital Stock)
acquired or constructed to be used by the Company or a Restricted
Subsidiary;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by the Company or another
Restricted Subsidiary; or
97
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary.
"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 the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "Certain covenants--Limitation on
transactions with affiliates" and "Certain covenantsLimitation on sales of
assets and subsidiary stock" only, "Affiliate" shall also mean any beneficial
owner of shares representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of Holding or the Company or of rights or
warrants to purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof.
"Asset Disposition" means any sale, lease (other than an operating lease entered
into in the ordinary course of business), transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation, or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be held
by a Person other than the Company or a Restricted Subsidiary),
(2) all or substantially all the assets of any division or line of business
of the Company or any Restricted Subsidiary or
(3) any other assets of the Company or any Restricted Subsidiary outside of
the ordinary course of business of the Company or such Restricted Subsidiary
other than, in the case of (1), (2) and (3) above,
(A) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Restricted Subsidiary,
(B) for purposes of the provisions described under "Certain
covenants--Limitation on sales of assets and subsidiary stock" only, a
disposition subject to the covenant described under "--Limitation on
restricted payments,"
(C) a disposition of assets with a Fair Market Value of less than $3.0
million,
(D) transactions permitted under "Merger and consolidation,"
(E) an issuance of Capital Stock by a Restricted Subsidiary of the
Company to the Company or to another Restricted Subsidiary,
(F) a sale of accounts receivable and related assets pursuant to a
Receivables Facility,
(G) the licensing or sublicensing of intellectual property or other
general intangibles to the extent that such license does not prohibit the
licensor from using the intellectual property and licenses, leases or
subleases of other property in the ordinary course of business, and
98
(H) any disposition in the ordinary course of business of obsolete,
worn-out, surplus or other property not useful in the conduct of the
business.
"Asset Swap" means the exchange by the Company or a Restricted Subsidiary of a
portion of its property, business or assets, for property, businesses, assets or
Capital Stock of a Person (or any combination thereof, as well as cash or cash
equivalents), all or substantially all of the assets of which, are of a type
used in the business of the Company or of a Restricted Subsidiary.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the
time of determination, the present value (discounted at the interest rate borne
by the Notes, compounded annually) of the total obligations of the lessee for
rental payments (excluding, however, any amounts required to be paid by such
lessee, whether or not designated as rent or additional rent, on account of
maintenance and repairs, insurance, taxes, assessments, water rates or similar
charges or any amounts required to be paid by such lessee thereunder contingent
upon the amount of sales or similar contingent amounts) during the remaining
term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or scheduled redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of such payment by
(2) the sum of all such payments.
"Bank Indebtedness" means (1) any and all amounts payable under or in respect of
the Credit Agreement and any Refinancing Indebtedness with respect thereto, as
amended from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement and indemnification obligations, guarantees and all
other amounts payable thereunder or in respect thereof and (2) any Hedging
Obligations of Holding, the Company or any of its Subsidiaries in favor of any
holder of Indebtedness under the Credit Agreement or any Refinancing
Indebtedness with respect thereto. It is understood and agreed that Refinancing
Indebtedness in respect of the Credit Agreement may be Incurred from time to
time after termination of the Credit Agreement.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of the Board of Directors of
the Company.
"Business Day" means each day which is not a Legal Holiday.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities including those convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized
99
amount of such obligation determined in accordance with GAAP; and the Stated
Maturity thereof shall be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon which such lease may be
prepaid by the lessee without payment of a penalty.
"Cash Equivalents" means:
(1) United States dollars;
(2) 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;
(3) 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 from the date of acquisition and
overnight bank deposits, in each case, with any lender party to the Credit
Facility or with any domestic commercial bank having capital and surplus in
excess of $500.0 million;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above; and
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Rating Services, a
division of The McGraw-Hill Companies, Inc. ("S&P"), and in each case
maturing within six months after the date of acquisition.
"Closing Date" means the date of the Indenture.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Price Protection Agreement" means any forward contract, commodity
swap, commodity option or other similar agreement or arrangement relating to, or
the value of which is dependent upon or which is designed to protect such Person
against, fluctuations in commodity prices.
"Consolidated Coverage Ratio" as of any date of determination means the ratio
of:
(1) the aggregate amount of EBITDA for the period of the most recent four
consecutive fiscal quarters ending prior to the date of such determination
for which financial statements are available to (2) Consolidated Interest
Expense for such four fiscal quarters;
provided, however, that:
(A) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding
on such date of determination or if the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day
of such period (except that in making such computation, the amount of
Indebtedness under any revolving credit facility outstanding on the date
of such calculation will be computed based on (i) the average daily
balance of such Indebtedness during such four fiscal quarters or such
shorter period for which such facility was outstanding or (ii) if such
facility was created
100
after the end of such four fiscal quarters, the average daily balance of
such Indebtedness during the period from the date of creation of such
facility to the date of such calculation) and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with
the proceeds of such new Indebtedness as if such discharge had occurred
on the first day of such period,
(B) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning of
such period or if any Indebtedness is to be repaid, repurchased, defeased
or otherwise discharged (in each case other than Indebtedness Incurred
under any revolving credit facility unless such Indebtedness has been
permanently repaid and has not been replaced) on the date of the
transaction giving rise to the need to calculate the Consolidated
Coverage Ratio, EBITDA and Consolidated Interest Expense for such period
shall be calculated on a pro forma basis as if such discharge had
occurred on the first day of such period and as if the Company or such
Restricted Subsidiary has not earned the interest income actually earned
during such period in respect of cash or Temporary Cash Investments used
to repay, repurchase, defease or otherwise discharge such Indebtedness,
(C) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets that are the subject of such Asset
Disposition for such period or increased by an amount equal to the EBITDA
(if negative) directly attributable thereto for such period and
Consolidated Interest Expense for such period shall be reduced by an
amount equal to the Consolidated Interest Expense directly attributable
to any Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company
and its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent the Company and its continuing Restricted Subsidiaries are
no longer liable for such Indebtedness after such sale),
(D) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person that becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction causing a calculation
to be made hereunder, which constitutes all or substantially all of an
operating unit of a business (including an operating plant or other
similar facility), EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto
(including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such period, and
(E) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or
any Restricted Subsidiary since the beginning of such period) shall have
made any Asset Disposition or any Investment or acquisition of assets
that would have required an adjustment pursuant to clause (C) or (D)
above if made by the Company or a Restricted Subsidiary during such
period, EBITDA and Consolidated Interest Expense for such period shall be
101
calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition of assets occurred on the first
day of such period.
For purposes of this definition, whenever pro forma effect is to be given to any
calculation under this definition, the pro forma calculations shall be
determined in good faith by a responsible financial or accounting Officer of the
Company. Any such pro forma calculations may include operating expense
reductions (net of associated expenses) for such period resulting from the
acquisition or other Investment which is being given pro forma effect that (a)
would be permitted pursuant to Rule 11-02 of Regulation S-X under the Securities
Act or (b) have been realized or for which substantially all the steps necessary
for realization have been taken or at the time of determination are reasonably
expected to be taken within six months following any such acquisition or other
Investment, including, but not limited to, the execution, termination,
renegotiation or modification of any contracts, the termination of any personnel
or the closing of any facility, or lower material costs, as applicable, provided
that, in any case, such adjustments shall be calculated on an annualized basis
and such adjustments are set forth in an Officers' Certificate signed by the
Company's chief financial officer and another Officer which states in detail (i)
the amount of such adjustment or adjustments, (ii) that such adjustment or
adjustments are based on the reasonable good faith beliefs of the officers
executing such Officers' Certificate at the time of such execution and (iii)
that such adjustment or adjustments and the plan or plans related thereto have
been reviewed and approved by the Board of Directors. Any such Officers'
Certificate will be provided to the Trustee if the Company Incurs any
Indebtedness or takes any other action under the Indenture in reliance thereon.
If any Indebtedness, whenever Incurred, bears a floating rate of interest and is
being given pro forma effect, the interest expense on such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term as at the date of determination in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Consolidated Restricted Subsidiaries, minus any
amortization of debt issuance costs, plus, to the extent Incurred by the Company
and its Consolidated Restricted Subsidiaries in such period but not included in
such interest expense, without duplication:
(1) interest expense attributable to Capitalized Lease Obligations and the
interest expense attributable to leases constituting part of a
Sale/Leaseback Transaction;
(2) amortization of debt discount;
(3) capitalized interest;
(4) noncash interest expense;
(5) commissions, discounts and other fees and charges attributable to
letters of credit and bankers' acceptance financing;
(6) interest accruing on any Indebtedness of any other Person to the extent
such Indebtedness is Guaranteed by the Company or any Restricted Subsidiary;
(7) net costs associated with Hedging Obligations (including amortization of
fees);
(8) dividends in respect of all Disqualified Stock of the Company and all
Preferred Stock of any of the Subsidiaries of the Company, to the extent
held by Persons other than the
102
Company or a Wholly Owned Subsidiary (except to the extent paid in Capital
Stock (other than Disqualified Stock));
(9) interest Incurred in connection with investments in discontinued
operations; and
(10) commissions, discounts, yield and other financing fees and financing
charges Incurred in connection with any transaction (including, without
limitation, a Receivables Facility) pursuant to which the Company or any
Restricted Subsidiary of the Company may sell, convey or otherwise transfer
or grant a security interest in any accounts receivable or related assets of
the type specified in the definition of "Receivables Facility."
For purposes of the foregoing, total interest expense will be determined after
giving effect to any net proceeds paid or received by the Company and its
Subsidiaries with respect to Interest Rate Agreements.
"Consolidated Net Income" means, for any period, the net income of the Company
and its Consolidated Subsidiaries for such period; provided, however, that there
shall not be included in such Consolidated Net Income:
(1) any net income of any Person (other than the Company) if such Person is
not a Restricted Subsidiary, except that:
(A) subject to the limitations contained in clause (4) below, the
Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Person during such period to
the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution
made to a Restricted Subsidiary, to the limitations contained in clause
(3) below) and
(B) the Company's equity in a net loss of any such Person for such period
shall be included in determining such Consolidated Net Income to the
extent such loss has been funded in such period with cash from the
Company or a Restricted Subsidiary;
(2) any net income (or loss) of any Person acquired by the Company or a
Subsidiary of the Company in a pooling of interests transaction for any
period prior to the date of such acquisition;
(3) any net income (or loss) of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that:
(A) subject to the limitations contained in clause (4) below, the
Company's equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted
Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution made to another Restricted Subsidiary, to
the limitation contained in this clause) and
(B) the Company's equity in a net loss of any such Restricted Subsidiary
for such period shall be included in determining such Consolidated Net
Income;
(4) any net gain or loss realized upon the sale or other disposition of any
asset of the Company or its Consolidated Subsidiaries (including pursuant to
any Sale/Leaseback
103
Transaction) that is not sold or otherwise disposed of in the ordinary
course of business and any net gain or loss realized upon the sale or other
disposition of any Capital Stock of any Person;
(5) any net extraordinary gain or loss;
(6) the cumulative effect of a change in accounting principles;
(7) any noncash compensation charges or other noncash expenses or charges
arising from the grant of or issuance or repricing of stock, stock options
or other equity-based awards or any amendment, modification, substitution or
change of any such stock, stock options or other equity-based awards; and
(8) any non-recurring fees, charges or other expenses (including bonus and
retention payments) made or incurred in connection with the Acquisition and
the transactions contemplated thereby.
Notwithstanding the foregoing, for the purpose of the covenant described under
"--Limitation on restricted payments" only, there shall be excluded from
Consolidated Net Income any dividends, repayments of loans or advances or other
transfers of assets from Unrestricted Subsidiaries to the Company or a
Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (a)(4)(C)(iv) thereof.
"Consolidated Step-Up Depreciation and Amortization" means, with respect to any
Person for any period, the total amount of depreciation and amortization related
to the write-up of assets for such period on a consolidated basis in accordance
with GAAP to the extent (i) such depreciation and amortization results from
purchase accounting adjustments in connection with the Acquisition and (ii) such
depreciation and amortization was deducted in computing Consolidated Net Income.
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; provided, however, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary will
be accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Credit Agreement" means the credit agreement dated as of the Closing Date, as
amended, restated, supplemented, waived, replaced (whether or not upon
termination, and whether with the original lenders or otherwise), refinanced,
restructured or otherwise modified from time to time, among the Company,
Holding, the lenders from time to time party thereto, Goldman Sachs Credit
Partners L.P., as administrative agent, JPMorgan Chase Bank, as syndication
agent, Fleet National Bank, as collateral agent, issuing bank and swing line
lender, and The Royal Bank of Scotland plc and General Electric Capital
Corporation, as co-documentation agents.
"Credit Facility" means, one or more debt facilities (including, without
limitation, the Credit Agreement), commercial paper facilities or other debt
instruments, indentures or agreements, providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables), letters of credit or other debt obligations, in each
case, as amended, restated, modified, renewed, refunded, restructured,
supplemented, replaced or refinanced in whole or in part from time to time,
including, without limitation, any
104
amendment increasing the amount of Indebtedness Incurred or available to be
borrowed thereunder, extending the maturity of any Indebtedness Incurred
thereunder or contemplated thereby or deleting, adding or substituting one or
more parties thereto (whether or not such added or substituted parties are banks
or other institutional lenders).
"Currency Agreement" means with respect to any Person any foreign exchange
contract, currency swap agreements, futures contract, options contract,
synthetic cap or other similar agreement or arrangement to which such Person is
a party or of which it is a beneficiary for the purpose of hedging foreign
currency risk.
"Default" means any event which is, or after notice or passage of time or both
would be, an Event of Default.
"Designated Noncash Consideration" means the Fair Market Value of non-cash
consideration received by the Company or any of its Restricted Subsidiaries in
connection with an Asset Disposition that is designated as such pursuant to an
Officers' Certificate. The aggregate Fair Market Value of the Designated Noncash
Consideration, taken together with the Fair Market Value at the time of receipt
of all other Designated Noncash Consideration then held by the Company, may not
exceed $5.0 million at the time of the receipt of the Designated Noncash
Consideration (with the Fair Market Value being measured at the time received
and without giving effect to subsequent changes in value).
"Designated Senior Indebtedness" of the Company means
(1) the Bank Indebtedness and
(2) any other Senior Indebtedness of the Company that, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to
lend up to at least $15.0 million and is specifically designated by the
Company in the instrument evidencing or governing such Senior Indebtedness
as "Designated Senior Indebtedness" for purposes of the Indenture.
"Designated Senior Indebtedness" of a Note Guarantor has a correlative
meaning.
"Disqualified Stock" means, with respect to any Person, any Capital Stock which
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable or exercisable) or upon the happening of any event:
(1) matures or is mandatorily redeemable at the option of the holder
thereof, in whole or in part, pursuant to a sinking fund obligation or
otherwise,
(2) is convertible or exchangeable at the option of the holder thereof, in
whole or in part, for Indebtedness or Disqualified Stock (excluding Capital
Stock convertible or exchangeable solely at the option of the Company or a
Restricted Subsidiary; provided, however, that any such conversion or
exchange shall be deemed an occurrence of Indebtedness or Disqualified
Stock, as applicable) or
(3) is redeemable at the option of the holder thereof, in whole or in part,
in the case of each of clauses (1), (2) and (3), on or prior to the 91st day
after the Stated Maturity of the Notes; provided, however, that only the
portion of Capital Stock that so matures or is mandatorily redeemable, is so
convertible or exchangeable or is redeemable at the option of the holder
thereof prior to such date will be deemed Disqualified Stock and any Capital
Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset
sale" or "change of control" occurring prior to the 91st day
105
after the Stated Maturity of the Notes shall not constitute Disqualified
Stock if the "asset sale" or "change of control" provisions applicable to
such Capital Stock are not more favorable to the holders of such Capital
Stock than the provisions of the covenants described under "Change of
control" and "--Limitation on sale of assets and subsidiary stock";
provided, further that any class of Capital Stock of such Person that, by
its terms, authorized such Person to satisfy in full its obligations with
respect to payment of dividends or upon maturity, redemption (pursuant to a
sinking fund or otherwise) or repurchase thereof or other payment
obligations or otherwise by delivery of Capital Stock that is not
Disqualified Stock, and that is not convertible, puttable or exchangeable
for Disqualified Stock or Indebtedness, shall not be deemed Disqualified
Stock so long as such Person satisfied its obligations with respect thereto
solely by the delivery of Capital Stock that is not Disqualified Stock.
"Domestic Subsidiary" means any Restricted Subsidiary of the Company other than
a Foreign Subsidiary.
"EBITDA" for any period means the Consolidated Net Income for such period, plus,
without duplication, the following to the extent deducted in calculating such
Consolidated Net Income:
(1) income tax expense of the Company and its Consolidated Restricted
Subsidiaries;
(2) Consolidated Interest Expense;
(3) depreciation expense of the Company and its Consolidated Restricted
Subsidiaries;
(4) amortization expense of the Company and its Consolidated Restricted
Subsidiaries (excluding amortization expense attributable to a prepaid cash
item that was paid in a prior period);
(5) plant shutdown costs and acquisition integration costs; and
(6) all other noncash charges of the Company and its Consolidated Restricted
Subsidiaries (excluding any such noncash charge to the extent it represents
an accrual of or reserve for cash expenditures in any future period) less
all non-cash items of income (other than accrual of revenue in the ordinary
course of business) of the Company and its Restricted Subsidiary in each
case for such period.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and noncash charges of, a
Restricted Subsidiary of the Company shall be added to Consolidated Net Income
to compute EBITDA only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders.
"Equity Offering" means a public or private sale for cash of Capital Stock
(other than Disqualified Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete
106
the transaction. Fair Market Value will be determined in good faith by the Board
of Directors, whose determination will be conclusive and evidenced by a
resolution of the Board of Directors; provided, however, that for purposes of
clause (a)(4)(C)(ii) of the covenant described under "--Limitation on restricted
payments," if the Fair Market Value of the property or assets in question is so
determined to be in excess of $20.0 million, such determination must be
confirmed by a recognized appraisal or investment banking firm.
"Foreign Subsidiary" means any Restricted Subsidiary of the Company (x) that is
not organized under the laws of the United States of America or any State
thereof or the District of Columbia or (y) was organized under the laws of the
United States of America or any state thereof or the District of Columbia that
has no material assets other than Capital Stock of one or more foreign entities
of the type described in clause (x) above and is not a guarantor of Indebtedness
under the Credit Agreement.
"GAAP" means generally accepted accounting principles in the United States of
America as in effect (i) with respect to periodic reporting requirements, from
time to time, and (ii) otherwise on the Closing Date, including those set forth
in:
(1) the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants,
(2) statements and pronouncements of the Financial Accounting Standards
Board,
(3) such other statements by such other entities as approved by a
significant segment of the accounting profession, and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
All ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or
(2) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness or other obligation of the payment thereof or to protect
such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement, Currency Agreement or Commodity Price
Protection Agreement.
107
"Holder" means the Person in whose name a Note is registered on the Registrar's
books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable for;
provided, however, that any Indebtedness or Capital Stock of a Person existing
at the time such Person becomes a Restricted Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Person at the time it becomes a Restricted Subsidiary. The term "Incurrence"
when used as a noun shall have a correlative meaning. The accretion of principal
of a non-interest bearing or other discount security and payment of interest on
any Indebtedness in the form of additional Indebtedness or the payment on
Disqualified Capital Stock in the form of additional shares of Capital Stock,
shall not be deemed the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of determination,
without duplication:
(1) the principal of and premium (if any) in respect of indebtedness of such
Person for borrowed money;
(2) the principal of and premium (if any) in respect of obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments;
(3) the principal component of all obligations of such Person in respect of
letters of credit or other similar instruments (including reimbursement
obligations with respect thereto except to the extent such reimbursement
obligation arises in the ordinary course of business and relates to a Trade
Payable);
(4) the principal component of all obligations of such Person to pay the
deferred and unpaid purchase price of property or services, which purchase
price is due more than one year after the date of placing such property in
service or taking delivery and title thereto or the completion of such
services other than earn-outs, indemnities and similar provisions;
(5) all Capitalized Lease Obligations and all Attributable Debt of such
Person;
(6) the principal component or liquidation preference of all obligations of
such Person with respect to the redemption, repayment or other repurchase of
any Disqualified Stock or, with respect to any Subsidiary of such Person,
any Preferred Stock (but excluding, in each case, any accrued dividends);
(7) the principal component of all Indebtedness of other Persons secured by
a Lien on any asset of the Person the Indebtedness of which is being
determined, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of Indebtedness of such Person shall be
the lesser of:
(A) the Fair Market Value of such asset at such date of determination and
(B) the amount of such Indebtedness of such other Persons;
(8) to the extent not otherwise included in this definition, net obligations
of such Person under Hedging Obligations of such Person (the amount of any
such obligations to be equal at any time to the termination value of such
agreement or arrangement giving rise to such obligations that would be
payable by such Person at such time);
(9) all amounts outstanding and other obligations of such Person in respect
of a Receivables Facility; and
108
(10) all obligations of the type referred to in clauses (1) through (9) of
other Persons and all dividends of other Persons for the payment of which,
in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
Notwithstanding anything in this definition to the contrary, characterization of
any Receivables Facility as Indebtedness is for purposes of the Indenture
covenants only, and such characterization shall not preclude the Company or any
Restricted Subsidiary from characterizing any Receivables Facility as a sale for
GAAP or any other purpose.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement to which such Person is party or of which it is a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances and extensions of credit to customers in the ordinary course of
business that are recorded as accounts receivable on the balance sheet of the
lender) or other extension of credit (including by way of Guarantee or similar
arrangement) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the account
or use of others), or any purchase or acquisition of Capital Stock, Indebtedness
or other similar instruments issued by such Person; provided that none of the
following will be deemed to be an Investment:
(1) Hedging Obligations entered into in compliance with clause (b)(4) of
"Certain Covenants--Limitation on indebtedness"; and
(2) endorsements of negotiable instruments and documents in the ordinary
course of business.
For purposes of the definition of "Unrestricted Subsidiary" and the covenant
described under "--Limitation on restricted payments":
(1) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Restricted Subsidiary) of the Fair Market Value of
the net assets of any Restricted Subsidiary of the Company at the time that
such Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the
Company shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary in an amount (if positive) equal to:
(A) the Company's "Investment" in such Subsidiary at the time of such
redesignation less
(B) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the Fair Market Value of the net assets of such Subsidiary
at the time of such redesignation; and
109
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its Fair Market Value at the time of such transfer.
"Legal Holiday" means a Saturday, Sunday or other day on which banking
institutions are not required by law or regulation to be open in the State of
New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
(statutory or otherwise) or charge of any kind (including any conditional sale
or other title retention agreement or lease in the nature thereof and any
agreement to give any security interest) upon or with respect to any property of
any kind, real or personal, movable or immovable.
"Net Available Cash" from an Asset Disposition means payments of cash or Cash
Equivalents received (including any payments of cash or Cash Equivalents
received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise and proceeds from the sale or other
disposition of any securities received as consideration, but in each case only
as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other noncash form) therefrom, in each case net
of:
(1) all legal, accounting, investment banking, title and recording tax
expenses, commissions and other fees and expenses incurred, and all federal,
state, provincial, foreign and local taxes required to be paid or accrued as
a liability under GAAP, as a consequence of such Asset Disposition,
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon or other security agreement of any kind with respect to such assets, or
which must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law be repaid out of the proceeds from
such Asset Disposition,
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition and
(4) appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the property
or other assets disposed of in such Asset Disposition and retained by the
Company or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, listing fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Note Guarantee" means each Guarantee of the obligations with respect to the
Notes issued by a Person pursuant to the terms of the Indenture.
"Note Guarantor" means any Person that has issued a Note Guarantee.
"Offering Memorandum" means the offering memorandum relating to the issuance of
the Notes dated July 17, 2002.
110
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company. "Officer" of a Note Guarantor has a correlative
meaning.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company, a Note Guarantor or the Trustee.
"Permitted Holders" means Principals and Related Parties and any Person acting
in the capacity of an underwriter in connection with a public or private
offering of the Company's or Holding's Capital Stock.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person that will, upon the
making of such Investment, become a Restricted Subsidiary;
(2) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
(3) Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if created
or acquired in the ordinary course of business;
(5) payroll, travel, commission and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course of
business;
(6) loans or advances to employees, directors and consultants not exceeding
$2.0 million in the aggregate outstanding at any one time;
(7) loans, deposits, prepayments and other credits or advances to customers
or suppliers in the ordinary course of business;
(8) stock, obligations or securities received in settlement or good faith
compromise of debts created in the ordinary course of business and owing to
the Company or any Restricted Subsidiary or in satisfaction of judgments
including pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of a debtor;
(9) any Person to the extent such Investment represents the noncash portion
of the consideration received for an Asset Disposition that was made
pursuant to and in compliance with the covenant described under
"--Limitation on sales of assets and subsidiary stock";
(10) Investments in prepaid expenses, negotiable instruments held for
collection and lease utility and worker's compensation, performance and
other similar deposits provided to third parties in the ordinary course of
business;
(11) Currency Agreements, Interest Rate Agreements and Commodity Price
Protection Agreements and other Hedging Obligations permitted by the
Indenture that are entered into in the ordinary course of business and not
for speculative purposes;
111
(12) Investments acquired in exchange for the issuance of Capital Stock
(other than Disqualified Stock) of the Company or acquired with the Net Cash
Proceeds received by the Company after the date of the Indenture from the
issuance and sale of Capital Stock (other than Disqualified Stock); provided
that such Net Cash Proceeds are used to make such Investment within 90 days
of the receipt thereof and the amount of all such Net Cash Proceeds will be
excluded from clause (4)(C)(ii) of paragraph (a) of the covenant described
under the caption "--Limitation on restricted payments";
(13) Investments in existence on the date of the Indenture or made pursuant
to a legally binding written commitment in existence on the date of the
Indenture;
(14) Guarantees issued in accordance with "Certain covenants--Limitation on
indebtedness";
(15) Investments in a trust, limited liability company, special purpose
entity or other similar entity in connection with a Receivables Facility
permitted under the covenant "--Limitation on indebtedness"; provided that
such Investment is necessary or advisable to effect such Receivables
Facility;
(16) Investments in joint ventures or similar projects by the Company and
its Restricted Subsidiaries on the date of the investment in an aggregate
amount not to exceed $20.0 million;
(17) loans or advances to employees, directors or consultants the proceeds
of which are used to purchase Capital Stock (other than Disqualified Stock)
of the Company or Holding (and, with respect to purchases of the Capital
Stock of Holding, the proceeds of which are paid or contributed to the
Company); and
(18) Indebtedness of the Company or a Restricted Subsidiary under clause
(b)(2) of the covenant "--Limitation on indebtedness."
For purposes of this definition, the value of any Investment will be the Fair
Market Value on the date made without any subsequent changes for any increases
or decreases in the Fair Market Value of such Investment.
"Permitted Junior Securities" means:
(1) Equity Interests in the Company or any Guarantor; or
(2) debt securities that are subordinated to all Senior Indebtedness and any
debt securities issued in exchange for Senior Indebtedness to substantially
the same extent as, or to a greater extent than, the Notes and the Note
Guarantees are subordinated to Senior Indebtedness under the terms of the
Indenture.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock," as applied to the Capital Stock of any Person, means Capital
Stock of any class or classes (however designated) that is preferred as to the
payment of dividends, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such Person, over shares of Capital
Stock of any other class of such Person.
"principal" of a Note means the principal of the Note plus the premium, if any,
payable on the Note which is due or overdue or is to become due at the relevant
time.
112
"Principals" means each of GS Capital Partners 2000, L.P., GS Capital Partners
2000 Offshore, L.P., GS Capital Partners 2000 GmbH & Co. Beteiligungs KG, Bridge
Street Special Opportunities Fund 2000, L.P., GS Capital Partners 2000 Employee
Fund, L.P., Stone Street Fund 2000 L.P., J.P. Morgan Partners Global Investors,
L.P., J.P. Morgan Partners Global Investors (Cayman), L.P., J.P. Morgan Partners
Global Investors A, L.P., J.P. Morgan Partners Global Investors (Cayman) II,
L.P. and J.P. Morgan Partners (BHCA), L.P.
"Purchase Money Indebtedness" means Indebtedness:
(1) consisting of the deferred purchase price of an asset (or Capital Stock
of a corporation substantially all the assets of which consist of such
asset), conditional sale obligations, obligations under any title retention
agreement and other purchase money obligations (including obligations to a
third party to finance the amount being paid to the seller), in each case
where the maturity of such Indebtedness does not exceed the anticipated
useful life of the asset being financed, and
(2) Incurred to finance the acquisition by the Company or a Restricted
Subsidiary of such asset (or such Capital Stock), including additions and
improvements;
provided, however, that such Indebtedness is Incurred within 180 days after the
acquisition by the Company or such Restricted Subsidiary of such asset (or such
Capital Stock).
"Receivables Facility" means one or more receivables financing facilities, as
amended from time to time, pursuant to which the Company and/or any of its
Restricted Subsidiaries, directly or indirectly through another Subsidiary,
sells or otherwise transfers rights in its accounts receivable pursuant to
arrangements customary in the industry.
"Refinance" means, in respect of any Indebtedness, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness
in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means
Indebtedness that is Incurred to refund, refinance, replace, renew, repay or
extend (including pursuant to any defeasance or discharge mechanism) (or the net
proceeds of which are used to do any of the foregoing) any Indebtedness of the
Company or any Restricted Subsidiary existing on the Closing Date or Incurred in
compliance with the Indenture (including Indebtedness of the Company that
Refinances Indebtedness of any Restricted Subsidiary and Indebtedness of any
Restricted Subsidiary that Refinances Indebtedness of another Restricted
Subsidiary, including Indebtedness that Refinances Refinancing Indebtedness);
provided, however, that:
(1) the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being Refinanced,
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced,
(3) such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or if issued with original issue discount, an aggregate issue price)
that is equal to or less than the aggregate principal amount (or if issued
with original issue discount, the aggregate accreted value) then outstanding
of the Indebtedness being Refinanced (plus all accrued interest on the
Indebtedness and the amount of all expenses and premiums Incurred in
connection therewith) and
113
(4) if the Indebtedness being Refinanced is subordinated in right of payment
to the Notes, such Refinancing Indebtedness is subordinated in right of
payment to the Notes at least to the same extent as the Indebtedness being
Refinanced;
provided further, however, that Refinancing Indebtedness shall not include:
(A) Indebtedness of a Restricted Subsidiary that is not a Note Guarantor
that Refinances Indebtedness of the Company or
(B) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Party" means,
(1) any controlling stockholder or 80% (or more) owned Subsidiary of any
Principal; or
(2) 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 any one or more Principals
and/or such other Persons referred to in the immediately preceding clause
(1).
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now owned
or hereafter acquired by the Company or a Restricted Subsidiary whereby the
Company or a Restricted Subsidiary transfers such property to a Person and the
Company or such Restricted Subsidiary leases it from such Person, other than
leases between the Company and a Wholly Owned Subsidiary or between Wholly Owned
Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Secured Indebtedness" means any Indebtedness of the Company or any Subsidiary
secured by a Lien. "Secured Indebtedness" of a Note Guarantor has a correlative
meaning.
"Senior Subordinated Indebtedness" of the Company means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank equally with the Notes in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of the
Company which is not Senior Indebtedness. "Senior Subordinated Indebtedness" of
a Note Guarantor has a correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC in effect on the date of the Indenture.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
114
"Stockholders' Agreement" means the stockholders' agreement entered into in
connection with the Acquisition.
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Closing Date or thereafter Incurred) that is subordinate or
junior in right of payment to the Notes pursuant to a written agreement.
"Subordinated Obligation" of a Note Guarantor has a correlative meaning.
"Subsidiary" of any Person means any corporation, association, partnership or
other business entity of which more than 50% of the total voting power of shares
of Capital Stock or other interests (including partnership interests) 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:
(1) such Person,
(2) such Person and one or more Subsidiaries of such Person or
(3) one or more Subsidiaries of such Person.
"Tax Sharing Agreement" means the Amended and Restated Tax Sharing Agreement,
made as of March 15, 2001, by and among Holding and its Subsidiaries.
"Temporary Cash Investments" means any of the following:
(1) United States dollars or eurodollars or any investment in direct
obligations of the United States of America or any agency thereof or
obligations Guaranteed or insured by the United States of America or any
agency or instrumentality thereof,
(2) investments in time deposit accounts, certificates of deposit and
eurodollar time deposits, banker acceptances and money market deposits (or
in the case of Foreign Subsidiaries, the foreign equivalent) maturing within
270 days of the date of acquisition thereof issued by a bank or trust
company that is organized under the laws of the United States of America,
any state thereof or any foreign country recognized by the United States of
America having capital, surplus and undivided profits aggregating in excess
of $250,000,000 (or the foreign currency equivalent thereof) and whose
long-term debt is rated "A" (or such similar equivalent rating) or higher by
at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act),
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) or (2) above
entered into with a bank meeting the qualifications described in clause (2)
above,
(4) investments in commercial paper, maturing not more than 270 days after
the date of acquisition, issued by a corporation (other than an Affiliate of
the Company) organized and in existence under the laws of the United States
of America or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of
"P-1" (or higher) according to Moody's or "A-1" (or higher) according to
S&P,
(5) investments in securities with maturities of 270 days or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision
or taxing authority thereof, and rated at least "A" by S&P or "A" by
Moody's,
115
(6) money market funds at least 95% of the assets of which constitute
Temporary Cash Investments of the kinds described in clauses (1) through (5)
of this definition and
(7) solely in respect of the ordinary course cash management activities of
the Foreign Subsidiaries, equivalents of the investments described in clause
(1) above to the extent guaranteed by the United Kingdom, the European Union
or the country in which the Foreign Subsidiary operates and equivalents of
the investments described in clause (2) above issued, accepted or offered by
(a) the local office of any commercial bank meeting the requirements of
clause (4) above in the jurisdiction of organization of the applicable
Foreign Subsidiary or (b) the local office of any commercial bank organized
under the laws of the jurisdiction of organization of the applicable Foreign
Subsidiary which commercial bank (1) has combined capital and surplus and
undivided profits of not less than $250.0 million, (2) a long-term rating
for Dollar-denominated obligations of at least "A-1" from S&P or the
equivalent rating from Moody's or (3) is organized in the country in which
the Foreign Subsidiary operates.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. sec.sec. 77aaa-77bbbb) as
in effect on the Closing Date.
"Trade Payables" means, with respect to any Person, any accounts payable or any
indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Transactions" means the offering and sale of these Notes, as well as certain
other transactions described in the "Summary" section of the Offering
Memorandum, and the application of the proceeds therefrom.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of the Company that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the
manner provided below and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Company (including
any newly acquired or newly formed Subsidiary of the Company or Person becoming
a Subsidiary through merger or consolidation or Investment therein) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or owns or holds any Lien on any property
of, the Company or any other Subsidiary of the Company that is not a Subsidiary
of the Subsidiary to be so designated; provided, however, that either:
(A) the Subsidiary to be so designated has total Consolidated assets of
$1,000 or less or
(B) if such Subsidiary has Consolidated assets greater than $1,000, then
such designation would be permitted under the covenant entitled
"--Limitation on restricted payments."
116
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation:
(x) the Company could Incur $1.00 of additional Indebtedness under paragraph
(a) of the covenant described under "--Limitation on indebtedness" and
(y) no Default shall have occurred and be continuing.
Any such designation of a Subsidiary as a Restricted Subsidiary or Unrestricted
Subsidiary by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other interests
(including partnership interests) of such Person then outstanding and normally
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all the
Capital Stock of which (other than directors' qualifying shares) is owned by the
Company or another Wholly Owned Subsidiary.
117
REGISTRATION RIGHTS; ADDITIONAL INTEREST
We and the note guarantors entered into a registration rights agreement with the
initial purchasers on the closing date for the outstanding notes. In that
agreement, we agreed for the benefit of the holders of the notes that we will
use our reasonable best efforts to file with the Commission and cause to become
effective a registration statement relating to an offer to exchange the notes
for an issue of Commission-registered notes with terms identical to the notes
(except that the exchange notes will not be subject to restrictions on transfer
or to any increase in annual interest rate as described below).
When the Commission declares this exchange offer registration statement
effective, we will offer the exchange notes in return for the notes. The
exchange offer will remain open for at least 20 business days after the date we
mail notice of the exchange offer to noteholders. For each note surrendered to
us under the exchange offer, the noteholder will receive an exchange note of
equal principal amount. Interest on each exchange note will accrue from the last
interest payment date on which interest was paid on the notes or, if no interest
has been paid on the notes, from the closing date.
If applicable interpretations of the staff of the Commission do not permit us to
effect the exchange offer, we will use our reasonable best efforts to cause to
become effective a shelf registration statement relating to resales of the notes
and to keep that shelf registration statement effective until the expiration of
the time period referred to in Rule 144(k) under the Securities Act, or such
shorter period that will terminate when all notes covered by the shelf
registration statement have been sold. We will, in the event of such a shelf
registration, provide to each noteholder copies of a prospectus, notify each
noteholder when the shelf registration statement has become effective and take
certain other actions to permit resales of the notes. A noteholder that sells
notes under the shelf registration statement generally will be required to make
certain representation to us (as described in the registration rights
agreement), to be named as a selling security holder in the related prospectus
and to deliver a prospectus to purchasers, will be subject to certain of the
civil liability provisions under the Securities Act in connection with those
sales and will be bound by the provisions of the registration rights agreement
that are applicable to such a noteholder (including certain indemnification
obligations). Holders of notes will also be required to suspend their use of the
prospects included in the shelf registration statement under specified
circumstances upon receipt of notice from us. In addition, at the request of
Goldman, Sachs & Co. or J.P. Morgan Securities Inc. we will file a shelf
registration statement to enable them to act as a market maker in the notes.
If the exchange offer is not completed (or, if required, the shelf registration
statement is not declared effective) on or before the date that is 210 days
after the closing date, the annual interest rate borne by the outstanding notes
will be increased by .25% per annum, increasing an additional .25% per annum
every 90 days thereafter, up to a maximum aggregate increase of 1.0% per annum,
until the exchange offer is completed or the shelf registration statement is
declared effective. Following the cure of all registration defaults, the accrual
of this interest will cease.
If we effect the exchange offer, we will be entitled to close the exchange offer
20 business days after its commencement, provided that we have accepted all
notes validly surrendered in accordance with the terms of the exchange offer.
Notes not tendered in the exchange offer shall bear interest at the rate of
10 3/4% per annum and be subject to all the terms and conditions specified in
the indenture, including transfer restrictions. This summary of the
118
provisions of the registration rights agreement does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the registration rights agreement, which has been filed as an
exhibit to the registration statement of which this prospectus is a part.
119
MATERIAL U.S. FEDERAL TAX CONSIDERATIONS
The following summary describes the material United States federal income tax
consequences and, in the case of a holder that is a non-U.S. holder (as defined
below), the material United States federal estate tax consequences, of
purchasing, owning and disposing of the exchange notes.
This summary deals only with exchange notes held as capital assets (generally,
investment property) and does not deal with special tax situations such as:
- partnerships;
- dealers in securities or currencies;
- traders in securities;
- U.S. holders (as defined below) whose functional currency is not the
United States dollar;
- persons holding exchange notes as part of a hedge, straddle, conversion
or other integrated transaction;
- certain United States expatriates;
- financial institutions;
- insurance companies; and
- entities that are tax-exempt for United States federal income tax
purposes.
This summary does not discuss all of the aspects of United States federal income
and estate taxation that may be relevant to you in light of your particular
investment or other circumstances. In addition, this summary does not discuss
any United States state or local income or foreign income or other tax
consequences. This summary is based on United States federal income tax law,
including the provisions of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), Treasury regulations, administrative rulings and
judicial authority, all as in effect as of the date of this prospectus.
Subsequent developments in United States federal tax law, including changes in
law or differing interpretations, which may be applied retroactively, could have
a material effect on the United States federal tax consequences of purchasing,
owning and disposing of exchange notes as set forth in this summary. You should
consult your own tax advisor regarding the particular United States federal,
state and local and foreign income and other tax consequences of acquiring,
owning and disposing of the exchange notes that may be applicable to you.
120
U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR U.S. HOLDERS
The following summary applies to you only if you are a U.S. holder (as defined
below).
DEFINITION OF A U.S. HOLDER
A "U.S. holder" is a beneficial owner of an exchange note or notes who or which
is for United States federal income tax purposes:
- an individual citizen or resident of the United States;
- a corporation (or other entity classified as a corporation for these
purposes) created or organized in or under the laws of the United States
or of any political subdivision of the United States, including any
State;
- an estate, the income of which is subject to United States federal
income taxation regardless of the source of that income; or
- a trust, if, in general, a United States court is able to exercise
primary supervision over the trust's administration and one or more
United States persons (within the meaning of the Internal Revenue Code)
has the authority to control all of the trust's substantial decisions.
PAYMENTS OF STATED INTEREST
Payments of stated interest on your exchange notes will be taxed as ordinary
interest income. In addition:
- if you use the cash method of accounting for United States federal
income tax purposes, you will have to include the stated interest on your
exchange notes in your gross income at the time you receive the interest;
and
- if you use the accrual method of accounting for United States federal
income tax purposes, you will have to include the stated interest on your
exchange notes in your gross income at the time the interest accrues.
MARKET DISCOUNT AND BOND PREMIUM
If you purchase an exchange note (or purchased the outstanding note for which
the exchange note was exchanged, as the case may be) at a price that is less
than its principal amount, the excess of the principal amount over your purchase
price will be treated as "market discount." However, the market discount will be
considered to be zero if it is less than 1/4 of 1% of the principal amount
multiplied by the number of complete years to maturity from the date you
purchased the exchange note or outstanding note, as the case may be.
Under the market discount rules of the Internal Revenue Code, you generally will
be required to treat any principal payment on, or any gain realized on the sale,
exchange, retirement or other disposition of, an exchange note as ordinary
income (generally treated as interest income) to the extent of the market
discount which accrued but was not previously included in income. In addition,
you may be required to defer, until the maturity of the exchange note or its
earlier disposition in a taxable transaction, the deduction of all or a portion
of your interest expense on any indebtedness incurred or continued to purchase
or carry the exchange note (or the outstanding note for which the exchange note
was exchanged, as the case may be). In general, market discount will be
considered to accrue ratably during the period from the date
121
of the purchase of the exchange note (or outstanding note for which the exchange
note was exchanged, as the case may be) to the maturity date of the exchange
note, unless you make an irrevocable election (on an instrument-by-instrument
basis) to accrue market discount under a constant yield method. You may elect to
include market discount in income currently as it accrues (under either a
ratable or constant yield method), in which case the rules described above
regarding the treatment as ordinary income of gain upon the disposition of the
exchange note and upon the receipt of certain payments and the deferral of
interest deductions will not apply. The election to include market discount in
income currently, once made, applies to all market discount obligations acquired
on or after the first day of the first taxable year to which the election
applies, and may not be revoked without the consent of the Internal Revenue
Service.
If you purchase an exchange note (or purchased the outstanding note for which
the exchange note was exchanged, as the case may be) for an amount in excess of
the amount payable at maturity of the exchange note, you will be considered to
have purchased the exchange note (or outstanding note) with "bond premium" equal
to the excess of your purchase price over the amount payable at maturity (or on
an earlier call date if it results in a smaller amortizable bond premium). You
may elect to amortize the premium using a constant yield method over the
remaining term of the exchange note (or until an earlier call date, as
applicable). The amortized amount of the premium for a taxable year generally
will be treated first as a reduction of interest on the exchange note included
in such taxable year to the extent thereof, then as a deduction allowed in that
taxable year to the extent of your prior interest inclusions on the exchange
note, and finally as a carryforward allowable against your future interest
inclusions on the exchange note. The election, once made, is irrevocable without
the consent of the Internal Revenue Service and applies to all taxable bonds
held during the taxable year for which the election is made or subsequently
acquired.
SALE OR OTHER DISPOSITION OF THE EXCHANGE NOTES
Upon the sale, exchange, retirement, redemption or other taxable disposition of
an exchange note, you generally will recognize taxable gain or loss in an amount
equal to the difference, if any, between the amount realized on the disposition
and your adjusted tax basis in the exchange note. Your adjusted tax basis in an
exchange note will generally equal the cost of the exchange note (or, in the
case of an exchange note acquired in exchange for an outstanding note in the
exchange offer, the basis of the outstanding note), increased by the amount of
any market discount previously included in your gross income, and reduced by the
amount of any amortizable bond premium applied to reduce, or allowed as a
deduction against, interest with respect to your exchange note.
Your gain or loss generally will be capital gain or loss (except with respect to
any amount received that is attributable to accrued but unpaid interest, which
will be taxable in the manner described above under "--U.S. federal income tax
considerations for U.S. holders--Payments of stated interest" and except with
respect to accrued market discount that has not previously been included in
income, as discussed above under "--U.S. federal income tax considerations for
U.S. holders--Market discount and bond premium"). Such capital gain or loss will
be long-term capital gain or loss if the exchange note has been held for more
than one year at the time of the disposition (taking into account for this
purpose, in the case of an exchange note received in exchange for an outstanding
note in the exchange offer, the period of time that the outstanding note was
held).
122
Subject to limited exceptions, your capital losses cannot be used to offset your
ordinary income. If you are a non-corporate U.S. holder, your long-term capital
gain generally will be subject to a maximum tax rate of 20%.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, backup withholding, currently at a rate of 30%, may apply:
- to any payments made to you of principal of and interest on your
exchange note, and
- to payment of the proceeds of a sale or other disposition of your
exchange note,
if you are a non-corporate U.S. holder and fail to provide a correct taxpayer
identification number or otherwise comply with applicable requirements of the
backup withholding rules. Information reporting may also apply to payments made
with respect to your exchange note.
Backup withholding is not an additional tax and may be credited against your
United States federal income tax liability, provided that correct information is
provided to the Internal Revenue Service.
U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following summary applies to you if you are a beneficial owner of an
exchange note who or which is not a U.S. holder (as defined above) (a "non-U.S.
holder"). An individual may, subject to exceptions, be deemed to be a resident
alien, as opposed to a non-resident alien, by among other ways being present in
the United States:
- for at least 31 days in the calendar year, and
- for an aggregate of at least 183 days during a three-year period ending
in the current calendar year, counting for such purposes all of the days
present in the current year, one-third of the days present in the
immediately preceding year, and one-sixth of the days present in the
second preceding year.
Resident aliens are subject to United States federal income tax as if they were
United States citizens.
UNITED STATES FEDERAL WITHHOLDING TAX
Under current United States federal income tax laws, and subject to the
discussion below, United States federal withholding tax will not apply to
payments by us or our paying agent (in its capacity as such) of principal of and
interest on your exchange notes under the "portfolio interest" exception of the
Internal Revenue Code, provided that you comply with the following requirements:
- you do not, directly or indirectly, actually or constructively, own 10%
or more of the total combined voting power of all classes of our stock
entitled to vote within the meaning of section 871(h)(3) of the Internal
Revenue Code and the Treasury regulations thereunder;
- you are not (i) a controlled foreign corporation for United States
federal income tax purposes that is related, directly or indirectly, to
us through sufficient stock ownership (as provided in the Internal
Revenue Code), or (ii) a bank receiving interest described in section
881(c)(3)(A) of the Internal Revenue Code;
123
- such interest is not effectively connected with your conduct of a
United States trade or business; and
- you provide a properly completed Internal Revenue Service Form W-8BEN,
signed under penalties of perjury, which can reliably be related to you,
certifying that you are not a United States person within the meaning of
the Internal Revenue Code and providing your name and address to:
(A) us or our paying agent; or
(B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of
its trade or business and holds your exchange notes on your behalf and
that certifies to us or our paying agent under penalties of perjury
that it, or the bank or financial institution between it and you, has
received from you your Form W-8BEN and provides us or our paying agent
with a copy of this statement.
Certain Treasury regulations provide alternative methods for satisfying the
certification requirement described in this section. In addition, under these
Treasury regulations:
- if you are a foreign partnership, the certification requirement will
generally apply to partners in you, and you will be required to provide
certain information;
- if you are a foreign trust, the certification requirement will
generally be applied to you or your beneficial owners depending on
whether you are a "foreign complex trust," "foreign simple trust," or
"foreign grantor trust" as defined in the Treasury regulations; and
- look-through rules will apply for tiered partnerships, foreign simple
trusts and foreign grantor trusts.
If you are a foreign partnership or a foreign trust, you should consult your own
tax advisor regarding your status under these Treasury regulations and the
certification requirements applicable to you.
If you do not satisfy the requirements described above, payments of interest
made to you will be subject to the 30% United States federal withholding tax,
unless you provide us with a properly executed (1) Internal Revenue Service Form
W-8BEN claiming an exemption from or reduction in withholding under the benefit
of an applicable tax treaty or (2) Internal Revenue Service Form W-8ECI stating
that the interest paid on an exchange note is not subject to withholding tax
because it is effectively connected with your conduct of a trade or business in
the United States.
UNITED STATES FEDERAL INCOME TAX
Except for the possible application of United States withholding tax (see
"United States federal withholding tax" above) and backup withholding tax (see
"Backup withholding and information reporting" below), you generally will not
have to pay United States federal income tax on payments of principal of and
interest on your exchange notes, or on any gain or income realized from the
sale, redemption, retirement at maturity or other disposition of your
124
exchange notes (provided that, in the case of proceeds representing accrued
interest, the conditions described in "United States federal withholding tax"
are met) unless:
- in the case of gain, you are an individual who is present in the United
States for 183 days or more during the taxable year of the sale or other
disposition of your exchange notes, and specific other conditions are
met; or
- the gain is effectively connected with your conduct of a United States
trade or business, and, if an income tax treaty applies, is generally
attributable to a United States "permanent establishment" maintained by
you.
If you are engaged in a trade or business in the United States and interest,
gain or any other income in respect of your exchange notes is effectively
connected with the conduct of your trade or business, and, if an income tax
treaty applies, you maintain a United States "permanent establishment" to which
the interest, gain or other income is generally attributable, you generally will
be subject to United States income tax on a net basis on the interest, gain or
income in the same manner as if you were a U.S. holder (although interest is
exempt from the withholding tax discussed in the preceding paragraphs provided
that you provide a properly executed applicable Internal Revenue Service Form
W-8ECI on or before any payment date to claim the exemption).
In addition, if you are a foreign corporation, you may be subject to a branch
profits tax equal to 30% of your effectively connected earnings and profits for
the taxable year, as adjusted for certain items, unless a lower rate applies to
you under a United States income tax treaty with your country of residence. For
this purpose, you must include interest, gain or income on your exchange notes
in the earnings and profits subject to the branch profits tax if these amounts
are effectively connected with the conduct of your United States trade or
business.
UNITED STATES FEDERAL ESTATE TAX
If you are an individual and are not a United States citizen or a resident of
the United States (as specially defined for United States federal estate tax
purposes) at the time of your death, your exchange notes will generally not be
subject to the United States federal estate tax, unless, at the time of your
death:
- you directly or indirectly, actually or constructively, own 10% or more
of the total combined voting power of all classes of our stock entitled
to vote within the meaning of section 871(h)(3) of the Internal Revenue
Code and the Treasury regulations thereunder; or
- your interest on the exchange notes is effectively connected with your
conduct of a United States trade or business.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current Treasury regulations, backup withholding and information reporting
will not apply to payments made by us or our paying agent (in its capacity as
such) to you if you have provided the required certification that you are a
non-U.S. holder as described in "United States federal withholding tax" above,
and provided that neither we nor our paying agent has actual knowledge that you
are a U.S. holder (as described in "Definition of a U.S. holder" above). We or
our paying agent may, however, report payments of interest on the exchange notes
on an Internal Revenue Service Form 1042-S.
125
The gross proceeds from the disposition of your exchange notes may be subject to
information reporting and backup withholding tax at a rate that is currently
30%. If you sell your exchange notes outside the United States through a
non-United States office of a broker and the sales proceeds are paid to you
outside the United States, then the United States backup withholding and
information reporting requirements generally (except as provided in the
following sentence) will not apply to that payment. However, United States
information reporting, but not backup withholding, will apply to a payment of
sales proceeds, even if that payment is made outside the United States, if you
sell your exchange notes through a non-United States office of a broker that:
- is a United States person (as defined in the Internal Revenue Code);
- derives 50% or more of its gross income in specific periods from the
conduct of a trade or business in the United States;
- is a "controlled foreign corporation" for United States federal income
tax purposes; or
- is a foreign partnership, if at any time during its tax year:
- one or more of its partners are United States persons who in the
aggregate hold more than 50% of the income or capital interests in the
partnership; or
- the foreign partnership is engaged in a United States trade or
business,
unless the broker has documentary evidence in its files that you are a
non-United States person and certain other conditions are met or you otherwise
establish an exemption. If you receive payments of the proceeds of a sale of
your exchange notes to or through a United States office of a broker, the
payments are subject to both United States backup withholding and information
reporting unless you provide a Form W-8BEN certifying that you are a non-United
States person or you otherwise establish an exemption.
You should consult your own tax advisor regarding application of backup
withholding in your particular circumstances and the availability of and
procedure for obtaining an exemption from backup withholding under current
Treasury regulations. Any amounts withheld under the backup withholding rules
from a payment to you will be allowed as a refund or credit against your United
States federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.
126
ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with the
exchange of the outstanding notes, or the purchase or holding of the exchange
notes, by employee benefit plans that are subject to Title I of the U.S.
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
individual retirement accounts and other arrangements that are subject to
Section 4975 of the Internal Revenue Code or provisions under any federal,
state, local, non-U.S. or other laws or regulations that are similar to such
provisions of the Internal Revenue Code or ERISA, and entities whose underlying
assets are considered to include "plan assets" of such plans, accounts and
arrangements.
GENERAL FIDUCIARY MATTERS
ERISA and the Code impose certain duties on persons who are fiduciaries of a
plan subject to Title I of ERISA or Section 4975 of the Internal Revenue Code
and prohibit certain transactions involving the assets of a plan and its
fiduciaries or other interested parties. Under ERISA and the Code, any person
who exercises any discretionary authority or control over the administration of
such a plan or the management or disposition of the assets of such a plan, or
who renders investment advice to such a plan for a fee or other compensation,
may be considered to be a fiduciary of the plan.
When considering investing a portion of the assets of any plan in the exchange
notes, a fiduciary should determine whether the investment is in accordance with
the documents and instruments governing the plan and the applicable provisions
of ERISA, the Internal Revenue Code or any similar law relating to a fiduciary's
duties to the plan including, without limitation, the prudence, diversification,
delegation of control and prohibited transaction provisions of ERISA, the
Internal Revenue Code and any other applicable similar laws. The prudence of a
particular investment should be determined by the responsible fiduciary of a
plan by taking into account the plan's particular circumstances and all of the
facts and circumstances of an investment in an exchange note including, but not
limited to, particular risks associated with the investment and the fact that in
the future there may be no market in which such fiduciary will be able to sell
or otherwise dispose of any exchange notes it may purchase.
Any insurance company proposing to invest assets of its general account in the
exchange notes should consider the extent to which such investment would be
subject to the requirements of ERISA in light of the U.S. Supreme Court's
decision in John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings
Bank and under any subsequent legislation or other guidance that has or may
become available relating to that decision, including Section 401(c) of ERISA
and any regulations thereunder published by the U.S. Department of Labor.
PROHIBITED TRANSACTION ISSUES
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit
plans subject to Title I of ERISA or Section 4975 of the Internal Revenue Code
from engaging in specified transactions involving plan assets with persons or
entities who are "parties in interest" within the meaning of ERISA, or
"disqualified persons," within the meaning of Section 4975 of the Internal
Revenue Code, unless an exemption is available. A party in interest or
disqualified person who engages in a non-exempt prohibited transaction may be
subject to excise taxes and other penalties and liabilities under ERISA and the
Internal Revenue Code and, in many circumstances, the transaction must be
unwound. In addition, the fiduciary of the plan that engages in such a
non-exempt prohibited transaction may be subject to penalties and liabilities
127
under ERISA and the Internal Revenue Code. The acquisition and/or holding of
exchange notes by a plan with respect to which we, our affiliates or the initial
purchaser is considered a party in interest or disqualified person may
constitute or result in a direct or indirect prohibited transaction under ERISA
and/or the Internal Revenue Code, unless the investment is acquired and is held
in accordance with an applicable statutory, class or individual prohibited
transaction exemption. In this regard, the U.S. Department of Labor has issued
prohibited transaction class exemptions, or "PTCEs", that may apply to the
acquisition and holding of the exchange notes. These class exemptions include
PTCE 84-14 respecting transactions determined by independent qualified
professional asset managers, PTCE 90-1 respecting insurance company pooled
separate accounts, PTCE 91-38 respecting bank collective investment funds, PTCE
95-60 respecting transactions involving life insurance company general accounts
and PTCE 96-23 respecting transactions determined by in-house asset managers.
However, there can be no assurance that all of the conditions of any such
exemptions will be satisfied, or, if satisfied, that the scope of the relief
will cover all acts that might be construed as prohibited transactions.
Because of the foregoing, the exchange notes should not be acquired or held by
any person investing "plan assets" of any plan, if such acquisition and holding
will constitute a non-exempt prohibited transaction under ERISA and the Internal
Revenue Code or similar violation of any applicable similar laws. Each initial
investor of an exchange note and each subsequent transferee will, by its
acquisition and/or holding be deemed to have represented and warranted that (1)
it is not a plan, or other entity that is subject to prohibited transaction
rules of ERISA, the Code or similar law or (2) its acquisition and/or holding of
such note will not result in a non-exempt prohibited transaction under Section
406 of ERISA, Section 4975 of the Internal Revenue Code or any similar provision
of similar laws.
The foregoing discussion is general in nature and is not intended to be
all-inclusive. Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries, or other persons considering an
investment in the exchange notes on behalf of, or with the assets of any plan,
consult with their counsel regarding the potential applicability of ERISA,
Section 4975 of the Internal Revenue Code and any similar laws to such
investment and whether an exemption would be applicable to the acquisition and
holding of the exchange notes.
128
PLAN OF DISTRIBUTION
This prospectus is to be used by Goldman, Sachs & Co. and J.P. Morgan Securities
Inc. in connection with offers and sales of the notes in market-making
transactions effected from time to time. Goldman, Sachs & Co. and J.P. Morgan
Securities Inc. may act as principal or agent in such transactions. Such sales
will be made at prevailing market prices at the time of sale, at prices related
thereto or at negotiated prices. We will not receive any of the proceeds from
such sales.
At the closing of the Acquisition,private equity funds affiliated with Goldman,
Sachs & Co. owned approximately 65% of our common stock and equity funds
affiliated with J.P. Morgan Securities Inc. owned approximately 29% of our
common stock. See "Principal Stockholders."
We have been advised by Goldman, Sachs & Co. and J.P. Morgan Securities that,
subject to applicable laws and regulations, they currently intend to make a
market in the notes following the completion of the exchange offer. However,
Goldman, Sachs & Co. and J.P. Morgan Securities Inc. are not obligated to do so,
and any such market-making may be interrupted or discontinued at any time
without notice.
Goldman, Sachs & Co. and J.P. Morgan Securities Inc. and their affiliates have
provided us with commercial banking, investment banking or other financial
advisory services in the past and may provide such services to us in the future.
Goldman, Sachs & Co. and J.P. Morgan Securities Inc. acted as initial purchasers
in connection with the original sale of the notes and received customary fees
and were reimbursed expenses incurred in connection therewith. See "Related
party transactions -- Goldman Sachs Capital Partners 2000 and J.P. Morgan
Partners Global Investors, L.P."
We, Goldman, Sachs & Co. and J.P. Morgan Securities Inc. have entered into a
registration rights agreement with respect to the use by Goldman, Sachs & Co.
and J.P. Morgan Securities Inc. of this prospectus. Pursuant to such agreement,
we agreed to indemnify Goldman, Sachs & Co. and J.P. Morgan Securities Inc.
against certain liabilities, including liabilities under the Securities Act and
to contribute to payments which Goldman, Sachs & Co. and J.P. Morgan Securities
Inc. might be required to make in respect thereof.
Pursuant to a stockholders' agreement entered into in connection with the
Acquisition, GSCP 2000 and other private equity funds affiliated with Goldman,
Sachs & Co. have the right to designate five members of our board of directors,
one of which shall be a member of our management, and J.P. Morgan Partners
Global Investors, L.P. and other private equity funds affiliated with J.P.
Morgan Securities Inc. have the right to designate two members of our board, one
of which will be designated by J.P. Morgan Partners Global Investors, L.P. See
"Related party transactions -- Stockholders' agreements."
LEGAL MATTERS
The validity of the exchange notes will be passed upon for us by Fried, Frank,
Harris, Shriver & Jacobson (a partnership including professional corporations),
New York, New York.
INDEPENDENT AUDITORS
The consolidated balance sheets of BPC Holding Corporation as of December 29,
2001 and December 30, 2000, and the related consolidated statements of
operations, stockholders' equity
129
(deficit), and cash flows for each of the years in the three-year period ending
December 29, 2001 included in the offering memorandum, have been audited by
Ernst & Young LLP, independent auditors, as stated in their report appearing
herein.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information that we file
with them in other documents, which means that we can disclose important
information to you by referring to those documents. The information incorporated
by reference is considered to be part of the offering memorandum, and later
information that we file with the SEC will automatically update and supersede
this information. This prospectus incorporates by reference all documents filed
by us in the future with the SEC under Sections 13(a), 13(c), 14, or 15(d) of
the Exchange Act until the termination of the offering to which this prospectus
relates.
On written or oral request, we will provide at no cost to each person who
receives a copy of this prospectus, a copy of any or all of the documents
incorporated in this prospectus by reference. We will not provide exhibits to
any of the documents listed above, however, unless those exhibits are
specifically incorporated by reference into those documents. You should direct
your request to:
101 Oakley Street
Evansville, Indiana 47710
Attn: Mark Miles
(812) 424-2904
You should rely only on the information that we incorporate by reference or
provide in this prospectus. You should consider any statement contained in a
document incorporated or considered incorporated by reference into this
prospectus to be modified or superseded to the extent that a statement contained
in this prospectus, or in any other subsequently filed document that is also
incorporated or deemed to be incorporated by reference in this prospectus,
modifies or conflicts with the earlier statement. You should not consider any
statement modified or superseded, except as so modified or superseded, to
constitute a part of this prospectus. We have not authorized anyone else to
provide you with different information. You should not assume that the
information in this prospectus or the information incorporated by reference in
this prospectus is accurate as of any date other than the date of this
prospectus or the document from which such information is incorporated.
130
BPC HOLDING CORPORATION
INDEX TO FINANCIAL STATEMENTS
PAGE
----
BPC HOLDING CORPORATION AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors........................... F-2
Consolidated Balance Sheets at December 29, 2001 and
December 30, 2000...................................... F-3
Consolidated Statements of Operations for the three years
in the period ended December 29, 2001.................. F-5
Consolidated Statements of Changes in Stockholders'
Equity (Deficit) for the three years in the period
ended December 29, 2001................................ F-6
Consolidated Statements of Cash Flows for the three years
in the period ended December 29, 2001.................. F-7
Notes to Consolidated Financial Statements............... F-8
BPC HOLDING CORPORATION UNAUDITED INTERIM FINANCIAL
STATEMENTS
Consolidated Balance Sheets at June 29, 2002 and December
29, 2001............................................... F-30
Consolidated Statements of Operations for the twenty-six
weeks ended June 29, 2002 and June 30, 2001............ F-32
Consolidated Statements of Cash Flows for the twenty-six
weeks ended June 29, 2002 and June 30, 2001............ F-33
Notes to Consolidated Financial Statements............... F-34
F-1
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
BPC Holding Corporation
We have audited the accompanying consolidated balance sheets of BPC Holding
Corporation ("Holding") as of December 29, 2001, and December 30, 2000, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 29, 2001. These financial statements and schedule are the
responsibility of Holding's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BPC
Holding Corporation at December 29, 2001 and December 30, 2000, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 29, 2001, in conformity with accounting
principles generally accepted in the United States.
Ernst & Young LLP
Indianapolis, Indiana
February 15, 2002
F-2
BPC HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
-----------------------------------------------------------------------------------------
DECEMBER 29, DECEMBER 30,
(DOLLARS IN THOUSANDS) 2001 2000
-----------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents................................ $ 1,232 $ 2,054
Accounts receivable (less allowance for doubtful accounts
of $2,070 at December 29, 2001 and $1,724 at December
30, 2000).............................................. 48,623 48,397
Inventories:
Finished goods........................................ 43,048 38,157
Raw materials and supplies............................ 13,009 10,822
---------------------------
56,057 48,979
Prepaid expenses and other receivables................... 5,280 5,272
---------------------------
Total current assets............................... 111,192 104,702
Property and equipment:
Land.................................................. 9,443 8,894
Buildings and improvements............................ 72,722 60,572
Machinery, equipment and tooling...................... 201,357 203,569
Construction in progress.............................. 22,647 16,901
---------------------------
306,169 289,936
Less accumulated depreciation......................... 102,952 110,132
---------------------------
203,217 179,804
Intangible assets:
Deferred financing fees, net.......................... 8,475 10,422
Covenants not to compete, net......................... 1,955 3,388
Excess of cost over net assets acquired, net.......... 119,923 114,680
---------------------------
130,353 128,490
Other................................................. 2,114 126
---------------------------
Total assets....................................... $ 446,876 $ 413,122
-----------------------------------------------------------------------------------------
F-3
-----------------------------------------------------------------------------------------
DECEMBER 29, DECEMBER 30,
(DOLLARS IN THOUSANDS) 2001 2000
-----------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable......................................... $ 34,862 $ 26,779
Accrued expenses and other liabilities................... 8,955 10,430
Accrued interest......................................... 7,964 9,006
Employee compensation and payroll taxes.................. 17,792 14,785
Current portion of long-term debt........................ 22,292 23,232
---------------------------
Total current liabilities.......................... 91,865 84,232
Long-term debt, less current portion........................ 463,589 445,574
Accrued dividends on preferred stock........................ 27,446 17,656
Deferred income taxes....................................... 489 491
Other liabilities........................................... 3,088 3,166
---------------------------
Total liabilities.................................. 586,477 551,119
Stockholders' equity (deficit):
Series A Preferred Stock; 600,000 shares authorized,
issued and outstanding (net of discount of $1,893 at
December 29, 2001 and $2,185 at December 30, 2000).... 12,678 12,386
Series A-1 Preferred Stock; 1,400,000 shares authorized;
1,000,000 shares issued and outstanding (net of
discount of $4,668 at December 29, 2001 and $5,400 at
December 30, 2000).................................... 20,332 19,600
Series B Preferred Stock; 200,000 shares authorized,
issued and outstanding................................ 5,000 5,000
Series C Preferred Stock; 13,168 shares authorized,
issued and outstanding................................ 9,779 -
Class A Common Stock; $.01 par value:
Voting; 500,000 shares authorized; 91,000 shares issued
and outstanding....................................... 1 1
Nonvoting; 500,000 shares authorized; 259,000 shares
issued and outstanding................................ 3 3
Class B Common Stock; $.01 par value:
Voting; 500,000 shares authorized; 145,058 shares issued
and 144,546 shares outstanding........................ 1 1
Nonvoting; 500,000 shares authorized; 61,325 shares
issued and 59,222 shares outstanding.................. 1 1
Class C Common Stock; $.01 par value:
Nonvoting; 500,000 shares authorized; 17,000 shares
issued and 16,833 shares outstanding.................. - -
Treasury stock: 512 shares Class B Voting Common Stock;
2,103 shares Class B Nonvoting Common Stock; and 167
shares Class C Nonvoting Common Stock................. (405) (405)
Additional paid-in capital............................... 25,315 35,041
Warrants................................................. 9,386 9,386
Retained earnings (deficit).............................. (220,263) (218,168)
Accumulated other comprehensive income (loss)............ (1,429) (843)
---------------------------
Total stockholders' equity (deficit)............... (139,601) (137,997)
---------------------------
Total liabilities and stockholders' equity
(deficit)........................................ $ 446,876 $ 413,122
-----------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-4
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------------------------
YEAR ENDED
----------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
(DOLLARS IN THOUSANDS) 2001 2000 2000
------------------------------------------------------------------------------------------------
Net sales............................................. $ 461,659 $ 408,088 $ 328,834
Cost of goods sold.................................... 338,000 312,119 241,067
----------------------------------------
Gross margin................................. 123,659 95,969 87,767
Operating expenses:
Selling............................................ 21,996 21,630 17,383
General and administrative......................... 28,535 24,408 22,034
Research and development........................... 1,948 2,606 2,338
Amortization of intangibles........................ 12,802 10,579 7,215
Other expenses..................................... 4,911 6,639 5,148
----------------------------------------
Operating income............................. 53,467 30,107 33,649
Other expenses:
Loss on disposal of property and equipment......... 473 877 1,416
----------------------------------------
Income before interest and taxes...................... 52,994 29,230 32,233
Interest:
Expense............................................ (54,397) (51,553) (41,040)
Income............................................. 42 96 223
----------------------------------------
Loss before income taxes and extraordinary item....... (1,361) (22,227) (8,584)
Income taxes (benefit)................................ 734 (142) 554
----------------------------------------
Loss before extraordinary item........................ (2,095) (22,085) (9,138)
Extraordinary item (less applicable income taxes
of $0)............................................. - (1,022) -
----------------------------------------
Net loss.............................................. (2,095) (23,107) (9,138)
Preferred stock dividends............................. (9,790) (6,655) (3,776)
Amortization of preferred stock discount.............. (1,024) (768) (292)
----------------------------------------
Net loss attributable to common shareholders.......... $ (12,909) $ (30,530) $ (13,206)
------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-5
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
-------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK PREFERRED STOCK ADDI-
--------------------- ----------------------------------- TREA- TIONAL
CLASS CLASS CLASS CLASS CLASS CLASS CLASS SURY PAID-IN
(DOLLARS IN THOUSANDS) A B C A A-1 B C STOCK CAPITAL WARRANTS
-------------------------------------------------------------------------------------------------------------------------------
Balance at January 2, 1999......... $4 $2 $ - $11,801 $ - $5,000 $ - $(280) $45,611 $3,511
------------------------------------------------------------------------------------------
Net loss........................... - - - - - - - - - -
Sale of treasury stock to
management...................... - - - - - - - 40 16 -
Purchase treasury stock from
management...................... - - - - - - - (16) - -
Translation loss................... - - - - - - - - - -
Accrued dividends on preferred
stock........................... - - - - - - - - (3,776) -
Amortization of preferred stock
discount........................ - - - 292 - - - - (292) -
------------------------------------------------------------------------------------------
Balance at January 1, 2000......... 4 2 - 12,093 - 5,000 - (256) 41,559 3,511
------------------------------------------------------------------------------------------
Net loss........................... - - - - - - - - - -
Purchase treasury stock from
management...................... - - - - - - - (149) - -
Translation loss................... - - - - - - - - - -
Stock-based compensation........... - - - - - - - - 905 -
Issuance of preferred stock........ - - - - 25,000 - - - - -
Issuance of private warrants....... - - - - (5,875) - - - - 5,875
Accrued dividends on preferred
stock........................... - - - - - - - - (6,655) -
Amortization of preferred stock
discount........................ - - - 293 475 - - - (768) -
------------------------------------------------------------------------------------------
Balance at December 30, 2000....... 4 2 - 12,386 19,600 5,000 - (405) 35,041 9,386
------------------------------------------------------------------------------------------
Net loss........................... - - - - - - - - - -
Translation loss................... - - - - - - - - - -
Stock-based compensation........... - - - - - - - - 796 -
Issuance of preferred stock........ - - - - - - 9,779 - - -
Issuance of common stock........... - - - - - - - - 292 -
Accrued dividends on preferred
stock........................... - - - - - - - - (9,790) -
Amortization of preferred stock
discount........................ - - - 292 732 - - - (1,024) -
------------------------------------------------------------------------------------------
Balance at December 29, 2001....... $4 $2 $ - $12,678 $20,332 $5,000 $9,779 $(405) $25,315 $9,386
-------------------------------------------------------------------------------------------------------------------------------
----------------------------------- ------------------------------------------
ACCUMU-
LATED
OTHER COMPRE-
RETAINED COMPRE- HENSIVE
EARNINGS HENSIVE INCOME
(DOLLARS IN THOUSANDS) (DEFICIT) LOSS TOTAL (LOSS)
----------------------------------- ------------------------------------------
Balance at January 2, 1999......... $(185,923) $ (83) $(120,357)
------------------------------------------
Net loss........................... (9,138) - (9,138) $ (9,138)
Sale of treasury stock to
management...................... - - 56 -
Purchase treasury stock from
management...................... - - (16) -
Translation loss................... - (240) (240) (240)
Accrued dividends on preferred
stock........................... - - (3,776) -
Amortization of preferred stock
discount........................ - - - -
------------------------------------------
Balance at January 1, 2000......... (195,061) (323) (133,471) (9,378)
------------------------------------------
Net loss........................... (23,107) - (23,107) (23,107)
Purchase treasury stock from
management...................... - - (149) -
Translation loss................... - (520) (520) (520)
Stock-based compensation........... - - 905 -
Issuance of preferred stock........ - - 25,000 -
Issuance of private warrants....... - - - -
Accrued dividends on preferred
stock........................... - - (6,655) -
Amortization of preferred stock
discount........................ - - - -
------------------------------------------
Balance at December 30, 2000....... (218,168) (843) (137,997) (23,627)
------------------------------------------
Net loss........................... (2,095) - (2,095) (2,095)
Translation loss................... - (586) (586) (586)
Stock-based compensation........... - - 796 -
Issuance of preferred stock........ - - 9,779 -
Issuance of common stock........... - - 292 -
Accrued dividends on preferred
stock........................... - - (9,790) -
Amortization of preferred stock
discount........................ - - - -
------------------------------------------
Balance at December 29, 2001....... $(220,263) $(1,429) $(139,601) $ (2,681)
-----------------------------------
See notes to consolidated financial statements.
F-6
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------------------------------------------------------
YEAR ENDED
----------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
(DOLLARS IN THOUSANDS) 2001 2000 2000
-----------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss............................................. $ (2,095) $ (23,107) $ (9,138)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation...................................... 38,105 31,569 24,580
Non-cash interest expense......................... 11,268 18,047 15,567
Amortization...................................... 12,802 10,579 7,215
Non-cash compensation............................. 796 905 -
Write-off of financing fees....................... - 1,022 -
Loss on sale of property and equipment............ 473 877 1,416
Deferred income taxes............................. - (349) 6
Changes in operating assets and liabilities:
Accounts receivable, net....................... 2,869 (1,475) (723)
Inventories.................................... (4,017) 7,383 (7,746)
Prepaid expenses and other receivables......... (50) (1,163) (529)
Other assets................................... (2,000) - 493
Accounts payable and accrued expenses.......... (3,803) (8,182) 4,860
----------------------------------------
Net cash provided by operating activities... 54,348 36,106 36,001
INVESTING ACTIVITIES
Additions to property and equipment.................. (32,834) (31,530) (30,738)
Proceeds from disposal of property and equipment..... 93 1,666 529
Acquisitions of businesses........................... (23,549) (78,851) (76,769)
----------------------------------------
Net cash used for investing activities............... (56,290) (108,715) (106,978)
FINANCING ACTIVITIES
Proceeds from long-term borrowings................... 15,606 80,032 90,435
Payments on long-term borrowings..................... (24,088) (31,543) (16,340)
Purchase of treasury stock from management........... - (149) (16)
Proceeds from issuance of preferred stock and
warrants.......................................... 9,779 25,000 -
Proceeds from issuance of treasury stock............. - - 56
Proceeds from issuance of common stock............... 292 - -
Debt issuance costs.................................. (1,009) (1,303) (3,000)
----------------------------------------
Net cash provided by financing activities............ 580 72,037 71,135
Effect of exchange rate changes on cash.............. 540 80 70
----------------------------------------
Net increase (decrease) in cash and cash
equivalents....................................... (822) (492) 228
Cash and cash equivalents at beginning of year....... 2,054 2,546 2,318
----------------------------------------
Cash and cash equivalents at end of year............. $ 1,232 $ 2,054 $ 2,546
-----------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-7
BPC HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED)
NOTE 1. ORGANIZATION
BPC Holding Corporation ("Holding"), through its subsidiary Berry Plastics
Corporation ("Berry" or the "Company") and its subsidiaries Berry Iowa
Corporation, Berry Tri-Plas Corporation, Berry Sterling Corporation, Aerocon,
Inc., PackerWare Corporation, Berry Plastics Design Corporation, Venture
Packaging, Inc. and its subsidiaries Venture Packaging Midwest, Inc. and Berry
Plastics Technical Services, Inc., NIM Holdings Limited and its subsidiary Berry
Plastics U.K. Limited and its subsidiary Norwich Acquisition Limited, Knight
Plastics, Inc., CPI Holding Corporation and its subsidiary Cardinal Packaging,
Inc., Berry Plastics Acquisition Corporation II, Poly-Seal Corporation, Berry
Plastics Acquisition Corporation III, CBP Holdings, S.r.l. and its subsidiaries
Capsol S.p.a. and Ociesse S.r.l., and Pescor, Inc. manufactures and markets
plastic packaging products through its facilities located in Evansville,
Indiana; Henderson, Nevada; Iowa Falls, Iowa; Charlotte, North Carolina;
Suffolk, Virginia; Lawrence, Kansas; Monroeville, Ohio; Norwich, England;
Woodstock, Illinois; Streetsboro, Ohio; Baltimore, Maryland; Milan, Italy, and
Fort Worth, Texas.
In connection with the acquisition of CPI Holding Corporation in July 1999, the
Company acquired manufacturing facilities in Ontario, California and
Minneapolis, Minnesota. The Ontario facility was closed in 1999, and all
production was removed from the Minneapolis facility in 2000. Also in 2000, the
Company closed its manufacturing facility in York, Pennsylvania. The business
from these closed locations has been distributed throughout Berry's facilities.
Holding's fiscal year is a 52/53 week period ending generally on the Saturday
closest to December 31. All references herein to "2001," "2000," and "1999,"
relate to the fiscal years ended December 29, 2001, December 30, 2000, and
January 1, 2000, respectively.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Business--The consolidated financial statements include the
accounts of Holding and its subsidiaries, all of which are wholly owned.
Intercompany accounts and transactions have been eliminated in consolidation.
Holding, through its wholly owned subsidiaries, operates in three primary
segments: containers, closures, and consumer products. The Company's customers
are located principally throughout the United States, without significant
concentration in any one region or with any one customer. The Company performs
periodic credit evaluations of its customers' financial condition and generally
does not require collateral.
Purchases of various densities of plastic resin used in the manufacture of the
Company's products aggregated approximately $110.5 million in 2001. Dow Chemical
Corporation is the largest supplier (approximately 31%) of the Company's total
resin material requirements. The Company also uses other suppliers such as
Chevron, ExxonMobil, Nova and Equistar to meet its resin requirements. The
Company does not anticipate any material difficulty in obtaining an
uninterrupted supply of raw materials at competitive prices in the near future.
However, should a significant shortage of the supply of resin occur, changes in
both the price and
F-8
availability of the principal raw material used in the manufacture of the
Company's products could occur and result in financial disruption to the
Company.
The Company is subject to existing and potential federal, state, local and
foreign legislation designed to reduce solid waste in landfills. While the
principal resins used by the Company are recyclable and, therefore, reduce the
Company's exposure to legislation promulgated to date, there can be no assurance
that future legislation or regulatory initiatives would not have a material
adverse effect on the Company. Legislation, if promulgated, requiring plastics
to be degradable in landfills or to have minimum levels of recycled content
would have a significant impact on the Company's business as would legislation
providing for disposal fees or limiting the use of plastic products.
Cash and Cash Equivalents--All highly liquid investments with a maturity of
three months or less at the date of purchase are considered to be cash
equivalents.
Inventories--Inventories are valued at the lower of cost (first in, first out
method) or market.
Property and Equipment--Property and equipment are stated at cost. Depreciation
is computed primarily by the straight-line method over the estimated useful
lives of the assets ranging from three to 25 years.
Intangible Assets--Origination fees and deferred financing fees are being
amortized using the straight-line method over the lives of the respective debt
agreements.
Covenants not to compete are being amortized using the straight-line method over
the respective lives of the agreements ranging from one to five years.
The costs in excess of net assets acquired represent the excess purchase price
over the fair value of the net assets acquired in the original acquisition of
Berry Plastics and subsequent acquisitions. These costs are being amortized
using the straight-line method over a range of 15 to 20 years.
Long-lived assets--Holding evaluates long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable based on expected undiscounted cash flows attributed to
that asset. The amount of any impairment is measured as the difference between
the carrying value and the fair value of the impaired asset. Holding does not
have any long-lived assets it considers to be impaired.
Revenue Recognition--Revenue from sales of products is recognized at the time
product is shipped to the customer.
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.
Impact of Recently Issued Accounting Standards--The Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No.
133"), which the Company adopted at the beginning of fiscal 2001. This
pronouncement establishes accounting and reporting standards for derivative
financial instruments and hedging activities. SFAS No. 133 requires, among other
things, the Company to recognize all derivatives as either assets or liabilities
on the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes
F-9
in its fair value will either be offset against the change in fair value of the
hedged assets, liabilities, or firm commitments through income or recognized in
accumulated other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The adoption of SFAS No. 133 did not have a
material effect on the earnings and financial position of the Company.
In June 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS No.
142, Goodwill and Other Intangible Assets. These pronouncements significantly
change the accounting for business combinations, goodwill, and intangible
assets. SFAS No. 141 eliminates the pooling-of-interests method of accounting
for business combinations and further clarifies the criteria to recognize
intangible assets separately from goodwill. The requirements of SFAS No. 141 are
effective for any business combination that is completed after June 30, 2001.
SFAS No. 142 states goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed for impairment annually (or more frequently if
impairment indicators arise). Separable intangible assets that are deemed to
have an indefinite life will continue to be amortized over their useful lives.
The Company will adopt the provisions of SFAS Nos. 141 and 142 as of the
beginning of fiscal 2002. Application of the nonamortization provisions of SFAS
No. 142 is expected to result in an increase in net income (or decrease in net
loss) of approximately $10.5 million per year based on goodwill related to
acquisitions prior to the new rules. Further, during fiscal year 2002, the
Company will perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets and has not yet determined the impact of the
results of these tests on the earnings and financial position of the Company.
Any goodwill or other intangible asset impairment losses recognized from the
initial impairment test are required to be reported as a cumulative effect of a
change in accounting principle in the Company's financial statements.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement addresses the financial accounting
and reporting for the impairment and disposal of long-lived assets. It
supercedes and addresses significant issues relating to the implementation of
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. SFAS No. 144 retains many of the
fundamental provisions of SFAS No. 121 and establishes a single accounting
model, based on the framework established in SFAS No. 121, for long-lived assets
to be disposed of by sale, whether previously held and used or newly acquired.
The Company will adopt this standard as of the beginning of fiscal 2002. The
application of SFAS No. 144 is not expected to have a material impact on the
Company's results of operations and financial position.
NOTE 3. ACQUISITIONS
On May 9, 2000, Berry acquired all of the outstanding capital stock of Poly-Seal
Corporation ("Poly-Seal") for aggregate consideration of approximately $58.0
million. The purchase was financed through the issuance by Holding of $25.0
million of 14% preferred stock and warrants and additional borrowings under the
senior credit facility. The operations of Poly-Seal are included in Berry's
operations since the acquisition date using the purchase method of accounting.
On October 4, 2000, Berry, through its newly-formed, wholly owned Italian
subsidiary CBP Holdings S.r.l. ("Capsol"), acquired all of the outstanding
capital stock of Capsol S.p.a., headquartered in Cornate d'Adda, near Milan,
Italy and the whole quota capital of a related
F-10
company, Ociesse S.r.l., for aggregate consideration of approximately $14.0
million. The purchase was financed through borrowings under the senior credit
facility. The operations of Capsol are included in Berry's operations since the
acquisition date using the purchase method of accounting.
On May 14, 2001, Berry acquired all of the outstanding capital stock of Pescor
Plastics, Inc. ("Pescor") for aggregate consideration of approximately $24.8
million. The purchase was financed through the issuance by Holding of $9.8
million of 14% preferred stock and additional borrowings under the senior credit
facility. The operations of Pescor are included in Berry's operations since the
acquisition date using the purchase method of accounting. The fair value of the
net assets acquired was based on preliminary estimates and may be revised at a
later date.
The pro forma results listed below are unaudited and reflect purchase accounting
adjustments assuming the Poly-Seal, Capsol, and Pescor acquisitions occurred at
the beginning of each fiscal year presented.
------------------------------------------------------------------------------------
YEAR ENDED
---------------------------
DECEMBER 29, DECEMBER 30,
2001 2000
------------------------------------------------------------------------------------
Pro forma net sales.................................... $474,112 $459,657
Pro forma loss before extraordinary item............... (2,663) (29,603)
Pro forma net loss..................................... (2,663) (30,625)
------------------------------------------------------------------------------------
The pro forma financial information is presented for informational purposes only
and is not necessarily indicative of the operating results that would have
occurred had the acquisitions been consummated at the above dates, nor are they
necessarily indicative of future operating results. Further, the information
gathered on the acquired companies is based upon unaudited internal financial
information and reflects only pro forma adjustments for additional interest
expense and amortization of the excess of the cost over the underlying net
assets acquired, net of the applicable income tax effects.
NOTE 4. INTANGIBLE ASSETS
Intangible assets consist of the following:
------------------------------------------------------------------------------------
DECEMBER 29, DECEMBER 30,
2001 2000
------------------------------------------------------------------------------------
Deferred financing fees................................ $ 20,894 $ 19,621
Covenants not to compete............................... 7,376 9,997
Excess of cost over net assets acquired................ 146,494 131,775
Accumulated amortization............................... (44,411) (32,903)
---------------------------
$ 130,353 $ 128,490
------------------------------------------------------------------------------------
Excess of cost over net assets acquired increased primarily due to the
acquisition of Pescor in 2001.
F-11
NOTE 5. LONG-TERM DEBT
Long-term debt consists of the following:
------------------------------------------------------------------------------------
DECEMBER 29, DECEMBER 30,
2001 2000
------------------------------------------------------------------------------------
Holding 12.50% Senior Secured Notes.................... $ 135,714 $ 127,282
Berry 12.25% Senior Subordinated Notes................. 125,000 125,000
Berry 11% Senior Subordinated Notes.................... 75,000 75,000
Term loans............................................. 54,596 75,607
Revolving lines of credit.............................. 49,053 35,447
Second Lien Senior Credit Facility..................... 25,000 25,000
Nevada Industrial Revenue Bonds........................ 3,000 3,500
Capital leases......................................... 18,131 1,435
Debt premium, net...................................... 387 535
---------------------------
485,881 468,806
Less current portion of long-term debt................. 22,292 23,232
------------ ------------
$ 463,589 $ 445,574
------------------------------------------------------------------------------------
Holding 12.50% Senior Secured Notes--On June 18, 1996, Holding, as part of a
recapitalization (see Note 9), issued 12.50% Senior Secured Notes due 2006 for
net proceeds, after expenses, of approximately $100.2 million (or $64.6 million
after deducting the amount of such net proceeds used to purchase marketable
securities available for payment of interest on the notes). These notes were
exchanged in October 1996 for the 12.50% Series B Senior Secured Notes due 2006
(the "1996 Notes"). Interest is payable semi-annually on June 15 and December 15
of each year. In addition, from December 15, 1999 until June 15, 2001, Holding
paid interest, at an increased rate of 0.75% per annum, in additional 1996 Notes
valued at 100% of the principal amount thereof. Holding issued an additional
approximately $30.7 million ($8.4 million in 2001 and $15.3 million in 2000)
aggregate principal amount of 1996 Notes in satisfaction of its interest
obligation.
The 1996 Notes rank senior in right of payment to all existing and future
subordinated indebtedness of Holding, including Holding's subordinated guarantee
of all of Berry's Senior Subordinated Notes and pari passu in right of payment
with all senior indebtedness of Holding. The 1996 Notes are effectively
subordinated to all existing and future senior indebtedness of Berry, including
borrowings under the senior credit facility, second lien senior credit facility,
and the Nevada Industrial Revenue Bonds.
Berry 12.25% Senior Subordinated Notes--On April 21, 1994, Berry completed an
offering of 100,000 units consisting of $100.0 million aggregate principal
amount of 12.25% Berry Plastics Corporation Senior Subordinated Notes, due 2004
(the "1994 Notes") and 100,000 warrants to purchase 1.13237 shares of Class A
Common Stock, $.00005 par value (collectively the "1994 Transaction"), of
Holding. The net proceeds to Berry from the sale of the 1994 Notes, after
expenses, were $93.0 million. On August 24, 1998, Berry completed an additional
offering of $25.0 million aggregate principal amount of 12.25% Series B Senior
Subordinated Notes due 2004 (the "1998 Notes"). The net proceeds to Berry from
the sale of the 1998 Notes, after expenses, were $25.2 million. The 1994 Notes
and 1998 Notes mature on April 15, 2004 and interest is payable semi-annually on
October 15 and April 15 of each year and commenced on
F-12
October 15, 1994 and October 15, 1998 for the 1994 Notes and 1998 Notes,
respectively. Holding and all of Berry's subsidiaries fully, jointly, severally,
and unconditionally guarantee on a senior subordinated basis the 1994 Notes and
1998 Notes. There are no nonguarantor subsidiaries. Berry and all of Berry's
subsidiaries are 100% owned by Holding. Separate narrative information or
financial statements of guarantor subsidiaries have not been included as
management believes they would not be material to investors (see Note 13).
Berry is not required to make mandatory redemption or sinking fund payments with
respect to the 1994 Notes and 1998 Notes. The 1994 Notes and 1998 Notes may be
redeemed at the option of Berry, in whole or in part, at 102.042% through April
14, 2002 and 100% on April 15, 2002 and thereafter. Upon a change in control, as
defined in the indenture entered into in connection with the 1994 Transaction
(the "1994 Indenture") and the 1998 Transaction ("1998 Indenture"), each holder
of notes will have the right to require Berry to repurchase all or any part of
such holder's notes at a repurchase price in cash equal to 101% of the aggregate
principal amount thereof plus accrued interest.
The 1994 Notes and 1998 Notes rank pari passu with or senior in right of payment
to all existing and future subordinated indebtedness of Berry. The notes rank
junior in right of payment to all existing and future senior indebtedness of
Berry, including borrowings under the senior credit facility, second lien senior
credit facility, and the Nevada Industrial Revenue Bonds.
The 1994 Indenture and 1998 Indenture contain certain covenants which, among
other things, limit Berry and its subsidiaries' ability to incur debt, merge or
consolidate, sell, lease or transfer assets, make dividend payments and engage
in transactions with affiliates.
Berry 11% Senior Subordinated Notes--On July 6, 1999, Berry completed an
offering of $75.0 million aggregate principal amount of 11% Berry Plastics
Corporation Senior Subordinated Notes, due 2007 (the "1999 Notes"). The net
proceeds to Berry from the sale of the 1999 Notes, after expenses, were $72.0
million. The 1999 Notes mature on July 15, 2007 and interest is payable
semi-annually on January 15 and July 15 of each year and commenced on January
15, 2000. Holding and all of Berry's subsidiaries fully, jointly, and severally,
and unconditionally guarantee on a senior subordinated basis the 1999 Notes.
There are no nonguarantor subsidiaries.
Berry is not required to make mandatory redemption or sinking fund payments with
respect to the 1999 Notes. On or subsequent to July 15, 2003, the 1999 Notes may
be redeemed at the option of Berry, in whole or in part, at redemption prices
ranging from 105.5% in 2003 to 100% in 2006 and thereafter. Upon a change in
control, as defined in the indenture entered into in connection with the 1999
Transaction (the "1999 Indenture"), each holder of notes will have the right to
require Berry to repurchase all or any part of such holder's notes at a
repurchase price in cash equal to 101% of the aggregate principal amount thereof
plus accrued interest.
Credit Facility--The Company has a financing and security agreement (the
"Financing Agreement") with a syndicate of lenders led by Bank of America for a
senior secured credit facility (the "Credit Facility"). The Financing Agreement
amended the prior agreement as additional funds were made available in
connection with the acquisition of Poly-Seal. The amendment resulted in an
extraordinary charge in fiscal 2000 of $1.0 million of deferred financing costs
associated with the Financing Agreement and the prior financing agreement. As of
December 29, 2001, the Credit Facility provides the Company with (i) a $80.0
million revolving line of credit ("US Revolver"), subject to a borrowing base
formula, (ii) a $2.2 million
F-13
(using the December 29, 2001 exchange rate) revolving line of credit denominated
in British Sterling in the U.K. ("UK Revolver"), subject to a separate borrowing
base formula, (iii) a $52.6 million term loan facility, (iv) a $2.0 million
(using the December 29, 2001 exchange rate) term loan facility denominated in
British Sterling in the U.K. ("UK Term Loan") and (v) a $3.2 million standby
letter of credit facility to support the Company's and its subsidiaries'
obligations under the Nevada Bonds. At December 29, 2001, the Company had unused
borrowing capacity under the Credit Facility's revolving line of credit of
approximately $17.7 million. The indebtedness under the Credit Facility is
guaranteed by Holding and all of its subsidiaries (other than its subsidiaries
in the United Kingdom and Italy). The obligations of the Company and the
subsidiaries under the Credit Facility and the guarantees thereof are secured by
substantially all of the assets of such entities.
CBP Holdings, S.r.l. has a revolving credit facility (the "Italy Revolver") from
Bank of America for $12.0 million (using the December 29, 2001 exchange rate)
denominated in Euros. Bank of America also extends working capital financing
(the "Italy Working Capital Line") of up to $1.5 million (using the December 29,
2001 exchange rate) denominated in Euros. The full amount available under the
Italy Revolver and the Italy Working Capital Line are applied to reduce amounts
available under the US Revolver, as does the outstanding balance under the UK
Revolver.
The Credit Facility matures on January 21, 2004 unless previously terminated by
the Company or by the lenders upon an Event of Default as defined in the
Financing Agreement. The term loan facility requires periodic payments, varying
in amount, through the maturity of the facility. Interest on borrowings under
the Credit Facility is based on either (i) the lender's base rate (which is the
higher of the lender's prime rate and the federal funds rate plus 0.5%) plus an
applicable margin of 0.25% to 1.0% or (ii) eurodollar LIBOR (adjusted for
reserves) plus an applicable margin of 2.25% to 3.0%, at the Company's option
(4.4% at December 29, 2001 and 8.9% at December 30, 2000). Following receipt of
the quarterly financial statements, the agent under the Credit Facility shall
change the applicable interest rate margin on loans (other than under the UK
Revolver and UK Term Loan) once per quarter to a specified margin determined by
the ratio of funded debt to EBITDA of the Company and its subsidiaries.
Notwithstanding the foregoing, interest on borrowings under the UK Revolver and
the UK Term Loan is based on sterling LIBOR (adjusted for reserves) plus 2.25%
and 2.75%, respectively. Interest on borrowings under the Italy Revolver and the
Italy Working Capital Line is based on EURIBOR plus 2.0%.
The Credit Facility contains various covenants that include, among other things:
(i) maintenance of certain financial ratios and compliance with certain
financial tests and limitations, (ii) limitations on the issuance of additional
indebtedness and (iii) limitations on capital expenditures.
Second Lien Senior Credit Facility--On July 17, 2000, Berry obtained a second
lien senior credit facility from General Electric Capital Corporation for an
aggregate principal amount of $25.0 million (the "Second Lien Senior Facility"),
resulting in net proceeds of $24.3 million after fees and expenses. The proceeds
were utilized to reduce amounts then outstanding under the US Revolver. The
indebtedness is guaranteed by Holding and all of its subsidiaries (other than
its subsidiaries in the United Kingdom and Italy). The Second Lien Senior
Facility is secured by a second priority lien on substantially the same
collateral as the collateral for the Credit Facility.
The $25.0 million principal amount is due upon the Second Lien Senior Facility's
maturity on January 21, 2004. Interest is based on either (i) the lender's base
rate (which is the higher of
F-14
the prime rate and the federal funds rate plus 0.5%) plus an applicable margin
of 3.25% or (ii) eurodollar LIBOR (adjusted for reserves) plus an applicable
margin of 4.75%, at the Company's option (6.8% at December 29, 2001 and 11.1% at
December 30, 2000). The covenants under the Second Lien Senior Facility are
substantially the same as those in the Credit Facility.
Nevada Industrial Revenue Bonds--The Nevada Industrial Revenue Bonds bear
interest at a variable rate (1.7% at December 29, 2001 and 5.0% at December 30,
2000), require annual principal payments of $0.5 million on April 1, are
collateralized by irrevocable letters of credit issued by Bank of America under
the Credit Facility and mature in April 2007.
Other--Future maturities of long-term debt are as follows: 2002, $22,292; 2003,
$15,975; 2004, $223,916; 2005, $2,682; 2006, $137,347 and $83,282 thereafter.
Interest paid was $44,171, $32,836, and $29,759, for 2001, 2000, and 1999,
respectively. Interest capitalized was $589, $1,707, and $1,447, for 2001, 2000,
and 1999, respectively.
NOTE 6. LEASE AND OTHER COMMITMENTS
Certain property and equipment are leased using capital and operating leases. In
2001, Berry entered into various capital lease obligations with no immediate
cash flow effect resulting in capitalized property and equipment of $18,737.
Total capitalized lease property consists of manufacturing equipment and a
building with a cost of $22,342 and $3,589 and related accumulated amortization
of $3,442 and $1,483 at December 29, 2001 and December 30, 2000, respectively.
Capital lease amortization is included in depreciation expense. Total rental
expense from operating leases was approximately $8,292, $9,183, and $7,282 for
2001, 2000, and 1999, respectively.
Future minimum lease payments for capital leases and noncancellable operating
leases with initial terms in excess of one year are as follows:
--------------------------------------------------------------------------------------
AT DECEMBER 29, 2001
---------------------------------
CAPITAL LEASES OPERATING LEASES
--------------------------------------------------------------------------------------
2002............................................... $ 4,627 $ 7,594
2003............................................... 3,708 5,521
2004............................................... 3,465 5,000
2005............................................... 2,320 3,234
2006............................................... 1,611 1,985
Thereafter......................................... 5,454 731
---------------------------------
21,185 $ 24,065
----------------
Less: amount representing interest................. (3,054)
--------------
Present value of net minimum lease payments........ $ 18,131
--------------------------------------------------------------------------------------
F-15
NOTE 7. INCOME TAXES
For financial reporting purposes, income (loss) before income taxes and
extraordinary item, by tax jurisdiction, is comprised of the following:
--------------------------------------------------------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
--------------------------------------------------------------------------------------
United States............................... $ 5,046 $ (18,506) $ (8,105)
Foreign..................................... (6,407) (3,721) (479)
----------------------------------------
$ (1,361) $ (22,227) $ (8,584)
--------------------------------------------------------------------------------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
deferred tax liabilities and assets are as follows:
------------------------------------------------------------------------------------
DECEMBER 29, DECEMBER 30,
2001 2000
------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts..................... $ 654 $ 565
Inventory........................................... 1,422 1,481
Compensation and benefit accruals................... 2,871 2,412
Insurance reserves.................................. 657 628
Net operating loss carryforwards.................... 14,102 17,214
Alternative minimum tax (AMT) credit
carryforwards.................................... 3,055 3,055
---------------------------
Total deferred tax assets..................... 22,761 25,355
Valuation allowance................................. (3,629) (6,607)
---------------------------
Deferred tax assets, net of valuation
allowance................................... 19,132 18,748
Deferred tax liabilities:
Depreciation and amortization................. 19,621 19,239
---------------------------
Net deferred tax liability............................. $ (489) $ (491)
------------------------------------------------------------------------------------
F-16
Income tax expense (benefit) consists of the following:
--------------------------------------------------------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
--------------------------------------------------------------------------------------
Current
Federal.................................. $ 154 $ - $ -
Foreign.................................. 125 - 80
State.................................... 455 207 468
Deferred
Federal.................................. - - -
Foreign.................................. - (349) 6
State.................................... - - -
----------------------------------------
Income tax expense (benefit)................ $ 734 $ (142) $ 554
--------------------------------------------------------------------------------------
Holding has unused operating loss carryforwards of approximately $37.7 million
for federal and state income tax purposes which begin to expire in 2010. AMT
credit carryforwards are available to Holding indefinitely to reduce future
years' federal income taxes.
Income taxes paid during 2001, 2000, and 1999 approximated $314, $329, and $860,
respectively.
A reconciliation of income tax expense (benefit), computed at the federal
statutory rate, to income tax expense, as provided for in the financial
statements, is as follows:
----------------------------------------------------------------------------------------
YEAR ENDED
----------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
----------------------------------------------------------------------------------------
Income tax expense (benefit) computed at
statutory rate............................. $ (463) $ (7,557) $ (2,919)
State income tax expense, net of federal
benefit.................................... 795 (403) 309
Amortization of goodwill...................... 2,399 2,262 1,292
Expenses not deductible for income tax
purposes................................... 36 119 248
Change in valuation allowance................. (2,978) 5,340 1,773
Other......................................... 945 97 (149)
----------------------------------------
Income tax expense (benefit).................. $ 734 $ (142) $ 554
----------------------------------------------------------------------------------------
NOTE 8. EMPLOYEE RETIREMENT PLANS
Berry sponsors a defined contribution 401(k) retirement plan covering
substantially all employees. Contributions are based upon a fixed dollar amount
for employees who participate and percentages of employee contributions at
specified thresholds. Contribution expense for this plan was approximately
$1,349, $1,301, and $1,057, for 2001, 2000, and 1999, respectively.
F-17
NOTE 9. STOCKHOLDERS' EQUITY
Common Stock--On June 18, 1996, Holding consummated the transaction described
below (the "1996 Transaction"). BPC Mergerco, Inc. ("Mergerco"), a wholly owned
subsidiary of Holding, was organized by Atlantic Equity Partners International
II, L.P. ("International"), J.P. Morgan Partners (SBIC), LLC (formerly known as
Chase Venture Capital Associates, L.P.) ("JPMP(SBIC)"), and certain other
institutional investors to effect the acquisition of a majority of the
outstanding capital stock of Holding. Pursuant to the terms of a Common Stock
Purchase Agreement dated as of June 12, 1996 each of International, JPMP(SBIC)
and certain other equity investors (collectively the "Common Stock Purchasers")
subscribed for shares of common stock of Mergerco. In addition, pursuant to the
terms of a Preferred Stock Purchase Agreement dated as of June 12, 1996 (the
"Preferred Stock Purchase Agreement"), JPMP(SBIC) and an additional
institutional investor (the "Preferred Stock Purchasers") purchased shares of
preferred stock of Mergerco (the "Preferred Stock") and warrants (the "1996
Warrants") to purchase shares of common stock of Mergerco. Immediately after the
purchase of the common stock, the preferred stock and the 1996 Warrants of
Mergerco, Mergerco merged (the "Merger") with and into Holding, with Holding
being the surviving corporation. Upon the consummation of the Merger: each share
of the Class A Common Stock, $.00005 par value, and Class B Common Stock,
$.00005 par value, of Holding and certain privately-held warrants exercisable
for such Class A and Class B Common Stock were converted into the right to
receive cash equal to the purchase price per share for the common stock into
which such warrants were exercisable less the amount of the nominal exercise
price therefor, and all other classes of common stock of Holding, a majority of
which was held by certain members of management, were converted into shares of
common stock of the surviving corporation. In addition, upon the consummation of
the Merger, the holders of the warrants (the "1994 Warrants") to purchase
capital stock of Holding that were issued in connection with the 1994
Transaction became entitled to receive cash equal to the purchase price per
share for the common stock into which such warrants were exercisable less the
amount of the exercise price therefor. The Company's common stock shareholders
who held common stock immediately preceding the 1996 Transaction retained 78% of
the common stock.
The authorized capital stock of Holding consists of 4,814,000 shares of capital
stock, including 2,500,000 shares of Common Stock, $.01 par value (the "Holding
Common Stock"). Of the 2,500,000 shares of Holding Common Stock, 500,000 shares
are designated Class A Voting Common Stock (the "Class A Voting Stock"), 500,000
shares are designated Class A Nonvoting Common Stock (the "Class A Nonvoting
Stock"), 500,000 shares are designated Class B Voting Common Stock (the "Class B
Voting Stock"), 500,000 shares are designated Class B Nonvoting Common Stock
(the "Class B Nonvoting Stock"), and 500,000 shares are designated Class C
Nonvoting Common Stock (the "Class C Nonvoting Stock").
Preferred Stock and Warrants--In June 1996, for aggregate consideration of $15.0
million, Holding issued units (the "Units") comprised of Series A Senior
Cumulative Exchangeable Preferred Stock, par value $.01 per share (the
"Preferred Stock"), and detachable warrants to purchase shares of Class B Common
Stock (voting and non-voting) constituting 6% of the issued and outstanding
Common Stock of all classes, determined on a fully-diluted basis (the
"Warrants").
Dividends accrue at a rate of 14% per annum, compounding and payable quarterly
in arrears (each date of payment, a "Dividend Payment Date") and will accumulate
until declared and paid. Dividends declared and accruing prior to the first
Dividend Payment Date occurring after
F-18
the sixth anniversary of the issue date (the "Cash Dividend Date") may, at the
option of Holding, be paid in cash in full or in part or accrue quarterly on a
compound basis. Thereafter, all dividends are payable in cash in arrears. The
dividend rate is subject to increase to a rate of (i) 16% per annum if (and for
so long as) Holding fails to declare and pay dividends in cash for any quarterly
period following the Cash Dividend Date and (ii) 15% per annum if (and for so
long as) Holding fails to comply with its obligations relating to the rights and
preferences of the Preferred Stock. If Holding fails to pay in full, in cash,
(a) all accrued and unpaid dividends on or prior to the twelfth anniversary of
the issue date or (b) all accrued dividends on any Dividend Payment Date
following the twelfth anniversary of the issue date, the holders of Preferred
Stock will be permitted to elect a majority of the Board of Directors of
Holding.
The Preferred Stock ranks prior to all other classes of stock of Holding upon
liquidation and is entitled to receive, out of assets available for
distribution, cash in the aggregate amount of $15.0 million, plus all accrued
and unpaid dividends thereon. Subject to the terms of the 1996 Indenture, on any
Dividend Payment Date, Holding has the option of exchanging the Preferred Stock,
in whole but not in part, for Senior Subordinated Exchange Notes, at the rate of
$25 in principal amount of notes for each $25 of liquidation preference of
Preferred Stock held; provided, however, that no shares of Preferred Stock may
be exchanged for so long as any shares of Preferred Stock are held by JPMP(SBIC)
or its affiliates. Upon such exchange, Holding will be required to pay in cash
all accrued and unpaid dividends.
Pursuant to the Preferred Stock Purchase Agreement, the holders of Preferred
Stock and Warrants have unlimited incidental registration rights (subject to
cutbacks under certain circumstances). The exercise price of the Warrants is
$.01 per Warrant and the Warrants are exercisable immediately upon issuance. All
unexercised warrants will expire on the tenth anniversary of the issue date. The
number of shares issuable upon exercise of a Warrant are subject to
anti-dilution adjustments upon the occurrence of certain events.
In conjunction with the acquisition of Venture Packaging, Inc. in 1997, Holding
authorized and issued 200,000 shares of Series B Cumulative Preferred Stock to
certain selling shareholders of Venture Packaging, Inc. The Preferred Stock has
a stated value of $25 per share, and dividends accrue at a rate of 14.75% per
annum and will accumulate until declared and paid. The Preferred Stock ranks
junior to the Series A Preferred Stock and prior to all other capital stock of
Holding. In addition, Warrants to purchase 9,924 shares of Class B Non-Voting
Common Stock at $108 per share were issued to the same selling shareholders of
Venture Packaging, Inc. Additional warrants to purchase 386 shares of Class B
Non-Voting Common Stock at $108 per share were issued in fiscal 2000 to the same
selling shareholders of Venture Packaging, Inc.
In connection with the Poly-Seal acquisition in 2000, Holding issued 1,000,000
shares of Series A-1 Preferred Stock to JPMP(SBIC) and The Northwestern Mutual
Life Insurance Company (collectively, the "Purchasers"). The Series A-1
Preferred Stock has a stated value of $25 per share, and dividends accrue at a
rate of 14% per annum and will accumulate until declared and paid. The Series
A-1 Preferred Stock ranks pari-passu to the Series A Preferred Stock and prior
to all other capital stock of Holding. In addition, Warrants to purchase an
aggregate of 25,997 shares of Class B Non-Voting Common Stock at $0.01 per share
were issued to the Purchasers.
In connection with the Pescor acquisition on May 14, 2001, Holding issued 13,168
shares of Series C Preferred Stock, as defined below, to certain selling
shareholders of Pescor. The Series C Preferred Stock is comprised of 3,063
shares of Series C-1 Preferred Stock, 1,910 shares of Series C-2 Preferred
Stock, 2,135 shares of Series C-3 Preferred Stock, 3,033 shares of
F-19
Series C-4 Preferred Stock, and 3,027 shares of Series C-5 Preferred Stock. The
Series C Preferred Stock has stated values ranging from $639 per share to $1,024
per share, and dividends accrue at a rate of 14% per annum and will accumulate
until declared and paid. The Series C Preferred Stock ranks junior to the other
preferred stock of Holding and prior to all other capital stock of Holding. In
addition, the holders of the Series C Preferred have options beginning on
December 31, 2001 to convert the Series C Preferred Stock to Series D Preferred
Stock and Class B Nonvoting Common Stock.
Stock Option Plan--Pursuant to the provisions of the BPC Holding Corporation
1996 Stock Option Plan (the "Option Plan") as amended, whereby 76,620 shares
have been reserved for issuance, Holding has granted options to certain officers
and key employees to acquire shares of Class B Nonvoting Common Stock. These
options are subject to various agreements, which among other things, set forth
the class of stock, option price and performance thresholds to determine
exercisability and vesting requirements. The Option Plan expires October 3, 2003
or such earlier date on which the Board of Directors of Holding, in its sole
discretion, determines. Option prices range from $100 to $226 per share. Options
granted under the Option Plan typically expire after seven years and vest over a
five-year period with half of each person's award based on continued employment
and half based on the Company achieving financial performance targets.
Financial Accounting Standards Board Statement 123, Accounting for Stock-Based
Compensation ("Statement 123"), prescribes accounting and reporting standards
for all stock-based compensation plans. Statement 123 provides that companies
may elect to continue using existing accounting requirements for stock-based
awards or may adopt a new fair value method to determine their intrinsic value.
Holding has elected to continue following Accounting Principles Board Opinion
No. 25, Accounting For Stock Issued to Employees ("APB 25") to account for its
employee stock options. Under APB 25, because the exercise price of Holding's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized at the grant date.
F-20
Information related to the Option Plan is as follows:
-----------------------------------------------------------------------------------------
DECEMBER 29, 2001 DECEMBER 30, 2000 JANUARY 1, 2000
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-----------------------------------------------------------------------------------------
Options outstanding,
beginning of
year.............. 60,774 $132 51,479 $107 50,729 $ 105
Options granted...... 10,975 226 16,225 226 1,500 170
Options exercised.... (2,713) 107 - - - -
Options canceled..... (8,616) 116 (6,930) 158 (750) 115
--------- --------- ---------
Options outstanding,
end of year....... 60,420 155 60,774 132 51,479 107
--------- --------- ---------
Option price range at
end of year....... $100-$226 $100-$226 $100-$170
Options exercisable
at end of year.... 39,487 34,641 30,091
Options available for
grant at year
end............... 13,487 15,846 141
Weighted average fair
value of options
granted during
year.............. $226 $226 $170
-----------------------------------------------------------------------------------------
The following table summarizes information about the options outstanding at
December 29, 2001:
----------------------------------------------------------------------------------------
NUMBER WEIGHTED NUMBER
RANGE OF OUTSTANDING AT WEIGHTED AVERAGE AVERAGE EXERCISABLE AT
EXERCISE DECEMBER 29, REMAINING EXERCISE DECEMBER 29,
PRICES 2001 CONTRACTUAL LIFE PRICE 2001
----------------------------------------------------------------------------------------
$100-$122 32,880 1 year $ 104 32,880
$170-$226 27,540 5 years $ 215 6,607
----------------------------------------------------------------------------------------
Disclosure of pro forma financial information is required by Statement 123 as if
Holding had accounted for its employee stock options using the fair value method
as defined by the Statement. The fair value for options granted by Holding have
been estimated at the date of
F-21
grant using a Black Scholes option pricing model with the following weighted
average assumptions:
----------------------------------------------------------------------------------------
YEAR ENDED
----------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
----------------------------------------------------------------------------------------
Risk-free interest rate....................... 5.5% 6.5% 7.0%
Dividend yield................................ 0.0% 0.0% 0.0%
Volatility factor............................. .28 .20 .19
Expected option life.......................... 6.5 years 6.5 years 5.0 years
----------------------------------------------------------------------------------------
For purposes of the pro forma disclosures, the estimated fair value of the stock
options are amortized to expense over the related vesting period. Because
compensation expense is recognized over the vesting period, the initial impact
on pro forma net loss may not be representative of compensation expense in
future years, when the effect of amortization of multiple awards would be
reflected in the Consolidated Statement of Operations. Holding's pro forma net
losses giving effect to the estimated compensation expense related to stock
options are as follows:
----------------------------------------------------------------------------------------
YEAR ENDED
----------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
----------------------------------------------------------------------------------------
Pro forma net loss............................ $ (2,700) $ (23,514) $ (9,400)
----------------------------------------------------------------------------------------
Stockholders Agreements--Holding entered into a stockholders agreement (the
"Stockholders Agreement") dated as of June 18, 1996, as amended with the Common
Stock Purchasers, certain management stockholders and, for limited purposes
thereunder, the Preferred Stock Purchasers. The Stockholders Agreement grants
certain rights including, but not limited to, designation of members of
Holding's Board of Directors, the initiation of an initial public offering of
equity securities of the Company or a sale of Holding. The agreement also
restricts certain transfers of Holding's equity.
Holding has an agreement with its management stockholders and International that
contains provisions (i) limiting transfers of equity by the management
stockholders; (ii) requiring the management stockholders to sell their shares as
designated by Holding or International upon the consummation of certain
transactions; (iii) granting the management stockholders certain rights of
co-sale in connection with sales by International; (iv) granting rights to
repurchase capital stock from the management stockholders upon the occurrence of
certain events; and (v) requiring the management stockholders to offer shares to
Holding prior to any permitted transfer.
NOTE 10. RELATED PARTY TRANSACTIONS
First Atlantic Capital, Ltd. ("First Atlantic") is engaged by International to
provide certain financial and management consulting services for which it
receives annual fees. The Company is party to a management agreement (the
"Management Agreement") with First Atlantic. Pursuant to the Management
Agreement, First Atlantic received advisory fees of approximately $690, $580,
$139, and $250 in July 1999, May 2000, March 2001, and June 2001, respectively,
F-22
for originating, structuring and negotiating the acquisitions of CPI Holding
Corporation, Poly-Seal, Capsol, and Pescor, respectively.
In consideration of financial advisory and management consulting services, the
Company paid First Atlantic fees and expenses of $756, $821, and $792 for fiscal
2001, 2000, and 1999, respectively.
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS INFORMATION
Holding's and the Company's financial instruments generally consist of cash and
cash equivalents and long-term debt. The carrying amounts of Holding's and the
Company's financial instruments approximate fair value at December 29, 2001,
except for the 1998 Notes and 1996 Notes for which the fair value was below the
carrying value by approximately $0.5 million and $2.7 million, respectively, and
the 1994 Notes and 1999 Notes for which the fair value exceeded the carrying
value by $0.7 million and $3.0 million, respectively.
NOTE 12. OPERATING SEGMENTS
The Company has three reportable segments: containers, closures, and consumer
products. The Company evaluates performance and allocates resources based on
operating income before depreciation and amortization of intangibles adjusted to
exclude (i) non-cash compensation, (ii) other non-recurring or "one-time"
expenses, and (iii) management fees and reimbursed expenses paid to First
Atlantic ("Adjusted EBITDA"). One-time expenses represent non-recurring expenses
that primarily relate to recently acquired businesses and plant consolidations.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies.
------------------------------------------------------------------------------------------------
YEAR ENDED
----------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
------------------------------------------------------------------------------------------------
Net sales:
Containers......................................... $ 234,441 $ 231,209 $ 188,696
Closures........................................... 132,384 112,202 81,035
Consumer Products.................................. 94,834 64,677 59,103
Adjusted EBITDA:
Containers......................................... 63,997 47,578 41,303
Closures........................................... 28,444 23,646 20,476
Consumer Products.................................. 18,411 9,167 9,762
Total assets:
Containers......................................... 204,001 189,129 147,931
Closures........................................... 158,009 178,768 133,230
Consumer Products.................................. 84,866 45,225 59,646
F-23
------------------------------------------------------------------------------------------------
YEAR ENDED
----------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
------------------------------------------------------------------------------------------------
Reconciliation of Adjusted EBITDA to loss before
income taxes and extraordinary item:
Adjusted EBITDA for reportable segments............ $ 110,852 $ 80,391 $ 71,541
Net interest expense............................... (54,355) (51,457) (40,817)
Depreciation....................................... (38,105) (31,569) (24,580)
Amortization....................................... (12,802) (10,579) (7,215)
Loss on disposal of property and equipment......... (473) (877) (1,416)
One-time expenses.................................. (5,045) (6,804) (5,224)
Non-cash compensation.............................. (796) (459) -
Management fees.................................... (637) (873) (873)
----------------------------------------
Loss before income taxes and extraordinary item.... $ (1,361) $ (22,227) $ (8,584)
------------------------------------------------------------------------------------------------
NOTE 13. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (DOLLARS IN THOUSANDS)
Holding conducts its business through its wholly owned subsidiary, Berry.
Holding and all of Berry's subsidiaries fully, jointly, severally, and
unconditionally guarantee on a senior subordinated basis the 1994 Notes, 1998
Notes, and 1999 Notes issued by Berry. There are no nonguarantor subsidiaries
with respect to the notes issued by Berry. Holding's 1996 Notes are not
guaranteed by Berry or any of Berry's wholly owned subsidiaries. The 1994
Indenture, 1998 Indenture, and 1999 Indenture restrict, and the Credit Facility
prohibits, Berry's ability to pay any dividend or make any distribution of funds
to Holding to satisfy interest and other obligations on Holding's 1996 Notes.
Berry and all of Berry's subsidiaries are 100% owned by Holding. Separate
narrative information or financial statements of guarantor subsidiaries have not
been included as management believes they would not be material to investors.
Presented below is condensed consolidating financial information for Holding,
Berry, and its subsidiaries at December 29, 2001 and December 30, 2000 and for
the fiscal years ended December 29, 2001, December 30, 2000, and January 1,
2000. The equity method has been used with respect to investments in
subsidiaries.
F-24
-----------------------------------------------------------------------------------------------------
DECEMBER 29, 2001
-----------------------------------------------------------------------
BERRY
BPC HOLDING PLASTICS COMBINED
CORPORATION CORPORATION GUARANTOR CONSOLIDATING
(PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-----------------------------------------------------------------------------------------------------
CONSOLIDATING BALANCE SHEETS
Current assets.............. $ 440 $ 32,459 $ 78,293 $ - $ 111,192
Net property and equipment.. - 71,437 131,780 - 203,217
Other noncurrent assets..... 23,980 289,764 109,632 (290,909) 132,467
-----------------------------------------------------------------------
Total assets................ $ 24,420 $ 393,660 $ 319,705 $ (290,909) $ 446,876
-----------------------------------------------------------------------
Current liabilities......... $ 861 $ 60,212 $ 30,792 $ - $ 91,865
Noncurrent liabilities...... 163,160 311,574 345,799 (325,921) 494,612
Equity (deficit)............ (139,601) 21,874 (56,886) 35,012 (139,601)
-----------------------------------------------------------------------
Total liabilities and equity
(deficit)................ $ 24,420 $ 393,660 $ 319,705 $ (290,909) $ 446,876
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
DECEMBER 30, 2000
-----------------------------------------------------------------------
BERRY
BPC HOLDING PLASTICS COMBINED
CORPORATION CORPORATION GUARANTOR CONSOLIDATING
(PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-----------------------------------------------------------------------------------------------------
CONSOLIDATING BALANCE SHEETS
Current assets.............. $ 220 $ 32,290 $ 72,192 $ - $ 104,702
Net property and equipment.. - 55,221 124,583 - 179,804
Other noncurrent assets..... 8,226 267,840 113,455 (260,905) 128,616
-----------------------------------------------------------------------
Total assets................ $ 8,446 $ 355,351 $ 310,230 $ (260,905) $ 413,122
-----------------------------------------------------------------------
Current liabilities......... $ 661 $ 50,968 $ 32,603 $ - $ 84,232
Noncurrent liabilities...... 144,938 299,694 312,691 (290,436) 466,887
Equity (deficit)............ (137,153) 4,689 (35,064) 29,531 (137,997)
-----------------------------------------------------------------------
Total liabilities and equity
(deficit)................ $ 8,446 $ 355,351 $ 310,230 $ (260,905) $ 413,122
-----------------------------------------------------------------------------------------------------
F-25
-----------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 29, 2001
-----------------------------------------------------------------------
BPC BERRY
HOLDING PLASTICS COMBINED
CORPORATION CORPORATION GUARANTOR CONSOLIDATING
(PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-----------------------------------------------------------------------------------------------------
CONSOLIDATING STATEMENT OF
OPERATIONS
Net sales................... $ - $159,783 $301,876 $ - $461,659
Cost of goods sold.......... - 103,867 234,133 - 338,000
-----------------------------------------------------------------------
Gross margin................ - 55,916 67,743 - 123,659
Operating expenses.......... 924 23,113 46,155 - 70,192
-----------------------------------------------------------------------
Operating income (loss)..... (924) 32,803 21,588 - 53,467
Other expenses.............. - 46 427 - 473
Interest expense, net....... 17,469 7,277 29,609 - 54,355
Income taxes (benefit)...... (8,307) 8,682 359 - 734
Equity in net (income) loss
from subsidiary.......... (7,991) 8,807 - (816) -
-----------------------------------------------------------------------
Net income (loss)........... $(2,095) $ 7,991 $ (8,807) $ 816 $ (2,095)
-----------------------------------------------------------------------
CONSOLIDATING STATEMENTS OF
CASH FLOWS
Net income (loss)........... $(2,095) $ 7,991 $ (8,807) $ 816 $ (2,095)
Non-cash expenses........... 9,775 16,146 37,523 - 63,444
Equity in net (income) loss
from subsidiary.......... (7,991) 8,807 - (816) -
Changes in working
capital.................. 154 5,882 (13,037) - (7,001)
-----------------------------------------------------------------------
Net cash provided by (used
for) operating
activities............... (157) 38,826 15,679 - 54,348
Net cash used for investing
activities............... - (30,688) (25,602) - (56,290)
Net cash provided by (used
for) financing
activities............... 377 (9,199) 9,402 - 580
Effect on exchange rate
changes on cash.......... - 540 - - 540
-----------------------------------------------------------------------
Net increase (decrease) in
cash and cash
equivalents.............. 220 (521) (521) - (822)
Cash and cash equivalents at
beginning of year........ 220 642 1,192 - 2,054
-----------------------------------------------------------------------
Cash and cash equivalents at
end of year.............. $ 440 $ 121 $ 671 $ - $ 1,232
-----------------------------------------------------------------------------------------------------
F-26
-----------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 30, 2000
-----------------------------------------------------------------------
BPC BERRY
HOLDING PLASTICS COMBINED
CORPORATION CORPORATION GUARANTOR CONSOLIDATING
(PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-----------------------------------------------------------------------------------------------------
CONSOLIDATING STATEMENTS OF
OPERATIONS
Net sales................... $ - $158,055 $250,033 $ - $408,088
Cost of goods sold.......... - 108,739 203,380 - 312,119
-----------------------------------------------------------------------
Gross margin................ - 49,316 46,653 - 95,969
Operating expenses.......... 616 23,303 41,943 - 65,862
-----------------------------------------------------------------------
Operating income (loss)..... (616) 26,013 4,710 - 30,107
Other expenses.............. - 258 619 - 877
Interest expense, net....... 16,025 11,221 24,211 - 51,457
Income taxes (benefit)...... 18 168 (328) - (142)
Extraordinary item.......... - 1,022 - - 1,022
Equity in net (income) loss
from subsidiary.......... 6,448 19,792 - (26,240) -
-----------------------------------------------------------------------
Net income (loss)........... $(23,107) $ (6,448) $(19,792) $ 26,240 $(23,107)
-----------------------------------------------------------------------
CONSOLIDATING STATEMENTS OF
CASH FLOWS
Net income (loss)........... $(23,107) $ (6,448) $(19,792) $ 26,240 $(23,107)
Non-cash expenses........... 16,958 13,332 32,360 - 62,650
Equity in net (income) loss
from subsidiary.......... 6,448 19,792 - (26,240) -
Changes in working
capital.................. (646) 2,931 (5,722) - (3,437)
-----------------------------------------------------------------------
Net cash provided by (used
for) operating
activities............... (347) 29,607 6,846 - 36,106
Net cash used for investing
activities............... - (78,328) (30,387) - (108,715)
Net cash provided by (used
for) financing
activities............... (136) 48,307 23,866 - 72,037
Effect on exchange rate
changes on cash.......... - 80 - - 80
-----------------------------------------------------------------------
Net increase (decrease) in
cash and cash
equivalents.............. (483) (334) 325 - (492)
Cash and cash equivalents at
beginning of year........ 703 976 867 - 2,546
-----------------------------------------------------------------------
Cash and cash equivalents at
end of year.............. $ 220 $ 642 $ 1,192 $ - $ 2,054
-----------------------------------------------------------------------------------------------------
F-27
-----------------------------------------------------------------------------------------------------
YEAR ENDED JANUARY 1, 2000
-----------------------------------------------------------------------
BPC BERRY
HOLDING PLASTICS COMBINED
CORPORATION CORPORATION GUARANTOR CONSOLIDATING
(PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-----------------------------------------------------------------------------------------------------
CONSOLIDATING STATEMENTS OF
OPERATIONS
Net sales................... $ - $149,901 $178,933 $ - $328,834
Cost of goods sold.......... - 98,950 142,117 - 241,067
-----------------------------------------------------------------------
Gross margin................ - 50,951 36,816 - 87,767
Operating expenses.......... 70 23,638 30,410 - 54,118
-----------------------------------------------------------------------
Operating income (loss)..... (70) 27,313 6,406 - 33,649
Other expenses.............. - 21 1,395 - 1,416
Interest expense, net....... 13,845 8,389 18,583 - 40,817
Income taxes................ 18 425 111 - 554
Extraordinary item.......... - - - - -
Equity in net (income) loss
from subsidiary.......... (4,795) 13,683 - (8,888) -
-----------------------------------------------------------------------
Net income (loss)........... $(9,138) $ 4,795 $(13,683) $ 8,888 $ (9,138)
-----------------------------------------------------------------------
CONSOLIDATING STATEMENTS OF
CASH FLOWS
Net income (loss)........... $(9,138) $ 4,795 $(13,683) $ 8,888 $ (9,138)
Non-cash expenses........... 14,135 10,663 23,986 - 48,784
Equity in net (income) loss
from subsidiary.......... (4,795) 13,683 - (8,888) -
Changes in working
capital.................. (161) 90 (3,574) - (3,645)
-----------------------------------------------------------------------
Net cash provided by
operating activities..... 41 29,231 6,729 - 36,001
Net cash used for investing
activities............... - (91,918) (15,060) - (106,978)
Net cash provided by
financing activities..... 40 63,207 7,888 - 71,135
Effect on exchange rate
changes on cash.......... - 70 - - 70
-----------------------------------------------------------------------
Net increase (decrease) in
cash and cash
equivalents.............. 81 590 (443) - 228
Cash and cash equivalents at
beginning of year........ 622 386 1,310 - 2,318
-----------------------------------------------------------------------
Cash and cash equivalents at
end of year.............. $ 703 $ 976 $ 867 $ - $ 2,546
-----------------------------------------------------------------------------------------------------
F-28
NOTE 14. SUBSEQUENT EVENT
On January 24, 2002, Berry acquired the Alcoa Flexible Packaging injection
molding assets of Mt. Vernon Plastics Corporation for aggregate consideration of
approximately $2.6 million. The purchase was financed through borrowings under
the US Revolver. On January 31, 2002, Berry entered into a sale/leaseback
arrangement with respect to these assets.
F-29
BPC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
-----------------------------------------------------------------------------------------
JUNE 29, DECEMBER 29,
(DOLLARS IN THOUSANDS) 2002 2001
-----------------------------------------------------------------------------------------
(UNAUDITED)
Assets
Current assets:
Cash and cash equivalents................................ $ 1,107 $ 1,232
Accounts receivable (less allowance for doubtful accounts
of $2,084 at June 29, 2002 and $2,070 at December 29,
2001).................................................. 66,632 48,623
Inventories:
Finished goods........................................ 43,487 43,048
Raw materials and supplies............................ 15,824 13,009
---------------------------
59,311 56,057
Prepaid expenses and other receivables................... 4,130 5,280
---------------------------
Total current assets............................... 131,180 111,192
Property and equipment:
Land..................................................... 9,479 9,443
Buildings and improvements............................... 73,067 72,722
Machinery, equipment and tooling......................... 217,240 201,357
Construction in progress................................. 34,621 22,647
---------------------------
334,407 306,169
Less accumulated depreciation............................ 123,704 102,952
---------------------------
210,703 203,217
Intangible assets:
Deferred financing fees, net............................. 7,042 8,475
Covenants not to compete, net............................ 1,215 1,955
Excess of cost over net assets acquired, net............. 121,617 119,923
---------------------------
129,874 130,353
Other....................................................... 4,433 2,114
---------------------------
Total assets....................................... $ 476,190 $ 446,876
-----------------------------------------------------------------------------------------
F-30
-----------------------------------------------------------------------------------------
JUNE 29, DECEMBER 29,
(DOLLARS IN THOUSANDS) 2002 2001
-----------------------------------------------------------------------------------------
(UNAUDITED)
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable......................................... $ 38,617 $ 34,862
Accrued expenses and other liabilities................... 11,500 8,955
Accrued interest......................................... 7,878 7,964
Employee compensation and payroll taxes.................. 16,241 17,792
Current portion of long-term debt........................ 19,328 22,292
---------------------------
Total current liabilities.......................... 93,564 91,865
Long-term debt, less current portion........................ 480,686 463,589
Accrued dividends on preferred stock........................ 33,066 27,446
Deferred income taxes....................................... 547 489
Other liabilities........................................... 2,694 3,088
---------------------------
610,557 586,477
Stockholders' equity (deficit):
Series A Preferred Stock; 600,000 shares authorized,
issued and outstanding (net of discount of $1,747 at
June 29, 2002 and $1,893 at December 29, 2001)........ 12,824 12,678
Series A-1 Preferred Stock; 1,400,000 shares authorized;
1,000,000 shares issued and outstanding (net of
discount of $4,300 at June 29, 2002 and $4,668 at
December 29, 2001).................................... 20,700 20,332
Series B Preferred Stock; 200,000 shares authorized,
issued and outstanding................................ 5,000 5,000
Series C Preferred Stock; 13,168 shares authorized,
issued and outstanding................................ 9,779 9,779
Class A Common Stock; $.01 par value:
Voting; 500,000 shares authorized; 91,000 shares issued
and outstanding....................................... 1 1
Nonvoting; 500,000 shares authorized; 259,000 shares
issued and outstanding................................ 3 3
Class B Common Stock; $.01 par value:
Voting; 500,000 shares authorized; 145,058 shares issued
and 144,546 shares outstanding........................ 1 1
Nonvoting; 500,000 shares authorized; 61,325 shares
issued and 59,800 shares outstanding.................. 1 1
Class C Common Stock; $.01 par value:
Nonvoting; 500,000 shares authorized; 17,000 shares
issued and 16,833 shares outstanding.................. - -
Treasury stock: 512 shares Class B Voting Common Stock;
2,103 shares Class B Nonvoting Common Stock; and 167
shares Class C Nonvoting Common Stock................. (405) (405)
Additional paid-in capital............................... 19,274 25,315
Warrants................................................. 9,386 9,386
Retained earnings (deficit).............................. (210,281) (220,263)
Accumulated other comprehensive loss..................... (650) (1,429)
---------------------------
Total stockholders' equity (deficit)............... (134,367) (139,601)
---------------------------
Total liabilities and stockholders' equity
(deficit)........................................ $ 476,190 $ 446,876
-----------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-31
BPC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
--------------------- -----------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
(DOLLARS IN THOUSANDS) 2002 2001 2002 2001
--------------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
Net sales................................ $127,989 $124,997 $250,923 $241,014
Cost of goods sold....................... 94,974 89,092 185,273 173,020
-----------------------------------------------
Gross margin.................... 33,015 35,905 65,650 67,994
Operating expenses:
Selling............................... 5,155 5,684 10,934 11,426
General and administrative............ 7,099 9,005 14,210 16,248
Research and development.............. 758 530 1,305 931
Amortization of intangibles........... 398 3,345 875 6,096
Other expenses........................ 1,011 911 2,125 2,294
-----------------------------------------------
Operating income................ 18,594 16,430 36,201 30,999
Other expenses (income):
Loss (gain) on disposal of property
and equipment....................... 147 (16) 291 (44)
-----------------------------------------------
Income before interest and taxes......... 18,447 16,446 35,910 31,043
Interest:
Expense............................... (12,778) (14,457) (25,587) (28,007)
Income................................ 1 (32) 4 24
-----------------------------------------------
Income before income taxes............... 5,670 1,957 10,327 3,060
Income taxes............................. 454 50 345 131
-----------------------------------------------
Net income............................... 5,216 1,907 9,982 2,929
Preferred stock dividends................ (2,865) (2,368) (5,620) (4,484)
Amortization of preferred stock
discount............................... (256) (256) (512) (512)
-----------------------------------------------
Net income (loss) attributable to common
stockholders........................... $ 2,095 $ (717) $ 3,850 $ (2,067)
--------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-32
BPC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------------
TWENTY-SIX WEEKS ENDED
-----------------------
JUNE 29, JUNE 30,
(DOLLARS IN THOUSANDS) 2002 2001
-------------------------------------------------------------------------------------
(UNAUDITED)
OPERATING ACTIVITIES
Net income.................................................. $ 9,982 $ 2,929
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation............................................. 21,098 18,042
Non-cash interest expense................................ 1,262 9,975
Amortization............................................. 875 6,096
Non-cash compensation expense............................ -- 300
Loss (gain) on sale of property and equipment............ 291 (44)
Changes in operating assets and liabilities:
Accounts receivable, net.............................. (17,544) (10,754)
Inventories........................................... (2,914) 2,402
Prepaid expenses and other receivables................ 1,615 (3,024)
Other assets.......................................... (2,319) (40)
Payables and accrued expenses......................... 4,694 4,929
-----------------------
Net cash provided by operating activities.......... 17,040 30,891
INVESTING ACTIVITIES
Additions to property and equipment......................... (17,675) (14,124)
Proceeds from disposal of property and equipment............ 2 69
Acquisitions of businesses.................................. (4,562) (23,063)
-----------------------
Net cash used for investing activities...................... (22,235) (37,118)
FINANCING ACTIVITIES
Proceeds from long-term borrowings.......................... 19,636 9,427
Payments on long-term borrowings............................ (13,924) (10,546)
Issuance of common stock.................................... 93 97
Issuance of preferred stock and warrants.................... -- 10,000
Debt origination costs...................................... -- (1,008)
-----------------------
Net cash provided by financing activities................... 5,805 7,970
Effect of exchange rate changes on cash..................... (735) 587
-----------------------
Net increase (decrease) in cash and cash equivalents........ (125) 2,330
Cash and cash equivalents at beginning of period............ 1,232 2,054
-----------------------
Cash and cash equivalents at end of period.................. $ 1,107 $ 4,384
-------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-33
BPC HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of BPC Holding
Corporation and its subsidiaries (the "Company") have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
periods presented are not necessarily indicative of the results that may be
expected for the full fiscal year. The accompanying financial statements include
the results of BPC Holding Corporation ("Holding") and its wholly-owned
subsidiary, Berry Plastics Corporation ("Berry"), and its wholly-owned
subsidiaries: Berry Iowa Corporation, Berry Tri-Plas Corporation, Berry Sterling
Corporation, AeroCon, Inc., PackerWare Corporation, Berry Plastics Design
Corporation, Venture Packaging, Inc. and its subsidiaries Venture Packaging
Midwest, Inc. and Berry Plastics Technical Services, Inc., NIM Holdings Limited
and its subsidiary Berry Plastics U.K. Limited and its subsidiary Norwich
Acquisition Limited, Knight Plastics, Inc., CPI Holding Corporation and its
subsidiary Cardinal Packaging, Inc., Berry Plastics Acquisition Corporation II,
Poly-Seal Corporation, Berry Plastics Acquisition Corporation III, CBP Holdings
S.r.l. and its subsidiaries Capsol Berry Plastics S.p.a. and Ociesse S.r.l, and
Pescor, Inc.. These financial statements and related notes should be read in
connection with the Company's consolidated financial statements and footnotes
thereto included in Holding's and Berry's Form 10-K filed with the Securities
and Exchange Commission for the year ended December 29, 2001.
2. RECENT ACQUISITIONS
On May 14, 2001, Berry acquired all of the outstanding capital stock of Pescor
Plastics, Inc. ("Pescor") for aggregate consideration of approximately $24.8
million. The purchase was financed through the issuance by Holding of $9.8
million of 14% preferred stock and additional borrowings under the senior credit
facility. The operations of Pescor are included in Berry's operations since the
acquisition date using the purchase method of accounting.
On January 24, 2002, Berry acquired the Alcoa Flexible Packaging injection
molding assets of Mt. Vernon Plastics Corporation ("Mount Vernon") for aggregate
consideration of approximately $2.6 million. The purchase price was allocated to
fixed assets ($2.0 million) and inventory ($0.6 million). The purchase was
financed through borrowings under the Company's revolving line of credit. The
operations of Mount Vernon are included in Berry's operations since the
acquisition date using the purchase method of accounting. The fair value of the
net assets acquired was based on preliminary estimates and may be revised at a
later date. On January 31, 2002, Berry entered into a sale/leaseback arrangement
with respect to the fixed assets.
F-34
The pro forma results listed below are unaudited and reflect purchase accounting
adjustments assuming the Pescor and Mount Vernon acquisitions occurred on
December 31, 2000.
-----------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-----------------------------------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
2002 2001 2002 2001
-----------------------------------------------------------------------------------
Pro forma net sales............... $127,989 $134,223 $252,034 $261,280
Pro forma net income.............. 5,670 1,348 10,484 1,689
-----------------------------------------------------------------------------------
The pro forma financial information is presented for informational purposes only
and is not necessarily indicative of the operating results that would have
occurred had the acquisitions been consummated at the above dates, nor are they
necessarily indicative of future operating results. Further, the information
gathered on the acquired companies is based upon unaudited internal financial
information and reflects only pro forma adjustments for additional interest
expense and amortization of the excess of the cost over the underlying net
assets acquired (amortization through December 29, 2001), net of the applicable
income tax effects.
3. LONG-TERM DEBT
Long-term debt consists of the following:
-----------------------------------------------------------------------------------
JUNE 29, DECEMBER 29,
2002 2001
-----------------------------------------------------------------------------------
Holding 12.50% Senior Secured Notes....................... $135,714 $ 135,714
Berry 12.25% Senior Subordinated Notes.................... 125,000 125,000
Berry 11% Senior Subordinated Notes....................... 75,000 75,000
Term loans................................................ 43,148 54,596
Revolving lines of credit................................. 67,216 49,053
Second Lien Senior Credit Facility........................ 25,000 25,000
Nevada Industrial Revenue Bonds........................... 2,500 3,000
Capital leases............................................ 26,123 18,131
Debt premium, net......................................... 313 387
-----------------------
500,014 485,881
Less current portion of long-term debt.................... 19,328 22,292
-----------------------
$480,686 $ 463,589
-----------------------------------------------------------------------------------
The current portion of long-term debt consists of $14.5 million on the term
loans payable in monthly installments and $4.8 million in repayments of the
industrial bonds and the monthly principal payments related to capital lease
obligations. In fiscal 2002, Berry has entered into various capital lease
obligations with no immediate cash flow effect resulting in capitalized property
and equipment and corresponding capital lease obligations of $6,531.
Prior to the Merger, the Company had a financing and security agreement (the
"Financing Agreement") with a syndicate of lenders led by Bank of America for a
senior secured credit facility (the "Credit Facility"). As of June 29, 2002, the
Credit Facility provided the Company
F-35
with (i) a $80.0 million revolving line of credit ("US Revolver"), subject to a
borrowing base formula, (ii) a $2.3 million (using the June 29, 2002 exchange
rate) revolving line of credit denominated in British Sterling in the U.K. ("UK
Revolver"), subject to a separate borrowing base formula, (iii) a $41.8 million
term loan facility, (iv) a $1.3 million (using the June 29, 2002 exchange rate)
term loan facility denominated in British Sterling in the U.K. ("UK Term Loan"),
and (v) a $2.6 million standby letter of credit facility to support the
Company's and its subsidiaries' obligations under the Nevada Bonds. CBP Holdings
S.r.l. has a revolving credit facility (the "Italy Revolver") from Bank of
America for $13.3 million (using the June 29, 2002 exchange rate) denominated in
Euros. Bank of America also extended working capital financing (the "Italy
Working Capital Line") of up to $1.7 million (using the June 29, 2002 exchange
rate) denominated in Euros. The full amount available under the Italy Revolver
and the Italy Working Capital Line are applied to reduce amounts available under
the US Revolver, as does the outstanding balance under the UK Revolver. The
indebtedness under the Credit Facility is guaranteed by Holding and all of its
subsidiaries (other than its subsidiaries in the United Kingdom and Italy). The
obligations of the Company and the subsidiaries under the Credit Facility and
the guarantees thereof are secured by substantially all of the assets of such
entities.
4. OPERATING SEGMENTS
The Company has three reportable segments: containers, closures, and consumer
products. The Company evaluates performance and allocates resources based on
operating income before depreciation and amortization of intangibles adjusted to
exclude (i) non-cash compensation, (ii) other non-recurring or "one-time"
expenses and (iii) management fees and reimbursed expenses paid to the largest
voting stockholder ("Adjusted EBITDA"). One-time expenses primarily represent
non-recurring expenses that relate to recently acquired businesses and plant
consolidations. The accounting policies of the reportable segments are the same
as those described in the summary of significant accounting policies in the
Company's Form 10-K filed with the Securities and Exchange Commission for the
year ended December 29, 2001.
------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
----------------------------- -----------------------------
-------------------------------------------------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
2002 2001 2002 2001
------------------------------------------------------------------------------------------
Net sales:
Containers.............. $ 64,437 $ 66,543 $ 122,615 $ 122,946
Closures................ 34,364 33,308 67,828 68,390
Consumer Products....... 29,188 25,146 60,481 49,678
Adjusted EBITDA:
Containers.............. 17,321 18,482 33,180 33,776
Closures................ 8,479 6,658 15,929 14,347
Consumer Products....... 5,162 5,318 11,568 10,098
Total assets:
Containers.............. 210,275 215,646 210,275 215,646
Closures................ 163,815 159,089 163,815 159,089
Consumer Products....... 102,500 84,335 102,500 84,335
F-36
------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
----------------------------- -----------------------------
-------------------------------------------------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
2002 2001 2002 2001
------------------------------------------------------------------------------------------
Reconciliation of Adjusted
EBITDA to income before
income taxes:
Adjusted EBITDA for
reportable
segments............. $ 30,962 $ 30,458 $ 60,677 $ 58,221
Net interest expense.... (12,777) (14,489) (25,583) (27,983)
Depreciation............ (10,740) (9,377) (21,098) (18,042)
Amortization............ (398) (3,345) (875) (6,096)
Gain (loss) on disposal
of property and
equipment............ (147) 16 (291) 44
One-time expenses....... (1,033) (943) (2,175) (2,359)
Non-cash compensation... -- (150) -- (300)
Management fees......... (197) (213) (328) (425)
-------------------------------------------------------------
Income before income
taxes................ $ 5,670 $ 1,957 $ 10,327 $ 3,060
------------------------------------------------------------------------------------------
5. COMPREHENSIVE INCOME
Comprehensive income was $6.3 million and $1.7 million for the thirteen weeks
ended June 29, 2002 and June 30, 2001, respectively and $10.8 million and $1.8
million for the twenty-six weeks ended June 29, 2002 and June 30, 2001,
respectively
6. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (IN THOUSANDS)
Holding conducts its business through its wholly owned subsidiary, Berry.
Holding and all of Berry's subsidiaries fully, jointly, severally, and
unconditionally guarantee on a senior subordinated basis the $100.0 million
aggregate principal amount of 12.25% Berry Plastics Corporation Senior
Subordinated Notes due 2004 issued on April 21, 1994 (the "1994 Notes"), the
$25.0 million aggregate principal amount of 12.25% Berry Plastics Corporation
Series B Senior Subordinated Notes due 2004 issued on August 24, 1998 (the "1998
Notes"), and the $75.0 million aggregate principal amount of 11% Berry Plastics
Corporation Senior Subordinated Notes due 2007 issued on July 6, 1999 (the "1999
Notes"). There are no nonguarantor subsidiaries with respect to the notes issued
by Berry. Holding's 12.50% Series B Senior Secured Notes due 2006 (the "1996
Notes") are not guaranteed by Berry or any of Berry's wholly owned subsidiaries.
The Indenture dated as of April 21, 1994 (the "1994 Indenture"), the Indenture
dated August 24, 1998 (the "1998 Indenture") and the Indenture dated July 6,
1999 (the "1999 Indenture") restrict, and the Credit Facility prohibits, Berry's
ability to pay any dividend or make any distribution of funds to Holding to
satisfy interest and other obligations on Holding's 1996 Notes. Berry and all of
Berry's subsidiaries are 100% owned by Holding. Separate narrative information
or financial statements of guarantor subsidiaries have not been included as
management believes they would not be material to investors. Presented below is
condensed consolidating financial information for Holding, Berry, and its
subsidiaries at June 29, 2002 and December 29, 2001 and for the thirteen and
twenty-six weeks ended
F-37
June 29, 2002 and June 30, 2001. The equity method has been used with respect to
investments in subsidiaries.
-----------------------------------------------------------------------------------------------------
JUNE 29, 2002
-----------------------------------------------------------------------
BERRY
BPC HOLDING PLASTICS COMBINED
CORPORATION CORPORATION GUARANTOR CONSOLIDATING
(PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-----------------------------------------------------------------------------------------------------
CONSOLIDATING BALANCE SHEET
Current assets.............. $ 1 $ 41,432 $ 89,747 $ - $ 131,180
Net property and equipment.. - 77,116 133,587 - 210,703
Other noncurrent assets..... 35,769 352,990 111,870 (366,322) 134,307
-----------------------------------------------------------------------
Total assets................ $ 35,770 $ 471,538 $ 335,204 $ (366,322) $ 476,190
-----------------------------------------------------------------------
Current liabilities......... $ 707 $ 57,909 $ 34,948 $ - $ 93,564
Noncurrent liabilities...... 169,430 380,465 353,844 (386,746) 516,993
Equity (deficit)............ (134,367) 33,164 (53,588) 20,424 (134,367)
-----------------------------------------------------------------------
Total liabilities and equity
(deficit)................ $ 35,770 $ 471,538 $ 335,204 $ (366,322) $ 476,190
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
DECEMBER 29, 2001
-----------------------------------------------------------------------
BERRY COMBINED
BPC HOLDING PLASTICS GUARANTOR CONSOLIDATING
CORPORATION CORPORATION SUBSIDIARIES ADJUSTMENTS
(PARENT) (ISSUER) ------------ ------------- CONSOLIDATED
-----------------------------------------------------------------------------------------------------
CONSOLIDATING BALANCE SHEET
Current assets.............. $ 440 $ 32,459 $ 78,293 $ - $ 111,192
Net property and equipment.. - 71,437 131,780 - 203,217
Other noncurrent assets..... 23,980 289,764 109,632 (290,909) 132,467
-----------------------------------------------------------------------
Total assets................ $ 24,420 $ 393,660 $ 319,705 $ (290,909) $ 446,876
-----------------------------------------------------------------------
Current liabilities......... $ 861 $ 60,212 $ 30,792 $ - $ 91,865
Noncurrent liabilities...... 163,160 311,574 345,799 (325,921) 494,612
Equity (deficit)............ (139,601) 21,874 (56,886) 35,012 (139,601)
-----------------------------------------------------------------------
Total liabilities and equity
(deficit)................ $ 24,420 $ 393,660 $ 319,705 $ (290,909) $ 446,876
-----------------------------------------------------------------------------------------------------
F-38
-----------------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED JUNE 29, 2002
-----------------------------------------------------------------------
BERRY
BPC HOLDING PLASTICS COMBINED
CORPORATION CORPORATION GUARANTOR CONSOLIDATING
(PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-----------------------------------------------------------------------------------------------------
CONSOLIDATING STATEMENT OF
OPERATIONS
Net sales................... $ -- $ 45,035 $ 82,954 $ -- $ 127,989
Cost of goods sold.......... -- 30,028 64,946 -- 94,974
-----------------------------------------------------------------------
Gross profit................ -- 15,007 18,008 -- 33,015
Operating expenses.......... 22 5,636 8,763 -- 14,421
-----------------------------------------------------------------------
Operating income (loss)..... (22) 9,371 9,245 -- 18,594
Other expenses.............. -- 18 129 -- 147
Interest expense, net....... 4,378 940 7,459 -- 12,777
Income taxes (benefit)...... (8,100) 8,113 441 -- 454
Equity in net (income) loss
from subsidiary.......... (1,516) (1,216) -- 2,732 --
-----------------------------------------------------------------------
Net income (loss)........... $ 5,216 $ 1,516 $ 1,216 $ (2,732) $ 5,216
-----------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED JUNE 30, 2002
-----------------------------------------------------------------------
BERRY
BPC HOLDING PLASTICS COMBINED
CORPORATION CORPORATION GUARANTOR CONSOLIDATING
(PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-----------------------------------------------------------------------------------------------------
CONSOLIDATING STATEMENT OF
OPERATIONS
Net sales................... $ -- $ 44,091 $ 80,906 $ -- $ 124,997
Cost of goods sold.......... -- 28,452 60,640 -- 89,092
-----------------------------------------------------------------------
Gross profit................ -- 15,639 20,266 -- 35,905
Operating expenses.......... 185 7,065 12,225 -- 19,475
-----------------------------------------------------------------------
Operating income (loss)..... (185) 8,574 8,041 -- 16,430
Other expenses (income)..... -- 10 (26) -- (16)
Interest expense, net....... 4,393 2,130 7,966 -- 14,489
Income taxes................ 9 13 28 -- 50
Equity in net (income) loss
from subsidiary.......... (6,494) (73) -- 6,567 --
-----------------------------------------------------------------------
Net income (loss)........... $ 1,907 $ 6,494 $ 73 $ (6,567) $ 1,907
-----------------------------------------------------------------------------------------------------
F-39
--------------------------------------------------------------------------------------------------------
TWENTY-SIX WEEKS ENDED JUNE 29, 2002
-----------------------------------------------------------------------
BPC BERRY
HOLDING PLASTICS COMBINED
CORPORATION CORPORATION GUARANTOR CONSOLIDATING
(PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
--------------------------------------------------------------------------------------------------------
CONSOLIDATING STATEMENT OF
OPERATIONS
Net sales...................... $ - $ 87,040 $ 163,883 $ - $ 250,923
Cost of goods sold............. - 56,814 128,459 - 185,273
-----------------------------------------------------------------------
Gross profit................... - 30,226 35,424 - 65,650
Operating expenses............. 51 11,883 17,515 - 29,449
-----------------------------------------------------------------------
Operating income (loss)........ (51) 18,343 17,909 - 36,201
Other expenses................. - 98 193 - 291
Interest expense, net.......... 8,731 1,374 15,478 - 25,583
Income taxes (benefit)......... (8,253) 8,121 477 - 345
Equity in net (income) loss
from subsidiary............. (10,511) (1,761) - 12,272 -
-----------------------------------------------------------------------
Net income (loss).............. $ 9,982 $ 10,511 $ 1,761 $ (12,272) $ 9,982
-----------------------------------------------------------------------
CONSOLIDATING STATEMENT OF CASH
FLOWS
Net income (loss).............. $ 9,982 $ 10,511 $ 1,761 $ (12,272) $ 9,982
Non-cash expenses.............. 250 7,614 15,662 - 23,526
Equity in net (income) loss
from subsidiary............. (10,511) (1,761) - 12,272 -
Changes in working capital..... (154) (9,860) (6,454) - (16,468)
-----------------------------------------------------------------------
Net cash provided by (used for)
operating activities........ (433) 6,504 10,969 - 17,040
Net cash used for investing
activities.................. - (5,847) (16,388) - (22,235)
Net cash provided by (used for)
financing activities........ (6) (156) 5,967 - 5,805
Effect on exchange rate changes
on cash..................... - - (735) - (735)
-----------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents........ (439) 501 (187) - (125)
Cash and cash equivalents at
beginning of period......... 440 121 671 - 1,232
-----------------------------------------------------------------------
Cash and cash equivalents at
end of period............... $ 1 $ 622 $ 484 $ - $ 1,107
--------------------------------------------------------------------------------------------------------
F-40
--------------------------------------------------------------------------------------------------------
TWENTY-SIX WEEKS ENDED JUNE 30, 2001
-----------------------------------------------------------------------
BPC BERRY
HOLDING PLASTICS COMBINED
CORPORATION CORPORATION GUARANTOR CONSOLIDATING
(PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
--------------------------------------------------------------------------------------------------------
CONSOLIDATING STATEMENT OF
OPERATIONS
Net sales...................... $ - $ 83,897 $ 157,117 $ - $ 241,014
Cost of goods sold............. - 54,649 118,371 - 173,020
-----------------------------------------------------------------------
Gross profit................... - 29,248 38,746 - 67,994
Operating expenses............. 364 13,239 23,392 - 36,995
-----------------------------------------------------------------------
Operating income (loss)........ (364) 16,009 15,354 - 30,999
Other expenses................. - (28) (16) - (44)
Interest expense, net.......... 8,733 4,815 14,435 - 27,983
Income taxes................... 16 18 97 - 131
Equity in net (income) loss
from subsidiary............. (12,042) (838) - 12,880 -
-----------------------------------------------------------------------
Net income (loss).............. $ 2,929 $ 12,042 $ 838 $ (12,880) $ 2,929
-----------------------------------------------------------------------
CONSOLIDATING STATEMENT OF CASH
FLOWS
Net income (loss).............. $ 2,929 $ 12,042 $ 838 $ (12,880) $ 2,929
Non-cash expenses.............. 9,018 7,379 17,972 - 34,369
Equity in net (income) loss
from subsidiary............. (12,042) (838) - 12,880 -
Changes in working capital..... - (1,978) (4,429) - (6,407)
-----------------------------------------------------------------------
Net cash provided by (used for)
operating activities........ (95) 16,605 14,381 - 30,891
Net cash used for investing
activities.................. - (28,434) (8,684) - (37,118)
Net cash provided by (used for)
financing activities........ 115 13,057 (5,202) - 7,970
Effect on exchange rate changes
on cash..................... - - 587 - 587
-----------------------------------------------------------------------
Net increase in cash and cash
equivalents................. 20 1,228 1,082 - 2,330
Cash and cash equivalents at
beginning of period......... 220 642 1,192 - 2,054
-----------------------------------------------------------------------
Cash and cash equivalents at
end of period............... $ 240 $ 1,870 $ 2,274 $ - $ 4,384
--------------------------------------------------------------------------------------------------------
F-41
7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS No.
142, Goodwill and Other Intangible Assets. These pronouncements significantly
change the accounting for business combinations, goodwill, and intangible
assets. SFAS No. 141 eliminates the pooling-of-interests method of accounting
for business combinations and further clarifies the criteria to recognize
intangible assets separately from goodwill. The requirements of SFAS No. 141 are
effective for any business combination that is completed after June 30, 2001.
SFAS No. 142 states goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed for impairment annually (or more frequently if
impairment indicators arise). Separable intangible assets that are deemed to
have a finite life will continue to be amortized over their estimated useful
lives. The Company adopted the provisions of SFAS Nos. 141 and 142 as of the
beginning of fiscal 2002. The Company has performed the first of the required
impairment tests of goodwill and indefinite lived intangible assets and has
determined that no write-down of the asset values is necessary. Application of
the nonamortization provisions of SFAS No. 142 is expected to result in an
increase in net income (or decrease in net loss) of approximately $10.5 million
per year based on goodwill related to acquisitions prior to the adoption of the
new rules. The following table presents the quarterly results of the Company on
a comparable basis:
--------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------------------------------------------------
JUNE 29, 2002 JUNE 30, 2001 JUNE 29, 2002 JUNE 30, 2001
--------------------------------------------------------------------------------------------
Reported net income.......... $ 5,216 $ 1,907 $ 9,982 $ 2,929
Goodwill amortization, net of
tax....................... - 2,712 - 4,784
-------------------------------------------------------------
Adjusted net income.......... $ 5,216 $ 4,619 $ 9,982 $ 7,713
--------------------------------------------------------------------------------------------
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement addresses the financial accounting
and reporting for the impairment and disposal of long-lived assets. It
supercedes and addresses significant issues relating to the implementation of
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. SFAS No. 144 retains many of the
fundamental provisions of SFAS No. 121 and establishes a single accounting
model, based on the framework established in SFAS No. 121, for long-lived assets
to be disposed of by sale, whether previously held and used or newly acquired.
The Company adopted this standard as of the beginning of fiscal 2002. The
application of SFAS No. 144 did not have a material impact on the Company's
results of operations and financial position.
In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13 and Technical Corrections (SFAS No. 145). Upon the adoption of SFAS No.
145, all gains and losses on the extinguishment of debt for periods presented in
the financial statements will be classified as extraordinary items only if they
meet the criteria in APB Opinion No. 30, Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions (APB
No. 30). The provisions of SFAS No. 145 related to the rescission of FASB
Statement No. 4 and FASB Statement No. 64 shall be applied for fiscal years
beginning after May 15, 2002. The Company is currently evaluating the effects,
if any, that this standard will have on its results of operations and
F-42
financial position. The provisions of SFAS No. 145 related to the rescission of
FASB Statement No. 44, the amendment of FASB Statement No. 113 and Technical
Corrections are effective as of May 15, 2002 and did not have a material impact
on the Company.
In June 2002, the FASB issued Statement of Financial Accounting Standards No.
146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS No.
146). SFAS No. 146 nullifies Emerging Issues Task Force (EITF) Issue No, 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS
No. 146 generally requires companies to recognize costs associated with exit
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan and is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. The Company is currently
evaluating the effects, if any, that this standard will have on its results of
operations and financial position.
NOTE 8. SUBSEQUENT EVENT
On July 22, 2002, GS Berry Acquisition Corp. (the "Buyer") merged (the "Merger")
with and into BPC Holding Corporation, pursuant to the Agreement and Plan of
Merger (as amended, the "Merger Agreement"), dated as of May 25, 2002, by and
among Buyer, GS Capital Partners 2000 Offshore, L.P., GS Capital Partners 2000
GMBH & Co. Beteiligungs KG, Bridge Street Special Opportunities Fund 2000, L.P.,
GS Capital Partners 2000 Employee Fund, L.P., Stone Street Fund 2000, L.P., BPC
Holding, Berry Plastics Corporation and certain stockholders and warrant holders
of BPC Holding. At the effective time of the Merger, (i) each share of common
stock of BPC Holding Corporation issued and outstanding immediately prior to the
effective time of the Merger was converted into the right to receive cash
pursuant to the terms of the Merger Agreement, and (ii) each share of common
stock of the Buyer issued and outstanding immediately prior to the effective
time of the Merger was converted into one share of common stock of BPC Holding.
The total amount of funds required to consummate the Merger and to pay estimated
fees and expenses related to the Merger, including amounts related to the
repayment of indebtedness, the redemption of the outstanding preferred stock and
the payment of transaction costs incurred by Holding, were approximately $875.1
million (which includes the amount of certain indebtedness which will remain
outstanding and the value of certain shares of Holding common stock held by our
employees that were contributed to the Buyer immediately prior to the Merger).
Additionally, the purchase price is subject to post-closing adjustments related
to the level of working capital at the time of closing.
In connection with the Merger, Berry Plastics received approximately $330.0
million from a senior term loan from a syndicate of lenders led by Goldman Sachs
Credit Partners L.P., as administrative agent, approximately $250.0 million from
the issuance of 10 3/4% Senior Subordinated Notes to various private
institutional buyers, and, as a result of the Merger, approximately $268.8
million in equity contributions from affiliates of the Buyer and certain
existing stockholders and members of Berry's management. The $330.0 million
senior term loan is part of the Company's new senior secured credit facility
that also includes a $100.0 million revolving line of credit, which had no
outstanding balance at the closing of the Acquisition, and $50.0 million delayed
draw facility both of which have not been drawn upon.
F-43
LOGO