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 was 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 53. 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, 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 and our subsidiaries' secured indebtedness 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. 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.
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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.
June 24, 2003
TABLE OF CONTENTS
IN MAKING YOUR INVESTMENT DECISION REGARDING THE NOTES, 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 THAT ON THE FRONT COVER OF THIS PROSPECTUS.
PAGE
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Prospectus summary................................................................................................................1
Risk factors......................................................................................................................6
The acquisition..................................................................................................................13
Use of proceeds..................................................................................................................14
Capitalization...................................................................................................................15
Unaudited pro forma financial information........................................................................................16
Selected consolidated financial data.............................................................................................18
Management's discussion and analysis of financial condition and results of operations............................................20
Business.........................................................................................................................27
Management.......................................................................................................................37
Principal Stockholders...........................................................................................................43
Related party transactions.......................................................................................................45
Description of other indebtedness................................................................................................48
Description of the notes.........................................................................................................52
Material U.S. federal tax considerations.........................................................................................92
ERISA considerations.............................................................................................................97
Plan of distribution.............................................................................................................99
Legal matters....................................................................................................................99
Independent auditors.............................................................................................................99
Where you can find more information..............................................................................................99
Index to Financial Statements...................................................................................................F-1
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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" refer to BPC Holding Corporation, "we," "our" or "us" refer to BPC
Holding Corporation together with its consolidated subsidiaries, "Berry
Plastics" or "the company" refer 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 "2002," "2001," "2000,"
"1999" and "1998," or to such periods as fiscal years, relate to the fiscal
years ended December 28, 2002, December 29, 2001, December 30, 2000, January 1,
2000 and January 2, 1999, respectively. For 2002, the results under Holding's
prior ownership have been combined with results subsequent to the merger of GS
Berry Acquisition Corp. with and into BPC Holding on July 22, 2002, which is
referred to in this prospectus as "the Acquisition." The "notes" refers to the
10-3/4% senior subordinated notes due 2012 offered pursuant to this prospectus.
In addition, we may issue additional notes, under the indenture governing the
notes subject to the terms of the indenture, and these additional notes would
also be included in the term "notes".
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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
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 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 in 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.
ii
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. 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 2002 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.
iii
PROSPECTUS SUMMARY
This summary highlights material information contained elsewhere in this
prospectus. This summary of material information contained elsewhere in this
prospectus 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 included elsewhere in this prospectus.
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. The average length of our relationship with our top
10 customers in fiscal 2002 was over 15 years, and these customers represented
approximately 19% of our fiscal 2002 net sales with no customer accounting for
more than 4% of our fiscal 2002 net sales. We believe that over 58% of our 2002
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 12 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.
($ IN MILLIONS) 1998 1999 2000 2001 2002
------------------------- ------ ------ ------ ------ ------
Containers .............. $154.0 $188.7 $231.2 $234.5 $250.4
Closures ................ 56.4 81.0 112.2 132.4 133.9
Consumer products ....... 61.4 59.1 64.7 94.8 110.0
------ ------ ------ ------ ------
Total net sales ......... $271.8 $328.8 $408.1 $461.7 $494.3
====== ====== ====== ====== ======
Our business is subject to significant risks. We may not be able to arrange for
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 resins. Any
such shortage may negatively impact our competitive position versus other
companies that are able to better or more cheaply source resin. Additionally,
increases in the cost of resin may significantly impact our financial condition
to the extent we are not able to pass through any such cost increase. Our
Evansville, Indiana facility produces approximately one-third of our products.
A catastrophic loss of all or a part of the facility could have a material
adverse effect on us. In addition, we face intense competition in the sale of
our products. 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. We
have substantial debt, and we may incur substantial additional debt in the
future under the terms of our indebtedness. As of March 29, 2003, we had total
indebtedness of approximately $613.1 million, excluding $9.5 million in letters
of credit under our revolving credit facility and, subject to certain
conditions to borrowing, $135.5 million available for future borrowings under
our revolving credit facility and delayed draw term loan facility. See "Risk
factors."
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;
1
- aggressively pursue new customers;
- continue to effectively manage costs; and
- selectively pursue strategic acquisitions in our core businesses.
2
THE NOTES
The following is a brief summary of the terms of the notes. For a more complete
description of the terms of the notes, see "Description of the 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 notes are 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 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 are
obligated to make them instead.
RANKING....................... The notes are unsecured and:
- are subordinated in right of payment to all
existing and future senior debt;
- rank equally in right of payment with any
existing and future senior subordinated
debt;
- rank senior in right of payment to all
future subordinated debt;
- are effectively subordinated to our secured
debt to the extent of the value of the
assets securing such debt;
- are effectively subordinated to all
liabilities and preferred stock of our
subsidiaries that do not guarantee the
notes; and
- any debt that could be incurred under the
indenture may be deemed senior debt.
Similarly, the guarantees of the notes by BPC
Holding and our guarantor subsidiaries are
unsecured and:
- are subordinated in right of payment to all
of the applicable note guarantor's existing
and future senior debt;
- rank equally in right of payment with any of
the applicable note guarantors' existing and
future senior subordinated debt;
- rank senior in right of payment to all of
the applicable note guarantors' future
subordinated debt;
- are effectively subordinated to all secured
debt of such note guarantor to the extent of
the value of the assets securing such debt;
and
- are effectively subordinated to the
obligations of any subsidiary of a note
guarantor if that subsidiary is not a note
guarantor.
As of March 29, 2003:
- we had approximately $363.1 million of
senior debt to which the notes and the note
3
guarantees would be subordinated (which
amount excludes $9.5 million of letters of
credit and the remaining availability of
$135.5 million under our revolving credit
facility and delayed draw term loan
facility);
- we did not have any senior subordinated debt
(other than the notes);
- we did not have any subordinated debt; and
- our subsidiaries that are not guarantors of
the notes had $10.2 million of liabilities
including trade payables, but excluding
liabilities owed to us.
As of June 10, 2003, we could incur
approximately $140.5 million in additional
senior debt under our senior secured credit
facility, subject to conditions to borrowing;
however, the covenants under our senior secured
credit facility may limit our ability to make
such borrowings.
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 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 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. The occurrence of a change of control
will also result in an event of default under
our new senior secured credit facility, which
would allow the lenders under that facility to
accelerate their debt. Such acceleration will
be considered an event of default under the
notes. See "Description of the notes -- Change
of control."
BASIC COVENANTS............... The indenture governing the notes 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;
- 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 notes --
Certain covenants."
PUBLIC MARKET FOR THE NOTES... Goldman, Sachs & Co. and J.P. Morgan Securities
Inc. currently make a market in the notes.
However, you should be aware that they are not
obligated to do so and may discontinue their
market-making activities at any time without
notice. As a result, the liquidity of the market
for the notes may not be available if you try to
sell your notes. In addition, we cannot
guarantee when, or even if, another market for
the notes will develop. We do not intend to
apply for a listing of the notes on any
securities exchange or any automated dealer
quotation system.
4
RISK FACTORS
You should carefully consider all the information in this prospectus prior to
deciding whether to invest in the notes. 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 deciding whether to
invest in the notes. The risks and uncertainties described below are not the
only ones we face. Additional risk and uncertainties not presently known to us
or that we currently believe to be immaterial may also adversely affect our
business.
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 incur substantial additional debt in the
future. As of March 29, 2003, we had total indebtedness of approximately $613.1
million, excluding $9.5 million in letters of credit under our revolving credit
facility and, subject to certain conditions to borrowing, $135.5 million
available for future borrowings under our revolving credit facility and delayed
draw term loan facility. As of June 10, 2003, we could incur approximately
$140.5 million in additional senior debt under our senior secured credit
facility, subject to conditions to borrowing; however, the covenants under our
senior secured credit facility may limit our ability to make such borrowings. 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 facility." Any debt that could be
incurred under the indenture may be deemed senior debt. If the interest rate on
our variable rate debt increases by 1.00%, we estimate an annual increase in our
interest expense of approximately $2.8 million.
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. Assuming interest costs are consistent with those in the
first quarter of 2003, our interest costs in 2003 will be approximately $46.9
million. Our principal payments due in 2003 are approximately $8.6 million. For
future periods, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and capital resources." Our business may
not generate sufficient cash flow from operations and future borrowings may not
be available to us under our senior secured credit facility 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, at or before maturity. We may not be able to
refinance any of our debt, including our senior secured credit facility 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 facility contain a number of covenants imposing significant
restrictions on our business. These restrictions may affect our ability to
operate our business and may limit
6
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 facility also requires us to meet a number of
financial ratios. The breach of any of these covenants or restrictions could
result in a default under the indenture governing the notes or under our senior
secured credit facility. 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 is
subordinated in right of payment to, the notes and the guarantees. As of March
29, 2003, the amount of debt issued by us that is senior, or effectively senior,
to the notes and the note guarantees is $363.1 million (which amount excludes
$9.5 million of letters of credit and the remaining availability of $135.5
million under our revolving credit facility and delayed draw term loan
facility). 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 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.
See "Description of the notes -- Ranking."
THE NOTES ARE NOT SECURED BY ANY OF OUR ASSETS. HOWEVER, OUR SENIOR SECURED
CREDIT FACILITY 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 facility is 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
7
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 facility 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 NON-GUARANTOR 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 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. As of March 29, 2003, our non-guarantor
subsidiaries held 5% of our consolidated assets as of that date. These
non-guarantor subsidiaries accounted for 4% of our revenues for fiscal year
2002.
A SIGNIFICANT AMOUNT OF OUR NET WORTH REPRESENTS GOODWILL, AND A WRITE-OFF OF
GOODWILL COULD RESULT IN LOWER REPORTED NET INCOME AND A REDUCTION OF OUR NET
WORTH.
As of March 29, 2003, the net value of our goodwill was approximately $334.7
million. In July 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets." Under the new standard, we are no longer required to or
permitted to amortize goodwill reflected on our balance sheet. We are, however,
required to evaluate goodwill reflected on our balance sheet when circumstances
indicate a potential impairment, or at least annually, under the new impairment
testing guidelines outlined in the standard. Future changes in the cost of
capital, expected cash flows, or other factors may cause our goodwill to be
impaired, resulting in a noncash charge against results of operations to
write-off goodwill for the amount of impairment. If a significant write-off is
required, the charge would have a material adverse effect on our reported
results of operations and net worth in the period of any such write-off.
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;
- 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;
- 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 current guarantor, at the time of its
guarantee of the notes, was not insolvent, did not have unreasonably small
capital for the business in which it is engaged and had not incurred debts
beyond its ability to pay such debts as they mature. However, a court may apply
a different standard in making these determinations or may not 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.
8
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 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 facility 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. The occurrence of a change of control will also result in an event of
default under our new senior secured credit facility, which would allow the
lenders under that facility to accelerate their debt. Such acceleration will be
considered an event of default under the notes. See "Description of the notes --
Change of control."
WE HAVE EXPERIENCED CONSOLIDATED NET LOSSES.
Our net losses were $7.6 million for fiscal 1998, $9.1 million for fiscal 1999,
$23.1 million for fiscal 2000, $2.1 million for fiscal 2001 and $32.6 million
for fiscal 2002. Consolidated earnings have been insufficient to cover fixed
charges by $7.0 million for fiscal 1998, by $7.1 million for fiscal 1999, by
$20.5 million for fiscal 2000, by $0.8 million for fiscal 2001, and by $3.1
million for fiscal 2002. See "Management's discussion and analysis of financial
condition and results of operations."
THE NOTES HAVE NO PRIOR PUBLIC MARKET, AND A PUBLIC MARKET FOR THE NOTES MAY NOT
DEVELOP OR BE SUSTAINED.
Although they are not obligated to do so, Goldman, Sachs & Co. and J.P. Morgan
Securities Inc. make a market in the notes. Any such market-making activity may
be discontinued at any time for any reason, without notice at the sole
discretion of Goldman, Sachs & Co. and J.P. Morgan Securities Inc. No assurance
can be given as to the liquidity of any trading market for the notes, or the
ability of the holders of the notes to sell their notes or the price at which
such holders may be able to sell their notes. The notes could trade at prices
that may be higher or lower than their initial offering price depending on many
factors, including, among other things, prevailing interest rates, the market
for similar securities, our operating results and other factors. Therefore, an
active market for the notes may not develop or be sustained. If an active public
market does not develop or continue, the market price and liquidity of the 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 notes will be volatile.
This volatility in price may affect your ability to resell your notes or the
timing of their sale.
Notwithstanding the registration of the notes, holders who are "affiliates" (as
defined under Rule 405 of the Securities Act) of us may publicly offer for sale
or resale the notes only in compliance with the provisions of Rule 144 under the
Securities Act.
Because we are an affiliate of Goldman, Sachs & Co. and J.P. Morgan Securities
Inc., two of the initial purchasers of the notes, 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. 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 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. Valid business reasons include,
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.
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, Nova, ExxonMobil, Atofina, Basell and Equistar. We have
long-standing relationships with some 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. We are currently experiencing rapidly increasing resin prices
primarily due to the increased cost of oil and natural gas. Due to the extent
and rapid nature of these increases, we cannot reasonably estimate the extent to
which we will be able to successfully recover these cost increases in the
short-term. If high and/or rapidly increasing resin prices continue, our
9
revenue and/or profitability may be materially and adversely affected, both in
the short-term as we attempt to pass through changes in the cost of resin to
customers under current agreements and in this longer term as we negotiate new
agreements.
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 2002 cost us approximately $113.0 million, or 30% 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. The resin market is currently experiencing rapidly increasing prices
primarily due to the increased cost of oil and natural gas. Based on information
from Plastics News, an industry publication, average spot prices of HDPE and PP
on March 17, 2003 were $0.565 per pound and $0.44 per pound, respectively,
reflecting increases of $0.17 per pound, or 43%, and $0.05 per pound, or 13%,
over the respective average spot prices from December 28, 2002. 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. The
resin market is currently experiencing increasing prices primarily due to the
increased cost of oil and natural gas. Due to the extent and rapid nature of
these increases, we cannot reasonably estimate our ability to successfully
recover these cost increases in the short-term. Some of our customers (currently
accounting for 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
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 may not be able to consummate any such transaction 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;
10
- 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.
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; and
- 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 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, we can give you no assurance 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
11
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, we can give
you 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.
The Food and Drug Administration, or 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, or 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 outside the United States which combined for
approximately 4% of our 2002 net sales. 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. Goldman, Sachs & Co. and J.P.
Morgan Securities Inc. and their respective affiliates, control the power to
elect our directors, to appoint members of management and to approve all actions
requiring the approval of the holders of our common stock, including adopting
amendments to our certificate of incorporation and approving mergers, certain
acquisitions or sales of all or substantially all of our assets. For example,
Goldman, Sachs & Co. and J.P. Morgan Securities Inc. and their respective
affiliates could pursue acquisitions, divestitures or other transactions that,
in their judgment, could enhance their equity investment, even though such
transactions might involve significant risks to the holders of the notes.
12
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
On July 22, 2002, GS Berry Acquisition Corp., a newly formed entity controlled
by various private equity funds affiliated with Goldman, Sachs & Co., merged
with and into BPC Holding with BPC Holding continuing as the surviving
corporation. At the effective time of the Acquisition, (1) each share of common
stock of BPC Holding issued and outstanding immediately prior to the effective
time of the Acquisition was converted into the right to receive cash pursuant to
the terms of the merger agreement, and (2) each share of common stock of GS
Berry Acquisition Corp. issued and outstanding immediately prior to the
effective time of the Acquisition was converted into one share of common stock
of BPC Holding. Additionally, in connection with the Acquisition, we retired all
of BPC Holding's senior secured notes and Berry Plastics' senior subordinated
notes, repaid all amounts owed under our credit facilities, redeemed all of the
outstanding preferred stock of BPC Holding, entered into a new credit facility
and completed an offering of new senior subordinated notes of Berry Plastics. As
a result of the Acquisition, private equity funds affiliated with Goldman, Sachs
& Co. own approximately 63% of the outstanding common stock of BPC Holding,
private equity funds affiliated with J.P. Morgan Chase & Co. own approximately
29% of the outstanding common stock of BPC Holding and members of our management
own the remaining approximately 8%.
The total amount of funds required to consummate the Acquisition and to pay the
related fees and expenses was approximately $870.4 million, including retirement
all of BPC Holding's senior secured notes and Berry Plastics senior subordinated
notes, repayment of all amounts owed under our credit facilities, redemption of
all of the outstanding preferred and common stock of BPC Holding, and other fees
and expenses related to the Acquisition. In connection with the Acquisition,
Berry Plastics received an approximately $330 million senior secured term loan
from a syndicate of lenders led by Goldman Sachs Credit Partners L.P., as
administrative agent, approximately $250 million from the issuance of the notes
to various private institutional buyers, and approximately $268.8 million in
equity contributions from affiliates of Goldman, Sachs & Co. and certain
existing stockholders and continuing investments from members of Berry Plastics'
management. The $330 million senior secured term loan was part of a larger
senior secured credit facility that we entered into with a syndicate of lenders
led by Goldman Sachs Credit Partners L.P., as administrative agent. The credit
facility also included a $50.0 million delayed draw term loan facility and a
$100.0 million revolving credit facility.
13
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. The net proceeds to
us when we sold the notes on July 22, 2002, after deducting fees and expenses,
was approximately $239.4 million. We used all of the net proceeds to fund
payment of the consideration for, and fees and expenses relating to, the
Acquisition.
14
CAPITALIZATION
The following table sets forth our capitalization as of March 29, 2003. This
table should be read in conjunction with our consolidated financial statements
and related notes included elsewhere in this prospectus.
(DOLLARS IN THOUSANDS) AS OF MARCH 29, 2003
--------------------
Long-term debt (including current portion thereof):
10-3/4% Senior Subordinated Notes .............. $ 250,000
Revolving lines of credit ...................... 5,626
Term loans ..................................... 328,350
Capital leases ................................. 26,654
Nevada Industrial Revenue Bonds ................ 2,500
---------
Total debt ................................... 613,130
Stockholders equity:
Preferred stock ................................ --
Common stock ................................... 28
Additional paid-in capital ..................... 281,672
Adjustment of the carryover basis of
continuing stockholders ..................... (196,603)
Notes receivable - common stock ................ (14,553)
Treasury stock ................................. (60)
Retained earnings .............................. 6,258
Accumulated other comprehensive income ......... 1,027
---------
Total stockholders' equity .................. 77,769
---------
Total capitalization .............................. $ 690,899
=========
15
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Set forth below is the unaudited pro forma condensed consolidated statement of
operations of BPC Holding for the year ended December 28, 2002, assuming the
transactions described below occurred at the beginning of the year. For analysis
purposes, the results under Holding's prior ownership ("Predecessor") have been
combined with results subsequent to the Acquisition on July 22, 2002.
The unaudited pro forma condensed consolidated statement of operations is
presented for informational purposes only and does not purport to represent the
financial condition of BPC Holding had the Acquisition or the other transactions
described below occurred on December 30, 2001, or to project the results for any
future date or period.
The unaudited pro forma condensed consolidated statement of operations of BPC
Holding give effect to the Acquisition, including the financing thereof. See
"Management's discussion and analysis of financial condition and results of
operations" and "The acquisition."
The unaudited pro forma 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."
16
BPC HOLDING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 28, 2002
PREDECESSOR COMPANY
PERIOD FROM PERIOD FROM COMBINED ADJUSTMENTS
(DOLLARS IN THOUSANDS) 12/30/01- 7/22/02- COMPANY & FOR THE PRO FORMA FOR THE
7/21/02 12/28/02 PREDECESSOR ACQUISITION THE ACQUISITION
------- -------- ----------- ----------- ---------------
Net sales ........................ $ 280,677 $ 213,626 $ 494,303 $ -- $ 494,303
Cost of goods sold ............... 207,458 163,815 371,273 (3,306)(1) 367,967
--------- --------- --------- --------- ---------
Gross profit ..................... 73,219 49,811 123,030 3,306 126,336
Total operating expenses ......... 54,308 23,159 77,467 (19,857)(2) 57,610
--------- --------- --------- --------- ---------
Operating income ................. 18,911 26,652 45,563 23,163 68,726
Other expenses ................... 291 8 299 -- 299
Interest expense, net ............ 28,742 20,512 49,254 (1,375)(3) 47,879
--------- --------- --------- --------- ---------
Income (loss) and income
taxes before extraordinary item (10,122) 6,132 (3,990) 24,538 20,548
Income taxes ..................... 345 2,953 3,298 6,565(4) 9,863
--------- --------- --------- --------- ---------
Net income (loss) before
extraordinary item ............ (10,467) 3,179 (7,288) 17,973 10,685
Extraordinary item, net of tax ... 25,328 -- 25,328 (25,328)(5) --
--------- --------- --------- --------- ---------
Net income (loss) ................ (35,795) 3,179 (32,616) 43,301 10,685
Preferred stock dividends ........ (6,468) -- (6,468) 6,468(6) --
Amortization of preferred stock
discount ...................... (574) -- (574) 574(7) --
--------- --------- --------- --------- ---------
Net income (loss) attributable to
common stockholders ........... $ (42,837) $ 3,179 $ (39,658) $ 50,343 $ 10,685
========= ========= ========= ========= =========
OTHER DATA:
Depreciation and amortization .... $ 24,775 $ 17,190 $ 41,965 $ (1,845) $ 40,120
========= ========= ========= ========= =========
(1) This adjustment represents the reduction in depreciation expense as a
result of an independent appraisal of fixed assets in connection with the
Acquisition.
(2) This adjustment represents (i) the elimination of expenses incurred in
connection with the Acquisition of ($20,987), (ii) the elimination of the
annual management fee charged by our largest voting stockholder prior to
the Acquisition of ($331) and (iii) the inclusion of amortization of
intangibles of $1,461 resulting from the Acquisition on a straight line
basis over their respective lives. Goldman, Sachs & Co. and J.P. Morgan
Chase & Co. and their respective affiliates will not receive any ongoing
annual management fee after the Acquisition.
(3) 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.
FISCAL YEAR ENDED
(DOLLARS IN THOUSANDS) DECEMBER 28, 2002
-----------------
Elimination of historical interest expense
on debt being repaid ................... $(27,537)
Interest on notes offered hereby ......... 15,080
Interest on term loan .................... 9,721
Amortization of deferred financing costs
associated with notes offered hereby .. 565
Amortization of deferred financing costs
associated with term loan ............. 796
--------
Adjustment to net interest expense ....... $ (1,375)
========
(4) This adjustment reflects the additional income tax expense as a result of
the Acquisition.
(5) This adjustment represents the elimination of debt refinancing expenses
incurred in connection with the Acquisition.
(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.
17
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth Holding's selected consolidated historical
financial data for each of the fiscal years 1998, 1999, 2000, 2001 and 2002,
which have been derived from the consolidated financial statements of Holding
which have been audited by Ernst & Young LLP, independent auditors and for the
thirteen weeks ended March 30, 2002 and March 29, 2003, 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 recurring 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 "2002," "2001," "2000," "1999," and "1998" relate to the fiscal years
ended December 28, 2002, December 29, 2001, December 30, 2000, January 1, 2000,
and January 2, 1999, respectively. For analysis purposes, the results under
Holding's prior ownership ("Predecessor") have been combined with results
subsequent to the Acquisition on July 22, 2002. 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.
FISCAL
------------------------------------------------------------- THIRTEEN WEEKS ENDED
COMBINED -----------------------
COMPANY & PREDECESSOR COMPANY
PREDECESSOR PREDECESSOR ----------- ----------
------------------------------------------------ ----------- MARCH 30, MARCH 29,
(DOLLARS IN THOUSANDS) 1998 1999 2000 2001 2002 2002 2003
--------- -------- --------- --------- --------- --------- ----------
(UNAUDITED)
Statement of operations data:
Net sales ........................... $ 271,830 $328,834 $ 408,088 $ 461,659 $ 494,303 $ 122,934 $ 125,398
Cost of goods sold .................. 199,227 241,067 312,119 338,000 371,273 90,299 94,321
--------- -------- --------- --------- --------- --------- ---------
Gross profit ........................ 72,603 87,767 95,969 123,659 123,030 32,635 31,077
Operating expenses
Selling ............................ 14,780 17,383 21,630 21,996 22,209 5,780 6,202
General and administrative ......... 19,308 22,034 24,408 28,535 23,414 7,108 6,031
Research and development ........... 1,690 2,338 2,606 1,948 2,888 547 764
Amortization of intangibles ........ 4,139 7,215 10,579 12,802 2,408 477 615
Merger expenses(a) ................. -- -- -- -- 20,987 -- --
Other expenses(a) .................. 4,084 5,148 6,639 4,911 5,561 1,116 324
--------- -------- --------- --------- --------- --------- ---------
Total operating expenses ........... 44,001 54,118 65,862 70,192 77,467 15,028 13,936
--------- -------- --------- --------- --------- --------- ---------
Operating income .................... 28,602 33,649 30,107 53,467 45,563 17,607 17,141
Other expense(b) .................... 1,865 1,416 877 473 299 144 --
Interest expense, net(c) ............ 34,556 40,817 51,457 54,355 49,254 (12,806) (11,518)
--------- -------- --------- --------- --------- --------- ---------
Income (loss) before income taxes
and extraordinary item ............ (7,819) (8,584) (22,227) (1,361) (3,990) 4,657 5,623
Income taxes (benefit) .............. (249) 554 (142) 734 3,298 (109) 2,544
--------- -------- --------- --------- --------- --------- ---------
Net income (loss) before extraordinary
item ............................. (7,570) (9,138) (22,085) (2,095) (7,288) 4,766 3,079
Extraordinary item, net of tax(d) ... -- -- 1,022 -- 25,328 -- --
--------- -------- --------- --------- --------- --------- ---------
Net income (loss) ................... (7,570) (9,138) (23,107) (2,095) (32,616) 4,766 3,079
Preferred stock dividends ........... 3,551 3,776 6,655 9,790 6,468 (2,755) --
Amortization of preferred stock
discount ......................... 292 292 768 1,024 574 (256) --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) attributable to
common stockholders .............. $ (11,413) $ (13,206) $ (30,530) $ (12,909) $ (39,658) $ 1,755 $ 3,079
--------- --------- --------- --------- --------- --------- ---------
Other financial data:
Depreciation and amortization(e) .... $ 24,829 $ 31,795 $ 42,148 $ 50,907 $ 41,965 $ 10,835 $ 10,150
Cash provided by operating
activities ....................... 34,131 36,001 36,106 54,348 26,440 7,489 770
Cash used for investing activities .. (52,120) (106,978) (108,715) (56,290) (44,898) (12,999) (14,938)
Cash provided by financing
activities ....................... 17,619 71,135 72,037 580 32,381 5,609 2,566
Capital expenditures ................ 22,595 30,738 31,530 32,834 28,683 9,801 10,080
Ratio of earnings to fixed charges(f) -- -- -- -- -- 1.4 1.5
Balance sheet data (at end of period):
Working capital ..................... $ 4,762 $ 10,527 $ 20,470 $ 19,327 $ 64,201 $ 28,832 $ 68,369
Property and equipment, net ......... 120,005 146,792 179,804 203,217 193,132 206,944 196,504
Total assets ........................ 255,317 340,807 413,122 446,876 760,576 464,246 762,880
Total debt .......................... 323,298 403,989 468,806 485,881 609,943 492,581 613,130
18
----------
(a) Operating expenses include business and machine integration expenses of
$1,272 related to the businesses acquired in 1997, plant consolidation
expenses of $2,370 and $191 related to the shutdown of the Anderson, South
Carolina and Reno, Nevada facilities, and start-up expenses of $251
related to acquired businesses during fiscal 1998; business and machine
integration expenses of $3,647 related to recent acquisitions and plant
consolidation expenses of $1,501 related to the shutdown and
reorganization of facilities during fiscal 1999; business and machine
integration expenses of $2,237 related to recent acquisitions, litigation
expenses of $700 related to a drink cup patent, and plant consolidation
expenses of $3,702 related to the shutdown and reorganization of
facilities during fiscal 2000; business and machine integration expenses
of $2,690 related to recent acquisitions, and plant consolidation expenses
of $2,221 related to the shutdown and reorganization of facilities during
fiscal 2001; business and machine integration expenses of $1,353 related
to recent acquisitions, plant consolidation expenses of $3,992 related to
the shutdown and reorganization of facilities, $216 related to an
uncompleted acquisition, and $20,987 related to the Acquisition during
fiscal 2002; integration expenses of $178 related to recent acquisitions
and plant consolidation expenses of $938 during the thirteen weeks ended
March 30, 2002; and plant consolidation expenses of $322 during the
thirteen weeks ended March 29, 2003.
(b) Other expenses consist of net losses on disposal of property and equipment
for the respective years.
(c) Includes non-cash interest expense of $14,824, $15,567, $18,047, $11,268
and $2,476, in fiscal 1998, 1999, 2000, 2001 and 2002, respectively, and
$631 and $407 for the thirteen weeks ended March 30, 2002 and March 29,
2003, respectively.
(d) As a result of the retirement of all of the BPC Holding's senior secured
notes and Berry Plastics' senior subordinated notes and the repayment of
all amounts owed under the credit facility in connection with the
Acquisition, $6.6 million of existing deferred financing fees and $18.7
million of prepayment fees and related charges were charged to expense in
2002 as an extraordinary item. Extraordinary item in 2000 relates to
deferred financing fees written off as a result of amending the senior
credit facility.
(e) Depreciation and amortization excludes non-cash amortization of deferred
financing fees and debt premium discount amortization, which are included
in interest expense.
(f) 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 1998, 1999, 2000, 2001 and 2002, our fixed charges
exceeded our earnings by $7,042, $7,137, $20,520, $772 and $3,146,
respectively.
19
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. For analysis purposes, the results under Holding's
prior ownership ("Predecessor") have been combined with results subsequent to
the merger on July 22, 2002 described below.
On July 22, 2002, GS Berry Acquisition Corp., a newly formed entity controlled
by various private equity funds affiliated with Goldman, Sachs & Co., merged
with and into BPC Holding with BPC Holding continuing as the surviving
corporation. At the effective time of the Acquisition, (1) each share of common
stock of BPC Holding issued and outstanding immediately prior to the effective
time of the Acquisition was converted into the right to receive cash pursuant to
the terms of the merger agreement, and (2) each share of common stock of GS
Berry Acquisition Corp. issued and outstanding immediately prior to the
effective time of the Acquisition was converted into one share of common stock
of BPC Holding. Additionally, in connection with the Acquisition, we retired all
of BPC Holding's senior secured notes and Berry Plastics' senior subordinated
notes, repaid all amounts owed under our credit facilities, redeemed all of the
outstanding preferred stock of BPC Holding, entered into a new credit facility
and completed an offering of new senior subordinated notes of Berry Plastics. As
a result of the Acquisition, private equity funds affiliated with Goldman, Sachs
& Co. own approximately 63% of the outstanding common stock of BPC Holding,
private equity funds affiliated with J.P. Morgan Chase & Co. own approximately
29% of the outstanding common stock of BPC Holding and members of our management
own the remaining approximately 8%.
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 insurance. We offer our employees medical insurance that is primarily
self-insured by us. As a result, we accrue a liability for known claims as well
as the estimated amount of expected claims incurred but not reported. 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.
Our accrued liability for medical claims was $1.5 million, including reserves
for expected medical claims incurred but not reported, as of March 29, 2003.
Workers' compensation insurance. 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. Our
accrued liability for workers' compensation claims was $1.5 million as of
March 29, 2003.
20
Revenue recognition. Revenue from sales of products is recognized at the time
product is shipped to the customer at which time title and risk of ownership
transfer to the purchaser.
Based on a critical assessment of our accounting policies and the underlying
judgments and uncertainties affecting the application of those policies, we
believe 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 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
profit 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 charges
related to these reductions and rationalizations. For purposes of this
prospectus, "CCL" refers to the acquisition of the threaded injection molded
closure assets from CCL Plastics Packaging in 2003; "Mount Vernon" refers to the
acquisition of the injection molding assets from Mount Vernon Plastics
Corporation in 2002; "Pescor" refers to the acquisition of Pescor Plastics, Inc.
in 2001; "Poly-Seal" refers to the acquisition of Poly-Seal Corporation in 2000;
"Capsol" refers to the acquisition of Capsol S.p.a. in 2000; and "Cardinal"
refers to the acquisition of CPI Holding Corporation, the parent company of
Cardinal Packaging, Inc. in 1999.
RESULTS OF OPERATIONS
COMPARISON OF THE 13 WEEKS ENDED MARCH 29, 2003 TO THE 13 WEEKS ENDED
MARCH 30, 2002
Net Sales. Net sales increased $2.5 million, or 2%, to $125.4 million for the
thirteen weeks ended March 29, 2003 from $122.9 million for the thirteen weeks
ended March 30, 2002 with an approximate 3% increase in net selling price.
Container net sales increased $3.4 million from the thirteen weeks ended March
30, 2002 to $61.6 million for the thirteen weeks ended March 29, 2003 primarily
as a result of increased selling prices and growth in the specialty product
line. Closure net sales increased $1.6 million from the thirteen weeks ended
March 30, 2002 to $35.1 million with the CCL acquisition providing net sales of
$0.7 million in the thirteen weeks ended March 29, 2003. Consumer products net
sales for the thirteen weeks ended March 29, 2003 were $28.7 million compared to
$31.3 million in the thirteen weeks ended March 30, 2002. This $2.6 million
decrease can be attributed to a $5.0 million sale of specialty drink cups prior
to the start of the drink cup season in the thirteen weeks ended March 30, 2002
partially offset by increased sales from thermoformed drink cups.
Gross Profit. Gross profit decreased by $1.5 million to $31.1 million (25% of
net sales) for the thirteen weeks ended March 29, 2003 from $32.6 million (27%
of net sales) for the thirteen weeks ended March 30, 2002. This decrease of 5%
can be primarily attributable to the effects of net selling prices and raw
material costs partially offset by the combined impact of the additional sales
volume, acquisition integration and productivity improvement initiatives. We
have 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, we removed molding operations from
our Fort Worth, Texas facility, which was acquired in the Pescor acquisition.
Subsequently, in the fourth quarter of 2002, the Fort Worth facility was closed
in our continued effort to reduce costs and provide improved customer service.
The business from this location was distributed throughout our facilities. Also,
significant productivity improvements were made since the thirteen weeks ended
March 30, 2002, including the addition of state-of-the-art injection molding
equipment, molds and printing equipment at several of our facilities.
Operating Expenses. Selling expenses increased by $0.4 million to $6.2 million
for the thirteen weeks ended March 29, 2003 from $5.8 million for the thirteen
weeks ended March 30, 2002 principally as a result of the increased revenue.
General and administrative expenses decreased from $7.1 million for the thirteen
weeks ended March 30, 2002 to $6.0 million for the thirteen weeks ended March
29, 2003. This decrease of $1.1 million is primarily attributable to decreased
accrued bonus expenses. Research and development expenses increased by $0.3
million to $0.8 million in the thirteen weeks ended March 29, 2003 primarily as
a result of legal costs associated with patents and licenses. Amortization of
intangibles increased $0.1 million from $0.5 million in the thirteen weeks ended
March 30, 2002 as a result of additional intangible assets resulting from the
Acquisition. During the thirteen weeks ended March 29, 2003, transition expenses
were $0.3 million related to the shutdown and reorganization of facilities. In
the thirteen weeks ended March 30, 2002, transition expenses were $0.2 million
related to acquisitions and $0.9 million related to the shutdown and
reorganization of facilities.
Interest Expense, Net. Net interest expense decreased $1.3 million to $11.5
million for the thirteen weeks ended March 29, 2003 compared to $12.8 million
for the thirteen weeks ended March 30, 2002 primarily due to decreased rates of
interest on borrowings.
Income Taxes. For the thirteen weeks ended March 29, 2003, we recorded income
tax expense of $2.5 million compared to an income tax benefit of $0.1 million
for the thirteen weeks ended March 30, 2002. The increase of $2.6 million can be
attributed to the Acquisition as the use of net operating loss carryforwards is
recorded as a reduction to goodwill as compared to a credit to income tax
expense in the thirteen weeks ended March 30, 2002. As a result of the
Acquisition, the amount of the net operating loss carryforward which can be used
in any given year will be limited to approximately $12 million.
Net Income. Net income is $3.1 million for the thirteen weeks ended March 29,
2003 compared to $4.8 million for the thirteen weeks ended March 30, 2002 for
the reasons discussed above.
COMPARISON OF THE YEAR ENDED DECEMBER 28, 2002 TO THE YEAR ENDED DECEMBER 29,
2001
Net Sales. Net sales increased 7% to $494.3 million in 2002, up $32.6 million
from $461.7 million in 2001, despite an approximate 2% decrease in net selling
price due to cyclical impact of lower resin costs. Container net sales increased
$16.0 million to $250.4 million, of which approximately $11.5 million was
attributable to the Mount Vernon acquisition. The remaining increase of $4.5
million is primarily attributed to new retail dairy and polypropylene business.
Closure net sales increased $1.5 million to $133.9 million primarily due to new
business partially offset by the shedding of low margin business in our Norwich,
England facility. Consumer products net sales increased $15.1 million to $110.0
million in 2002 primarily as a result of the Pescor acquisition and increased
sales from the thermoformed drink cup line.
Gross Profit. Gross profit decreased $0.7 million from $123.7 million, or 27% of
net sales, in 2001 to $123.0 million, or 25% of net sales, in 2002. This
decrease of 2% 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 margin
percentage of the acquired division of Mount Vernon was, for 2002 and
historically, significantly less than our overall gross margin thereby reducing
the consolidated margin, however, we expect the margin percentage of this
acquired business to increase as it becomes more fully integrated. We have
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, we removed molding operations from our Fort
Worth, Texas facility, which was acquired in the Pescor acquisition.
Subsequently, in the fourth quarter of 2002, the Fort Worth facility was closed
in our continued effort to reduce costs and provide improved customer service.
The business from this location was distributed throughout our 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 our facilities.
Operating Expenses. Selling expenses increased $0.2 million to $22.1 million in
2002 as a result of increased sales partially offset by continued cost reduction
efforts. General and administrative expenses decreased $5.1 million to $23.4
million in 2002 primarily as a result of decreased accrued bonus expenses and
cost reduction efforts. Research and development costs increased $1.0 million to
$2.9 million in 2002 primarily as a result of an increase in projects under
development and legal costs associated with patents and licenses. Intangible
asset amortization decreased to $2.4 million in 2002 from $12.8 million for
2001, primarily as a result of the implementation in 2002 of SFAS No. 142, which
eliminates the amortization of goodwill. In connection with the Acquisition, the
Predecessor incurred Acquisition related expenses of approximately $21.0
million, consisting primarily of investment banking fees, bonuses to management,
non-cash modification of stock option awards, legal costs and financial and
management consulting fees paid to an affiliate of the largest voting
stockholder of the Predecessor. Other expenses were $5.6
21
million for 2002 compared to $4.9 million for 2001. Other expenses in 2002
include one-time transition expenses of $1.3 million related to recently
acquired businesses, $4.1 million related to the shutdown and reorganization of
facilities, and $0.2 million related to an acquisition that was not completed.
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.
Interest Expense, Net. Net interest expense, including amortization of deferred
financing costs, for 2002 was $49.3 million, or 10% of net sales, compared to
$54.4 million, or 12% of net sales, in 2001, a decrease of $5.1 million. This
decrease is primarily attributed to decreased rates of interest on borrowings.
Cash interest paid in 2002 was $40.8 million as compared to $44.2 million for
2001.
Income Taxes. During 2002, we recorded an expense of $3.3 million for income
taxes compared to $0.7 million for 2001. We continue to operate in a net
operating loss carryforward position for federal income tax purposes.
Extraordinary Item. As a result of extinguishing our debt in connection with the
Acquisition, $6.6 million of existing deferred financing fees and $18.7 million
of prepayment fees and related charges were charged to expense in 2002 as an
extraordinary item.
Net Loss. We recorded a net loss of $32.6 million in 2002 compared to a $2.1
million net loss in 2001 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 Profit. Gross profit 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
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 the year, including the addition of
state-of-the-art injection-molding equipment, molds and decorating equipment at
several of our facilities. We achieved additional cost reductions through 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
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.
22
Interest Expense, Net. Net interest expense, including amortization of deferred
financing costs for 2001, was $54.4 million or 12% of net sales, compared to
$51.5 million, or 13% of net sales, in 2000, an increase of $2.9 million. This
increase was attributed 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 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.
INCOME TAX MATTERS
As of December 28, 2002, Holding has unused operating loss carryforwards of
$72.3 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.
LIQUIDITY AND CAPITAL RESOURCES
On July 22, 2002, we entered into a credit and guaranty agreement and a related
pledge security agreement with a syndicate of lenders led by Goldman Sachs
Credit Partners L.P., as administrative agent. Our senior secured credit
facility is comprised of (1) a $330.0 million term loan, (2) a $50.0 million
delayed draw term loan facility, and (3) a $100.0 million revolving credit
facility. The maturity date of the term loan is July 22, 2010, and the maturity
date of the revolving credit facility and delayed draw term loan facility is
July 22, 2008. The term loan was funded on the closing date of the Acquisition
and the proceeds were used in connection with the Acquisition to pay the cash
consideration payable to stockholders, the costs of prepaying our indebtedness
and the transaction costs incurred in connection therewith. 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 certain
financial covenants are satisfied and no default or event of default exists at
the time of borrowing. Delayed draw term loans may only be made in connection
with permitted acquisitions. The indebtedness under our senior secured credit
facility is guaranteed by BPC Holding and all of its domestic subsidiaries. The
obligations of Berry Plastics under the senior secured credit facility and the
guarantees thereof are secured by substantially all of the assets of such
entities. At March 29, 2003, there were no borrowings outstanding on the delayed
draw term loan facility.
Borrowings under our senior secured credit facility bear interest, at our
option, at either (1) the base rate, which is 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 0.50% plus the applicable margin, the Base Rate
Loans, or (2) an adjusted Eurodollar Rate which is equal to the rate for
Eurodollar deposits plus the applicable margin, the Eurodollar Rate Loans. For
the term loan, the applicable margin is (1) with respect to Base Rate Loans,
2.00% per annum and (2) with respect to Eurodollar Rate Loans, 3.00% per annum.
For Eurodollar Rate Loans under the delayed draw term loan facility and the
revolving credit facility, the applicable margin is initially 2.75% per annum.
The applicable margin for Eurodollar Rate Loans will range 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 is payable quarterly for
Base Rate Loans and at the end of the applicable interest period for all
Eurodollar Rate Loans. The interest rate applicable to overdue payments and to
outstanding amounts following an event of default under our senior secured
credit facility is equal to the interest rate at the time of an event of default
plus 2.00%. We also pay commitment fees ranging from 0.375% per annum to 0.75%
per annum on the average daily unused portion of the delayed draw term loan
facility and revolving credit facility. In October 2002, pursuant to a
requirement in the senior secured credit facility we entered into an interest
rate swap agreement with Goldman Sachs Capital Markets, L.P., which applies to
$50.0 million of the term loans and protects both parties against fluctuations
in interest rates. Under the interest rate swap agreement, the Eurodollar rate
with respect to $50.0 million of the outstanding principal amount of the term
loan will not exceed 6.75% or drop below 1.97%.
23
Our senior secured credit facility contains 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 and investments and dispose of assets or consummate
acquisitions. The occurrence of a default, an event of default or a material
adverse effect on Berry Plastics 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 debt agreements, each of
which could materially and adversely affect our business. We were in compliance
with all of the financial and operating covenants at March 29, 2003.
The term loan amortizes 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: (1) 2% per quarter in 2004, (2)
4% per quarter in 2005, (3) 6 % per quarter in 2006, (4) 8% per quarter in 2007
and (5) 10% per quarter in each of the first two quarters in 2008. Borrowings
under our senior secured credit facility are subject to mandatory prepayment
under specified circumstances, including if we meet certain cash flow
thresholds, collect insurance proceeds in excess of certain thresholds, issue
equity securities or debt or sell assets not in the ordinary course of business,
or upon a sale or change of control of the company. There is 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 the maturity date which is on July 22, 2008. The revolving
credit facility allows up to $15 million of letters of credit to be issued
instead of borrowings under the revolving credit facility and up to $10 million
of swingline loans.
On July 22, 2002, we completed an offering of $250.0 million aggregate principal
amount of the notes. The net proceeds to us from the sale of the notes, after
expenses, were $239.4 million. The proceeds from the notes were used in the
financing of the Acquisition. The notes mature on July 15, 2012, and interest is
payable semi-annually on January 15 and July 15 of each year beginning January
15, 2003. BPC Holding and all of our domestic subsidiaries fully, jointly,
severally, and unconditionally guarantee the notes. We are not required to make
mandatory redemption or sinking fund payments with respect to the notes. On or
subsequent to July 15, 2007, the notes may be redeemed at our option, in whole
or in part, at redemption prices ranging from 105.375% in 2007 to 100% in 2010
and thereafter. Prior to July 15, 2005, up to 35% of the notes may be redeemed
at 110.75% of the principal amount at our option in connection with an equity
offering. Upon a change in control, as defined in the indenture entered into in
connection with the notes, each holder of notes will have the right to require
us 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 indenture restricts our ability to incur additional debt and
contains other provisions which could limit our liquidity.
Our contractual cash obligations as of December 28, 2002 are summarized in the
following table.
PAYMENTS DUE BY PERIOD AT DECEMBER 28, 2002
--------------------------------------------------------------------------------
< 1 1-3 4-5 > 5
(DOLLARS IN THOUSANDS) TOTAL YEAR YEARS YEARS YEARS
----- ---- ----- ----- -----
Long-term debt, excluding capital
leases ........................ $582,367 $ 3,800 $ 7,600 $ 7,600 $563,367
Capital leases ................... 33,101 6,416 12,437 5,559 8,689
Operating leases ................. 19,221 6,925 9,186 3,110 --
Other long-term obligations ...... 1,285 1,281 4 -- --
-------- -------- -------- -------- --------
Total contractual cash obligations $635,974 $ 18,422 $ 29,227 $ 16,269 $572,056
======== ======== ======== ======== ========
Net cash provided by operating activities was $0.8 million for the thirteen
weeks ended March 29, 2003 compared to $7.5 million for the thirteen weeks ended
March 30, 2002. The decrease of $6.7 million is primarily the result of timing
of interest payments on our subordinated debt.
Net cash used by investing activities increased by $1.9 million to $14.9 million
for the thirteen weeks ended March 29, 2003 from $13.0 million for the thirteen
weeks ended March 30, 2002 primarily due to the difference in price of the
acquisition of assets from CCL in the thirteen weeks ended March 29, 2003 and
the Mount Vernon acquisition in the thirteen weeks ended March 30, 2002. Capital
spending of $10.1 million for the thirteen weeks ended March 29, 2003 represents
an increase of $0.3 million from the thirteen weeks ended March 30, 2002. The
capital spending during the thirteen weeks ended March 29, 2003 included $0.4
million for buildings and systems, $4.3 million for molds, $3.8 million for
molding and printing machines, and $1.6 million for accessory equipment and
systems.
Net cash provided by financing activities was $2.6 million for the thirteen
weeks ended March 29, 2003 compared to $5.6 million for the thirteen weeks ended
March 30, 2002. The decrease of $3.0 million can be primarily attributed to
decreased borrowings.
Net cash provided by operating activities was $26.6 million in 2002 as compared
to $54.3 million in 2001. This decrease of $27.7 million can be primarily
attributed to expenses incurred in connection with the Acquisition. Net cash
provided by operating activities was $36.1 million in 2000. 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 for investing activities decreased from $56.3 million in 2001 to
$44.9 million in 2002 primarily as a result of the Pescor acquisition in 2001.
Capital expenditures in 2002 were $28.6 million, a decrease of $4.2 million from
$32.8 million in 2000. Capital expenditures in 2002 included investments of $1.6
million for facility renovations, production systems and offices necessary to
support production operating levels throughout the company, $12.6 million for
molds, $7.9 million for molding and printing machines, and $6.5 million for
accessory equipment and systems. The capital expenditure budget for 2003 is
expected to be $36.3 million. Net cash used for investing activities was $108.7
million in 2000 compared to the $56.3 million in 2001. This decrease can be
primarily attributed to the Poly-Seal acquisition in 2000.
Net cash provided by financing activities was $32.4 million in 2002 as compared
to $0.6 million in 2001. The increase of $31.8 million can be primarily
attributed to the Acquisition. 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.
Increased working capital needs occur whenever we experience strong incremental
demand or a significant rise in the cost of raw material, particularly plastic
resin. However, we anticipate that our cash interest, working capital and
capital expenditure requirements for 2003 will be satisfied through a
combination of funds generated from operating activities and cash on hand,
24
together with funds available under our senior secured credit facility. We base
this belief on historical experience and the substantial funds available under
our senior secured credit facility. However, we cannot predict our future
results of operations. At March 29, 2003, our cash balance was $4.0 million, and
we had unused borrowing capacity under the senior secured credit facility's
revolving line of credit of $85.5 million. However, the covenants under our
senior secured credit facility may limit our ability to make such borrowings and
as of March 29, 2003, we could have borrowed $24.8 million.
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 may not 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
In April 2002, the Financial Accounting Standards Board (''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.
As a result, the company will reclassify the extraordinary item in
25
the Statements of Operations to continuing operations in its 2003 third quarter
financial statements. Any gain or loss on extinguishment of debt that was
classified as an extraordinary item in prior periods presented that does not
meet the criteria in Opinion 30 for classification as an extraordinary item must
be reclassified. The provisions of SFAS No. 145 related to the rescission of
FASB Statement No. 44, the amendment of FASB Statement No. 13 and Technical
Corrections became 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 initial adoption of this
statement did not have a material impact on the company.
On April 30, 2003, the FASB issued Statement of Financial Accounting Standards
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities ("SFAS No. 149"). SFAS No. 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under Statement 133 and is to be
applied prospectively to contracts entered into or modified after June 30, 2003.
The company is currently evaluating the effects, if any, that this standard will
have on its results of operations and financial position.
In November 2002, the FASB issued FASB Interpretation (FIN) 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." Interpretation No. 45 requires certain
guarantees to be recorded at fair value and requires a guarantor to make
significant new disclosures, even when the likelihood of making any payments
under the guarantee is remote. Interpretation No. 45's initial recognition and
initial measurement provisions are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002; however, its disclosure
requirements are effective for financial statements of interim or annual periods
ending after December 15, 2002. The interpretation had no effect on the
company's results of operations or financial position for the current year. The
company will continue to evaluate what effect, if any, the recognition and
measurement provisions will have on its financial statements and related
disclosures in future periods.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities". FIN 46 defines a variable interest entity (VIE) as a corporation,
partnership, trust, or any other legal structure that does not have equity
investors with a controlling financial interest or has equity investors that do
not provide sufficient financial resources for the entity to support its
activities. FIN 46 requires consolidation of a VIE by the primary beneficiary of
the assets, liabilities, and results of activities. FIN 46 also requires certain
disclosures by all holders of a significant variable interest in a VIE that are
not the primary beneficiary. The company does not have any investments in VIE's;
therefore, the adoption of this interpretation has had no impact on the
company's results of operations or 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to market risk from changes in interest rates primarily through
our senior secured credit facility. The senior secured credit facility is
comprised of (1) a $330.0 million term loan, (2) a $50.0 million delayed draw
term loan facility, and (3) a $100.0 million revolving credit facility. At March
29, 2003, there were no borrowings outstanding on the delayed draw term loan
facility. The net outstanding balance of the term loan and revolving line of
credit at March 29, 2003 was $328.4 million and $5.0 million, respectively.
Future borrowings under the credit facility bear interest, at our option, at
either (1) the base rate, which is 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 0.5% plus the applicable margin or (2) an adjusted Eurodollar
Rate which is equal to the rate for Eurodollar deposits plus the applicable
margin. We utilize interest rate instruments to reduce the impact of either
increases or decreases in interest rates on its floating rate debt. Pursuant to
a requirement in the senior secured credit facility and as a result of the
current economic slowdown and corresponding interest rate reductions, we entered
into an interest rate collar arrangement in October 2002 to protect $50.0
million of the outstanding variable rate term loan debt from future interest
rate volatility. Under the interest rate collar agreement, the Eurodollar rate
with respect to the $50.0 million of outstanding variable rate term loan debt
will not exceed 6.75% or drop below 1.97%. At March 29, 2003, the Eurodollar
rate applicable to the term loan and revolving line of credit was 1.35% and
1.33%, respectively. If the Eurodollar rate increases 0.25% and 0.5%, we
estimate an annual increase in our interest expense of approximately $0.7
million and $1.4 million, respectively.
26
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. The average length of our relationship with our top
10 customers in fiscal 2002 was over 15 years, and these customers represented
approximately 19% of our fiscal 2002 net sales. No customer accounted for more
than 4% of our fiscal 2002 net sales. We believe that over 58% of our 2002
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 12 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) 1998 1999 2000 2001 2002
------ ------ ------ ------ ------
Containers ...... $154.0 $188.7 $231.2 $234.5 $250.4
Closures ........ 56.4 81.0 112.2 132.4 133.9
Consumer products 61.4 59.1 64.7 94.8 110.0
------ ------ ------ ------ ------
Total net sales $271.8 $328.8 $408.1 $461.7 $494.3
====== ====== ====== ====== ======
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 58% of
our fiscal 2002 sales were in product categories in which we were the nation's
leading supplier relative to competing injection-molded products, including:
o thinwall open-top containers;
o pry-off open-top containers;
o aerosol overcaps;
o drink cups; and
o 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 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 12 consecutive years of
positive year-over-year growth in net sales. We believe our size enables us to
achieve superior operating efficiencies and financial results through several
scale-driven advantages:
27
o 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.
o 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.
o Enhanced purchasing power lowers our cost of raw materials such as
resin.
o Broad, low-cost distribution capabilities, as a result of the
strategic location of our manufacturing facilities near our
customers, reduce shipping costs. We operate 10 manufacturing
facilities in the United States and two facilities in Western
Europe.
o 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.
o 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 high density polyethylene, or HDPE, and
polypropylene, or 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.
The resin market is currently experiencing increasing prices primarily due to
the increased cost of oil and natural gas. Due to the extent and rapid nature of
these increases, we cannot reasonably estimate our ability to successfully
recover these cost increases in the short-term.
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 2002 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 10 customers represented approximately 19% of our fiscal 2002 net sales with
no customer accounting for more than 4% of our fiscal 2002 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.
UNIQUE, PROPRIETARY THERMOFORMING DRINK CUP MANUFACTURING PROCESS. Over a period
of several years, we have invested approximately $23.0 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
28
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 lines are currently operating at full capacity and
we expect to introduce additional capacity in the third quarter of 2003,
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 16 years of
experience with us, including companies acquired by us, and an average of 19
years of industry experience. The senior management team includes President and
CEO Ira Boots, who has been with us for 25 years, and CFO Jim Kratochvil, who
has been with us for 18 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 and
maintaining customer relationships, expanding product offerings and implementing
innovative technological manufacturing enhancements. The senior management team
invested approximately 70% of their net proceeds from the Acquisition in BPC
Holding and the management team as a whole owns, or has the right to acquire,
over 15% of BPC Holding on a fully diluted basis.
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 Crowley
Foods' primary supplier for its institutional dairy packaging products, we were
awarded Crowley's business to supply its retail dairy packaging needs, thereby
making us their single source supplier for injection-molded dairy container
packaging. In addition, with the introduction of our new milk jug closure, we
recently became the single source supplier for all of AE Dairy's plastic
packaging needs.
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 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:
o leveraging our increasing scale to reduce resin costs;
o reinvesting capital into our manufacturing processes to maintain
technological leadership and achieve productivity gains;
o focusing on ways to streamline operations through plant and overhead
rationalization; and
29
o monitoring and rationalizing the number of vendors from which we
purchase nonresin materials in order to increase our purchasing
power.
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. 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 3% of our total net sales in
fiscal 2002.
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,
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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 10 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 that 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 that 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 (1) a reputation for outstanding quality, (2)
short lead-time requirements to fill customer orders, (3) long-standing
relationships with major customers, (4) the ability to accurately reproduce over
3,500 colors, (5) proprietary packing technology that minimizes freight cost and
warehouse space, (6) high-speed, low-cost molding and decorating capability and
(7) 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 2002, 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 that 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 (1) fitments and plugs for
medical applications, (2) cups and spouts for liquid laundry detergent, (3)
dropper bulb assemblies for medical and personal care applications and (4)
jiggers for mouthwash products.
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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 2002, 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 United States. 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-the-art 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 cups. This offers a material
competitive advantage versus competitive thermoformed drink cups.
In fiscal 2002, no single drink cup customer accounted for more than 3% of our
total net sales. Drink cup competitors include Huhtamaki (formerly Packaging
Resources Incorporated), Sweetheart, Letica, 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 2002, no single housewares customer accounted for more than 4% 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.
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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.
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 5 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.
Our overall manufacturing philosophy is to be a low-cost producer by using (1)
high-speed molding machines, (2) modern multi-cavity hot runner, cold runner and
insulated runner molds, (3) extensive material handling automation and (4)
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 $146.4 million.
RESEARCH AND PRODUCT DEVELOPMENT AND DESIGN
We believe that 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. We can simulate the molding
environment by running unit-cavity prototype molds in small injection-molding
machines for 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.
We spent $2.9 million, $1.9 million and $2.6 million on research and development
in 2002, 2001, and 2000, respectively, and $0.8 million in the thirteen weeks
ended March 29, 2003.
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
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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. All of our
facilities 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"). 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 $113.0 million of resin in fiscal 2002. Approximately 50% of the
resin pounds purchased were HDPE, 13% linear low density polyethylene and 37%
PP. 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/decreases to many of our customers in a relatively short period of
time, typically quarterly. In addition, to date, we have experienced high
success rates in passing through price increases and decreases in the price of
resin to customers, without indexed price agreements, although the magnitude of
the fluctuations in the price of resin in recent periods may have an impact on
our future success in this area. 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 and may continue
to enter into negotiated purchase agreements with resin suppliers 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. In a typical resin
market, we estimate that we have historically been able to 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 that calendar year.
The resin market is currently experiencing rapidly increasing prices primarily
due to the increased cost of oil and natural gas. Based on information from
Plastics News, an industry publication, average spot prices of HDPE and PP on
March 17, 2003 were $0.565 per pound and $0.44 per pound, respectively,
reflecting increases of $0.17 per pound, or 43%, and $0.05 per pound, or 13%,
over the respective average spot prices from December 28, 2002. Due to the
extent and rapid nature of these increases, we cannot reasonably estimate our
ability to successfully recover these cost increases in the short-term.
Our purchasing strategy is to deal with only high-quality, dependable suppliers,
such as Dow, Chevron, Nova, Equistar, Atofina, Basell, and ExxonMobil. Although
we do not have any supply requirements 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 assurance as to such
availability or the prices thereof.
EMPLOYEES
As of March 29, 2003, 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 March 29, 2003, approximately 330 employees of Poly-Seal
Corporation, all of which are located in our Baltimore, Maryland 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
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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
We believe that our property and equipment are well maintained, in good
operating condition and adequate for our present needs.
The following table sets forth our principal manufacturing facilities:
APPROXIMATE
SQUARE OWNED/
LOCATION ACRES FOOTAGE USE LEASED
-------------- ---- ------- ------------- -----
Evansville, IN 15.8 580,000 Headquarters and
Manufacturing Owned
Henderson, NV 12.3 175,000 Manufacturing Owned
Iowa Falls, IA 14.1 100,000 Manufacturing Owned
Charlotte, NC 37.3 150,000 Manufacturing Owned
Lawrence, KS 19.3 424,000 Manufacturing Owned
Suffolk, VA 14.0 110,000 Manufacturing Owned
Monroeville, OH 34.7 152,000 Manufacturing Owned
Norwich, England 5.0 88,000 Manufacturing Owned
Woodstock, IL 13.7 170,000 Manufacturing Owned
Streetsboro, OH 11.9 140,000 Manufacturing Owned
Baltimore, MD 9.9 244,000 Manufacturing Owned
Milan, Italy 11.6 125,000 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, or 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. No such notices are currently pending.
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 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
35
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
PP, 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 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, or 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. In addition, California reached its
25% recycling rate goal for rigid plastic containers in 2001, which is the most
recent compliance period examined. Therefore, rigid plastic containers were
exempt from the requirements of the California statute in 2001, which is the
most recent testing date that has been completed. The company, in order to
facilitate continued individual customer compliance with these regulations, is
providing customers the option of purchasing containers with limited amounts of
PCR or reduced weight.
LEGAL PROCEEDINGS
We are party to various legal proceedings involving routine claims which are
incidental to our business. Although our legal and financial liability with
respect to such proceedings cannot be estimated with certainty, we believe that
any ultimate liability would not be material to our financial condition.
36
MANAGEMENT
Our directors and executive officers and their ages, are as follows:
NAME AGE TITLE
---- --- -----
Joseph H. Gleberman(1)(2)(3)......... 45 Chairman and Director
Ira G. Boots(1)(3)................... 49 President, Chief Executive Officer and Director
James M. Kratochvil.................. 46 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
R. Brent Beeler...................... 50 Executive Vice President and General Manager -
Containers and Consumer Products
William J. Herdrich.................. 52 Executive Vice President and General Manager -
Closures
Christopher C. Behrens(1)(2)......... 42 Director
Patrick J. Dalton(4)(2).............. 34 Director
Douglas F. Londal(1)(4)(3)........... 37 Director
Mathew J. Lori(4)(3)................. 38 Director
(1) Member of the Compensation Committee.
(2) Member of the Finance Committee.
(3) Member of the Corporate Development Committee.
(4) Member of the Audit Committee.
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. He serves on the Board of Directors of aaiPharma, BackWeb
Technologies, IPC Acquisition Corp., and MCG Capital Corporation, as well as a
number of private companies. 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.
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 our 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 Executive Vice President and General Manager-Containers
and Consumer Products since October 2002 and was 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. During the period from April 1994 to May 2000,
Mr. Herdrich was President, Executive Vice President and General Manager of
Poly-Seal Corporation, which we acquired in 2000. Mr. Herdrich was employed by
Seaquist Closures from 1990 to April 1994 as Executive Vice President.
37
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 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
the Principal Investment Area of Goldman, Sachs & Co. in 2000, Mr. Dalton was at
Chase Securities from 1997 to 2000. He serves on the Board of Directors of First
Asset Management Inc. and Waddington North America, Inc. as well as a number of
private companies. 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 the Principal Investment Area of Goldman, Sachs & Co. 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 and Village
Voice Media, LLC, as well as a number of private companies. 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. Mr.
Lori 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, as well as a number of private companies.
Mr. Lori received an M.B.A. from Kellogg Graduate School of Management at
Northwestern University in 1993.
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.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has a Compensation Committee, an Audit Committee, a
Finance Committee and a Corporate Development Committee. The Compensation
Committee, consisting of Messrs. Gleberman, Boots, Behrens and Londal makes
recommendations concerning salaries and incentive compensation for our employees
and consultants. The Audit Committee, consisting of Messrs. Dalton, Londal and
Lori, 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. The Finance
Committee, consisting of Messrs. Gleberman, Behrens and Dalton oversees our
capital structure and reviews and approves significant financing decisions. The
Corporate Development Committee, consisting of Messrs. Gleberman, Boots, Londal
and Lori, oversees our business strategy and, in particular, reviews and
recommends potential acquisition candidates.
COMPENSATION OF DIRECTORS
Directors receive no cash consideration for serving on our board of directors,
but directors are reimbursed for out-of-pocket expenses incurred in connection
with their duties as directors.
STOCKHOLDERS' AGREEMENT
In connection with the Acquisition, BPC Holding entered into a stockholders'
agreement with GSCP 2000 and other private equity funds affiliated with Goldman,
Sachs & Co. that, 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. that, in the aggregate, own approximately 29%
of our common stock. Under the terms of this agreement, among other things: (1)
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
38
designated by J.P. Morgan Partners Global Investors, L.P.; (2) the Goldman Sachs
and J.P. Morgan funds have the right to subscribe for a proportional share of
future equity issuances by BPC Holding; (3) after July 29, 2009, the J.P. Morgan
funds have the right to demand that BPC Holding cause the initial public
offering of its common stock, if such an offering or other sale of BPC Holding
has not occurred by such time; and (4) BPC Holding has agreed not to take
specified actions, including, making certain amendments to either the
certificate of incorporation or the by-laws of BPC Holding, changing independent
accountants, or entering into certain affiliate transactions, without the
approval of a majority of its board of directors, including at least one
director designated by the J.P. Morgan funds. The stockholders agreement also
contains provisions regarding transfer restrictions, rights of first offer,
tag-along rights and drag-along rights related to the shares of BPC Holding
common stock owned by the Goldman Sachs and J.P. Morgan funds.
MANAGEMENT COMPENSATION
The following table sets forth a summary of the compensation paid by the company
to its Chief Executive Officer during the 2002 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 2002, 2001 and 2000.
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------ OTHER
SECURITIES COMPENSATION
FISCAL UNDERLYING ------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (#) (2)
--------------------------- ----- ------ --------- ----------- ---
Ira G. Boots 2002 $ 424,536 $1,452,018 61,814 $ 12,505
President and Chief Executive Officer 2001 316,461 87,500 -- 12,428
2000 289,328 150,000 -- 11,779
James M. Kratochvil 2002 $ 273,400 $ 945,026 35,040 $ 9,889
Executive Vice President, Chief 2001 231,919 64,166 -- 9,198
Financial Officer, Treasurer and 2000 212,049 120,000 -- 8,800
Secretary
R. Brent Beeler 2002 $ 298,172 $1,080,496 35,229 $ 2,590
Executive Vice President and General 2001 284,251 78,750 -- 3,196
Manager - Containers and Consumer 2000 257,236 135,000 -- 2,879
Products
William J. Herdrich 2002 $ 269,222 $ 983,506 25,581 $ 4,899
Executive Vice President and General 2001 258,690 62,800 2,000 3,834
Manager - Closures 2000 99,003 18,986 -- 4,691
Bruce J. Sims(3) 2002 $ 263,533 $ 908,435 26,412 $ 4,024
Executive Vice President of Sales - 2001 211,851 55,693 -- 3,912
Drink Cups 2000 193,055 114,000 -- 3,879
(1) Amounts shown include transaction bonuses of $1,238,298, $788,298,
$871,298, $803,831 and $766,298 paid to Messrs. Boots, Kratochvil, Beeler,
Herdrich and Sims, respectively, in connection with the Acquisition.
(2) Amounts shown reflect contributions by the company under the company's
401(k) plan and the personal use of a company vehicle.
(3) Mr. Sims served as our Executive Vice President of Sales - Drink Cups
from October 2002 until May 16, 2003 and our Executive Vice President and
General Manager - Consumer Products from August 2000 to October 2002.
Prior to that, he served as our Executive Vice President, Sales and
Marketing, Housewares from January 1997 to August 2000.
39
The following table sets forth a summary of the options granted by the company
to the Named Executive Officers during the 2002 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants Potential Realizable
--------------------------- Value At
Number Of % Of Total Assumed Rates Of Stock
Securities Options Price Appreciation For
Underlying Granted To Option Term
Options Employees In Exercise Expiration ------------------------
Name Granted (#) Fiscal Year Price ($) Date 5% ($) 10% ($)
---- ----------- ----------- --------- ---- ------ -------
Ira Boots 15,886 (1) 4.0 100 9/19/12 999,071 2,531,752
Ira Boots 7,943 (2) 2.0 100 9/19/12 499,535 1,265,876
Ira Boots 37,985 (3) 9.6 100 9/19/12 0 0
James M. Kratochvil 9,035 (1) 2.2 100 9/19/12 568,211 1,439,908
James M. Kratochvil 4,518 (2) 1.1 100 9/19/12 284,137 720,034
James M. Kratochvil 21,487 (3) 5.4 100 9/19/12 0 0
R. Brent Beeler 9,035 (1) 2.3 100 9/19/12 568,211 1,439,908
R. Brent Beeler 4,518 (2) 1.1 100 9/19/12 284,137 720,034
R. Brent Beeler 21,676 (3) 5.5 100 9/19/12 0 0
William J. Herdrich 9,035 (1) 2.3 100 9/19/12 568,211 1,439,908
William J. Herdrich 4,518 (2) 1.1 100 9/19/12 284,137 720,034
William J. Herdrich 12,028 (3) 3.0 100 9/19/12 0 0
Bruce J. Sims (4) 9,035 (1) 2.3 100 9/19/12 568,211 1,439,908
Bruce J. Sims (4) 4,518 (2) 1.1 100 9/19/12 284,137 720,034
Bruce J. Sims (4) 12,859 (3) 3.3 100 9/19/12 0 0
----------
(1) Represents options granted on September 19, 2002, which (i) have an
exercise price fixed at $100 per share, which was the fair market value of
a share of Holding Common Stock on the date of grant, and (ii) vest and
become exercisable over a five year period, beginning the last day of 2002
based on continued service with the company.
(2) Represents options granted on September 19, 2002, which (i) have an
exercise price fixed at $100 per share, which was the fair market value of
a share of Holding Common Stock on the date of grant, and (ii) vest and
become exercisable based on the achievement by BPC Holding of certain
financial targets, or if such targets are not achieved, based on continued
service with the company.
(3) Represents options granted on September 19, 2002, which (i) have an
exercise price which commenced at $100 per share, which was the fair
market value of a share of Holding Common Stock on the date of grant and
will increase at the rate of 15% per year during the term of the option,
and (ii) vest and become exercisable over a five year period, beginning
the last day of 2002 based on continued service with the company.
(4) Mr. Sims served as our Executive Vice President of Sales - Drink Cups from
October 2002 until May 16, 2003 and our Executive Vice President and
General Manager - Consumer Products from August 2000 to October 2002.
40
FISCAL YEAR-END OPTION HOLDINGS
The following table provides information on the number of exercisable and
unexercisable management stock options held by the Named Executive Officers at
December 28, 2002.
FISCAL YEAR-END OPTION VALUES(1)
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE FISCAL YEAR-END AT FISCAL YEAR-END
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------- -------- ------------------------- -------------------------
(#)(2) (2)
Ira G. Boots -- -- 16,278/61,814 $1,106,416/$0
James M. Kratochvil -- -- 10,174/35,040 691,527/0
R. Brent Beeler -- -- 10,174/35,229 691,527/0
William J. Herdrich -- -- 6,244/25,581 172,397/0
Bruce J. Sims -- -- 4,058/26,412 265,434/0
----------
(1) None of Holding's capital stock is currently publicly traded. The values
reflect management's estimate of the fair market value of the Common Stock
at December 28, 2002.
(2) All options granted to management of the company are exercisable for
shares of Common Stock, par value $.01 per share, of Holding.
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 2002
fiscal year.
1996 STOCK 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 or before 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 STOCK OPTION PLAN
BPC Holding has adopted a new employee stock option plan ("2002 Stock Option
Plan") pursuant to which options to acquire up to 437,566 shares of BPC
Holding's common stock may be granted to its employees, directors and
consultants. Options granted under the 2002 Stock 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
BPC Holding has adopted an employee stock purchase program pursuant to which a
number of employees had the opportunity to invest in BPC Holding on a leveraged
basis. Some senior employees also purchased shares of BPC Holding common stock
in connection with the Acquisition. See "Related party transactions -- Loans to
executive officers." Each eligible employee was permitted to purchase shares of
BPC Holding common stock having an aggregate value of up to the greater of (1)
150% of the
41
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
were 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 is to the shares of BPC Holding securing the note. In
this manner, the remaining management acquired 41,628 shares in the aggregate.
EMPLOYMENT AGREEMENTS
The company has employment agreements with each of Messrs. Boots, Kratochvil,
Beeler and Herdrich. The agreements for Messrs. Boots, Kratochvil and
Beeler expire on January 1, 2007. Mr. Herdrich's agreement expires on December
31, 2003. The employment agreements provided for fiscal 2002 base compensation
of $424,536, $273,400, $298,172 and $269,222, respectively. Salaries are
subject in each case to annual adjustment at the discretion of the Compensation
Committee of the board of directors of the company. The employment agreements
entitle each executive to participate in all other incentive compensation plans
established for executive officers of the company. The company may terminate
each employment agreement for "cause" or a "disability" (as those terms are
defined in the employment agreements). Specifically, if any of Messrs. Boots,
Kratochvil and Beeler is 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
by Berry Plastics or a predecessor in interest and (2) the pro rata portion of
his annual bonus. 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 and (2) a pro rata portion of his annual
bonus. Each employment agreement also includes customary noncompetition,
nondisclosure and nonsolicitation provisions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The company established the Compensation Committee comprised of Messrs.
Gleberman, Boots, Behrens, and Londal. The annual salary and bonus paid to
Messrs. Boots, Kratochvil, Beeler, Herdrich and Sims for fiscal 2002 were
determined by the Compensation Committee in accordance with their respective
employment agreements. All other compensation decisions with respect to officers
of the company are made by Mr. Boots pursuant to policies established in
consultation with the Compensation Committee.
Messrs. Gleberman and Londal are both Managing Directors of Goldman, Sachs & Co.
Goldman, Sachs & Co. provided advisory and other services to us in connection
with the Acquisition and acted as an initial purchaser in the offering of the
notes. Goldman, Sachs Credit Partners, L.P. participated in and acted as joint
lead arranger, joint bookrunner and administrative agent for our senior secured
credit facility. Mr. Behrens is a partner of J.P. Morgan Partners, LLC, which is
the private equity investment arm of J.P. Morgan Chase & Co. Various affiliates
of J.P. Morgan provided advisory and other services to us in connection with the
Acquisition and acted as a dealer-manager in connection with the related debt
tender offers, acted as an initial purchaser in the offering of the notes and
participated in and acted as joint lead arranger, joint bookrunner and a
syndication agent for our senior secured credit facility. See "Related party
transactions" for a description of these transactions between us and various
affiliates of Goldman Sachs and J.P. Morgan.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
We are incorporated under the laws of the State of Delaware. Section 145 of the
Delaware General Corporation Law, or DGCL, provides that a Delaware corporation
may indemnify directors and officers as well as other employees and individuals
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement in connection with specified actions, suits and proceedings,
whether civil, criminal, administrative or investigative (other than action by
or in the right of the corporation -- a "derivative action"), if they acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe their conduct was unlawful.
A similar standard is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) incurred in
connection with the defense or settlement of such action, and the statute
requires court approval before there can be any indemnification where the person
seeking indemnification has been found liable to the corporation. The statute
provides that it is not exclusive of other indemnification that may be granted
by a corporation's certificate of incorporation, bylaws, disinterested director
vote, stockholder vote, agreement, or otherwise.
The DGCL further authorizes a Delaware corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
The company's Certificate of Incorporation and Bylaws provide for the
indemnification of the company's directors to the fullest extent permitted under
Delaware law. The company's Certificate of Incorporation limits the personal
liability of a director to the corporation or its stockholders to damages for
breach of the director's fiduciary duty. The company has purchased insurance on
behalf of its directors and officers.
42
PRINCIPAL STOCKHOLDERS
All of the outstanding capital stock of the company is owned by
Holding. The following table sets forth certain information regarding the
beneficial ownership of the capital stock of Holding as of June 6, 2003 with
respect to (i) each person known by Holding to own beneficially more than 5% of
the outstanding shares of any class of its voting capital stock, (ii) each of
Holding's directors, (iii) the Named Executive Officers and (iv) all directors
and executive officers of Holding as a group. Except as otherwise indicated,
each of the stockholders has sole voting and investment power with respect to
the shares beneficially owned. Unless otherwise indicated, the address for each
stockholder is c/o Berry Plastics Corporation, 101 Oakley Street, Evansville,
Indiana 47710.
PERCENTAGE OF
NAME AND ADDRESS OF COMMON STOCK
BENEFICIAL OWNER COMMON STOCK OUTSTANDING*
---------------- ------------ ------------
GS Capital Partners 2000, L.P. (2) ........................... 960,705 34.3%
GS Capital Partners 2000 Offshore, L.P. (2) .................. 349,083 12.4
GS Capital Partners 2000 GmbH & Co. Beteiligungs KG (2) ...... 40,155 1.4
GS Capital Partners 2000 Employee Fund, L.P. (2) ............. 305,057 10.9
Stone Street 2000, L.P. (2) .................................. 30,000 1.1
Bridge Street Special Opportunities Fund 2000, L.P. (2) ..... 15,000 --
Goldman Sachs Direct Investment Fund 2000, L.P. (2) .......... 50,000 1.8
J.P. Morgan Partners Global Investors, L.P. (3) .............. 99,057 3.5
J.P. Morgan Partners Global Investors (Cayman), L.P. (3) ..... 50,277 1.8
J.P. Morgan Partners Global Investors (Cayman) II, L.P. (3) .. 5,603 --
J.P. Morgan Partners Global Investors A, L.P. (3) ............ 13,503 --
J.P. Morgan Partners (BHCA), L.P. (3) ........................ 625,112 22.3
Joseph H. Gleberman (4) ...................................... 1,750,000 62.5
Christopher C. Behrens (5) ................................... 793,552 28.4
Patrick J. Dalton (6) ........................................ 1,750,000 62.5
Douglas F. Londal (7) ........................................ 1,750,000 62.5
Mathew J. Lori (8) ........................................... -- --
Ira G. Boots ................................................. 64,839(9) 2.3
James M. Kratochvil .......................................... 38,237(10) 1.4
R. Brent Beeler .............................................. 38,526(11) 1.4
William J. Herdrich .......................................... 25,862(12) --
Bruce J. Sims ................................................ 21,359(13) --
All executive officers and directors as a group (10 persons) . 2,732,375(14) 97.7
* The number of shares outstanding used in calculating the percentage for
each person, group or entity listed includes the number of shares
underlying options held by such person or group that were exercisable or
convertible within 60 days from June 6, 2003, but excludes shares of
stock underlying options held by any other person.
-- Less than one percent.
(1) The authorized capital stock of Holding consists of 5,500,000 shares of
capital stock, including 5,000,000 shares of Common Stock, $.01 par value
(the "Holding Common Stock"), and 500,000 shares of Preferred Stock, $.01
par value (the "Preferred Stock").
(2) Address is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York,
10004.
(3) Address is 1221 Avenue of the Americas, New York, New York 10020.
(4) Address is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York,
10004. Represents shares owned by equity funds affiliated with Goldman,
Sachs & Co. Mr. Gleberman is a Managing Director of Goldman, Sachs & Co.
Mr. Gleberman disclaims any beneficial ownership of the shares of Holding
Common Stock held by equity funds affiliated with Goldman, Sachs & Co.
except to the extent of his pecuniary interest therein.
(5) Address is c/o J.P. Morgan Partners, LLC, 1221 Avenue of the Americas, New
York, New York 10020. Represents shares owned by equity funds affiliated
with J.P. Morgan Chase & Co. Mr. Behrens is a partner of J.P. Morgan
Partners, which is the private equity investment arm of J.P. Morgan Chase
& Co. Mr. Behrens disclaims any beneficial ownership of the shares of
Holding Common Stock held by equity funds affiliated with J.P. Morgan
Chase & Co. except to the extent of his pecuniary interest therein.
(6) Address is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York,
10004. Represents shares owned by equity funds affiliated with Goldman,
Sachs & Co. Mr. Dalton is a Vice President of Goldman, Sachs & Co. Mr.
Dalton disclaims any beneficial ownership of the shares of Holding Common
Stock held by equity funds affiliated with Goldman, Sachs & Co. except to
the extent of his pecuniary interest therein.
43
(7) Address is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York,
10004. Represents shares owned by equity funds affiliated with Goldman,
Sachs & Co. Mr. Londal is a Managing Director of Goldman, Sachs & Co. Mr.
Londal disclaims any beneficial ownership of the shares of Holding Common
Stock held by equity funds affiliated with Goldman, Sachs & Co. except to
the extent of his pecuniary interest therein.
(8) Address is c/o J.P. Morgan Partners, LLC, 1221 Avenue of the Americas, New
York, New York 10020.
(9) Includes options to purchase 29,551 shares of Holding Common Stock granted
to Mr. Boots, exercisable within 60 days of June 6, 2003.
(10) Includes options to purchase 16,280 shares of Holding Common Stock granted
to Mr. Kratochvil, exercisable within 60 days of June 6, 2003.
(11) Includes options to purchase 16,318 shares of Holding Common Stock granted
to Mr. Beeler, exercisable within 60 days of June 6, 2003.
(12) Includes options to purchase 10,458 shares of Holding Common Stock granted
to Mr. Herdrich, exercisable within 60 days of June 6, 2003.
(13) Includes options to purchase 7,343 shares of Holding Common Stock granted
to Mr. Sims, exercisable within 60 days of June 6, 2003.
(14) Includes options to purchase 77,453 shares of Holding Common Stock granted
to executive officers, exercisable within 60 days of June 6, 2003.
44
RELATED PARTY TRANSACTIONS
MANAGEMENT AGREEMENT WITH FIRST ATLANTIC
Prior to the Acquisition, Atlantic Equity Partners International II, L.P. was
our largest voting stockholder and we engaged First Atlantic Capital, Ltd. to
provide certain financial and management consulting services to us. Under our
management agreement with First Atlantic, 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 $385,000 for fiscal 2002, $756,000 for fiscal 2001, and $821,000
for fiscal 2000. Under the management agreement, we paid a fee for services
rendered in connection with certain transactions equal to the lesser of (1) 1%
of the total transaction value and (2) $1,250,000 for any such transaction
consummated plus out-of-pocket expenses in respect of such transaction, whether
or not consummated. 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.
THE ACQUISITION
On July 22, 2002, GS Berry Acquisition Corp., a newly formed entity controlled
by various private equity funds affiliated with Goldman, Sachs & Co., merged
with and into BPC Holding, pursuant to an agreement and plan of merger, dated as
of May 25, 2002. At the effective time of the Acquisition, (1) each share of
common stock of BPC Holding issued and outstanding immediately prior to the
effective time of the Acquisition was converted into the right to receive cash
pursuant to the terms of the merger agreement, and (2) each share of common
stock of GS Berry Acquisition Corp. issued and outstanding immediately prior to
the effective time of the Acquisition was converted into one share of common
stock of BPC Holding. Additionally, in connection with the Acquisition, we
retired all of BPC Holding's senior secured notes and Berry Plastics' senior
subordinated notes, repaid all amounts owed under our credit facilities,
redeemed all of the outstanding preferred stock of BPC Holding, entered into a
new credit facility and completed an offering of new senior subordinated notes
of Berry Plastics. As a result of the Acquisition, private equity funds
affiliated with Goldman, Sachs & Co. own approximately 63% of the outstanding
common stock of BPC Holding, private equity funds affiliated with J.P. Morgan
Chase & Co. own approximately 29% and members of our management own the
remaining 8%.
ADVISORY FEES
In connection with the Acquisition, we paid Goldman, Sachs & Co. and its
affiliates a total of $8.0 million for advisory and other services, J.P. Morgan
Securities Inc., an affiliate of J.P. Morgan Chase & Co., a total of $5.2
million for advisory and other services and First Atlantic Capital, Ltd., a
total of $1.8 million for advisory and other services.
SENIOR SUBORDINATED DEBT PURCHASES
In connection with the Acquisition, Berry Plastics sold the notes to various
private institutional buyers. Goldman, Sachs & Co. and J.P. Morgan acted as
joint book-running managers in the transaction and received fees of
approximately $4.4 million and $3.2 million, respectively, for services
performed.
TENDER OFFER FEES
Prior to the Acquisition, BPC Holding and Berry Plastics engaged in tender offer
and consent solicitations to acquire their outstanding senior secured and senior
subordinated notes, respectively. J.P. Morgan Securities, Inc. acted as a
dealer-manager in connection with these tender offer and consent solicitations
for consideration of $0.1 million.
THE SENIOR SECURED CREDIT FACILITY
In connection with the Acquisition, we entered into a senior secured credit
facility with a syndicate of lenders led by Goldman Sachs Credit Partners L.P.,
an affiliate of Goldman, Sachs & Co., as administrative agent, and JPMorgan
Chase Bank, as syndication agent. For a description of the senior secured credit
facility, see "Description of other indebtedness - The senior secured credit
facility."
45
STOCKHOLDERS AGREEMENT WITH MAJOR STOCKHOLDERS
In connection with the Acquisition, BPC Holding entered into a stockholders'
agreement with GSCP 2000 and other private equity funds affiliated with Goldman,
Sachs & Co. that, 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. that, in the aggregate, own approximately 29%
of our common stock. Under the terms of this agreement, among other things: (1)
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.; (2) the
Goldman Sachs and J.P. Morgan funds have the right to subscribe for a
proportional share of future equity issuances by BPC Holding; (3) after July 29,
2009, the J.P. Morgan funds have the right to demand that BPC Holding cause the
initial public offering of its common stock, if such an offering or other sale
of BPC Holding has not occurred by such time; and (4) BPC Holding has agreed not
to take specified actions, including, making certain amendments to either the
certificate of incorporation or the by-laws of BPC Holding, changing independent
accountants, or entering into certain affiliate transactions, without the
approval of a majority of its board of directors, including at least one
director designated by the J.P. Morgan funds. The stockholders agreement also
contains provisions regarding transfer restrictions, rights of first offer,
tag-along rights and drag-along rights related to the shares of BPC Holding
common stock owned by the Goldman Sachs and J.P. Morgan funds.
STOCKHOLDERS AGREEMENT WITH MANAGEMENT
In connection with the Acquisition, BPC Holding also entered into a stockholders
agreement with certain members of BPC Holding's management. The stockholders
agreement grants certain rights to, and imposes certain obligations on, the
management stockholders who are party to the agreement, including: (1)
restrictions on transfer of BPC Holding's common stock; (2) obligations to
consent to a merger or consolidation of BPC Holding or a sale of BPC Holding's
assets or common stock; (3) obligations to sell their shares of BPC Holding
common stock back to BPC Holding in specified circumstances in connection with
the termination of their employment with BPC Holding; (4) rights of first offer,
(5) tag-along rights, (6) drag- along rights, (7) preemptive rights and (8)
registration rights.
LOANS TO EXECUTIVE OFFICERS
In connection with the Acquisition, Messrs. Boots, Kratochvil, Beeler, Herdrich
and Sims together with certain other senior employees acquired shares of BPC
Holding common stock pursuant to an employee stock purchase program. These
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. Messrs. Boots, Kratochvil,
Beeler, Herdrich and Sims purchased 37,785, 21,957, 22,208, 15,404, and 14,016
shares of BPC Holding common stock, respectively pursuant to this program. In
connection with these purchases, Messrs. Boots, Kratochvil, Beeler, Herdrich and
Sims delivered ten-year promissory notes to BPC Holding in the principal amounts
of $2,518,500, $1,302,900, $1,313,400, $1,027,000 and $915,900, respectively.
The promissory notes are secured by the shares purchased and such notes accrue
interest which compounds semi-annually at the rate of 5.50% per year, the
applicable federal rate for the notes in effect on July 16, 2002. Principal and
all accrued interest is due and payable on the earlier to occur of (i) the end
of the ten-year term, (ii) the ninetieth day following such executive's
termination of employment due to death, "disability", "redundancy" (as such
terms are defined in the 2002 Stock Option Plan) or retirement, or (iii) the
thirtieth day following such executive's termination of employment for any other
reason. As of March 14, 2003, a total of $2,610,661, $1,349,982, $1,360,862,
$1,064,112 and $948,997, including principal and accrued interest, was
outstanding under the promissory notes for each of Messrs. Boots, Kratochvil,
Beeler, Herdrich and Sims, respectively.
FUTURE RELATIONSHIPS WITH GOLDMAN SACHS AND J.P. MORGAN
In the future, we may engage in commercial banking, investment banking or other
financial advisory transactions with Goldman Sachs and its affiliates or J.P.
Morgan and its affiliates. In addition, Goldman Sachs and its affiliates or J.P.
Morgan and its affiliates may purchase goods and services from us from time to
time in the future.
TAX SHARING AGREEMENT
For federal income tax purposes, Berry Plastics and its domestic subsidiaries
are included in the affiliated group of which Holding is the common parent and
as a result, the federal taxable income and loss of Berry Plastics and its
subsidiaries is included in the group consolidated tax return filed by Holding.
In April 1994, Holding, Berry Plastics and certain of its subsidiaries entered
into a tax sharing agreement, which was amended and restated in March 2001 (the
"Tax Sharing Agreement"). Under the Tax
46
Sharing Agreement, for fiscal 1994 and all taxable years thereafter for which
the Tax Sharing Agreement remains in effect, Berry Plastics and its subsidiaries
as a consolidated group are required to pay at the request of Holding an amount
equal to the taxes (plus any accrued interest) that they would otherwise have to
pay if they were to file separate federal, state or local income tax returns
(including any amounts determined to be due as a result of a redetermination
arising from an audit or otherwise of a tax liability which is attributable to
them). If Berry Plastics and its subsidiaries would have been entitled to a tax
refund for taxes paid previously on the basis computed as if they were to file
separate returns, then under the Tax Sharing Agreement, Holding is required to
pay at the request of Berry Plastics and its subsidiaries an amount equal to
such tax refund. If, however, Berry Plastics and its subsidiaries would have
reported a tax loss if they were to file separate returns, then Holding intends,
but is not obligated under the Tax Sharing Agreement, to pay to Berry Plastics
and its subsidiaries an amount equal to the tax benefit that is realized by
Holding as a result of such separate loss. Under the Tax Sharing Agreement any
such payments to be made by Holding to Berry Plastics or any of its subsidiaries
on account of a tax loss are within the sole discretion of Holding. Berry
Plastics and its subsidiaries made payments of $8.5 million each to Holding in
December 2001 and June 2002 under this tax sharing agreement.
47
DESCRIPTION OF OTHER INDEBTEDNESS
THE SENIOR SECURED CREDIT FACILITY
In connection with the Acquisition, we and BPC Holding and our domestic
subsidiaries entered into a senior secured credit facility 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 facility.
The senior secured credit facility is 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 facility. 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 and the proceeds were used in connection with the
Acquisition to pay the cash consideration payable to stockholders, the costs of
prepaying company indebtedness and the transaction costs incurred in connection
therewith. At June 10, 2003, there were no borrowings outstanding on the delayed
draw term loan facility or the revolving line of credit. The net outstanding
balance of the term loan at June 10, 2003 was $327.5 million.
TERM LOAN/DELAYED DRAW TERM LOAN FACILITY/PREPAYMENT
The term loan amortizes quarterly as follows:
o $825,000 each quarter beginning September 30, 2002, and ending June 30,
2009; and
o $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 facility 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 facility 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 facility).
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.
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.
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INTEREST RATE AND FEES
Borrowings under the senior secured credit facility 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 29, 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. Interest is payable quarterly for Base Rate Loans and at
the end of the applicable interest period 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 facility is equal
to the interest rate at the time of an event of default plus 2.00%. The senior
secured credit facility 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
29, 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 facility 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 facility.
REPRESENTATIONS AND WARRANTIES
The senior secured credit facility contains representations and warranties
customary for this type of financing.
COVENANTS AND CONDITIONS
In addition to customary affirmative covenants, the senior secured credit
facility requires 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 facility include negative covenants that restrict our
and the guarantors' ability to, among other things:
o incur additional indebtedness;
o incur liens;
o enter into agreements with negative pledge clauses;
o make investments;
49
o guarantee obligations;
o pay dividends or make redemptions or other payments in respect of capital
stock;
o make payments with respect to subordinated debt;
o engage in mergers and make acquisitions;
o sell assets;
o make capital expenditures;
o enter into leases;
o engage in transactions with affiliates; and
o make investments in foreign subsidiaries.
The senior secured credit facility also contains (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.
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 facility contains customary and appropriate events of
default, which are subject to customary grace periods and materiality standards.
The occurrence of a default, an event of default or a material adverse effect on
Berry Plastics 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 debt agreements, each of which could
materially and adversely affect our business. We were in compliance with all of
the financial and operating covenants at March 29, 2003.
CAPITAL LEASES
We and our subsidiaries are also party to capital leases entered into in the
ordinary course of business. As of March 29, 2003, we had $26.7 million of
capital leases outstanding. We repaid approximately $7.1 million of the
outstanding capital leases at the time of the Acquisition.
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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 March 29,
2003, bear interest at a variable rate (1.3% at March 29, 2003), 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.
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DESCRIPTION OF THE NOTES
Definitions of certain terms used in this Description of the 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, (ii) the term "Holding" refers to BPC Holding Corporation, the
parent company of the Company, and not to any of its Subsidiaries and (iii) the
term "Notes" refers to the 10 3/4% Senior Subordinated Notes due 2012. Certain
of the Company's Subsidiaries and Holding will guarantee the Notes and therefore
will be subject to many of the provisions contained in this "Description of the
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 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 notes include those stated in the Indenture
and, upon effectiveness of a registration statement with respect to the notes,
those made part of the Indenture by reference to the TIA.
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:
o are general unsecured obligations of the Company;
o are equally in right of payment with any existing and future Senior
Subordinated Indebtedness of the Company;
o are subordinated in right of payment to all existing and future
Senior Indebtedness of the Company;
o are senior in right of payment to all future Subordinated
Obligations of the Company;
o 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
o are effectively subordinated to all liabilities (including Trade
Payables) and Preferred Stock of each Subsidiary of the Company that
is not a Note Guarantor.
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:
o is general unsecured obligations of such Note Guarantor;
o ranks equally in right of payment with any existing and future
Senior Subordinated Indebtedness of such Note Guarantor;
o is subordinated in right of payment to all existing and future
Senior Indebtedness of such Note Guarantor;
52
o is senior in right of payment to all future Subordinated Obligations
of such Note Guarantor;
o 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
o 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,
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 March 29, 2003, these non-guarantor Subsidiaries (i) had
approximately $10.2 million of total liabilities (including trade payables, but
excluding liabilities owed to us), (ii) had approximately 5% of the Company's
Consolidated assets and (iii) generated approximately 4% of the Company's
Consolidated revenues.
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.
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:
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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 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.
In determining whether to redeem the notes, we may consider, among other things,
our cash flow, time remaining to maturity of the notes, our overall cost of
capital, other financing alternatives, the state of the capital markets and our
overall financial condition.
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
54
creditors, and preferred stockholders, if any, of Subsidiaries of the Company
that are not Note Guarantors. For example, except under certain circumstances,
the Company's Foreign Subsidiaries will not guarantee the Notes.
As of March 29, 2003:
o we had approximately $363.1 million of Senior Indebtedness to which
the Notes and the Note Guarantees would be subordinated (which
amount excludes $9.5 million of letters of credit and the remaining
availability of $135.5 million under our revolving credit facility
and our delayed draw term loan facility; however, the covenants
under our senior secured credit facility may limit our ability to
make such borrowings and as of March 29, 2003, we could have
borrowed $24.8 million);
o we did not have any Senior Subordinated Indebtedness (other than
the Notes);
o we did not have any Subordinated Obligations; and
o our Subsidiaries that are not Note Guarantors would have had $10.2
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;
(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.
55
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).
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"):
56
(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.
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.
57
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.
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
58
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, refinancings 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.
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(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 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 pursuant
to such
60
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;
(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
61
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, 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");
62
(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, 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;
63
(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;
(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
64
(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;
(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,
65
(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 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
66
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 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:
o 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;
o any Designated Noncash Consideration received by the Company or any
of its Restricted Subsidiaries in the Asset Disposition; and
o 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.
(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
67
(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 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,
68
(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,
(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;
69
(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
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.
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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 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
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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
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,
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(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:
o cure any ambiguity, omission, defect or inconsistency,
o provide for the assumption by a successor of the obligations of the
Company under the Indenture,
o 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),
o 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,
o add additional Guarantees with respect to the Notes,
o secure the Notes,
o 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,
o make any change that does not adversely affect the rights of any
Holder,
o provide for the issuance of the Exchange Notes or Additional Notes,
o comply with any requirement of the SEC in connection with the
qualification of the Indenture under the TIA or
o 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.
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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.
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.
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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 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
(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"
75
and "Certain covenants -- Limitation 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
(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:
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(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 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.
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"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
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 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.
78
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 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:
79
(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 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
80
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 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
81
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 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 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
82
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.
"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);
83
(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
(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":
84
(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
(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.
85
"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;
(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";
86
(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.
"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).
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"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
(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.
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"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).
"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,
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(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,
(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.Section
Section 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."
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.
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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.
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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 notes.
This summary deals only with notes held as capital assets (generally, investment
property) and does not deal with special tax situations such as:
o partnerships;
o dealers in securities or currencies;
o traders in securities;
o U.S. holders (as defined below) whose functional currency is not the
United States dollar;
o persons holding notes as part of a hedge, straddle, conversion or
other integrated transaction;
o certain United States expatriates;
o financial institutions;
o insurance companies; and
o 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 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 notes that may be applicable to you.
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:
o an individual citizen or resident of the United States;
o 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;
o an estate, the income of which is subject to United States federal
income taxation regardless of the source of that income; or
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o 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 notes will be taxed as ordinary interest
income. In addition:
o 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 notes in your gross income at the time you receive the
interest; and
o 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 notes in your gross income at the time the interest
accrues.
MARKET DISCOUNT AND BOND PREMIUM
If you purchase a note 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 note.
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, a 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 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 note.
In general, market discount will be considered to accrue ratably during the
period from the date of the purchase of the note to the maturity date of the
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
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 a note for an amount in excess of the amount payable at maturity
of the note, you will be considered to have purchased the 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 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 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 note, and finally as
a carryforward allowable against your future interest inclusions on the 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 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 note. Your adjusted tax basis in an exchange
note will generally equal the cost of the 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 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
93
the exchange note has been held for more than one year at the time of the
disposition.
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 15%, and 20% for
dispositions occurring in taxable years that begin on or after January 1, 2009.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, backup withholding, currently at a rate of 28%, may apply:
o to any payments made to you of principal of and interest on your
note, and
o to payment of the proceeds of a sale or other disposition of your
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 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 (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:
o for at least 31 days in the calendar year, and
o 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 notes under the "portfolio interest" exception of the Internal
Revenue Code, provided that you comply with the following requirements:
o 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;
o 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;
o such interest is not effectively connected with your conduct of a
United States trade or business; and
o 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
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(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 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:
o 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;
o 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
o 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 a 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 notes, or on any gain or income realized from the sale,
redemption, retirement at maturity or other disposition of your notes (provided
that, in the case of proceeds representing accrued interest, the conditions
described in "United States federal withholding tax" are met) unless:
o 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 notes, and specific other
conditions are met; or
o 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 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 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.
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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 notes will generally not be subject to
the United States federal estate tax, unless, at the time of your death:
o 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
o your interest on the 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
notes on an Internal Revenue Service Form 1042-S.
The gross proceeds from the disposition of your notes may be subject to
information reporting and backup withholding tax at a rate that is currently
28%. If you sell your 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 notes through a
non-United States office of a broker that:
o is a United States person (as defined in the Internal Revenue Code);
o derives 50% or more of its gross income in specific periods from the
conduct of a trade or business in the United States;
o is a "controlled foreign corporation" for United States federal
income tax purposes; or
o is a foreign partnership, if at any time during its tax year:
o 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
o 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 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.
96
ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with the
purchase or holding of the 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 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 notes it may purchase.
Any insurance company proposing to invest assets of its general account in the
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
under ERISA and the Internal Revenue Code. The acquisition and/or holding of
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 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 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
97
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 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 notes.
98
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.
Upon 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 -- Advisory fees" and "Related party transactions - The
senior secured credit facility".
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
"Management" and "Related party transactions -- Stockholders' agreement with
major stockholders."
LEGAL MATTERS
The validity of the notes was 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 28,
2002 (Company) and December 29, 2001 (Predecessor), and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
periods from July 22, 2002 to December 28, 2002 (Company), December 30, 2001 to
July 21, 2002 (Predecessor), and each of the two years in the period ended
December 29, 2001 (Predecessor) included in the prospectus and elsewhere in the
registration statement, have been audited by Ernst & Young LLP, independent
auditors, as stated in their report appearing herein.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement of Form S-1 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, as amended (the "Exchange Act"), 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:
o at the public reference room of the SEC at Room 1024-Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at
either of the SEC's regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and at 233 Broadway, New York,
New York 10279, or
o 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.
You may obtain these reports, proxy statements and other information at no cost
by writing or telephoning us at the following address and telephone number:
Berry Plastics Corporation
101 Oakley Street
Evansville, Indiana 47710
Attn: Mark Miles
(812) 424-2904
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.
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 rules and regulations (unless the SEC will not accept
such a filing) and make such information available to securities analysts and
prospectus investors upon request.
99
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 28, 2002 and December 29, 2001 ....... F-3
Consolidated Statements of Operations for the periods from July 22, 2002 to
December 28, 2002, December 30, 2001 to July 21, 2002, and each of the
two years in the period ended December 29, 2001 .......................... F-5
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
the periods from July 22, 2002 to December 28, 2002, December 30, 2001
to July 21, 2002, and each of the two years in the period ended
December 29, 2001 ........................................................ F-6
Consolidated Statements of Cash Flows for the periods from July 22, 2002 to
December 28, 2002, December 30, 2001 to July 21, 2002, and each of the
two 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 March 29, 2003 and December 28, 2002........... F-27
Consolidated Statements of Operations for the thirteen weeks ended
March 29, 2003 and March 30,2002.......................................... F-29
Consolidated Statements of Changes in Stockholders' Equity
for the period from December 28, 2002 to March 29, 2003................... F-30
Consolidated Statements of Cash Flows for the thirteen weeks ended
March 29, 2003 and March 30, 2002......................................... F-31
Notes to Consolidated Financial Statements.................................... F-32
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 28, 2002, and December 29, 2001, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for the periods from July 22, 2002 to December 28, 2002
(Company), December 30, 2001 to July 21, 2002 (Predecessor), and each of the two
years in the period ended December 29, 2001 (Predecessor). These financial
statements are the responsibility of Holding's management. Our responsibility is
to express an opinion on these financial statements and schedule 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 the periods from
July 22, 2002 to December 28, 2002 (Company), December 30, 2001 to July 21, 2002
(Predecessor), and each of the two years in the period ended December 29, 2001,
in conformity with accounting principles generally accepted in the United
States.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" on December 30, 2001.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
February 14, 2003
F-2
BPC HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE INFORMATION)
COMPANY PREDECESSOR
------- -----------
DECEMBER 28, DECEMBER 29,
2002 2001
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 15,613 $ 1,232
Accounts receivable (less allowance for doubtful accounts of $1,990 at
December 28, 2002 and $2,070 at December 29, 2001) 56,765 48,623
Inventories:
Finished goods 50,002 43,048
Raw materials and supplies 14,730 13,009
---------- ----------
64,732 56,057
Prepaid expenses and other current assets 7,018 5,280
---------- ----------
Total current assets 144,128 111,192
Property and equipment:
Land 7,040 9,443
Buildings and improvements 49,966 72,722
Machinery, equipment and tooling 139,486 201,357
Construction in progress 12,232 22,647
---------- ----------
208,724 306,169
Less accumulated depreciation 15,592 102,952
---------- ----------
193,132 203,217
Intangible assets:
Deferred financing fees, net 20,116 8,475
Customer relationships, net 33,890 --
Goodwill, net 336,260 119,923
Trademarks 27,048 --
Other intangibles, net 5,883 1,955
---------- ----------
423,197 130,353
Other 119 2,114
---------- ----------
Total assets $ 760,576 $ 446,876
========== ==========
See notes to consolidated financial statements
F-3
CONSOLIDATED BALANCE SHEETS (CONTINUED)
COMPANY PREDECESSOR
------- -----------
DECEMBER 28, DECEMBER 29,
2002 2001
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 31,204 $ 34,862
Accrued expenses and other liabilities 9,926 8,955
Accrued interest 14,239 7,964
Employee compensation and payroll taxes 15,917 17,792
Current portion of long-term debt 8,641 22,292
--------- ---------
Total current liabilities 79,927 91,865
Long-term debt, less current portion 601,302 463,589
Accrued dividends on preferred stock -- 27,446
Deferred income taxes 640 489
Other liabilities 3,544 3,088
--------- ---------
Total liabilities 685,413 586,477
Stockholders' equity (deficit):
Preferred stock (Predecessor) -- 47,789
Common stock (Predecessor) -- 6
Treasury stock (Predecessor) -- (405)
Warrants (Predecessor) -- 9,386
Preferred stock; $.01 par value: 500,000 shares authorized;
0 shares issued and outstanding -- --
Common Stock; $.01 par value: 5,000,000 shares authorized;
2,767,879 shares issued and outstanding 28 --
Additional paid-in capital 281,816 25,315
Adjustment of the carryover basis of continuing stockholders (196,603) --
Notes receivable - common stock (14,399) --
Retained earnings (deficit) 3,179 (220,263)
Accumulated other comprehensive income (loss) 1,142 (1,429)
--------- ---------
Total stockholders' equity (deficit) 75,163 (139,601)
--------- ---------
Total liabilities and stockholders' equity (deficit) $ 760,576 $ 446,876
========= =========
See notes to consolidated financial statements
F-4
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
COMPANY PREDECESSOR
------- --------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED YEAR ENDED
7/22/02- 12/30/01- DECEMBER 29, DECEMBER 30,
12/28/02 7/21/02 2001 2000
-------- ------- ---- ----
Net sales $ 213,626 $ 280,677 $ 461,659 $ 408,088
Cost of goods sold 163,815 207,458 338,000 312,119
--------- --------- --------- ---------
Gross profit 49,811 73,219 123,659 95,969
Operating expenses:
Selling 10,129 12,080 21,996 21,630
General and administrative 7,664 15,750 28,535 24,408
Research and development 1,450 1,438 1,948 2,606
Amortization of intangibles 1,159 1,249 12,802 10,579
Merger expenses (Predecessor) -- 20,987 -- --
Other expenses 2,757 2,804 4,911 6,639
--------- --------- --------- ---------
Operating income 26,652 18,911 53,467 30,107
Other expenses:
Loss on disposal of property and equipment 8 291 473 877
--------- --------- --------- ---------
Income before interest and taxes 26,644 18,620 52,994 29,230
Interest:
Expense (20,887) (28,747) (54,397) (51,553)
Income 375 5 42 96
--------- --------- --------- ---------
Income (loss) before income taxes and extraordinary item 6,132 (10,122) (1,361) (22,227)
Income taxes (benefit) 2,953 345 734 (142)
--------- --------- --------- ---------
Income (loss) before extraordinary item 3,179 (10,467) (2,095) (22,085)
Extraordinary item (less applicable income taxes of $0) -- 25,328 -- 1,022
--------- --------- --------- ---------
Net income (loss) 3,179 (35,795) (2,095) (23,107)
Preferred stock dividends -- (6,468) (9,790) (6,655)
Amortization of preferred stock discount -- (574) (1,024) (768)
--------- --------- --------- ---------
Net income (loss) attributable to common stockholders $ 3,179 $ (42,837) $ (12,909) $ (30,530)
========= ========= ========= =========
See notes to consolidated financial statements
F-5
BC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS OF DOLLARS)
COMMON PREFERRED TREASURY ADDITIONAL
STOCK STOCK STOCK WARRANTS COMMON PAID-IN
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR) STOCK CAPITAL
------------- ------------- ------------- ------------- ----- -------
Balance at January 1, 2000 $ 6 $ 17,093 $ (256) $ 3,511 $ -- $ 41,559
---------- ---------- ---------- ---------- ------ ----------
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 -- 768 -- -- -- (768)
---------- ---------- ---------- ---------- ------ ----------
Balance at December 30, 2000 6 36,986 (405) 9,386 -- 35,041
---------- ---------- ---------- ---------- ------ ----------
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 -- 1,024 -- -- -- (1,024)
---------- ---------- ---------- ---------- ------ ----------
Balance at December 29, 2001 6 47,789 (405) 9,386 -- 25,315
---------- ---------- ---------- ---------- ------ ----------
Net loss -- -- -- -- -- --
Translation gain -- -- -- -- -- --
Amortization of preferred stock discount -- 574 -- -- -- (574)
Accrued dividends on preferred stock -- -- -- -- -- (6,468)
Stock-based compensation -- -- -- -- -- 1,920
Redemption of predecessor stock (6) (48,363) 405 (9,386) -- (20,193)
---------- ---------- ---------- ---------- ------ ----------
Balance at July 21, 2002 (Predecessor) -- -- -- -- -- --
---------- ---------- ---------- ---------- ------ ----------
Fair value of rolled stock options -- -- -- -- 5,056
Issuance of common stock -- -- -- -- 28 276,760
Notes receivable - common stock -- -- -- -- -- --
Interest on notes receivable -- -- -- -- -- --
Adjustment of the carryover basis of
continuing stockholders -- -- -- -- -- --
Translation gain -- -- -- -- -- --
Other comprehensive losses -- -- -- -- -- --
Net income -- -- -- -- -- --
---------- ---------- ---------- ---------- ------ ----------
Balance at December 28, 2002 (Company) .. $ -- $ -- $ -- $ -- $ 28 $ 281,816
========== ========== ========== ========== ====== ==========
ADJUSTMENT
OF THE
CARRYOVER NOTES ACCUMULATED
BASIS OF RECEIVABLE - RETAINED OTHER COMPREHENSIVE
CONTINUING COMMON EARNINGS COMPREHENSIVE INCOME
STOCKHOLDERS STOCK (DEFICIT) LOSS TOTAL (LOSS)
------------ ----- --------- ---- ----- ------
Balance at January 1, 2000 $ -- $ -- $ (195,061) $ (323) $ (133,471)
---------- --------- ---------- ---------- ----------
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)
---------- --------- ---------- ---------- ---------- ==========
Net loss -- -- (35,795) -- (35,795) (35,795)
Translation gain -- -- -- 1,429 1,429 1,429
Amortization of preferred stock discount -- -- -- -- -- --
Accrued dividends on preferred stock -- -- -- -- (6,468) --
Stock-based compensation -- -- -- -- 1,920 --
Redemption of predecessor stock -- -- 256,058 -- 178,515 --
---------- --------- ---------- ---------- ---------- ----------
Balance at July 21, 2002 (Predecessor) -- -- -- -- -- (34,366)
---------- --------- ---------- ---------- ---------- ==========
Fair value of rolled stock options -- -- -- -- 5,056 --
Issuance of common stock -- -- -- -- 276,788 --
Notes receivable - common stock -- (14,079) -- -- (14,079) --
Interest on notes receivable -- (320) -- -- (320) --
Adjustment of the carryover basis of
continuing stockholders (196,603) -- -- -- (196,603) --
Translation gain -- -- -- 2,091 2,091 2,091
Other comprehensive losses -- -- -- (949) (949) (949)
Net income -- -- 3,179 -- 3,179 3,179
---------- --------- ---------- ---------- ---------- ----------
Balance at December 28, 2002 (Company) $ (196,603) $ (14,399) $ 3,179 $ 1,142 $ 75,163 $ 4,321
========== ========= ========== ========== ========== ==========
See notes to consolidated financial statements
F-6
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
COMPANY PREDECESSOR
------- ---------------------------------------
PERIOD PERIOD
FROM FROM YEAR ENDED YEAR ENDED
7/22/02- 12/30/01- DECEMBER 29, DECEMBER 30,
12/28/02 7/21/02 2001 2000
--------- --------- --------- ---------
OPERATING ACTIVITIES
Net income (loss) $ 3,179 $ (35,795) $ (2,095) $ (23,107)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 16,031 23,526 38,105 31,569
Non-cash interest expense 1,077 1,399 11,268 18,047
Amortization of intangibles 1,159 1,249 12,802 10,579
Non-cash compensation -- 1,920 796 905
Extinguishment of debt -- 25,328 -- 1,022
Loss on sale of property and equipment 8 291 473 877
Deferred income taxes 2,710 -- -- (349)
Changes in operating assets and liabilities:
Accounts receivable, net 8,717 (15,986) 2,869 (1,475)
Inventories (4,091) (4,255) (4,017) 7,383
Prepaid expenses and other receivables (1,280) (603) (50) (1,163)
Other assets (354) 2,042 (2,000) --
Accounts payable and accrued expenses (11,108) 11,476 (3,803) (8,182)
--------- --------- --------- ---------
Net cash provided by operating activities 16,048 10,592 54,348 36,106
INVESTING ACTIVITIES
Additions to property and equipment (11,287) (17,396) (32,834) (31,530)
Proceeds from disposal of property and equipment 8 9 93 1,666
Transaction costs (12,398) -- -- --
Acquisitions of businesses -- (3,834) (23,549) (78,851)
--------- --------- --------- ---------
Net cash used for investing activities (23,677) (21,221) (56,290) (108,715)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 580,000 24,492 15,606 80,032
Payments on long-term borrowings (507,314) (13,924) (24,088) (31,543)
Purchase of treasury stock from management -- -- -- (149)
Proceeds from issuance of preferred stock and warrants -- -- 9,779 25,000
Proceeds from issuance of common stock 260,902 -- 292 --
Redemption of predecessor stock (290,672) -- -- --
Debt financing costs (21,103) -- (1,009) (1,303)
--------- --------- --------- ---------
Net cash provided by financing activities 21,813 10,568 580 72,037
Effect of exchange rate changes on cash 1,073 (815) 540 80
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents 15,257 (876) (822) (492)
Cash and cash equivalents at beginning of period 356 1,232 2,054 2,546
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 15,613 $ 356 $ 1,232 $ 2,054
========= ========= ========= =========
See notes to consolidated financial statements
F-7
BPC HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, 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, 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, Knight
Plastics, Inc., CPI Holding Corporation and its subsidiary Cardinal Packaging,
Inc., Poly-Seal Corporation, 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; and Milan, Italy.
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. In 2002, the
Company closed its Fort Worth, Texas facility, which was acquired in connection
with the acquisition of Pescor Plastics, Inc. in May 2001. 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 "2002," "2001," and "2000,"
relate to the fiscal years ended December 28, 2002, December 29, 2001, and
December 30, 2000, respectively. Due to the Merger (see Note 3), fiscal 2002
consists of two separate periods of December 30, 2001 to July 21, 2002
(Predecessor) and July 22, 2002 to December 28, 2002 (Company).
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 $113.0 million in 2002. Dow Chemical
Corporation is the largest supplier (approximately 43%) of the Company's total
resin material requirements. The Company also uses other suppliers such as
Equistar, Atofina, Chevron, Basell, ExxonMobil, and Nova to meet its resin
requirements.
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 maturity of three months or less at the date
of purchase are considered to be cash equivalents.
Accounts receivable
The allowance for doubtful accounts is analyzed in detail on a quarterly basis
and all significant customers with delinquent balances are reviewed to determine
future collectibility. The determinations are based on legal issues (such as
bankruptcy
F-8
status), past history, current financial and credit agency reports, and the
experience of the credit representatives. Reserves are established in the
quarter in which the Company makes the determination that the account is deemed
uncollectible. The Company maintains additional reserves based on its historical
bad debt experience.
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 15 to 25 years for buildings and improvements and two to 10 years for
machinery, equipment, and tooling. Repairs and maintenance costs are charged to
expense as incurred.
Intangible Assets
Deferred financing fees are being amortized using the straight-line method over
the lives of the respective debt agreements.
Customer relationships are being amortized using the straight-line method over
the estimated life of the relationships of 20 years.
Goodwill represents the excess purchase price over the fair value of the net
assets acquired in the Merger (see Note 3 below). These costs are reviewed
annually for impairment pursuant to SFAS No. 142, Goodwill and Other Intangible
Assets.
Trademarks are reviewed for impairment annually pursuant to SFAS No. 142.
Other intangibles, which include covenants not to compete and technology-based
intangibles, are being amortized using the straight-line method over the
respective lives of the agreements or estimated life of the technology ranging
from one to twenty 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. No impairments were recorded
during 2002, 2001, or 2000.
Derivative Financial Instruments
The Company uses an interest rate collar to manage a portion of its interest
rate exposures. The instrument was entered into to manage market risk exposures
and is not used for trading purposes. Management routinely reviews the
effectiveness of the use of derivative instruments. The Company has recognized
the interest rate collar at its fair value in the consolidated balance sheets.
F-9
Foreign Currency Translation
Assets and liabilities of most foreign subsidiaries are translated at exchange
rates in effect at the balance sheet date, and the statements of operations are
translated at the average monthly exchange rates for the period. Translation
gains and losses are recorded as a component of accumulated other comprehensive
income (loss) in stockholders' equity. Foreign currency transaction gains and
losses are included in net income.
Revenue Recognition
Revenue from sales of products is recognized at the time product is shipped to
the customer, at which time title and risk of ownership transfer to the
purchaser.
Stock-Based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," established accounting
and disclosure requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. As provided for under SFAS 123, the
Company accounts for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion 25, "Accounting for Stock
Issued to Employees." Compensation cost for stock options, if any, is measured
as the excess of the fair value of the Company's stock at the date of grant over
the amount an employee must pay to acquire the stock. The fair value for options
granted by Holding have been estimated at the date of grant using a Black
Scholes option pricing model with the following weighted average assumptions:
COMPANY PREDECESSOR
------- ---------------------------------------
PERIOD PERIOD YEAR YEAR
FROM FROM ENDED ENDED
7/22/02- 12/30/01- DECEMBER 29, DECEMBER 30,
12/28/02 7/21/02 2001 2000
--------- --------- --------- ------------
Risk-free interest rate 4.0% 4.0% 5.5% 6.5%
Dividend yield 0.0% 0.0% 0.0% 0.0%
Volatility factor .25 .25 .28 .20
Expected option life 5.0 years 5.0 years 6.5 years 6.5 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 income (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. The following is a
reconciliation of reported net income (loss) to net income (loss) as if the
Company used the fair value method of accounting for stock-based compensation.
COMPANY PREDECESSOR
------- --------------------------------------
PERIOD PERIOD YEAR YEAR
FROM FROM ENDED ENDED
7/22/02- 12/30/01- DECEMBER 29, DECEMBER 30,
12/28/02 7/21/02 2001 2000
-------- --------- ---------- ---------
Reported net income (loss) $ 3,179 $ (35,795) $ (2,095) $ (23,107)
Stock-based employee compensation expense
included in reported income (loss), net of tax -- 1,920 796 459
Total stock-based employee compensation expense
determined under fair value based method, for
all awards, net of tax (856) (371) (1,401) (866)
--------- --------- --------- ---------
Pro forma net income (loss) $ 2,323 $ (34,246) $ (2,700) $ (23,514)
========= ========= ========= =========
F-10
Income Taxes
The Company accounts for income taxes under the asset and liability approach,
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequence of events that have been recognized in the
Company's financial statements or income tax returns. Income taxes are
recognized during the year in which the underlying transactions are reflected in
the Consolidated Statements of Operations. Deferred taxes are provided for
temporary differences between amounts of assets and liabilities as recorded for
financial reporting purposes and such amounts as measured by tax laws.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and other
comprehensive income (loss). Other comprehensive income (loss) includes
unrealized gains or losses on derivative financial instruments, unrealized gains
or losses resulting from currency translations of foreign investments, and the
adjustment to record the minimum pension liability.
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.
Reclassifications
Certain amounts in the prior year financial statements and related notes have
been reclassified to conform to the current year presentation.
Impact of Recently Issued Accounting Standards
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
became effective for any business combination 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. 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 Merger (see Note 3) has
been accounted for under the purchase method of accounting, and accordingly, the
purchase price has been allocated to the identifiable assets and liabilities
based on estimated fair values at the acquisition date. The allocation is
preliminary and is subject to change pending the finalization of expenses
related to the Merger. The following table presents the results of the Company
on a comparable basis:
COMPANY PREDECESSOR
------- -------------------------------------
PERIOD PERIOD YEAR YEAR
FROM FROM ENDED ENDED
7/22/02- 12/30/01- DECEMBER 29, DECEMBER 30,
12/28/02 7/21/02 2001 2000
-------- ------- ---- ----
Reported net income (loss) $ 3,179 $(35,795) $ (2,095) $(23,107)
Goodwill amortization, net of tax -- -- 9,964 7,701
-------- -------- -------- --------
Adjusted net income (loss) $ 3,179 $(35,795) $ 7,869 $(15,406)
======== ======== ======== ========
F-11
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. As a result, the Company will reclassify the extraordinary item in the
Statements of Operations to continuing operations in its 2003 financial
statements. 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 became 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
does not believe that this standard will have a material impact on its results
of operations and financial position.
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure
(SFAS No. 148). SFAS No. 148 amends FASB Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), to
provide alternative methods of transition to SFAS No. 123's fair value method of
accounting for stock-based employee compensation. SFAS No. 148 also amends the
disclosure provisions of SFAS No. 123 and Accounting Principles Board (APB)
Opinion No. 28, Interim Financial Reporting, to require disclosure in the
summary of significant accounting policies of the effect of an entity's
accounting policy with respect to stock-based employee compensation on reported
net income and earnings per share in annual and interim financial statements.
SFAS No. 148 is applicable to all companies with stock-based employee
compensation, regardless of whether they account for that compensation using the
fair value method of SFAS No. 123 or the intrinsic value method of APB Opinion
No. 25, Accounting for Stock Issued to Employees. The Company uses the intrinsic
value method of accounting for stock issued to employees. See Note 2 and Note 10
to the Consolidated Financial Statements for details related to stock-based
compensation.
NOTE 3. THE MERGER
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly formed
entity controlled by various private equity funds affiliated with Goldman, Sachs
& Co., merged (the "Merger") with and into BPC Holding, pursuant to an agreement
and plan of merger, dated as of May 25, 2002. 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.
F-12
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
accrued dividends, the redemption of outstanding warrants, and the payment of
transaction costs incurred by Holding, were approximately $870.2 million (which
includes the amount of certain indebtedness which remained outstanding and the
value of certain shares of Holding common stock held by employees that were
contributed to the Buyer immediately prior to the Merger). The Buyer and its
affiliates own approximately 63% of the common stock of Holding. The remaining
common stock of Holding is held by J.P. Morgan Partners Global Investors, L.P.
and other private equity funds affiliated with J.P. Morgan Partners, LLC, the
private equity investment arm of J.P. Morgan Chase & Co., which own
approximately 29% of Holding's common stock and by members of Berry's
management, which own the remaining 8%.
The Merger has been accounted for under the purchase method of accounting, and
accordingly, the purchase price has been allocated to the identifiable assets
and liabilities based on estimated fair values at the acquisition date. The
allocation is preliminary and is subject to change pending the finalization of
expenses related to the Merger. The Company has applied the provisions of
Emerging Issues Task Force 88-16, Basis in Leveraged Buyout Transactions,
whereby, the carryover equity interests of certain shareholders from the
Predecessor to the Company were recorded at their Company basis. The application
of these provisions reduced stockholder's equity and intangibles by $196.6
million. In connection with the Merger, the Predecessor incurred Merger related
expenses of approximately $21.0 million, consisting primarily of investment
banking fees, bonuses to management, non-cash modification of stock option
awards, legal costs, and fees to the largest voting stockholder of the
Predecessor. In addition, as a result of extinguishing debt in connection with
the Merger, $6.6 million of existing deferred financing fees and $18.7 million
of prepayment fees and related charges were charged to expense in 2002 as an
extraordinary item. The following table summarizes the preliminary allocation of
purchase price.
Purchase price .............................................. $ 836,692
Estimated Buyer transaction costs ........................... 12,398
Net tangible assets acquired ................................ (249,182)
Intangible assets acquired .................................. (67,045)
Adjustment for carryover basis of continuing stockholders ... (196,603)
---------
Goodwill .................................................... $ 336,260
=========
NOTE 4. 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% predecessor preferred stock and additional borrowings under the
retired 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 under
its retired senior credit facility. The operations of Mount Vernon are included
in Berry's operations since the acquisition date using the purchase method of
accounting. On January 31, 2002, Berry entered into a sale/leaseback arrangement
with respect to the Mt. Vernon fixed assets.
Pro forma results for 2002 have not been presented as they do not differ
materially from reported historical results. For 2001, pro forma net sales and
pro forma net loss would have been $489,724 and $3,057, respectively. This
information was calculated as if the Pescor acquisition and Mount Vernon
acquisition occurred at the beginning of 2001.
The pro forma financial information above 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 obtained 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.
NOTE 5. INTANGIBLE ASSETS
F-13
Intangible assets consist of the following:
COMPANY PREDECESSOR
------- -----------
DECEMBER 28, DECEMBER 29,
2002 2001
--------- ---------
Deferred financing fees ............. $ 21,411 $ 20,894
Customer relationships .............. 34,664 --
Goodwill ............................ 336,260 146,494
Trademarks .......................... 27,048 --
Covenants not to compete and other .. 1,656 7,376
Technology-based .................... 4,982 --
Accumulated amortization ............ (2,824) (44,411)
--------- ---------
$ 423,197 $ 130,353
========= =========
The changes in intangible assets are a result of the Merger and the application
of SFAS No. 141 and SFAS No. 142.
Future amortization expense for definite lived intangibles at December 28, 2002
for the next five fiscal years is approximately $4.3 million, $3.8 million, $3.8
million, $3.7 million, and $3.7 million for fiscal 2003, 2004, 2005, 2006, and
2007, respectively.
NOTE 6. LONG-TERM DEBT
Long-term debt consists of the following:
COMPANY PREDECESSOR
------- -----------
DECEMBER 28, DECEMBER 29,
2002 2001
---------- ----------
Berry 10 3/4% Senior Subordinated Notes ... $ 250,000 $ --
Term loans ................................ 329,175 54,596
Revolving lines of credit ................. 692 49,053
Nevada Industrial Revenue Bonds ........... 2,500 3,000
Capital leases ............................ 27,576 18,131
Holding 12.50% Senior Secured Notes ....... -- 135,714
Berry 12.25% Senior Subordinated Notes .... -- 125,000
Berry 11% Senior Subordinated Notes ....... -- 75,000
Second Lien Senior Credit Facility ........ -- 25,000
Debt premium, net ......................... -- 387
---------- ----------
609,943 485,881
Less current portion of long-term debt .... 8,641 22,292
---------- ----------
$ 601,302 $ 463,589
========== ==========
F-14
Berry 10 3/4% Senior Subordinated Notes
On July 22, 2002, Berry completed an offering of $250.0 million aggregate
principal amount of 10 3/4% Senior Subordinated Notes due 2012 (the "2002
Notes"). The net proceeds to Berry from the sale of the 2002 Notes, after
expenses, were $239.4 million. The proceeds from the 2002 Notes were used in the
financing of the Merger. The 2002 Notes mature on July 15, 2012, and interest is
payable semi-annually on January 15 and July 15 of each year beginning January
15, 2003. Holding and all of Berry's domestic subsidiaries fully, jointly,
severally, and unconditionally guarantee on a senior subordinated basis the 2002
Notes. The 2002 Notes are not guaranteed by the 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.
Berry is not required to make mandatory redemption or sinking fund payments with
respect to the 2002 Notes. On or subsequent to July 15, 2007, the 2002 Notes may
be redeemed at the option of Berry, in whole or in part, at redemption prices
ranging from 105.375% in 2007 to 100% in 2010 and thereafter. Prior to July 15,
2005, up to 35% of the 2002 Notes may be redeemed at 110.75% of the principal
amount at the option of Berry in connection with an equity offering. Upon a
change in control, as defined in the indenture entered into in connection with
the 2002 Notes (the "2002 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
In connection with the Merger, the Company entered into a credit and guaranty
agreement and a related pledge security agreement with a syndicate of lenders
led by Goldman Sachs Credit Partners L.P., as administrative agent (the "Credit
Facility"). The Credit Facility provides (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. 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. The indebtedness under the Credit
Facility is guaranteed by Holding and all of its domestic subsidiaries. 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.
The Credit Facility contains significant financial and operating covenants,
including prohibitions on the ability to incur certain additional indebtedness
or to pay dividends, and restrictions on the ability to make capital
expenditures. Amounts available under the delayed draw term loan facility may be
borrowed in connection with permitted acquisitions (but not reborrowed) during
the 18-month period that began on July 22, 2002, subject to certain conditions.
The Credit Facility also contains 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 Company was in compliance with all the
financial and operating covenants at December 28, 2002. The term loan amortizes
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.
Borrowings under the Credit Facility bear interest, at the Company's option, at
either (i) a base rate (equal to the greater of the prime rate and the federal
funds rate plus 0.5%) plus the applicable margin (the "Base Rate Loans") or (ii)
an adjusted eurodollar LIBOR (adjusted for reserves) plus the applicable margin
(the "Eurodollar Rate Loans"). 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 (4.6% at December 28, 2002).
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 29, 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 the 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. In October 2002, Berry entered into an interest rate collar
arrangement to protect $50.0 million of the outstanding variable rate term loan
debt from future interest rate volatility. The collar floor is set at 1.97%
LIBOR (London Interbank Offering Rate) and capped at 6.75% LIBOR. The agreement
is effective January
F-15
15, 2003. At December 28, 2002, shareholders' equity has been reduced by $0.6
million to adjust the agreement to fair market value. At December 28, 2002, the
Company had unused borrowing capacity under the Credit Facility's revolving line
of credit of $92.6 million. However, the covenants under our senior secured
credit facility may limit our ability to make such borrowings and as of December
28, 2002, we could have borrowed $30.9 million.
Nevada Industrial Revenue Bonds
The Nevada Industrial Revenue Bonds bear interest at a variable rate (1.7% at
December 28, 2002 and 1.7% at December 29, 2001), require annual principal
payments of $0.5 million on April 1, are collateralized by irrevocable letters
of credit issued under the Credit Facility and mature in April 2007.
Holding 12.50% Senior Secured Notes (Predecessor)
On June 18, 1996, Holding issued 12.50% Senior Secured Notes due 2006 for net
proceeds, after expenses, of approximately $100.2 million. These notes were
exchanged in October 1996 for the 12.50% Series B Senior Secured Notes due 2006
(the "1996 Notes"). Interest was 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 were retired in connection with the Merger
and the associated premium for early retirement and net deferred financing fees
were charged as an extraordinary item.
Berry 12.25% Senior Subordinated Notes (Predecessor)
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 the Predecessor's common stock. 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. Interest was payable semi-annually on
October 15 and April 15 of each year and commenced on October 15, 1994 and
October 15, 1998 for the 1994 Notes and 1998 Notes, respectively. The 1994 Notes
and 1998 Notes were retired in connection with the Merger and the associated
premium for early retirement and net deferred financing fees were expensed as an
extraordinary item.
Berry 11% Senior Subordinated Notes (Predecessor)
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. Interest was payable semi-annually on
January 15 and July 15 of each year and commenced on January 15, 2000. The 1999
Notes were retired in connection with the Merger and the associated premium for
early retirement and net deferred financing fees were charged as an
extraordinary item.
Retired Credit Facility (Predecessor)
The Company had a financing and security agreement (the "Retired Financing
Agreement") with a syndicate of lenders led by Bank of America for a senior
secured credit facility (the "Retired Credit Facility"). The Retired 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 Retired Financing Agreement and the prior financing
agreement. As of December 29, 2001, the Retired Credit Facility provided the
Company with (i) an $80.0 million revolving line of credit, subject to a
borrowing base formula, (ii) a $2.2 million (using the December 29, 2001
exchange rate) revolving line of credit denominated in British Sterling in the
U.K., 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. and (v) a $3.2
million standby letter of credit facility to support the Company's and its
subsidiaries' obligations under the Nevada Bonds. The Retired Credit Facility
matured on January 21, 2004 unless previously terminated by the Company or by
the lenders upon an Event of Default as defined in the Retired Financing
Agreement. The Retired Credit Facility was extinguished in connection with the
Merger and the associated net deferred financing fees were charged as an
extraordinary item.
F-16
Second Lien Senior Credit Facility (Predecessor)
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 Second Lien Credit Facility was
extinguished in connection with the Merger and the associated net deferred
financing fees were charged as an extraordinary item.
Other
Future maturities of long-term debt are as follows: 2003, $8,641; 2004, $8,337;
2005, $8,986; 2006, $6,119; 2007, $6,493 and $571,367 thereafter.
Interest paid was $40,883, $44,171, and $32,836, for 2002, 2001, and 2000,
respectively. Interest capitalized was $844, $589, and $1,707, for 2002, 2001,
and 2000, respectively.
NOTE 7. LEASE AND OTHER COMMITMENTS
Certain property and equipment are leased using capital and operating leases. In
2002 and 2001, Berry entered into various capital lease obligations with no
immediate cash flow effect resulting in capitalized property and equipment of
$21,169 and $18,737, respectively. Total capitalized lease property consists of
manufacturing equipment and a building with a cost of $32,462 and $22,342 and
related accumulated amortization of $4,247 and $3,442 at December 28, 2002 and
December 29, 2001, respectively. Capital lease amortization is included in
depreciation expense. Total rental expense from operating leases was
approximately $9,761, $8,292, and $9,183 for 2002, 2001, and 2000, 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 28, 2002
----------------------------------------
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
2003 $ 6,416 $ 6,925
2004 6,333 5,280
2005 6,104 3,906
2006 2,839 2,386
2007 2,720 724
Thereafter 8,689 --
---------- -------
33,101 $19,221
Less: amount representing interest (5,525) =======
----------
Present value of net minimum lease payments $ 27,576
==========
The Company is party to various legal proceedings involving routine claims which
are incidental to its business. Although the Company's legal and financial
liability with respect to such proceedings cannot be estimated with certainty,
the Company believes that any ultimate liability would not be material to our
financial condition.
F-17
NOTE 8. INCOME TAXES
For financial reporting purposes, income (loss) before income taxes and
extraordinary item, by tax jurisdiction, is comprised of the following:
COMPANY PREDECESSOR
---------------- -----------------------------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED YEAR ENDED
7/22/02-12/28/02 12/30/01-7/21/02 DECEMBER 29, 2001 DECEMBER 30, 2000
---------------- ---------------- ----------------- -----------------
United States $ 7,331 $ (8,087) $ 5,046 $ (18,506)
Foreign (1,199) (2,035) (6,407) (3,721)
-------- -------- -------- ---------
$ 6,132 $(10,122) $ (1,361) $ (22,227)
======== ======== ======== =========
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 assets and liabilities are as follows:
DECEMBER 28, DECEMBER 29,
2002 2001
-------- --------
Deferred tax assets:
Allowance for doubtful accounts $ 583 $ 654
Inventory 1,517 1,422
Compensation and benefit accruals 2,753 2,871
Insurance reserves 637 657
Net operating loss carryforwards 28,297 14,102
Alternative minimum tax (AMT) credit carryforwards 3,055 3,055
Other 875 --
-------- --------
Total deferred tax assets 37,717 22,761
Valuation allowance (9,561) (3,629)
-------- --------
Deferred tax assets, net of valuation allowance 28,156 19,132
Deferred tax liabilities:
Depreciation and amortization 28,796 19,621
-------- --------
Net deferred tax liability $ (640) $ (489)
======== ========
Income tax expense (benefit) consists of the following:
COMPANY PREDECESSOR
---------------- -----------------------------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED YEAR ENDED
7/22/02-12/28/02 12/30/01-7/21/02 DECEMBER 29, 2001 DECEMBER 30, 2000
---------------- ---------------- ----------------- -----------------
Current:
Federal $ -- $ -- $ 154 $ --
Foreign 26 375 125 --
State 217 (30) 455 207
Deferred:
Federal 2,280 -- -- --
Foreign -- -- -- (349)
State 430 -- -- --
------ ------ ------ ------
Income tax expense (benefit) $2,953 $ 345 $ 734 $ (142)
====== ====== ====== ======
Holding has unused operating loss carryforwards of approximately $72.3 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. As a result of the Merger, the amount of the
carryforward which can be used in any given year will be limited to
approximately $12 million.
Income taxes paid during 2002, 2001, and 2000 approximated $531, $314, and $329,
respectively.
F-18
A reconciliation of income tax expense (benefit), computed at the federal
statutory rate, to income tax expense (benefit), as provided for in the
financial statements, is as follows:
COMPANY PREDECESSOR
---------------- -------------------------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED YEAR ENDED
7/22/02-12/28/02 12/30/01-7/21/02 DECEMBER 29, 2001 DECEMBER 30, 2000
---------------- ---------------- ----------------- -----------------
Income tax expense (benefit) computed at
statutory rate $2,081 $(12,170) $ (463) $(7,557)
State income tax expense (benefit), net of
federal taxes 434 (1,035) 795 (403)
Amortization of goodwill -- -- 2,399 2,262
Expenses not deductible for income tax purposes 60 3,823 36 119
Change in valuation allowance -- 9,160 (2,978) 5,340
Other 378 567 945 97
------ -------- ------- -------
Income tax expense (benefit) $2,953 $ 345 $ 734 $ (142)
====== ======== ======= =======
NOTE 9. 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
$1,462, $1,349, and $1,301, for 2002, 2001, and 2000, respectively. The Company
also maintains a defined benefit pension plan covering the Poly-Seal employees
under a collective bargaining agreement. At December 28, 2002, stockholders'
equity has been reduced by $395 as a result of recording the minimum pension
liability.
NOTE 10. STOCKHOLDERS' EQUITY
Common and Preferred Stock
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly formed
entity controlled by various private equity funds affiliated with Goldman, Sachs
& Co., merged (the "Merger") with and into BPC Holding, pursuant to an agreement
and plan of merger, dated as of May 25, 2002. 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 authorized capital stock of Holding consists of 5,500,000 shares of capital
stock, including 5,000,000 shares of Common Stock, $.01 par value (the "Holding
Common Stock") and 500,000 shares of Preferred Stock, $.01 par value.
F-19
Notes Receivable from Management
In connection with the Merger, certain senior employees of BPC Holding acquired
shares of BPC Holding Common Stock pursuant to an employee stock purchase
program. Such employees paid for these shares with any combination of (i) shares
of BPC Holding common stock that they held prior to the Merger; (ii) their cash
transaction bonus, if any; and (iii) a promissory note. In addition, BPC Holding
adopted an employee stock purchase program pursuant to which a number of
employees had the opportunity to invest in BPC Holding on a leveraged basis.
Employees participating in this program were permitted to finance two-thirds of
their purchases of shares of BPC Holding common stock under the program with a
promissory note. The promissory notes are secured by the shares purchased and
such notes accrue interest which compounds semi-annually at rates ranging from
4.97% to 5.50% per year. Principal and all accrued interest is due and payable
on the earlier to occur of (i) the end of the ten-year term, (ii) the ninetieth
day following such employee's termination of employment due to death,
"disability", "redundancy" (as such terms are defined in the 2002 Option Plan)
or retirement, or (iii) the thirtieth day following such employee's termination
of employment for any other reason. As of December 28, 2002, the Company had
$14,399 in outstanding notes (principal and interest), which has been classified
as a reduction to stockholders' equity in the consolidated balance sheet, due
from employees under this program.
Stock Option Plans
BPC Holding 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 prior to
the Merger.
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 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. 395,437 options were granted in
2002 at fair market value, none of which were exercisable at December 28, 2002.
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 1996 Option Plan and 2002 Option Plan is as follows:
COMPANY PREDECESSOR PREDECESSOR PREDECESSOR
----------------- ------------- ----------------- -----------------
DECEMBER 28, 2002 JULY 21, 2002 DECEMBER 29, 2001 DECEMBER 30, 2000
----------------- ------------- ----------------- -----------------
Weighted Weighted Weighted Weighted
Number Average Number Average Number Average Number Average
Of Exercise Of Exercise Of Exercise Of Exercise
Shares Price Shares Price Shares Price Shares Price
-------------------- ----------------- ------------------- --------------------
Options outstanding, beginning
of year 48,218 $ 157 60,420 $132 60,774 $132 51,479 $107
Options converted 102,329 (107) -- -- -- -- -- --
Options granted 395,137 100 15,345 277 10,975 226 16,225 226
Options exercised -- -- (18,134) 177 (2,713) 107 -- --
Options canceled -- -- (9,413) 389 (8,616) 116 (6,930) 158
------- ------- ------ -------
Options outstanding, end of year 545,684 86 48,218 157 60,420 155 60,774 132
======= ======= ====== ======
Option price range at end of period $32 - $100 $100 - $226 $100 - $226 $100 - $226
Options exercisable at end of
period 120,448 38,573 39,487 34,641
Options available for grant at
period end 42,429 0 13,487 15,846
Weighted average fair value of
options granted during year $100 $389 $226 $226
The following table summarizes information about the options outstanding at
December 28, 2002:
Weighted
Range of Weighted Average Average Number
Exercise Number Outstanding Remaining Contractual Exercise Exercisable at
Prices At December 28, 2002 Life Price December 28, 2002
--------------------------------------------------------------------------------------------------------------------
$32 - $72 150,547 10 years $ 50 120,448
$100 395,137 10 years $100 0
------- -------
545,684 120,448
======= =======
Stockholders Agreements
In connection with the Merger, Holding 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 the 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 the common stock.
GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co.,
have the right to designate five members of the board of directors, one of which
shall be a member of 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 the 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.
Preferred Stock (Predecessor)
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 Predecessor's 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 accrued at a
rate of 14% per annum, compounding and payable quarterly in arrears (each date
of payment, a "Dividend Payment Date"). The exercise price of the Warrants was
$.01 per Warrant and were exercisable immediately.
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 had
a stated value of $25 per share, and dividends accrued at a rate of 14.75% per
annum. The Preferred Stock ranked 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 Predecessor's 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 Predecessor's Class B Non-Voting
Common Stock at $108 per share were issued in fiscal 2000 to the same selling
shareholders of Venture Packaging, Inc.
F-21
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 accrued at a
rate of 14% per annum. 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 was 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 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 accrued at a rate of 14% per annum. In addition, the
holders of the Series C Preferred had options beginning on December 31, 2001 to
convert the Series C Preferred Stock to Series D Preferred Stock and Class B
Nonvoting Common Stock.
All of the Predecessor's Preferred Stock was retired in connection with the
Merger.
Common Stock (Predecessor)
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.
NOTE 11. RELATED PARTY TRANSACTIONS
Prior to the Merger, Atlantic Equity Partners International II, L.P.
("International") was our largest voting stockholder and International engaged
First Atlantic Capital, Ltd. ("First Atlantic") to provide certain financial and
management consulting services to the Company. Pursuant to a management
agreement, First Atlantic received advisory fees of approximately $250, $139,
and $580 in June 2001, March 2001, and May 2000, respectively, for originating,
structuring and negotiating the acquisitions of Poly-Seal, Capsol, and Pescor,
respectively. In consideration of financial advisory and management consulting
services, the Company paid First Atlantic fees and expenses of $385, $756, and
$821 for fiscal 2002, 2001, and 2000, respectively. In consideration of services
performed in connection with the Merger, the Company paid First Atlantic fees
and expenses of $1,786 in July 2002.
In connection with the Merger, the Company paid $8.0 million to entities
affiliated with Goldman, Sachs & Co. and $5.2 million to J.P. Morgan Securities
Inc., an affiliate of J.P. Morgan Chase & Co., for advisory and other services.
Goldman Sachs and J.P. Morgan acted as joint book-running managers in the
issuance of the 2002 Notes and received fees of approximately $4.4 million and
$3.2 million, respectively, for services performed. Goldman Sachs Credit
Partners, L.P., an affiliate of Goldman Sachs, acted as the administrative
agent, joint lead arranger and joint bookrunner for the Credit Facility and
received fees of $3.6 million in July 2002 for services provided. JP Morgan
Chase Bank, an affiliate of J.P. Morgan, acted as the joint lead arranger and
joint bookrunner for the Credit Facility for consideration of approximately
$3.6. million. In October 2002, the Company entered into an interest rate collar
agreement with Goldman Sachs Capital Markets to protect $50.0 million of the
outstanding variable rate term loan debt from future interest rate volatility.
The collar floor is set at 1.97% LIBOR and capped at 6.75% LIBOR.
NOTE 12. 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 28, 2002,
except for the 2002 Notes for which the fair value exceeded the carrying value
by $13.8 million.
F-22
NOTE 13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The accumulated balances related to each component of the other comprehensive
income (loss) consist of the following:
COMPANY PREDECESSOR
----------------- -----------------
DECEMBER 28, 2002 DECEMBER 29, 2001
----------------- -----------------
Currency translation $2,091 $ (1,429)
Minimum pension liability adjustment (394) --
Unrealized loss on interest rate collar (555) --
------------ ------------
$1,142 $(1,429)
============ ============
NOTE 14. 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) Merger expenses, (ii) Holding's legal and professional expenses,
(iii) drink cup patent litigation expenses, (iv) uncompleted acquisition
expense, (v) acquisition integration expense, (vi) plant shutdown expense, (vii)
non-cash compensation, and (iii) management fees and reimbursed expenses paid to
First Atlantic ("Adjusted EBITDA"). The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies.
YEAR ENDED
-------------------------------------------------------------------
COMPANY/
PREDECESSOR PREDECESSOR PREDECESSOR
----------------- ----------------- -----------------
DECEMBER 28, 2002 DECEMBER 29, 2001 DECEMBER 30, 2000
----------------- ----------------- -----------------
Net sales:
Containers $ 250,423 $ 234,441 $ 231,209
Closures 133,892 132,384 112,202
Consumer Products 109,988 94,834 64,677
Adjusted EBITDA:
Containers 67,079 63,997 47,578
Closures 30,555 28,444 23,646
Consumer Products 16,773 18,411 9,167
Total assets:
Containers 359,635 204,001 188,129
Closures 229,962 158,009 178,768
Consumer Products 170,979 84,866 45,225
Total cost over net assets acquired, net:
Containers 170,892 61,048 65,443
Closures 87,066 39,682 44,507
Consumer Products 78,302 19,193 4,740
Reconciliation of Adjusted EBITDA to loss before
income taxes and extraordinary item:
Adjusted EBITDA for reportable segments $ 114,407 $ 110,852 $ 80,391
Net interest expense (49,254) (54,355) (51,457)
Depreciation (39,557) (38,105) (31,569)
Amortization (2,408) (12,802) (10,579)
Loss on disposal of property and equipment (299) (473) (877)
Merger expenses (20,987) -- --
Holding's legal and professional expense -- (134) (165)
Drink cup patent litigation expense -- -- (700)
Uncompleted acquisition expense (216) -- --
Acquisition integration expense (1,353) (2,690) (2,237)
Plant shutdown expense (3,992) (2,221) (3,702)
Non-cash compensation -- (796) (459)
Management fees (331) (637) (873)
---------- ---------- ----------
Loss before income taxes and extraordinary item $ (3,990) $ (1,361) $ (22,227)
========== ========== ==========
F-23
NOTE 15. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (IN THOUSANDS)
Holding conducts its business through its wholly owned subsidiary, Berry.
Holding and all of Berry's domestic subsidiaries fully, jointly, severally, and
unconditionally guarantee on a senior subordinated basis the 2002 Notes issued
by Berry. 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 28, 2002 and December 29, 2001
and for the fiscal years ended December 28, 2002, December 29, 2001, and
December 30, 2000. The equity method has been used with respect to investments
in subsidiaries.
DECEMBER 28, 2002 (COMPANY)
----------------------------------------------------------------------------------------
Berry
BPC Holding Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(Parent) (Issuer) Subsidiaries Subsidiaries Adjustments Consolidated
-------- -------- ------------ ------------ ----------- ------------
CONSOLIDATING BALANCE SHEETS
Current assets $ 1 $ 58,995 $ 73,940 $11,192 $ -- $144,128
Net property and equipment -- 68,431 108,567 16,134 -- 193,132
Other noncurrent assets 74,021 650,613 314,099 11,129 (626,546) 423,316
-------- -------- -------- ------- --------- --------
Total assets $ 74,022 $778,039 $496,606 $38,455 $(626,546) $760,576
======== ======== ======== ======= --------- ========
Current liabilities $ -- $ 52,111 $ 21,142 $ 6,674 $ -- $ 79,927
Noncurrent liabilities (1,141) 600,539 449,814 22,925 (466,651) 605,486
Equity (deficit) 75,163 125,389 25,650 8,856 (159,895) 75,163
-------- -------- -------- ------- --------- --------
Total liabilities and equity (deficit) $ 74,022 $778,039 $496,606 $38,455 $(626,546) $760,576
======== ======== ======== ======= ========= ========
DECEMBER 29, 2001 (PREDECESSOR)
------------------------------------------------------------------------------------------
Berry
BPC Holding Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(Parent) (Issuer) Subsidiaries Subsidiaries Adjustments Consolidated
-------- -------- ------------ ------------ ----------- ------------
CONSOLIDATING BALANCE SHEETS
Current assets $ 440 $ 32,459 $ 68,518 $ 9,775 $ -- $ 111,192
Net property and equipment -- 71,437 117,176 14,604 -- 203,217
Other noncurrent assets 23,980 289,764 91,272 18,360 (290,909) 132,467
--------- -------- --------- -------- --------- ---------
Total assets $ 24,420 $393,660 $ 276,966 $ 42,739 $(290,909) $ 446,876
========= ======== ========= ======== --------- =========
Current liabilities $ 861 $ 60,212 $ 22,555 $ 8,237 $ -- $ 91,865
Noncurrent liabilities 163,160 311,574 310,244 35,555 (325,921) 494,612
Equity (deficit) (139,601) 21,874 (55,833) (1,053) 35,012 (139,601)
--------- -------- --------- -------- --------- ---------
Total liabilities and equity (deficit) $ 24,420 $393,660 $ 276,966 $ 42,739 $(290,909) $ 446,876
========= ======== ========= ======== ========= =========
F-24
YEAR ENDED DECEMBER 28, 2002 (COMPANY/PREDECESSOR)
------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(Parent) (Issuer) Subsidiaries Subsidiaries Adjustments Consolidated
-------- -------- ------------ ------------ ----------- ------------
CONSOLIDATING STATEMENTS OF OPERATIONS
Net sales $ -- $ 173,570 $ 300,149 $ 20,584 $ -- $ 494,303
Cost of goods sold -- 116,354 236,169 18,750 -- 371,273
-------- --------- --------- -------- -------- ---------
Gross profit -- 57,216 63,980 1,834 -- 123,030
Operating expenses 1,920 27,857 44,894 2,796 -- 77,467
-------- --------- --------- -------- -------- ---------
Operating income (loss) (1,920) 29,359 19,086 (962) -- 45,563
Other expenses -- 145 249 (95) -- 299
Interest expense, net 9,443 3,172 34,481 2,158 -- 49,254
Income taxes (benefit) (8,234) 11,016 115 401 -- 3,298
Extraordinary item 9,282 6,339 9,498 209 -- 25,328
Equity in net (income) loss from subsidiary 20,205 28,892 3,635 -- (52,732) --
-------- --------- --------- -------- -------- ---------
Net income (loss) $(32,616) $ (20,205) $ (28,892) $ (3,635) $ 52,732 $ (32,616)
======== ========= ========= ======== ======== =========
CONSOLIDATING STATEMENTS OF CASH FLOWS
Net income (loss) $(32,616) $ (20,205) $ (28,892) $ (3,635) $ 52,732 $ (32,616)
Non-cash expenses 11,451 23,799 36,178 3,270 -- 74,698
Equity in net (income) loss from subsidiary 20,205 28,892 3,635 -- (52,732) --
Changes in working capital (320) (6,290) (7,557) (1,275) -- (15,442)
-------- --------- --------- -------- -------- ---------
Net cash provided by (used for) operating (1,280) 26,196 3,364 (1,640) -- 26,640
activities
Net cash used for investing activities -- (18,023) (25,704) (1,171) -- (44,898)
Net cash provided by financing activities 841 6,863 22,194 2,483 -- 32,381
Effect on exchange rate changes on cash -- -- -- 258 -- 258
-------- --------- --------- -------- -------- ---------
Net increase (decrease) in cash and cash
equivalents (439) 15,036 (146) (70) -- 14,381
Cash and cash equivalents at beginning of year 440 121 410 261 -- 1,232
-------- --------- --------- -------- -------- ---------
Cash and cash equivalents at end of year $ 1 $ 15,157 $ 264 $ 191 $ -- $ 15,613
======== ========= ========= ======== ======== =========
YEAR ENDED DECEMBER 29, 2001 (PREDECESSOR)
-----------------------------------------------------------------------------------
Berry
BPC Holding Plastics Combined Combined
Corporation Corporation Guarantor Non-Guarantor Consolidating
(Parent) (Issuer) Subsidiaries Subsidiaries Adjustments Consolidated
-------- -------- ------------ ------------ ----------- ------------
CONSOLIDATING STATEMENTS OF OPERATIONS
Net sales $ -- $ 159,783 $ 279,533 $ 22,343 $ -- $ 461,659
Cost of goods sold -- 103,867 213,355 20,778 -- 338,000
-------- --------- --------- -------- ------- ---------
Gross profit -- 55,916 66,178 1,565 -- 123,659
Operating expenses 924 23,113 40,889 5,266 -- 70,192
-------- --------- --------- -------- ------- ---------
Operating income (loss) (924) 32,803 25,289 (3,701) -- 53,467
Other expenses -- 46 481 (54) -- 473
Interest expense, net 17,469 7,277 26,848 2,761 -- 54,355
Income taxes (benefit) (8,307) 8,682 234 125 -- 734
Equity in net (income) loss from subsidiary (7,991) 8,807 6,533 -- (7,349) --
-------- --------- --------- -------- ------- ---------
Net income (loss) $ (2,095) $ 7,991 $ (8,807) $ (6,533) $ 7,349 $ (2,095)
======== ========= ========= ======== ======= =========
CONSOLIDATING STATEMENTS OF CASH FLOWS
Net income (loss) $ (2,095) $ 7,991 $ (8,807) $ (6,533) $ 7,349 $ (2,095)
Non-cash expenses 9,775 16,146 33,072 4,451 -- 63,444
Equity in net (income) loss from subsidiary (7,991) 8,807 6,533 -- (7,349) --
Changes in working capital 154 5,882 (11,258) (1,779) -- (7,001)
-------- --------- --------- -------- ------- ---------
Net cash provided by (used for) (157) 38,826 19,540 (3,861) -- 54,348
operating activities
Net cash used for investing activities -- (30,688) (22,395) (3,207) -- (56,290)
Net cash provided by (used for) 377 (9,199) 3,014 6,388 -- 580
financing activities
Effect on exchange rate changes on cash -- 540 (540) 540 -- 540
-------- --------- --------- -------- ------- ---------
Net increase (decrease) in cash and
cash equivalents 220 (521) (381) (140) -- (822)
Cash and cash equivalents at beginning of year 220 642 791 401 -- 2,054
-------- --------- --------- -------- ------- ---------
Cash and cash equivalents at end of year $ 440 $ 121 $ 410 $ 261 $ -- $ 1,232
======== ========= ========= ======== ======= =========
F-25
YEAR ENDED DECEMBER 30, 2000 (PREDECESSOR)
--------------------------------------------------------------------------------
Berry
BPC Holding Plastics Combined Combined
Corporation Corporation Guarantor Non-Guarantor Consolidating
(Parent) (Issuer) Subsidiaries Subsidiaries Adjustments Consolidated
-------- -------- ------------ ------------ ----------- ------------
CONSOLIDATING STATEMENTS OF OPERATIONS
Net sales $ -- $ 158,055 $ 234,944 $ 15,089 $ -- $ 408,088
Cost of goods sold -- 108,739 189,872 13,508 -- 312,119
-------- --------- --------- -------- -------- ---------
Gross profit -- 49,316 45,072 1,581 -- 95,969
Operating expenses 616 23,303 37,852 4,091 -- 65,862
-------- --------- --------- -------- -------- ---------
Operating income (loss) (616) 26,013 7,220 (2,510) -- 30,107
Other expenses -- 258 619 -- -- 877
Interest expense, net 16,025 11,221 23,000 1,211 -- 51,457
Income taxes (benefit) 18 168 22 (350) -- (142)
Extraordinary item -- 1,022 -- -- -- 1,022
Equity in net (income) loss from subsidiary 6,448 19,792 3,371 -- (29,611) --
-------- --------- --------- -------- -------- ---------
Net income (loss) $(23,107) $ (6,448) $ (19,792) $ (3,371) $ 29,611 $ (23,107)
======== ========= ========= ======== ======== =========
CONSOLIDATING STATEMENTS OF CASH FLOWS
Net income (loss) $(23,107) $ (6,448) $ (19,792) $ (3,371) $ 29,611 $ (23,107)
Non-cash expenses 16,958 13,332 30,372 1,988 -- 62,650
Equity in net (income) loss from subsidiary 6,448 19,792 3,371 -- (29,611) --
Changes in working capital (646) 2,931 (2,928) (2,794) -- (3,437)
-------- --------- --------- -------- -------- ---------
Net cash provided by (used for) operating activities (347) 29,607 11,023 (4,177) -- 36,106
Net cash used for investing activities -- (78,328) (27,218) (3,169) -- (108,715)
Net cash provided by (used for) financing activities (136) 48,307 16,671 7,195 -- 72,037
Effect on exchange rate changes on cash -- 80 (80) 80 -- 80
-------- --------- --------- -------- -------- ---------
Net increase (decrease) in cash and cash equivalents (483) (334) 396 (71) -- (492)
Cash and cash equivalents at beginning of year 703 976 395 472 -- 2,546
-------- --------- --------- -------- -------- ---------
Cash and cash equivalents at end of year $ 220 $ 642 $ 791 $ 401 $ -- $ 2,054
======== ========= ========= ======== ======== =========
NOTE 16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table contains selected unaudited quarterly financial data for
fiscal years 2002 and 2001.
2002 2001
-------------------------------------------------- -----------------------------------------------
FIRST SECOND THIRD * FOURTH FIRST SECOND THIRD FOURTH
-------- -------- --------- --------- -------- -------- -------- --------
Net sales $122,934 $127,989 $ 127,575 $ 115,805 $116,016 $124,997 $121,910 $ 98,736
Cost of sales 90,299 94,974 97,492 88,508 83,927 89,092 91,311 73,670
-------- -------- --------- --------- -------- -------- -------- --------
Gross profit $ 32,635 $ 33,015 $ 30,083 $ 27,297 $ 32,089 $ 35,905 $ 30,599 $ 25,066
======== ======== ========= ========= ======== ======== ======== ========
Net income (loss) $ 4,766 $ 5,216 $ (42,071) $ (527) $ 1,022 $ 1,907 $ 176 $ (5,200)
======== ======== ========= ========= ======== ======== ======== ========
* For comparison purposes, the period from June 30, 2002 to July 21,
2002 (Predecessor) has been combined with the period from July 22,
2002 to September 28, 2002 (Company). Net loss in the third quarter
of 2002 includes merger expenses of $20,987 and an extraordinary
expense of $25,328 incurred in connection with the Merger.
F-26
BPC Holding Corporation
Consolidated Balance Sheets
(In Thousands of Dollars)
MARCH 29, DECEMBER 28,
2003 2002
------------------- --------------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 4,025 $ 15,613
Accounts receivable (less allowance for doubtful accounts of $2,235 at March
29, 2003 and $1,990 at December 28, 2002) 69,493 56,765
Inventories:
Finished goods 48,884 50,002
Raw materials and supplies 15,686 14,730
------------------- --------------------
64,570 64,732
Prepaid expenses and other current assets 6,717 7,018
------------------- --------------------
Total current assets 144,805 144,128
Property and equipment:
Land 7,033 7,040
Buildings and improvements 49,887 49,966
Machinery, equipment and tooling 142,523 139,486
Construction in progress 22,240 12,232
------------------- --------------------
221,683 208,724
Less accumulated depreciation 25,179 15,592
------------------- --------------------
196,504 193,132
Intangible assets:
Deferred financing fees, net 19,514 20,116
Customer relationships, net 34,084 33,890
Goodwill 334,744 336,260
Trademarks 27,048 27,048
Other intangibles, net 5,998 5,883
------------------- --------------------
421,388 423,197
Other 183 119
------------------- --------------------
Total assets $762,880 $760,576
=================== ====================
F-27
BPC Holding Corporation
Consolidated Balance Sheets (continued)
(In Thousands of Dollars, except share information)
MARCH 29, DECEMBER 28,
2003 2002
------------------- -------------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,902 $ 31,204
Accrued expenses and other liabilities 9,994 9,926
Accrued interest 8,010 14,239
Employee compensation and payroll taxes 15,843 15,917
Current portion of long-term debt 8,687 8,641
------------------- -------------------
Total current liabilities 76,436 79,927
Long-term debt, less current portion 604,443 601,302
Deferred income taxes 648 640
Other liabilities 3,584 3,544
------------------- -------------------
685,111 685,413
Stockholders' equity:
Preferred Stock; $.01 par value: 500,000 shares authorized;
0 shares issued and outstanding -- --
Common Stock; $.01 par value: 5,000,000 shares authorized; 2,767,879
shares issued and 2,767,279 shares outstanding 28 28
Additional paid-in capital 281,672 281,816
Adjustment of the carryover basis of continuing stockholders (196,603) (196,603)
Notes receivable - common stock (14,553) (14,399)
Treasury stock: 600 shares Common Stock (60) --
Retained earnings 6,258 3,179
Accumulated other comprehensive income 1,027 1,142
-------------------- --------------------
Total stockholders' equity 77,769 75,163
------------------- -------------------
Total liabilities and stockholders' equity $762,880 $ 760,576
=================== ===================
See notes to consolidated financial statements.
F-28
BPC Holding Corporation
Consolidated Statements of Operations
(In Thousands of Dollars)
THIRTEEN WEEKS ENDED
---------------------------------------------
COMPANY PREDECESSOR
---------------------- -------------------
MARCH 29, MARCH 30,
2003 2002
---------------------- -------------------
(UNAUDITED)
Net sales $125,398 $122,934
Cost of goods sold 94,321 90,299
---------------------- -------------------
Gross profit 31,077 32,635
Operating expenses:
Selling 6,202 5,780
General and administrative 6,031 7,108
Research and development 764 547
Amortization of intangibles 615 477
Other expenses 324 1,116
---------------------- -------------------
Operating income 17,141 17,607
Other expenses:
Loss on disposal of property and equipment -- 144
---------------------- -------------------
Income before interest and taxes 17,141 17,463
Interest:
Expense (11,730) (12,809)
Income 212 3
---------------------- -------------------
Income before income taxes 5,623 4,657
Income taxes (benefit) 2,544 (109)
---------------------- -------------------
Net income 3,079 4,766
Preferred stock dividends -- (2,755)
Amortization of preferred stock discount -- (256)
---------------------- -------------------
Net income attributable to common shareholders $ 3,079 $ 1,755
====================== ===================
See notes to consolidated financial statements.
F-29
BPC Holding Corporation
Consolidated Statements of Changes in Stockholders' Equity
(In Thousands of Dollars)
ADJUSTMENT OF ACCUMULATED
THE CARRYOVER NOTES OTHER COMPRE-
ADDITIONAL BASIS OF RECEIVABLE- COMPRE- HENSIVE
COMMON PAID-IN CONTINUING COMMON TREASURY RETAINED HENSIVE INCOME
STOCK CAPITAL STOCKHOLDERS STOCK STOCK EARNINGS INCOME TOTAL (LOSS)
---- ------- ------------ ---------- -------- --------- --------- -------- --------
Balance at December 28, 2002 $ 28 $281,816 $(196,603) $(14,399) $ -- $ 3,179 $1,142 $75,163
---- -------- --------- -------- ----- ------- ------ ------- ------
Interest on notes receivable -- -- -- (195) -- -- -- (195) $ --
Purchase of treasury stock
and option rights from
former management -- (144) -- 41 (60) -- -- (163) --
Translation loss -- -- -- -- -- -- (27) (27) (27)
Other comprehensive losses -- -- -- -- -- -- (88) (88) (88)
Net income -- -- -- -- -- 3,079 -- 3,079 3,079
---- -------- --------- -------- ----- ------- ------ ------- ------
Balance at March 29, 2003 $ 28 $281,672 $(196,603) $(14,553) $ (60) $ 6,258 $1,027 $77,769 $2,964
==== ======== ========= ======== ===== ======= ====== ======= ======
See notes to consolidated financial statements.
F-30
BPC Holding Corporation
Consolidated Statements of Cash Flows
(In Thousands of Dollars)
THIRTEEN WEEKS ENDED
---------------------------------------------
COMPANY PREDECESSOR
---------------------- -------------------
MARCH 29, MARCH 30,
2003 2002
---------------------- -------------------
(UNAUDITED)
OPERATING ACTIVITIES
Net income $ 3,079 $ 4,766
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 9,535 10,358
Non-cash interest expense 407 631
Amortization of intangibles 615 477
Loss on sale of property and equipment -- 144
Deferred income taxes 2,480 --
Changes in operating assets and liabilities:
Accounts receivable, net (12,700) (14,424)
Inventories 161 (1,553)
Prepaid expenses and other current assets 747 373
Other assets (4) 11
Accrued interest (6,229) 5,898
Payables and accrued expenses 2,679 808
---------------------- -------------------
Net cash provided by operating activities 770 7,489
INVESTING ACTIVITIES
Additions to property and equipment (10,080) (9,801)
Proceeds from disposal of property and equipment -- 1
Acquisitions of businesses (4,858) (3,199)
---------------------- -------------------
Net cash used for investing activities (14,938) (12,999)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 4,911 12,098
Payments on long-term borrowings (2,182) (6,489)
Purchase of treasury stock and option rights (163) --
---------------------- -------------------
Net cash provided by financing activities 2,566 5,609
Effect of exchange rate changes on cash 14 (557)
---------------------- -------------------
Net decrease in cash and cash equivalents (11,588) (458)
Cash and cash equivalents at beginning of period 15,613 1,232
---------------------- -------------------
Cash and cash equivalents at end of period $ 4,025 $ 774
====================== ===================
See notes to consolidated financial statements.
F-31
BPC Holding Corporation
Notes to Consolidated Financial Statements
(In thousands of dollars, except as otherwise noted)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of BPC Holding
Corporation (the "Company") have been prepared in accordance with generally
accepted accounting principles ("GAAP") 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 generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) 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,
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, Knight Plastics, Inc., CPI Holding Corporation and
its subsidiary Cardinal Packaging, Inc., Poly-Seal Corporation, and Oceisse
S.r.l. and its subsidiary Capsol S.p.a. As a result of the Merger described in
Note 2 below, certain financial information has been presented separately for
Holding's prior ownership through the Merger date ("Predecessor") and subsequent
to the Merger ("Company"). For further information, refer to the 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 28, 2002.
2. THE MERGER
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly formed
entity controlled by various private equity funds affiliated with Goldman, Sachs
& Co., merged (the "Merger") with and into Holding, pursuant to an agreement and
plan of merger dated as of May 25, 2002. At the effective time of the Merger,
(i) each share of common stock of Holding 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
Holding.
F-32
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
accrued dividends, the redemption of outstanding warrants, and the payment of
transaction costs incurred by Holding, were approximately $870.4 million (which
includes the amount of certain indebtedness which remained outstanding and the
value of certain shares of Holding common stock held by employees that were
contributed to the Buyer immediately prior to the Merger). As a result of the
Merger, private equity funds affiliated with Goldman Sachs own approximately 63%
of the common stock of Holding. The remaining common stock of Holding is held by
J.P. Morgan Partners Global Investors, L.P. and other private equity funds
affiliated with J.P. Morgan Partners, LLC, the private equity investment arm of
J.P. Morgan Chase & Co., which own approximately 29% of Holding's common stock
and by members of Berry's management, which own the remaining 8%.
The Merger has been accounted for under the purchase method of accounting, and
accordingly, the purchase price has been allocated to the identifiable assets
and liabilities based on estimated fair values at the acquisition date. The
allocation is preliminary and is subject to change pending the finalization of
expenses related to the Merger. The Company has applied the provisions of
Emerging Issues Task Force 88-16, Basis in Leveraged Buyout Transactions,
whereby, the carryover equity interests of certain shareholders from Holding
prior to the Merger to the Company were recorded at their Company basis. The
application of these provisions reduced stockholder's equity and intangibles by
$196.6 million.
3. RECENT ACQUISITIONS
On January 24, 2002, Berry acquired the Alcoa Flexible Packaging injection
molding assets of Mount Vernon Plastics Corporation ("Mount Vernon") for
consideration, excluding transition expenses, 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 under its retired senior credit facility. The
operations of Mount Vernon are included in Berry's operations since the
acquisition date using the purchase method of accounting. On January 31, 2002,
Berry entered into a sale/leaseback arrangement with respect to the Mount Vernon
fixed assets.
On February 25, 2003, Berry acquired the 400 series continuous threaded
injection molded closure assets from CCL Plastic Packaging located in Los
Angeles, California ("CCL Acquisition") for aggregate consideration, including
expenses, of approximately $4.5 million. The purchase price was allocated to
fixed assets ($2.4 million), inventory ($1.1 million), customer relationships
($0.5 million), goodwill ($0.4 million), and other intangibles ($0.1 million).
The fair value of the net assets acquired was based on preliminary estimates and
may be revised at a later date upon completion of the integration and
finalization of expenses related to the acquisition. The purchase was financed
through borrowings under the Company's revolving line of credit. The operations
from the CCL Acquisition are included in Berry's operations since the
acquisition date using the purchase method of accounting.
Pro forma results for the thirteen weeks ended March 29, 2003 and March 30, 2002
have not been presented, as they do not differ materially from reported
historical results.
F-33
4. LONG-TERM DEBT
Long-term debt consists of the following:
MARCH 29, DECEMBER 28,
2003 2002
------------------ -----------------
Berry 10 3/4% Senior Subordinated Notes $250,000 $250,000
Term loans 328,350 329,175
Revolving lines of credit 5,626 692
Nevada Industrial Revenue Bonds 2,500 2,500
Capital leases 26,654 27,576
------------------ -----------------
613,130 609,943
Less current portion of long-term debt 8,687 8,641
------------------ -----------------
$604,443 $601,302
================== =================
The current portion of long-term debt consists of $3.3 million of quarterly
installments on the term loans, $0.5 million in repayments of the industrial
bonds, and $4.9 million of monthly principal payments related to capital lease
obligations.
In connection with the Merger, the Company entered into a credit and guaranty
agreement and a related pledge security agreement with a syndicate of lenders
led by Goldman Sachs Credit Partners L.P., as administrative agent (the "Credit
Facility"). The Credit Facility provides (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. 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
indebtedness under the Credit Facility is guaranteed by Holding and all of its
domestic subsidiaries. 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.
The Credit Facility contains significant financial and operating covenants,
including prohibitions on the ability to incur certain additional indebtedness
or to pay dividends, and restrictions on the ability to make capital
expenditures. Amounts available under the delayed draw term loan facility may be
borrowed in connection with permitted acquisitions (but not reborrowed) during
the 18-month period that began on July 22, 2002, subject to certain conditions.
The Credit Facility also contains 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 Company was in compliance with all the
financial and operating covenants at March 29, 2003. The term loan amortizes
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.
F-34
Borrowings under the Credit Facility bear interest, at the Company's option, at
either (i) a base rate (equal to the greater of the prime rate and the federal
funds rate plus 0.5%) plus the applicable margin (the "Base Rate Loans") or (ii)
an adjusted eurodollar LIBOR (adjusted for reserves) plus the applicable margin
(the "Eurodollar Rate Loans"). 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.
The "applicable margin" with respect to Eurodollar Rate Loans is subject to a
pricing grid which ranges from 2.75% per annum to 2.00% per annum (2.75% based
on results through March 29, 2003), depending on the 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. In October
2002, Berry entered into an interest rate collar arrangement to protect $50.0
million of the outstanding variable rate term loan debt from future interest
rate volatility. The collar floor is set at 1.97% LIBOR (London Interbank
Offering Rate) and capped at 6.75% LIBOR. At March 29, 2003, shareholders'
equity has been reduced by $0.6 million to adjust the agreement to fair market
value. At March 29, 2003, the Company had unused borrowing capacity under the
Credit Facility's revolving line of credit of $85.5 million. However, covenants
under the Credit Facility may limit the Company's ability to make such
borrowings and as of March 29, 2003, the Company could have borrowed $24.8
million.
5. STOCK-BASED COMPENSATION
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards (SFAS) No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure, an amendment of FASB Statement No. 123". The
Statement requires prominent disclosures in both annual and interim financial
statements regarding the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
accounts for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion 25, "Accounting for Stock
Issued to Employees." Compensation cost for stock options, if any, is measured
as the excess of the fair value of the Company's stock at the date of grant over
the amount an employee must pay to acquire the stock. The fair value for options
granted by Holding have been estimated at the date of grant using a Black
Scholes option pricing model with the following weighted average assumptions:
THIRTEEN WEEKS ENDED
-----------------------------------------
COMPANY PREDECESSOR
----------------- --------------------
MARCH 29, MARCH 30,
2003 2002
----------------- --------------------
Risk-free interest rate 4.0% 4.0%
Dividend yield 0.0% 0.0%
Volatility factor .25 .25
Expected option life 5.0 years 5.0 years
F-35
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 income 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. The following is a
reconciliation of reported net income to net income as if the Company used the
fair value method of accounting for stock-based compensation.
THIRTEEN WEEKS ENDED
-----------------------------
COMPANY PREDECESSOR
------------ -------------
MARCH 29, MARCH 30,
2003 2002
------------ ------------
Reported net income $3,079 $4,766
Stock-based employee compensation
expense included in reported income,
net of tax -- --
Total stock-based employee compensation
expense determined under fair value
based method, for all awards, net of tax (518) (144)
----------- ------------
Pro forma net income $2,561 $4,622
=========== ============
F-36
6. 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) Merger expense, (ii) Holding's legal and professional expense, (iii)
drink cup patent litigation expense, (iv) uncompleted acquisition expense, (v)
acquisition integration expense, (vi) plant shutdown expense, (vii) non-cash
compensation, and (viii) management fees and reimbursed expenses paid to First
Atlantic ("Adjusted EBITDA"). Adjusted EBITDA is not a measure of performance
under GAAP and has been presented because we believe that investors use Adjusted
EBITDA to analyze operating performance, which includes the company's ability to
incur additional indebtedness and to service existing indebtedness. Adjusted
EBITDA should not be considered in isolation or as a substitute for net income,
net cash from operating activities or other income or cash flow statement data
prepared in accordance with GAAP. In addition, comparability to other companies
using similarly titled measures is not recommended due to differences in the
definitions and methods of calculation used by various companies. 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 28, 2002.
THIRTEEN WEEKS ENDED
------------------------
COMPANY PREDECESSOR
----------- ------------
MARCH 29, MARCH 30,
2003 2002
----------- ------------
Net sales:
Containers $ 61,561 $ 58,178
Closures 35,103 33,463
Consumer Products 28,734 31,293
Adjusted EBITDA:
Containers 15,694 15,859
Closures 7,603 7,450
Consumer Products 4,318 6,406
Total assets:
Containers 349,790 203,799
Closures 234,128 158,846
Consumer Products 178,962 101,601
Reconciliation of Adjusted EBITDA to income
before income taxes:
Adjusted EBITDA for reportable segments $ 27,615 $ 29,715
Net interest expense (11,518) (12,806)
Depreciation (9,535) (10,358)
Amortization (615) (477)
Loss on disposal of property and equipment -- (144)
Acquisition integration expense (2) (178)
Plant shutdown expense (322) (938)
Holding's legal and professional expense -- (26)
Management fees -- (131)
---------- ---------
Income before income taxes $ 5,623 $ 4,657
========== =========
F-37
7. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Holding conducts its business through its wholly owned subsidiary, Berry.
Holding and all of Berry's domestic subsidiaries fully, jointly, severally, and
unconditionally guarantee on a senior subordinated basis the $250.0 million
aggregate principal amount of 10 3/4% Berry Plastics Corporation Senior
Subordinated Notes due 2012. 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 March 29, 2003
and December 28, 2002 and for the thirteen week period ended March 29, 2003 and
March 30, 2002. The equity method has been used with respect to investments in
subsidiaries.
MARCH 29, 2003 (COMPANY)
-------------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(Parent) (Issuer) Subsidiaries Subsidiaries Adjustments Consolidated
------------ ------------ ------------ ------------ ------------- ------------
CONSOLIDATING BALANCE SHEETS
Current assets $ 1 $ 50,802 $ 82,486 $ 11,516 $ -- $ 144,805
Net property and equipment -- 73,464 106,913 16,127 -- 196,504
Other noncurrent assets 77,768 635,104 256,428 10,691 (558,420) 421,571
----------- ----------- ----------- ----------- ------------ -------------
Total assets $ 77,769 $ 759,370 $ 445,827 $ 38,334 $ (558,420) $ 762,880
=========== =========== =========== =========== ============ =============
Current liabilities $ -- $ 46,998 $ 23,028 $ 6,410 $ -- $ 76,436
Noncurrent liabilities -- 634,603 451,348 23,658 (500,934) 608,675
Equity (deficit) 77,769 77,769 (28,549) 8,266 (57,486) 77,769
----------- ----------- ------------ ----------- ------------ -------------
Total liabilities and equity $ 77,769 $ 759,370 $ 445,827 $ 38,334 $ (558,420) $ 762,880
============ =========== =========== =========== ============ =============
(deficit)
DECEMBER 28, 2002 (COMPANY)
-------------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(Parent) (Issuer) Subsidiaries Subsidiaries Adjustments Consolidated
------------ ------------ ------------ ------------ ------------- ------------
CONSOLIDATING BALANCE SHEETS
Current assets $ 1 $ 58,995 $ 73,940 $ 11,192 $ -- $ 144,128
Net property and equipment -- 68,431 108,567 16,134 -- 193,132
Other noncurrent assets 74,021 650,613 314,099 11,129 (626,546) 423,316
----------- ----------- ----------- ----------- ------------ -------------
Total assets $ 74,022 $ 778,039 $ 496,606 $ 38,455 $ (626,546) $ 760,576
=========== =========== =========== =========== ============ =============
Current liabilities $ -- $ 52,111 $ 21,142 $ 6,674 $ -- $ 79,927
Noncurrent liabilities (1,141) 600,539 449,814 22,925 (466,651) 605,486
Equity (deficit) 75,163 125,389 25,650 8,856 (159,895) 75,163
----------- ----------- ----------- ----------- ------------ -------------
Total liabilities and equity
(deficit) $ 74,022 $ 778,039 $ 496,606 $ 38,455 $ (626,546) $ 760,576
============ =========== =========== =========== ============ =============
F-38
THIRTEEN WEEKS ENDED MARCH 29, 2003 (COMPANY)
-----------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(Parent) (Issuer) Subsidiaries Subsidiaries Adjustments Consolidated
----------- ------------ ------------ ------------- ------------- ------------
CONSOLIDATING STATEMENT OF OPERATIONS
Net sales $ -- $ 46,405 $ 73,479 $ 5,514 $ -- $ 125,398
Cost of goods sold -- 31,611 57,586 5,124 -- 94,321
------------ ----------- ----------- ----------- ------------ -------------
Gross profit -- 14,794 15,893 390 -- 31,077
Operating expenses -- 5,770 7,601 565 -- 13,936
------------ ----------- ----------- ----------- ------------ -------------
Operating income (loss) -- 9,024 8,292 (175) -- 17,141
Other expenses -- -- -- -- -- --
Interest expense, net (201) 183 11,189 347 -- 11,518
Income taxes (benefit) 7 2,491 (1) 47 -- 2,544
Equity in net (income) loss
from subsidiary (2,885) 3,465 569 -- (1,149) --
------------- ----------- ----------- ----------- ------------ -------------
Net income (loss) $ 3,079 $ 2,885 $ (3,465) $ (569) $ 1,149 $ 3,079
============ =========== =========== =========== ============ =============
CONSOLIDATING STATEMENT OF CASH FLOWS
Net income (loss) $ 3,079 $ 2,885 $ (3,465) $ (569) $ 1,149 $ 3,079
Non-cash expenses (194) 6,063 6,394 774 -- 13,037
Equity in net (income) loss
from subsidiary (2,885) 3,465 569 -- (1,149) --
Changes in working capital -- (7,872) (6,877) (597) -- (15,346)
------------ ----------- ----------- ----------- ------------- -------------
Net cash provided by (used for)
operating activities -- 4,541 (3,379) (392) -- 770
Net cash used for investing
activities -- (9,825) (4,514) (599) -- (14,938)
Net cash provided by (used for)
financing activities -- (6,429) 7,750 1,245 -- 2,566
Effect on exchange rate changes
on cash -- -- -- 14 -- 14
------------ ----------- ----------- ----------- ------------- -------------
Net increase (decrease) in cash
and cash equivalents -- (11,713) (143) 268 -- (11,588)
Cash and cash equivalents at
beginning of period 1 15,156 264 192 -- 15,613
------------ ----------- ----------- ----------- ------------- -------------
Cash and cash equivalents at
end of period $ 1 $ 3,443 $ 121 $ 460 $ $ 4,025
============ =========== =========== ============ ============== =============
F-39
THIRTEEN WEEKS ENDED MARCH 30, 2002 (PREDECESSOR)
------------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(Parent) (Issuer) Subsidiaries Subsidiaries Adjustments Consolidated
------------- -------------- ------------ ------------ ------------- ------------
CONSOLIDATING STATEMENT OF
OPERATIONS
Net sales $ -- $ 42,003 $ 75,593 $ 5,338 $ -- $ 122,934
Cost of goods sold -- 26,786 58,757 4,756 -- 90,299
------------ ----------- ----------- ----------- ------------ -------------
Gross profit -- 15,217 16,836 582 -- 32,635
Operating expenses 29 6,250 8,080 669 -- 15,028
------------ ----------- ----------- ----------- ------------ -------------
Operating income (loss) (29) 8,967 8,756 (87) -- 17,607
Other expenses -- 81 63 -- -- 144
Interest expense, net 4,354 433 7,386 633 -- 12,806
Income taxes (benefit) (155) 8 5 33 -- (109)
Equity in net (income) loss
from subsidiary (8,994) (549) 753 -- 8,790 --
------------ ----------- ----------- ----------- ------------ -------------
Net income (loss) $4,766 $ 8,994 $ 549 $ (753) $ (8,790) $ 4,766
============ =========== ============ =========== ============ =============
CONSOLIDATING STATEMENT OF CASH
FLOWS
Net income (loss) $ 4,766 $ 8,994 $ 549 $ (753) $ (8,790) $ 4,766
Non-cash expenses 125 3,862 6,890 733 -- 11,610
Equity in net (income) loss
from subsidiary (8,994) (549) 753 -- 8,790 --
Changes in working capital 4,075 (5,036) (6,693) (1,233) -- (8,887)
------------ ----------- ----------- ----------- ----------- ------------
Net cash provided by (used for)
operating activities (28) 7,271 1,499 (1,253) -- 7,489
Net cash used for investing
activities -- (6,152) (6,781) (66) -- (12,999)
Net cash provided by (used for)
financing activities (411) (1,050) 5,078 1,992 -- 5,609
Effect on exchange rate changes
on cash -- -- -- (557) -- (557)
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents (439) 69 (204) 116 -- (458)
Cash and cash equivalents at
beginning of period 440 121 410 261 -- 1,232
------------ ----------- ----------- ----------- ----------- ------------
Cash and cash equivalents at end
of period $ 1 $ 190 $ 206 $ 377 $ -- $ 774
============ ============ =========== =========== =========== ============
F-40
8. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board ("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.
As a result, the Company will reclassify the extraordinary item in the
Statements of Operations to continuing operations in its 2003 third quarter
financial statements. Any gain or loss on extinguishment of debt that was
classified as an extraordinary item in prior periods presented that does not
meet the criteria in Opinion 30 for classification as an extraordinary item must
be reclassified. 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 became 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 initial
adoption of this statement did not have a material impact on the Company.
On April 30, 2003, the FASB issued Statement of Financial Accounting Standards
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities ("SFAS No. 149"). SFAS No. 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under Statement 133 and is to be
applied prospectively to contracts entered into or modified after June 30, 2003.
The Company is currently evaluating the effects, if any, that this standard will
have on its results of operations and financial position.
F-41
[BERRY PLASTICS CORPORATION LOGO]