Filed Pursuant to Rule 424(b)(3)
Registration No. 333-111809
PROSPECTUS
[BERRY LOGO]
BERRY PLASTICS CORPORATION
EXCHANGE OFFER FOR
$85,000,000
10 3/4% SENIOR SUBORDINATED NOTES DUE 2012
We are offering to exchange 10 3/4% senior subordinated notes due 2012 for our
currently outstanding 10 3/4% senior subordinated notes due 2012. The exchange
notes are the same as the outstanding notes, except that the exchange notes will
have been registered under the federal securities laws and will not bear any
legend restricting their transfer. The exchange notes will represent the same
debt as the outstanding notes, and we will issue the exchange notes under the
same indenture. The outstanding notes were issued in connection with our
acquisition of Landis Plastics, Inc., which is referred to in this prospectus as
the "Landis Acquisition".
The exchange notes will be guaranteed by BPC Holding Corporation, and all of our
existing and future domestic subsidiaries, except as provided herein. The notes
will not be 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 will be
subordinated in right of payment to all obligations of our non-guarantor
subsidiaries. The notes will also be subordinated in right of payment to all
existing and future senior indebtedness, will rank equally in right of payment
with any existing and future senior subordinated indebtedness and will be senior
in right of payment to all future subordinated obligations. The notes will also
be effectively subordinated to all of our and our subsidiaries' secured
indebtedness to the extent of the value of the assets securing such
indebtedness.
The principal features of the exchange offer are as follows:
- Expires 5:00 p.m., New York City time, on April 29, 2004, unless
extended.
- We will exchange all outstanding notes that are validly tendered and
not validly withdrawn prior to the expiration date of the exchange
offer.
- You may withdraw tendered outstanding notes at any time prior to the
expiration of the exchange offer.
- The exchange of outstanding notes for exchange notes pursuant to the
exchange offer will be a tax free event for United States federal tax
purposes.
- We will not receive any proceeds from the exchange offer.
- We do not intend to apply for listing of the exchange notes on any
securities exchange or automated quotation system.
Broker-dealers receiving exchange notes in exchange for outstanding notes
acquired for their own account through market-making or other trading activities
must deliver a prospectus in any resale of the exchange notes.
INVESTING IN THE EXCHANGE NOTES INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is March 31, 2004
IN MAKING YOUR INVESTMENT DECISION, YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
ANY OTHER INFORMATION. IF YOU RECEIVE ANY OTHER INFORMATION, YOU SHOULD NOT RELY
ON IT.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT COVER OF THIS
PROSPECTUS.
TABLE OF CONTENTS
PAGE
Prospectus summary.................... 1
Risk factors.......................... 8
Use of proceeds....................... 20
Capitalization........................ 21
Unaudited pro forma financial
information......................... 22
Selected consolidated financial
data................................ 25
Management's discussions and analysis
of financial condition and results
of operations....................... 27
Business.............................. 42
Management............................ 52
Principal stockholders................ 60
PAGE
Related party transactions............ 62
Description of other indebtedness..... 66
The exchange offer.................... 70
Description of exchange notes......... 80
Certain material U.S. federal tax
considerations...................... 133
ERISA considerations.................. 141
Plan of distribution.................. 143
Legal matters......................... 144
Independent auditors.................. 144
Where you can find more information... 144
Index to financial statements......... F-1
---------------------
Berry Plastics Corporation is a Delaware corporation. Our principal executive
offices are located at 101 Oakley Street, Evansville, Indiana 47710, and our
telephone number at that address is 812-424-2904.
In this prospectus, unless the context otherwise requires, "BPC Holding" or
"Holding" refers to BPC Holding Corporation, "we," "our" or "us" refers to BPC
Holding Corporation together with its consolidated subsidiaries (not including
Landis, unless the context otherwise requires), "Berry Plastics" or "the
Company" refers to Berry Plastics Corporation, a wholly owned subsidiary of BPC
Holding and the issuer of the notes, and "Landis" refers to Landis Plastics,
Inc. Unless otherwise indicated, all references in this prospectus to our 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
"2003," "2002," "2001," "2000" and "1999," or to such periods as our fiscal
years, relate to our fiscal years ended December 27, 2003, December 28, 2002,
December 29, 2001, December 30, 2000 and January 1, 2000, 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
Buyout."
---------------------
"Outstanding notes" refers to all the 10 3/4% Senior Subordinated Notes due 2012
that were issued in a private placement transaction on November 20, 2003 and
"exchange notes" refers to the 10 3/4% Senior Subordinated Notes due 2012
offered pursuant to this prospectus.
i
"Existing notes" refers to the $250,000,000 aggregate principal amount of
10 3/4% Senior Subordinated Notes due 2012 that were issued on September 18,
2002. We sometimes refer to the outstanding notes, the exchange notes and the
existing notes collectively as the "notes". In addition, we may issue additional
notes, under the Indenture subject to the terms of the Indenture, and these
additional notes would also be included in the term "notes".
---------------------
This prospectus includes trademarks owned by third parties, such as COOL
WHIP(R), LIFE SAVERS(R), COLOMBO(R), PHILADELPHIA(R) Cream Cheese, CRYSTAL
LIGHT(R), DANNON(R) and YOPLAIT(R).
---------------------
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.
ii
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements," within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), with respect to our financial
condition, results of operations and business and our expectations or beliefs
concerning future events. Such statements include, in particular, statements
about the benefits of the Landis Acquisition, and our plans, strategies and
prospects under the headings "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:
- 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;
- 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;
- 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 8.
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.
iii
MARKET DATA
The data included in this prospectus regarding markets, product categories and
ranking, including, but not limited to, the size of certain markets and product
categories and our position and the positions of our competitors within these
markets and product categories, are based on our estimates and definitions,
which have been derived from management's knowledge and experience in the areas
in which the relevant businesses operate, and information obtained from
customers, distributors, suppliers, trade and business organizations and other
contacts in the areas in which the relevant businesses operate. We have also
cited information compiled by Plastics News, an industry publication. Unless
otherwise specified, 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 United States plastic container
demand by weight.
iv
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 and Landis' consolidated financial
statements and related notes included elsewhere in this prospectus.
BERRY PLASTICS CORPORATION
We are one of the world's leading manufacturers and suppliers of a diverse mix
of rigid 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. Our top 10 customers represented approximately 18% of our fiscal 2003
net sales with no customer accounting for more than 4% of our fiscal 2003 net
sales. On a pro forma basis giving effect to the acquisition of Landis as if it
occurred at the beginning of fiscal 2003, our top 10 customers would have
represented approximately 32% of our pro forma fiscal 2003 net sales with no
customer accounting for more than 8% of our pro forma fiscal 2003 net sales. The
average length of our relationship with these customers was over 19 years. 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 16 high-volume manufacturing facilities and have
extensive distribution capabilities.
We organize our product categories into three operating 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) 1999 2000 2001 2002 2003
-------------------------------------------------------------------------------------------
Containers..................................... $188.7 $231.2 $234.5 $250.4 $288.5
Closures....................................... 81.0 112.2 132.4 133.9 147.3
Consumer products.............................. 59.1 64.7 94.8 110.0 116.1
------------------------------------------
Total net sales........................... $328.8 $408.1 $461.7 $494.3 $551.9
-------------------------------------------------------------------------------------------
THE LANDIS ACQUISITION
On November 20, 2003, we acquired Landis Plastics, Inc. for aggregate
consideration of approximately $229.7 million, pursuant to which our
wholly-owned subsidiary, Berry Plastics Acquisition Corporation IV, merged with
and into Landis, and Landis became our wholly-owned subsidiary. The Landis
Acquisition was funded through (1) the issuance of $85 million aggregate
principal amount of the notes, which resulted in gross proceeds of $95.2
million, (2) aggregate net borrowings of $54.1 million under our amended and
restated senior secured
1
credit facility from our new term loans, after giving effect to the refinancing
of our prior term loan, (3) an aggregate common equity contribution of $62
million, consisting of contributions of $35.4 million by GS Capital Partners
2000, L.P. and its affiliates, $16.1 million by J.P. Morgan Partners Global
Investors, L.P. and its affiliates, and an aggregate of $10.5 million from
existing Landis shareholders and (4) cash on hand.
We also agreed to acquire, for $32 million, four facilities that Landis leased
from certain of its affiliates. Prior to the closing of the Landis Acquisition,
we assigned our rights and obligations to purchase the four facilities owned by
affiliates of Landis to an affiliate of W.P. Carey & Co., L.L.C. and then leased
those four facilities from them.
The Landis Acquisition, the amendment and restatement of our senior secured
credit facility, the borrowings under our revolving credit facility and our new
term loans and the common equity contributions described above are collectively
referred to in this prospectus as the Transactions.
LANDIS PLASTICS, INC.
Landis is a leading United States manufacturer of thinwall injection-molded and
thermoformed plastic packaging. Landis manufactures rigid plastic packaging for
yogurt and cultured dairy products and plastic packaging for margarine products.
Landis also manufactures dessert, institutional and industrial plastic
containers. While a substantial majority of Landis' sales are to the food
industry, it also produces industrial packaging products used to store and
transport products such as adhesives and wall and tile grout. Landis has focused
its business on customers that are high-volume purchasers to take advantage of
manufacturing efficiencies, and has strategically located its facilities to
accommodate specific customer needs.
Among its numerous products, Landis produces several highly recognized
containers for large, well-known food processors, including General Foods
(Kraft) Cool Whip, Philadelphia Cream Cheese and Crystal Light, General Mills
Yoplait yogurt and Dannon yogurt.
Landis organizes its products into five categories (by end-market): yogurt,
dairy, margarine, dessert and industrial. These five categories accounted for
approximately 37%, 28%, 18%, 9% and 8% of its 2002 net sales, respectively. Most
of Landis' products are produced from either high density polyethylene or
polypropylene and feature high resolution graphics through its eight color
printing capability.
BUSINESS STRATEGY
Our goal is to leverage our core strengths to increase profitability. Our
strategy to achieve this goal includes the following elements:
- Increase sales to existing customers.
- Aggressively pursue new customers.
- Continue to effectively manage costs.
- Selectively pursue strategic acquisitions in our core businesses.
2
THE EXCHANGE OFFER
On November 20, 2003, we completed the offering of $85 million aggregate
principal amount of 10 3/4% senior subordinated notes due 2012 in a transaction
exempt from registration under the U.S. Securities Act of 1933, as amended (the
"Securities Act"). The net proceeds of that offering were used to fund a portion
of the Landis Acquisition. In connection with that offering, we entered into a
registration rights agreement with the initial purchasers of the outstanding
notes, in which we agreed to commence this exchange offer. Accordingly, you may
exchange your outstanding notes for exchange notes which have substantially the
same terms. You should read the discussion under the headings "The exchange
offer" and "Description of exchange notes" for further information regarding the
exchange notes to be issued in the exchange offer.
SECURITIES OFFERED......Up to $85,000,000 aggregate principal amount of 10 3/4%
senior subordinated notes due 2012, registered under the
Securities Act. The terms of the exchange notes offered
in the exchange offer are substantially identical to
those of the outstanding notes, except that the transfer
restrictions, registration rights and penalty interest
provisions relating to the outstanding notes do not
apply to the exchange notes.
THE EXCHANGE OFFER......We are offering exchange notes in exchange for a like
principal amount of our outstanding notes. We are
offering these exchange notes to satisfy our obligations
under a registration rights agreement which we entered
into with the initial purchasers of the outstanding
notes. You may tender your outstanding notes for
exchange by following the procedures described under the
heading "The exchange offer".
TENDERS; EXPIRATION
DATE; WITHDRAWAL........The exchange offer will expire at 5:00 p.m., New York
City time, on April 29, 2004, unless we extend it. If
you decide to exchange your outstanding notes for
exchange notes, you must acknowledge that you are not
engaged in, and do not intend to engage in, a
distribution of the exchange notes. You may withdraw any
outstanding notes that you tender for exchange at any
time prior to the expiration date of this exchange
offer. See "The exchange offer--Terms of the exchange
offer" for a more complete description of the tender and
withdrawal period.
CERTAIN MATERIAL U.S.
FEDERAL TAX
CONSIDERATIONS..........Your exchange of outstanding notes for exchange notes to
be issued in the exchange offer will not result in any
gain or loss to you for United States federal income tax
purposes. See "Certain material U.S. federal tax
considerations" for a summary of material United States
federal income tax consequences associated with the
exchange of outstanding notes for the exchange notes and
the ownership and disposition of those exchange notes.
USE OF PROCEEDS.........We will not receive any cash proceeds from the exchange
offer.
3
EXCHANGE AGENT..........U.S. Bank Trust National Association
SHELF REGISTRATION......If applicable interpretations of the staff of the SEC do
not permit us to effect the exchange offer, we will be
required to use our reasonable best efforts to file, and
cause to become effective, a shelf registration
statement under the Securities Act, which would cover
resales of outstanding. See "Description of exchange
notes--Registration rights; additional interest."
CONSEQUENCES OF
EXCHANGING YOUR
OUTSTANDING NOTES.......Based on interpretations of the staff of the SEC, we
believe that you may offer for resale, resell or
otherwise transfer the exchange notes that we issue in
the exchange offer without complying with the
registration and prospectus delivery requirements of the
Securities Act if:
- you acquire the exchange notes issued in the exchange
offer in the ordinary course of your business;
- you are not participating, do not intend to
participate, and have no arrangement or undertaking with
anyone to participate, in the distribution of the
exchange notes issued to you in the exchange offer; and
- you are not an "affiliate" of us, as described in Rule
405 of the Securities Act.
If any of these conditions are not satisfied and you
transfer any exchange notes issued to you in the
exchange offer without delivering a proper prospectus or
without qualifying for a registration exemption, you may
incur liability under the Securities Act. We will not be
responsible for, or indemnify you against, any liability
you incur.
Any broker-dealer that acquires exchange notes in the
exchange offer for its own account in exchange for
outstanding notes which it acquired through
market-making or other trading activities must
acknowledge that it will deliver a prospectus when it
resells or transfers any exchange notes issued in the
exchange offer. See "Plan of distribution" for a
description of the prospectus delivery obligations of
broker-dealers in the exchange offer.
THE EXCHANGE NOTES
The following is a brief summary of the terms of the exchange notes. For a more
complete description of the terms of the notes, see "Description of exchange
notes" in this prospectus.
ISSUER..................Berry Plastics Corporation, a Delaware corporation.
SECURITIES OFFERED......$85,000,000 in aggregate principal amount of 10 3/4%
senior subordinated notes due 2012. The exchange notes
are being offered as additional debt securities under an
indenture pursuant to which we
4
issued $250,000,000 of 10 3/4% senior subordinated notes
due 2012, which we refer to as the existing notes. The
exchange notes, the outstanding notes and the existing
notes will be treated as a single class.
MATURITY DATE...........July 15, 2012.
INTEREST PAYMENT
DATES...................January 15 and July 15.
GUARANTORS..............The notes will be fully and unconditionally guaranteed
by BPC Holding Corporation, our parent company, and each
of our current and future domestic subsidiaries. These
guarantees can be released upon the circumstances
described under "Description of exchange notes--Certain
covenants--Future note guarantors and release of note
guarantees." If we cannot make payments on the notes
when they are due, the note guarantors are obligated to
make them instead.
RANKING.................The notes will be unsecured and:
- will be subordinated in right of payment to all
existing and future senior debt;
- will rank equally in right of payment with any
existing and future senior subordinated debt;
- will rank senior in right of payment to all future
subordinated debt;
- will be effectively subordinated to our secured debt
to the extent of the value of the assets securing such
debt;
- will be 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:
- will be subordinated in right of payment to all of the
applicable note guarantor's existing and future senior
debt;
- will rank equally in right of payment with any of the
applicable note guarantors' existing and future senior
subordinated debt;
- will rank senior in right of payment to all of the
applicable note guarantors' future subordinated debt;
- will be effectively subordinated to all secured debt
of such note guarantor to the extent of the value of the
assets securing such debt; and
- will be effectively subordinated to the obligations of
any subsidiary of a note guarantor if that subsidiary is
not a note guarantor.
5
As of December 27, 2003:
- we had total indebtedness of approximately $751.6
million, excluding $7.4 million in letters of credit
under our revolving credit facility and, subject to
certain conditions to borrowing, $92.6 million available
for future borrowings under our revolving credit
facility; however the covenants under our amended and
restated senior secured credit facility may limit our
ability to make such borrowings;
- we did not have any senior subordinated debt (other
than the notes and the existing notes);
- we did not have any subordinated debt; and
- our subsidiaries that are not guarantors of the notes
had $13.2 million of liabilities including trade
payables, but excluding liabilities owed to us.
As of March 18, 2004, we could incur approximately $87.6
million in additional senior debt under our amended and
restated senior secured credit facility, subject to
conditions to borrowing; however, the covenants under
our amended and restated 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 exchange notes--Optional
redemption."
In addition, before July 15, 2005, we may redeem up to
35% of the notes with the net cash proceeds from certain
equity offerings at the price listed under "Description
of exchange notes--Optional redemption."
CHANGE OF CONTROL.......Upon the occurrence of a change of control, unless we
have exercised our right to redeem all of the notes as
described above, you will have the right to require us
to purchase all or a portion of your notes at a purchase
price in cash equal to 101% of the principal amount plus
accrued and unpaid interest to the date of purchase. The
occurrence of a change of control will also result in an
event of default under our amended and restated 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 exchange
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;
6
- 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 exchange notes--Certain covenants."
REGISTRATION RIGHTS;
ADDITIONAL INTEREST.....In connection with the offering of the outstanding
notes, we and our guarantors entered into a registration
rights agreement pursuant to which we are obligated to
file with the SEC this registration statement with
respect to an offer to exchange the notes for
substantially similar notes that are registered under
the Securities Act. Alternatively, if the exchange offer
is not available or cannot be completed or some holders
are not able to participate in the exchange offer, we
are required to file a shelf registration statement to
cover resales of the notes under the Securities Act. If
we do not comply with these obligations, we will be
required to pay additional interest on the notes under
specified circumstances. See "Description of exchange
notes--Registration rights."
RISK FACTORS
You should carefully consider all the information in this prospectus prior to
participating in the exchange offer. 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-fifth of our products. A catastrophic loss of all or a part of
the facility could have a material adverse effect on us. Also, we may not be
able to successfully integrate Landis. 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 December 27, 2003,
we had total indebtedness of approximately $751.6 million, excluding $7.4
million in letters of credit under our revolving credit facility and, subject to
certain conditions to borrowing, $92.6 million available for future borrowings
under our revolving credit facility. In particular, we urge you to consider
carefully the factors set forth under "Risk factors" beginning on page 8 of this
prospectus.
7
RISK FACTORS
You should read and consider carefully each of the following factors, as well as
the other information contained in this prospectus before participating in the
exchange offer or deciding whether to invest in the notes. The risks and
uncertainties described below are not the only ones we face. Additional risks
and uncertainties not presently known to us or that we currently believe to be
immaterial may also adversely affect our business. For purposes of this "Risk
Factors" section, the terms "we", "our" or "us" refer to BPC Holding Corporation
together with its consolidated subsidiaries (including Landis, unless the
context signifies otherwise).
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 December 27, 2003, we had total indebtedness of approximately
$751.6 million, excluding $7.4 million in letters of credit under our revolving
credit facility and, subject to certain conditions to borrowing, $92.6 million
available for future borrowings under our revolving credit facility. As of March
18, 2004, we could incur approximately $87.6 million in additional senior debt
under our amended and restated senior secured credit facility, subject to
conditions to borrowing; however, the covenants under our amended and restated
senior secured credit facility may limit our ability to make such borrowings. We
are also permitted by the terms of the notes and our other debt instruments to
incur substantial additional indebtedness, subject to the restrictions therein.
See "Description of exchange notes--Certain covenants" and "Description of other
indebtedness--The amended and restated senior secured credit facility." Any debt
that could be incurred under the indenture may be deemed senior debt.
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,
8
that are beyond our control. Our business may not generate sufficient cash flow
from operations and future borrowings may not be available to us under our
amended and restated 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 amended and restated 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 that govern our amended and
restated 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 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 amended and restated senior secured credit facility also requires us to meet
a number of financial ratios. For a discussion of these financial ratios, see
"Description of other indebtedness--The amended and restated senior secured
credit facility". The breach of any of these covenants or restrictions could
result in a default under the indenture governing the notes or under our amended
and restated 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 AND FUTURE
SENIOR INDEBTEDNESS. FURTHER, THE GUARANTEES OF THE NOTES ARE JUNIOR TO ALL OF
OUR GUARANTORS' EXISTING AND FUTURE SENIOR INDEBTEDNESS.
The notes and the guarantees rank behind all of our and our guarantors' existing
and future senior indebtedness. All of our and their future indebtedness will be
deemed senior indebtedness, unless it expressly provides that it ranks equal
with, or is subordinated in right of payment to, the notes and the guarantees.
The notes offered by this prospectus rank equal to the existing notes. As of
December 27, 2003, the amount of debt issued by us that is senior, or
9
effectively senior, to the notes and the note guarantees was $406.6 million
(which amount excludes $7.4 million of letters of credit and the remaining
availability of $92.6 million under our revolving credit 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' senior subordinated indebtedness in the assets remaining after we
and the guarantors have paid all of our and their senior debt. The indenture
governing the notes requires that amounts otherwise payable to holders of the
notes in a bankruptcy or similar proceeding be paid first to holders of any
remaining senior indebtedness. In any of these cases, if our assets are
insufficient to pay all of our creditors, the holders of the notes will receive
a proportional payment only if the holders of our senior indebtedness are paid
in full. 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 exchange
notes--Ranking."
THE NOTES ARE NOT SECURED BY ANY OF OUR ASSETS. HOWEVER, OUR AMENDED AND
RESTATED SENIOR SECURED CREDIT FACILITY IS 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 amended and
restated 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 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 amended and restated
senior secured credit facility have a prior claim on our and our guarantor
subsidiaries' 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. At December 27, 2003, the outstanding balance was
$380.0 million, and we had remaining availability of $92.6 million under that
facility.
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 exchange
notes--Certain covenants--Future note guarantors and release of note
guarantees." Our obligations under the notes are structurally subordinated to
the obligations of our
10
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 December 27, 2003, our non-guarantor
subsidiaries held 5% of our consolidated assets. These non-guarantor
subsidiaries accounted for 3% of our pro forma net sales for fiscal year 2003.
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 guarantor of the notes offered hereby, after
giving effect to its guarantee of the notes offered hereby, will not be
insolvent, will not have unreasonably small capital for the business in which it
is engaged and will not have incurred debts beyond its ability to pay such debts
as they mature. 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.
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
11
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 amended and restated 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 amended
and restated 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 exchange notes--Change of
control."
WE HAVE EXPERIENCED CONSOLIDATED NET LOSSES.
Our net losses were $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 $7.1 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 OUTSTANDING NOTES HAVE NO PRIOR PUBLIC MARKET, AND A PUBLIC MARKET FOR THE
NOTES OFFERED HEREBY MAY NOT DEVELOP OR BE SUSTAINED.
The outstanding notes were issued to, and we believe these securities are
currently owned by, a relatively small number of beneficial owners. The
outstanding notes have not been registered under the Securities Act and will
remain subject to restrictions on transferability if they are not exchanged for
the exchange notes. Although the exchange notes may be resold or otherwise
transferred by the holders (who are not our affiliates) without compliance with
the registration requirements under the Securities Act, and they will constitute
the same issue of securities as the existing notes, a public market for the
notes may not develop or be sustained. In addition, the exchange notes will not
be listed on any national securities exchange. The exchange notes may trade at a
discount from the initial offering price of the outstanding notes, depending
upon many factors, including among other things, prevailing interest rates, the
market for similar securities and other factors, including general economic
conditions, our financial condition, performance and prospects and prospects for
companies in our industry generally. In addition, the liquidity of the trading
market in the notes and the market prices quoted for the notes may be adversely
affected by changes in the overall market for high-yield securities.
Although they are not obligated to do so, Goldman, Sachs & Co. and J.P. Morgan
Securities Inc. have advised us that they presently intend to make a market in
the notes as permitted by applicable law. Goldman, Sachs & Co. and J.P. Morgan
Securities Inc. are not obligated, however, to make a market in the notes and
any such market-making may be discontinued at any time at the sole discretion of
Goldman, Sachs & Co. and J.P. Morgan Securities Inc. In addition, such
market-making activity may be limited during the exchange offer and the pendency
of a shelf registration. 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.
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.
12
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.
Each broker-dealer that receives exchange notes for its own account in exchange
for outstanding notes, where such outstanding notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. See "Plan of distribution."
Because we are an affiliate of Goldman, Sachs & Co. and J.P. Morgan Securities
Inc., Goldman, Sachs & Co. and J.P. Morgan Securities Inc. are required to
deliver a current "market-maker" prospectus and otherwise comply with the
registration requirements of the Securities Act in connection with any secondary
market sale of the notes, which may affect their ability to continue
market-making activities. Following completion of the exchange offer, we have
agreed to make a "market-maker" prospectus generally available to Goldman, Sachs
& Co. and J.P. Morgan Securities Inc. to permit them to engage in market-making
transactions. However, the registration rights agreement also provides that we
may, for valid business reasons, allow the market-maker prospectus to cease to
be effective and usable for a period of time set forth in the registration
rights agreement or as otherwise acceptable to the market-maker. 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 following the exchange
offer.
YOU MAY HAVE DIFFICULTY SELLING THE NOTES WHICH YOU DO NOT EXCHANGE.
If you do not exchange your outstanding notes for the exchange notes offered in
this exchange offer, you will continue to be subject to the restrictions on the
transfer of your outstanding notes. Those transfer restrictions are described in
the indenture and in the legend contained on the outstanding notes, and arose
because we originally issued the outstanding notes under exemptions from, and in
transactions not subject to, the registration requirements of the Securities
Act.
In general, you may offer or sell your outstanding notes only if they are
registered under the Securities Act and applicable state securities laws, or if
they are offered and sold under an exemption from those requirements. We do not
intend to register the outstanding notes under the Securities Act.
If a large number of outstanding notes are exchanged for notes issued in the
exchange offer, it may be more difficult for you to sell your unexchanged notes.
In addition, if you do not exchange your outstanding notes in the exchange
offer, you will no longer be entitled to have those notes registered under the
Securities Act.
See "The exchange offer--Consequences of failure to exchange your outstanding
notes" for a discussion of the possible consequences of failing to exchange your
outstanding notes.
13
RISKS RELATED TO OUR BUSINESS
WE DO NOT HAVE GUARANTEED SUPPLY OR FIXED-PRICE CONTRACTS WITH PLASTIC RESIN
SUPPLIERS.
We source plastic resin primarily from major industry suppliers such as Dow
Chemical, Chevron, Nova, ExxonMobil, Atofina, Basell, Sunoco and Equistar. We
have long-standing relationships with some of these suppliers but we have no
guaranteed supply or fixed-price contracts 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. Over the past several years we have
at times experienced rapidly increasing resin prices primarily due to the
increased cost of oil and natural gas. Due to the uncertain extent and rapid
nature of cost increases, we cannot reasonably estimate our ability to
successfully recover any cost increases in the short-term. If rapidly increasing
resin prices occur, our 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 the 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 2003 cost us approximately $140.3 million, or 33% 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. Based on information from Plastics News, an industry publication,
average spot prices of HDPE and PP on December 27, 2003 were $0.515 per pound
and $0.47 per pound, respectively, reflecting increases of $0.12 per pound, or
30%, and $0.08 per pound, or 21%, over the respective average spot prices from
December 28, 2002. Historically, we and Landis 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 significant negative
short-term impacts to our and Landis' respective financial performances. Some of
our customers (currently accounting for fewer than 10% of our net sales)
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 FACE INTENSE COMPETITION AND MAY NOT BE ABLE TO COMPETE SUCCESSFULLY; 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 and foreign competitors with lower cost
structures. We compete on the basis of a number of considerations, including
price, service, quality, product characteristics and the ability to supply
products
14
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. Furthermore, there are relatively low
barriers to entry into our business and for each of our product lines. 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 25% of our products. Also, our primary computer software system
resides on a computer that is located in the Evansville facility. 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 assure that any future acquisitions will be able to be consummated at
acceptable prices and terms. We expect to continue to evaluate potential
acquisition opportunities in the ordinary course of business, including those
that could be material in size and scope. Acquisitions involve a number of
special risks and factors, including:
- the focus of management's attention to the assimilation of the acquired
companies and their employees and on the management of expanding
operations;
- the incorporation of acquired products into our product line;
- the increasing demands on our operational systems;
- adverse effects on our reported operating results; and
- the loss of key employees and the difficulty of presenting a unified
corporate image.
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
15
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.
We may become responsible for unexpected liabilities that we failed or were
unable to discover in the course of performing due diligence in connection with
the Landis Acquisition and any future acquisitions. We have required the selling
stockholders of Landis to indemnify us against certain undisclosed liabilities.
However, the indemnification, even if obtained, may not be enforceable,
collectible or sufficient in amount, scope or duration to fully offset the
possible liabilities associated with the business or property acquired. Any of
these liabilities, individually or in the aggregate, could have a material
adverse effect on our business, financial condition and results of operations.
THE INTEGRATION OF ACQUIRED BUSINESSES, INCLUDING LANDIS, MAY RESULT IN
SUBSTANTIAL COSTS, DELAYS OR OTHER PROBLEMS.
We may not be able to successfully integrate Landis or any future acquisitions
without substantial costs, delays or other problems. We will have to continue to
expend substantial managerial, operating, financial and other resources to
integrate our businesses. The costs of such integration could have a material
adverse effect on our operating results and financial condition. Such costs
include non-recurring acquisition costs including accounting and legal fees,
investment banking fees, recognition of transaction-related obligations, plant
closing and similar costs and various other acquisition-related costs. In
addition, although we conduct what we believe to be a prudent level of
investigation regarding the businesses we purchase, in light of the
circumstances of each transaction, an unavoidable level of risk remains
regarding the actual condition of these businesses. Until we actually assume
operating control of such business assets and their operations, we may not be
able to ascertain the actual value or understand the potential liabilities of
the acquired entities and their operations. Once we acquire a business, we are
faced with risks, including:
- the possibility that it will be difficult to integrate the operations
into our other operations;
- the possibility that we have acquired substantial undisclosed
liabilities;
- the risks of entering markets or offering services for which we have no
prior experience;
- the potential loss of customers as a result of changes in management;
and
- the possibility we may be unable to recruit additional managers with
the necessary skills to supplement the incumbent management of the
acquired business.
We may not be successful in overcoming these risks.
The acquisition of Landis is significantly larger than any of our previous
acquisitions. The significant expansion of our business and operations resulting
from the acquisition of Landis may strain our administrative, operational and
financial resources. The integration of Landis into our company will require
substantial time, effort, attention, and dedication of management resources and
may distract our management in unpredictable ways from our existing business.
The integration process could create a number of adverse consequences for us,
including the possible unexpected loss of key employees, customers or suppliers,
a possible loss of sales or an increase in operating or other costs. The
foregoing could have a material adverse
16
effect on our business, financial condition and results of operations. We may
not be able to manage the combined operations and assets effectively or realize
all or any of the anticipated benefits of the Landis Acquisition.
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 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.
A SIGNIFICANT AMOUNT OF OUR NET WORTH REPRESENTS GOODWILL AND OTHER INTANGIBLES,
AND A WRITE-OFF COULD RESULT IN LOWER REPORTED NET INCOME AND A REDUCTION OF OUR
NET WORTH.
As of December 27, 2003, the net value of our goodwill and other intangibles was
approximately $529.7 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 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.
17
CURRENT AND FUTURE ENVIRONMENTAL AND OTHER GOVERNMENTAL REQUIREMENTS COULD
ADVERSELY AFFECT OUR FINANCIAL CONDITION AND OUR ABILITY TO CONDUCT OUR
BUSINESS.
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 use of hazardous materials and
the treatment, storage and disposal of solid and hazardous wastes. While we have
never 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
United States 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
accounted for approximately 4% of our 2003 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
18
devaluations and fluctuations in foreign currencies, unstable political
conditions, imposition of limitations on conversion of foreign currencies into
United States 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 Buyout, 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.
19
USE OF PROCEEDS
We will not receive any proceeds in connection with the exchange offer. In
consideration for issuing the exchange notes in exchange for the outstanding
notes as described in this prospectus, we will receive, retire and cancel the
outstanding notes tendered in the exchange offer. The net proceeds from the sale
of the outstanding notes, after deducting fees and expenses, was approximately
$91.8 million. We used all of the net proceeds to fund a portion of the
consideration for, and fees and expenses relating to, the Landis Acquisition.
20
CAPITALIZATION
The following table sets forth our capitalization as of December 27, 2003. This
table should be read in conjunction with "Use of proceeds" and our combined
financial statements and related notes and the unaudited pro forma financial
statements included elsewhere in this prospectus.
-------------------------------------------------------------------------------
(UNAUDITED) AS OF
(DOLLARS IN THOUSANDS) DECEMBER 27, 2003
-------------------------------------------------------------------------------
Long-term debt (including current portion thereof):
Amended and restated senior secured credit facilities
Revolving credit facility(1)............................. $ --
Term loans(2)............................................ 380,000
Existing notes.............................................. 250,000
Notes offered hereby, including premium..................... 95,053
Capital leases.............................................. 24,210
Nevada industrial revenue bonds and other................... 2,342
-----------------
Total debt............................................ 751,605
Stockholders' equity:
Preferred stock.......................................... -
Common stock............................................. 34
Additional paid-in capital............................... 344,363
Adjustment of the carryover basis of continuing
stockholders........................................... (196,603)
Notes receivable--common stock........................... (14,157)
Treasury stock........................................... (1,972)
Retained earnings........................................ 16,227
Accumulated other comprehensive income................... 4,699
-----------------
Total stockholders' equity............................ 152,591
-----------------
Total capitalization........................................ $ 904,196
-------------------------------------------------------------------------------
(1) As of December 27, 2003, we had unused borrowing capacity under the
revolving credit facility of $92.6 million, with $7.4 million in letters of
credit outstanding thereunder. As of the date of this prospectus, we had 5.0
million outstanding under our revolving credit facility.
(2) Between December 27, 2003 and the date of this prospectus, we made principal
payments of $1.7 million on our term loans and scheduled payments on capital
leases.
21
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Set forth below is the unaudited pro forma combined statement of operations of
BPC Holding for the year ended December 27, 2003 and of Landis for the period
from January 1, 2003 to November 19, 2003 assuming the Transactions occurred at
the beginning of the period. The unaudited pro forma combined financial
information is presented for informational purposes only and does not purport to
represent the results of operations of us for the year ended December 27, 2003
had the Transactions occurred at the beginning of such period, or to project the
results for any future date or period.
The unaudited pro forma combined financial information should be read in
conjunction with the financial statements and related notes thereto included
elsewhere in this prospectus and the information set forth in "Management's
discussion and analysis of financial condition and results of operations."
22
PRO FORMA COMBINED CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 27, 2003
-------------------------------------------------------------------------------------------------------------------
LANDIS PERIOD
FROM
JANUARY 1,
2003 TO ADJUSTMENTS PRO FORMA
NOVEMBER 19, FOR THE FOR THE
(DOLLARS IN THOUSANDS) COMPANY 2003 TRANSACTIONS TRANSACTIONS
-------------------------------------------------------------------------------------------------------------------
Net sales.......................................... $ 551,876 $ 197,715 $ - $ 749,591
Cost of goods sold................................. 420,750 157,764 (2,200)(1) 576,314
--------------------------------------------------------------
Gross profit....................................... 131,126 39,951 2,200 173,277
Operating expenses................................. 59,936 35,246 3,326(2) 98,508
--------------------------------------------------------------
Operating income................................... 71,190 4,705 (1,126) 74,769
Other expenses (income)............................ (7) - - (7)
Loss on extinguished debt.......................... 250 5,499 (5,749)(3) -
Interest expense, net.............................. 45,413 2,244 5,905(4) 53,562
--------------------------------------------------------------
Income (loss) before income taxes.................. 25,534 (3,038) (1,282) 21,214
Income taxes....................................... 12,486 94 (2,486)(5) 10,094
--------------------------------------------------------------
Net income (loss).................................. 13,048 (3,132) 1,204 11,120
--------------------------------------------------------------
OTHER DATA:
Depreciation and amortization...................... $ 44,078 $ 11,804 $ 5,387(1)(2) $ 61,269
-------------------------------------------------------------------------------------------------------------------
23
NOTES TO PRO FORMA COMBINED CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(1) This adjustment reflects Landis changing its accounting policy for its
inventory from a LIFO basis to a FIFO basis and capitalization and related
depreciation of tooling costs in order to be consistent with the Company's
accounting policies, the elimination of operating leases that are not being
assumed in the Landis Acquisition, and new operating leases consummated.
----------------------------------------------------------------------
2003
----------------------------------------------------------------------
LIFO adjustment to FIFO..................................... $(1,229)
Tooling costs to be capitalized............................. (1,650)
Depreciation on capitalized tooling......................... 1,852
Operating leases not part of purchase....................... (3,848)
New operating leases........................................ 2,675
-------
Net adjustments............................................. $(2,200)
----------------------------------------------------------------------
(2) This adjustment reflects the elimination of an operating lease of ($209)
that was not assumed in the Landis Acquisition and additional amortization
expense of $3,535.
(3) This adjustment eliminates the expenses incurred with the extinguishment of
debt in connection with the Transactions.
(4) This adjustment reflects the elimination of Landis interest expense and
changes in interest expense resulting from the financing of the Landis
Acquisition.
----------------------------------------------------------------------
2003
----------------------------------------------------------------------
Landis existing interest.................................... $(2,244)
Outstanding Notes:
Interest.................................................. 8,117
Amortization of bond premium.............................. (1,036)
Amortization of deferred financing costs.................. 305
Amendment of credit agreement:
Interest.................................................. 500
Amortization of deferred financing........................ 263
-------
Net adjustments............................................. $ 5,905
----------------------------------------------------------------------
(5) This adjustment represents the income tax change as a result of the other
items reflected in these notes to pro forma combined condensed consolidated
statement of operations and the conversion of Landis from an S corporation to a
C corporation.
24
SELECTED CONSOLIDATED FINANCIAL DATA
BPC HOLDING
The following table sets forth Holding's selected consolidated historical
financial data for each of the fiscal years 1999, 2000, 2001, 2002 and 2003,
which have been derived from the consolidated financial statements of Holding
which have been audited by Ernst & Young LLP, independent auditors included
elsewhere in this prospectus. Holding's fiscal year is a 52/53 week period
ending on the Saturday closest to December 31. Data for the fiscal year 2003
includes the results of operations of Landis from the closing of the Landis
Acquisition on November 20, 2003. All references herein to fiscal "2003,"
"2002," "2001," "2000," and "1999" relate to the fiscal years ended December 27,
2003, December 28, 2002, December 29, 2001, December 30, 2000, and January 1,
2000, respectively. The following data should be read in conjunction with our
consolidated financial statements and related notes, "Management's discussion
and analysis of financial condition and results of operations" and other
financial information included elsewhere in this prospectus.
-----------------------------------------------------------------------------------------------------------------------
FISCAL
---------------------------------------------------------
COMBINED
COMPANY &
PREDECESSOR PREDECESSOR COMPANY
------------------------------ ----------- ----------
(DOLLARS IN THOUSANDS) 1999 2000 2001 2002 2003
-----------------------------------------------------------------------------------------------------------------------
Statement of operations data:
Net sales................................................. $328,834 $408,088 $461,659 $494,303 $ 551,876
Cost of goods sold........................................ 241,067 312,119 338,000 371,273 420,750
---------------------------------------------------------
Gross profit.............................................. 87,767 95,969 123,659 123,030 131,126
Operating expenses
Selling................................................. 17,383 21,630 21,996 22,209 23,883
General and administrative.............................. 22,034 24,408 28,535 23,414 25,699
Research and development................................ 2,338 2,606 1,948 2,888 3,459
Amortization of intangibles............................. 7,215 10,579 12,802 2,408 3,326
Other expenses.......................................... 5,148 6,639 4,911 5,561 3,569
Merger expenses......................................... - - - 20,987 -
---------------------------------------------------------
Total operating expenses................................ 54,118 65,862 70,192 77,467 59,936
---------------------------------------------------------
Operating income.......................................... 33,649 30,107 53,467 45,563 71,190
Other expense (income)(1)................................. 1,416 877 473 299 (7)
Loss on extinguished debt(2).............................. - 1,022 - 25,328 250
Interest expense, net(3).................................. 40,817 51,457 54,355 49,254 45,413
---------------------------------------------------------
Income (loss) before income taxes......................... (8,584) (23,249) (1,361) (29,318) 25,534
Income taxes (benefit).................................... 554 (142) 734 3,298 12,486
---------------------------------------------------------
Net income (loss)......................................... (9,138) (23,107) (2,095) (32,616) 13,048
Preferred stock dividends................................. 3,776 6,665 9,790 6,468 -
Amortization of preferred stock discount.................. 292 768 1,024 574 -
---------------------------------------------------------
Net income (loss) attributable to common stockholders..... $(13,206) $(30,530) $(12,909) $(39,658) $ 13,048
---------------------------------------------------------
Other financial data:
Depreciation and amortization(4)........................ $ 31,795 $ 42,148 $ 50,907 $ 41,965 $ 44,078
Capital expenditures.................................... 30,738 31,530 32,834 28,683 29,949
Ratio of earnings to fixed charges(5)................... - - - - 1.5x
Balance sheet data (at end of period):
Working capital......................................... $ 10,527 $ 20,470 $ 19,327 $ 64,201 $ 87,571
Property and equipment, net............................. 146,792 179,804 203,217 193,132 282,977
Total assets............................................ 340,807 413,122 446,876 760,576 1,015,806
Total debt.............................................. $403,989 $468,806 $485,881 $609,943 $ 751,605
-----------------------------------------------------------------------------------------------------------------------
(1) Other expenses consist of net losses (gains) on disposal of property and
equipment for the respective years.
(2) The loss on extinguished debt in 2003 represents the costs associated with
amending the senior credit facility in connection with the Landis Acquisition.
As a result of the retirement all of BPC Holding's senior secured notes and
Berry
25
Plastics' senior subordinated notes and the repayment of all amounts owed under
our credit facilities 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 a loss on extinguished debt. In 2000, the
loss on extinguished debt relates to deferred financing fees written off as a
result of amending the retired senior credit facility.
(3) Includes non-cash interest expense of $2,318, $2,476, $11,268, $18,047, and
$15,567, in fiscal 2003, 2002, 2001, 2000, and 1999, respectively.
(4) Depreciation and amortization excludes non-cash amortization of deferred
financing fees and debt premium/discount amortization, which are included in
interest expense.
(5) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent net income (loss) before extraordinary items. "Fixed
charges" consist of interest expenses, 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
1999, 2000, 2001 and 2002, our fixed charges exceeded our earnings by $7,137,
$20,520, $772 and $3,146, respectively.
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis of our and Landis'
financial condition and results of operations in conjunction with the
consolidated financial statements and related notes of Berry Plastics and Landis
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 presentation purposes, the results of
Predecessor have been combined with results subsequent to the Buyout.
BERRY PLASTICS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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 that, based on past history and our credit policies, the
net accounts receivable are of good quality. A ten percent increase or decrease
in our bad debt experience would not have a material impact on our results of
operations. Our allowance for doubtful accounts was $2.7 million as of December
27, 2003.
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. A
ten percent increase or decrease in our medical claims experience would not have
a material impact on our
27
results of operations. Our accrued liability for medical claims was $3.0
million, including reserves for expected medical claims incurred but not
reported, as of December 27, 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. A ten
percent increase or decrease in our workers' compensation claims experience
would not have a material impact on our results of operations. Our accrued
liability for workers' compensation claims was $3.1 million as of December 27,
2003.
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.
Impairments of long-lived assets. In accordance with the methodology described
in FASB Statement No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," we review long-lived assets for impairment whenever events
or changes in circumstances indicate the carrying amount of such assets may not
be recoverable. Impairment losses are recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amounts. The impairment loss is measured by comparing the fair value of
the asset to its carrying amount. No impairments were recorded in the financial
statements included herein.
Deferred taxes and effective tax rates. We estimate tax rates and associated
liabilities or assets for each legal entity in accordance with FAS 109. We use
tax-planning to minimize or defer tax liabilities to future periods. In
recording effective tax rates and related liabilities and assets, we rely upon
estimates, which are based upon our interpretation of United States and local
tax laws as they apply to our legal entities and our overall tax structure.
Audits by local tax jurisdictions, including the United States Government, could
yield different interpretations from our own and cause us to owe more taxes than
originally recorded. For interim periods, we accrue our tax provision at the
effective tax rate that we expect for the full year. As the actual results from
our various businesses vary from our estimates earlier in the year, we adjust
the succeeding interim periods effective tax rates to reflect our best estimate
for the year-to-date results and for the full year. As part of the effective tax
rate, if we determine that a deferred tax asset arising from temporary
differences is not likely to be utilized, we will establish a valuation
allowance against that asset to record it at its expected realizable value.
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
28
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, "APM" refers to the acquisition of the injection
molded overcap lid assets of APM Inc. in 2003; "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 YEAR ENDED DECEMBER 27, 2003 TO THE YEAR ENDED DECEMBER 28,
2002
Net Sales. Net sales increased 12% to $551.9 million in 2003, up $57.6 million
from $494.3 million in 2002 with an approximate 5% increase in net selling price
due to higher resin costs passed through to our customers. Container net sales
increased $38.1 million to $288.5 million, with the Landis Acquisition providing
net sales of approximately $20.1 million in 2003. The remaining increase in
containers of $18.0 million can be primarily attributed to higher selling prices
primarily due to passing through the costs of increased resin prices. Closure
net sales increased $13.4 million to $147.3 million primarily due to the CCL
acquisition, higher selling prices, and increased volume in the United States
closure product line. Consumer products net sales increased $6.1 million to
$116.1 million in 2003 primarily due to increased sales from the thermoformed
drink cup line and retail housewares partially offset by a reduction in sales of
a specialty drink cup line.
Gross Profit. Gross profit increased $8.1 million from $123.0 million, or 25% of
net sales, in 2002 to $131.1 million, or 24% of net sales, in 2003. This
increase of 7% includes the combined impact of the added sales volume,
productivity improvement initiatives and the timing effect of the 5% increase in
net selling prices partially offset by higher raw material costs. 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, in the fourth quarter of 2002 we closed our
Fort Worth, Texas facility, which was acquired in the Pescor acquisition, and in
the fourth quarter of 2003, we initiated the closing of our Monticello, Indiana
facility. The Monticello facility was acquired in the Landis acquisition. The
business from these locations was distributed throughout our facilities. Also,
significant productivity improvements were made in 2003, including the addition
of state-of-the-art injection molding, thermoforming and post molding equipment
at several of our facilities.
Operating Expenses. Selling expenses increased by $1.7 million to $23.9 million
for 2003 from $22.2 million principally as a result of increased selling
expenses resulting from increased sales. General and administrative expenses
increased from $23.4 million to $25.7 million in 2003. This increase of $2.3
million can be primarily attributed to the Landis Acquisition and increased
accrued bonus expenses. Research and development costs increased $0.6 million to
$3.5 million
29
in 2003 primarily as a result of an increase in projects under development and
the Landis Acquisition. Intangible asset amortization increased from $2.4
million in 2002 to $3.3 million for 2003, primarily as a result of intangibles
resulting from the Buyout and the Landis Acquisition. In connection with the
Buyout, the Predecessor incurred Buyout 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. Other expenses were $3.6 million
for 2003 compared to $5.6 million for 2002. Other expenses in 2003 include
transition expenses of $1.5 million related to recently acquired businesses,
$1.1 million related to the shutdown and reorganization of facilities, and $1.0
million related to an acquisition that was not completed. Other expenses in 2002
include 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.
Interest Expense, Net. Net interest expense, including amortization of deferred
financing costs and debt premium, for 2003 was $45.7 million, or 8% of net sales
compared to $74.6 million, or 15% of net sales in 2002, a decrease of $28.9
million. This decrease is primarily attributed to $18.7 million of prepayment
fees and related charges and $6.6 million of deferred financing fees written off
in 2002 due to the extinguishment of debt in connection with the Buyout and
decreased rates of interest on borrowings in 2003. The prepayment fees and
related charges and deferred financing fees written off in the prior year were
previously classified as extraordinary. Pursuant to SFAS 145, 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. As a result, we
have reclassified the extraordinary item in the Statements of Operations to
continuing operations in these financial statements.
Income Taxes. During 2003, we recorded income tax expense of $12.5 million for
income taxes, or an effective tax rate of 49%, compared to $3.3 million for
fiscal 2002. The effective tax rate is greater than the statutory rate due to
the impact of state taxes and foreign location losses for which no benefit was
currently provided. The increase of $9.2 million over 2002 can be attributed to
the Buyout as the use of fully reserved net operating loss carryforwards that
existed at the time of the Buyout have been recorded as a reduction to goodwill.
We continue to operate in a net operating loss carryforward position for federal
income tax purposes.
Net Income (Loss). We recorded net income of $13.0 million in 2003 compared to a
net loss of $32.6 million net loss in 2002 for the reasons stated 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.
30
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 1% includes the timing effect of increased raw material costs in
excess of selling price increases partially offset by the combined impact of the
added Pescor and Mount Vernon sales volume, 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 $22.2 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 Buyout, the
Predecessor incurred Buyout 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 million for 2002 compared to $4.9 million
for 2001. Other expenses in 2002 include 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 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 $74.6 million, or 15% of net sales compared to
$54.4 million, or 12% of net sales in 2001, an increase of $20.2 million. This
increase is primarily attributed to $18.7 million of prepayment fees and related
charges and $6.6 million of deferred financing fees written off in 2002 due to
the extinguishment of debt in connection with the Merger partially offset by
decreased rates of interest on borrowings. The prepayment fees and related
charges and deferred financing fees written off in 2002 were previously
classified as extraordinary. Pursuant to SFAS 145, 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. As a result, we
have reclassified the extraordinary item in the Statements of Operations to
continuing operations in these financial statements.
31
Income Taxes. During 2002, we recorded an expense of $3.3 million for income
taxes compared to $0.7 million for 2001. The increase of $2.6 million over 2001
can be attributed to the Buyout as the use of fully reserved net operating loss
carryforwards that existed at the time of the Buyout have been recorded as a
reduction to goodwill. 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
Buyout, $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 net loss
of $2.1 million in 2001 for the reasons discussed above.
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. In connection with the Landis
Acquisition, we amended and restated the senior secured credit facility. The
amended and restated senior secured credit facility consists of our previous
$100 million revolving credit facility, a new $330 million term loan and a new
$50 million term loan. On November 10, 2003, we used $325.9 million of the new
$330 million term loan to refinance in full the balance outstanding under our
prior term loan. The remaining $4.1 million was used to fund a portion of the
purchase price for the Landis Acquisition. The new $50 million term loan was
also used to pay a portion of the purchase price for the Landis Acquisition. The
maturity date of the term loans is July 22, 2010 and the maturity date of the
revolving credit facility is July 22, 2008. Our prior term loan was initially
funded on the closing date of the Buyout and the proceeds were used in
connection with the Buyout to pay the cash consideration payable to
stockholders, the costs of prepaying our indebtedness and the transaction costs
incurred in connection therewith. The indebtedness under our amended and
restated senior secured credit facility is guaranteed by BPC Holding and all of
its domestic subsidiaries. The obligations of Berry Plastics under the amended
and restated senior secured credit facility and the guarantees thereof are
secured by substantially all of the assets of such entities. At December 27,
2003, there were no borrowings outstanding on the revolving credit facility.
Borrowings under our amended and restated 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 loans, the applicable margin is (1) with respect to Base Rate
Loans, 1.50% per annum and (2) with respect to Eurodollar Rate Loans, 2.50% per
annum. For Eurodollar Rate Loans under the revolving credit facility, the
applicable margin ranges from 2.75% per annum to 2.00% per annum, depending on
our leverage ratio (2.75% based on results through December 27, 2003). 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 amended and
restated senior secured credit facility will be equal to the interest rate at
the time of an event of default plus 2.00%. The amended
32
and restated senior secured credit facility also requires us to pay commitment
fees equal to 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. Pursuant to a requirement in the amended
and restated senior secured credit facility and as a result of an economic
slowdown and corresponding interest rate reductions, we entered into an interest
rate collar arrangement in October 2002 to protect $50 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 million of outstanding variable rate term loan debt will not exceed
6.75% or drop below 1.97%.
Our amended and restated 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 amended and restated senior secured credit
facility contains (i) a minimum interest coverage ratio as of the last day of
any quarter of 2.00:1.00 per quarter for the quarters ending December 2003 and
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 $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 of 5.90:1.00 per quarter for
the quarters ending December 2003 and March 2004, 5.75:1.00 per quarter for the
quarters ending June 2004 and September 2004, 5.50:1.00 per quarter for the
quarters ending December 2004 and through the quarter ending June 2005,
5.25:1.00 per quarter for the quarters ending September 2005 and December 2005,
5.00:1.00 per quarter for the quarters ending March 2006 and June 2006,
4.75:1.00 per quarter for the quarters ending September 2006 through the quarter
ending March 2007, 4.50:1.00 per quarter for the quarters ending June 2007
through the quarter ending December 2007, 4.25:1.00 per quarter for the quarters
ending March 2008 through the quarter ending December 2008, and 4.00:1.00 per
quarter thereafter.
The breach of any of these covenants or restrictions could result in a default
under the indenture governing the notes or under our amended and restated senior
secured credit facility.
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. 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. We were in compliance with all of the financial and operating
covenants under our amended and restated senior secured credit facility at
December 27, 2003.
The term loans amortize quarterly in the aggregate as follows: $825,000 each
quarter through June 30, 2004, $950,000 each quarter ending June 30, 2009 and
$89,631,250 each quarter
33
beginning September 30, 2009 and ending June 30, 2010. Borrowings under our
amended and restated 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 $25 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 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 Buyout. 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.
On November 20, 2003, we completed an offering of $85 million aggregate
principal amount of the notes. The net proceeds to us from the sale of the
notes, after expenses, were $91.8 million. The proceeds from the notes were used
in the financing of the Landis Acquisition.
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 of 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 27, 2003 are summarized in the
following table.
------------------------------------------------------------------------------------------
PAYMENTS DUE BY PERIOD AT DECEMBER 27, 2003
-------------------------------------------------
<1 1-3 4-5 >5
(DOLLARS IN THOUSANDS) TOTAL YEAR YEARS YEARS YEARS
------------------------------------------------------------------------------------------
Long-term debt, excluding capital
leases.............................. $717,342 $ 4,050 $ 8,600 $ 8,100 $696,592
Capital leases......................... 26,864 6,184 9,334 6,441 4,905
Operating leases....................... 97,604 12,223 20,071 13,156 52,154
Other long-term obligations............ 245 245 - - -
-------------------------------------------------
Total contractual cash obligations..... $842,055 $22,702 $38,005 $27,697 $753,651
------------------------------------------------------------------------------------------
Net cash provided by operating activities was $79.8 million in 2003 as compared
to $26.6 million in 2002. This increase of $53.2 million can be primarily
attributed to Buyout related expenses of $21.0 million in 2002, improved
operating performance as our net income
34
(loss) plus non-cash expenses excluding the Buyout related expenses improved
$8.1 million, and improved working capital management. Net cash provided by
operating activities was $54.3 million in 2001. The decrease of $27.7 million in
2002 can be primarily attributed to expenses incurred in connection with the
Buyout.
Net cash used for investing activities increased from $44.9 million in 2002 to
$265.7 million in 2003 primarily as a result of the Landis Acquisition in 2003
partially offset by $12.4 million of capitalized Buyout costs in 2002. Capital
expenditures in 2003 were $29.9 million, an increase of $1.3 million from $28.6
million in 2002. Capital expenditures in 2003 included investments of $2.5
million for facility renovations, production systems and offices necessary to
support production operating levels throughout the company, $17.2 million for
molds, $5.3 million for molding and printing machines, and $4.9 million for
accessory equipment and systems. The capital expenditure budget for 2004 is
expected to be approximately $47.0 million. Net cash used for investing
activities was $56.3 million in 2001 compared to the $44.9 million in 2002. This
decrease can be primarily attributed to the Pescor acquisition in 2001 partially
offset by $12.4 million of capitalized Buyout costs in 2002.
Net cash provided by financing activities was $196.8 million in 2003 as compared
to $32.4 million in 2002. The increase of $164.4 million can be primarily
attributed to the Landis Acquisition in 2003 partially offset by the Buyout. 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 Buyout.
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 through 2004 will be satisfied through a
combination of funds generated from operating activities and cash on hand,
together with funds available under our amended and restated senior secured
credit facility. We base such belief on historical experience and the
substantial funds available under our amended and restated senior secured credit
facility. However, we cannot predict our future results of operations and we
will need to remain in compliance with the covenants described above to be able
to borrow under the amended and restated senior secured credit facility. At
December 27, 2003, our cash balance was $26.2 million, and we had unused
borrowing capacity under our amended and restated senior secured credit
facility's borrowing base of $92.6 million. Although the $92.6 million was
available at December 27, 2003, the covenants under our amended and restated
senior secured credit facility may limit our ability to make such borrowings in
the future.
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 amended and restated senior secured credit
facility and the notes, on commercially reasonable terms or at all.
35
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. 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. As
a result, we and Landis will reclassify the extraordinary item in the Statements
of Operations to continuing operations in our 2003 third quarter financial
statements. 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 either us or Landis.
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 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 either us or Landis.
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 Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN No. 46"). FIN No. 46 clarifies the application
of Accounting Research Bulletin No. 51, Consolidated Financial Statements, in
determining whether a reporting entity should consolidate certain legal
entities, including partnerships, limited liability companies, or trusts, among
others, collectively defined as variable interest entities ("VIEs"). This
interpretation applies to VIEs created or obtained after January 31, 2003, and
as of July 1, 2003, to VIEs in
36
which an enterprise holds a variable interest that it acquired before February
1, 2003. The initial adoption of this statement did not have a material impact
on either us or Landis.
Also in 2003, Emerging Issues Task Force ("EITF") reached a consensus on issue
No. 02-16 ("EITF 02-16"), "Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor". EITF 02-16 addressed accounting
for cash consideration received by a reseller from a vendor. Cash consideration
received by a customer from a vendor is presumed to be a reduction of the prices
of the vendor's products or services and should be characterized as a reduction
of cost of sales when recognized in the customer's income statement. However, if
the consideration is a payment for assets or services delivered to the vendor,
the cash consideration is characterized as revenue when recognized in the
customer's income statement. The EITF also addressed rebates or refunds and how
they should be recognized as a reduction of cost of sales. In order to recognize
a rebate or refund, it must be probable and reasonably estimable, otherwise, it
is not recognized until each specified criteria is met. The adoption of EITF
02-16 did not have a material impact on the financial position or results of
operations of the Company or Landis.
In April 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
initial adoption of this statement did not have a material impact on either us
or Landis.
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity ("SFAS No. 150"). This statement establishes standards
for how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003. The adoption
of this statement does not result in any material change to the existing
reporting for either us or Landis.
In December 2003, the United States Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 104 ("SAB 104"), "Revenue
Recognition". SAB 104 updates portions of the SEC staff's interpretive guidance
provided in SAB 101 and included in Topic 13 of the Codification of Staff
Accounting Bulletins. SAB 104 deletes interpretative material no longer
necessary, and conforms the interpretive material retained, because of
pronouncements issued by the FASB Emerging Issues Task Force on various revenue
recognition topics, including EITF 00-21. The Company adopted this standard on a
prospective basis. The adoption of SAB 104 did not have an impact on the
financial position or results of operations of the Company or Landis.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
We are exposed to market risk from changes in interest rates primarily through
our amended and restated senior secured credit facility. The amended and
restated senior secured credit facility consists of our previous $100 million
revolving credit facility, a new $330 million term
37
loan and a new $50 million term loan. On November 10, 2003, we used $325.9
million of the new $330 million term loan to refinance in full the balance
outstanding under our prior term loan. The remaining $4.1 million was used to
fund a portion of the purchase price for the Landis Acquisition. The new $50
million term loan was also used to pay a portion of the purchase price for the
Landis Acquisition. At December 27, 2003, there were no borrowings outstanding
on the revolving credit facility. The net outstanding balance of the term loans
at December 27, 2003 was $380 million. 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 our floating rate debt. Pursuant to a requirement in the amended and
restated senior secured credit facility and as a result of an 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 December 27, 2003, the Eurodollar rate applicable to the
$330 million term loan and the $50 million term loan was 1.17% and 1.12%,
respectively. If the Eurodollar rate increases 0.25% and 0.5%, we estimate an
annual increase in our interest expense of approximately $0.8 million and $1.7
million, respectively.
LANDIS
CRITICAL ACCOUNTING POLICIES
Landis discloses those accounting policies that it considers to be significant
in determining the amounts to be utilized for communicating its financial
position, results of operations and cash flows in the second note to its
financial statements included elsewhere herein. This discussion and analysis of
Landis' financial condition and results of operations is based on its financial
statements, included elsewhere in this prospectus, 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
required Landis' 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 we do not believe such
differences will materially affect Landis' financial position or results of
operations. Prior to the Landis Acquisition, Landis informed us that it believes
the following accounting policies are the most critical because they have the
greatest impact on the presentation of Landis' financial condition and results
of operations.
Cash and Cash Equivalents. For financial statement presentation purposes, Landis
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents. The carrying value of cash
equivalents approximates fair value due to the short term, highly liquid nature
of cash equivalents.
Accounts receivable. Accounts receivable are stated at the amount management
expects to collect from outstanding balances. Landis management provides for
probable uncollectible
38
amounts through a charge to earnings and a credit to a valuation allowance based
on its assessments of the current status of individual accounts. Balances that
are still outstanding after Landis management has used reasonable collection
efforts are written off through a charge to the valuation allowance and a credit
to trade accounts receivable. Landis believes that, based on past history and
Landis' credit policies, the net accounts receivable are of good quality.
Inventories. Landis values substantially all of its inventories at cost
determined on a last-in, first-out (LIFO) basis.
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.
Income Taxes. Landis has elected by unanimous consent of its stockholders to be
taxed as an "S" corporation under Section 1362 of the Internal Revenue Code.
Accordingly, no provision or liability for federal income taxes is reflected in
the accompanying statements. Instead, the stockholders are liable for individual
federal income taxes on their respective share of Landis' taxable income.
However, Landis is liable for certain state income taxes. General investment and
employment tax credit carryforwards are available in various states of
approximately $900,000. These credits expire between 2004 and 2017.
RESULTS OF OPERATIONS
COMPARISON OF THE 39 WEEKS ENDED SEPTEMBER 28, 2003 TO THE 39 WEEKS ENDED
SEPTEMBER 29, 2002
Net Sales. Net sales increased 5.7% or $8.9 million to $164.5 million for the
thirty-nine weeks ended September 28, 2003 from $155.6 million for the
thirty-nine weeks ended September 29, 2002. This increase was primarily
attributable to higher selling prices resulting from increased resin costs,
offset by reduced sales to a single customer.
Gross Profit. Gross profit decreased by $2.3 million to $30.1 million, or 18.3%
of net sales, for the thirty-nine weeks ended September 28, 2003 from $32.4
million, or 20.8% of net sales, for the thirty-nine weeks ended September 29,
2002. This decrease of 7.1% was primarily attributable to the timing effect of
increased raw material costs in excess of selling price increases.
Operating Expenses. Selling expenses increased by $1.0 million to $4.5 million
for the thirty-nine weeks ended September 28, 2003 from $3.5 million for the
thirty-nine weeks ended September 29, 2002, primarily as a result of additional
artwork related to additional volume with Dean Foods, higher wage rates, and
positions added to support new business. General and administrative expenses
increased from $8.8 million for the thirty-nine weeks ended September 29, 2002
to $10.2 million for the thirty-nine weeks ended September 28, 2003. This
increase of $1.4 million was primarily attributable to compensation recognition
(non-cash) for stock vesting.
Interest Expense, Net. Net interest expense was $1.9 million for the thirty-nine
weeks ended September 28, 2003, identical to the $1.9 million for the
thirty-nine weeks ended September 29, 2002.
39
Income Taxes. Landis Plastics, Inc. has elected by unanimous consent of its
stockholders to be taxed as an "S" corporation under Section 1362 of the
Internal Revenue Code for years beginning after December 31, 1986. Accordingly,
no provision or liability for federal income taxes is reflected in the
accompanying statements. Items reported under Income Taxes are liabilities
related to state taxes where S filings are not appropriate.
Net Income. Net income was $2.5 million for the thirty-nine weeks ended
September 28, 2003 compared to $8.1 million for the thirty-nine weeks ended
September 29, 2002 for the reasons discussed above.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2002 TO THE YEAR ENDED DECEMBER 31,
2001
Net Sales. Net sales increased 5.2% to $211.6 million in 2002, up $10.4 million
from $201.2 million in 2001. This increase was primarily due to stronger sales
volume in the yogurt and dairy lines.
Gross Profit. Gross profit increased $1.0 million from $43.6 million, or 21.7%
of net sales, in 2001 to $44.6 million, or 21.1% of net sales, in 2002. This
increase was primarily attributable to the margin gain from higher sales volumes
partially offset by increased raw material costs.
Operating Expenses. Selling expenses increased $0.4 million primarily as a
result of higher artwork costs related to additional business gained when Dean
Foods merged with Suiza Foods, and shifted the business to Landis. General and
administrative expenses fell $0.2 million as a result of lower human resource
expenditures spent on recruiting fees.
Interest Expense, Net. Net interest expense, including amortization of deferred
financing costs for 2002, was $2.7 million, or 1.3% of net sales, compared to
$3.1 million or 1.5% of net sales in 2001, a decrease of $0.4 million. This
decrease was attributed to lower borrowing costs and lower debt levels.
Income Taxes. Landis Plastics, Inc. has elected by unanimous consent of its
stockholders to be taxed as an "S" corporation under Section 1362 of the
Internal Revenue Code for years beginning after December 31, 1986. Accordingly,
no provision or liability for federal income taxes is reflected in the
accompanying statements. Items reported under Income Taxes are liabilities
related to state taxes where S filings are not appropriate.
Asset Impairment. As required by Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the impairment of long-lived assets and for
long-lived assets to be disposed of," Landis recorded losses on long-lived
assets of $0.5 million in 2001. This related to robotic parts handling equipment
that did not meet performance criteria. There were no asset impairments
recognized in 2002.
Net Income. Landis recorded net income of $10.8 million in 2002 as compared to
$8.9 million in 2001 for the reasons discussed above.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2001 TO THE YEAR ENDED DECEMBER 31,
2000
Net Sales. Net sales increased 3.6% to $201.2 million in 2001, up $6.9 million
from $194.3 million in 2000. This increase was primarily due to stronger sales
volume in the yogurt and dairy lines.
40
Gross Profit. Gross profit increased $4.4 million from $39.2 million, or 20.2%
of net sales, in 2000 to $43.6 million, or 21.7% of net sales, in 2001. This
increase is primarily attributable to the margin gain from higher sales volumes.
Operating Expenses. Selling expenses increased $0.5 million largely as a result
of higher insurance costs. General and administrative expenses increased $1.3
million as a result of rent expenses and other costs associated with the start
of the Phoenix facility. The income of 2000 was largely related to a gain on
sale of a corporate aircraft.
Interest Expense, Net. Net interest expense, including amortization of deferred
financing costs for 2001, was $3.1 million, or 1.5% of net sales, compared to
$3.1 million, or 1.6% of net sales, in 2000.
Income Taxes. Landis Plastics, Inc. has elected by unanimous consent of its
stockholders to be taxed as an "S" corporation under Section 1362 of the
Internal Revenue Code for years beginning after December 31, 1986. Accordingly,
no provision or liability for federal income taxes is reflected in the
accompanying statements. Items reported under Income Taxes are liabilities
related to state taxes where S filings are not appropriate.
Asset Impairment. As required by Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the impairment of long-lived assets and for
long-lived assets to be disposed of," Landis recorded losses on long-lived
assets of $0.4 million in 2000. This related to stacking and handling equipment
that did not meet performance criteria. An asset impairment of $0.5 million was
recognized in 2001 for robotics equipment.
Net Income. Landis recorded net income of $8.9 million in 2001 as compared to
$10.5 million in 2000 for the reasons discussed above.
41
BUSINESS
GENERAL
We are one of the world's leading manufacturers and suppliers of a diverse mix
of rigid 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. Our top 10 customers represented approximately 18% of our fiscal 2003
net sales with no customer accounting for more than 4% of our fiscal 2003 net
sales. On a pro forma basis giving effect to the acquisition of Landis Plastics,
Inc. as if it occurred at the beginning of fiscal 2003, our top 10 customers
would have represented approximately 32% of our pro forma fiscal 2003 net sales
with no customer accounting for more than 8% of our pro forma fiscal 2003 net
sales. The average length of our relationship with these customers was over 19
years. 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 16 high-volume manufacturing facilities and
have extensive distribution capabilities.
COMPETITIVE STRENGTHS
We believe that our consistent financial performance is the direct result of the
following competitive strengths:
- Leading positions across a broad product offering.
- Significant scale resulting in low-cost position and strong cash flow.
- Ability to pass through changes in the cost of resin.
- Large, diverse and stable customer base.
- Proven ability to integrate strategic acquisitions.
- Unique, proprietary thermoforming drink cup manufacturing process.
- Proven and motivated management team.
BUSINESS STRATEGY
Our goal is to leverage our core strengths to increase profitability. Our
strategy to achieve this goal includes the following elements:
- Increase sales to existing customers.
- Aggressively pursue new customers.
42
- Continue to effectively manage costs.
- Selectively pursue strategic acquisitions in our core businesses.
PRODUCT OVERVIEW
We organize our product categories into three operating 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) 1999 2000 2001 2002 2003
-------------------------------------------------------------------------------------------
Containers..................................... $188.7 $231.2 $234.5 $250.4 $288.5
Closures....................................... 81.0 112.2 132.4 133.9 147.3
Consumer products.............................. 59.1 64.7 94.8 110.0 116.1
------------------------------------------
Total net sales............................. $328.8 $408.1 $461.7 $494.3 $551.9
-------------------------------------------------------------------------------------------
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 2003. On a pro forma basis
43
giving effect to the acquisition of Landis as if it occurred at the beginning of
fiscal 2003, no single container customer exceeded 8% of our pro forma fiscal
2003 net sales.
We believe that we offer the broadest product line among United States-based
injection-molded plastic container manufacturers. Our container capacities range
from 4 ounces to 5 gallons and are offered in various styles with accompanying
lids, bails and handles, some of which we produce, as well as a wide array of
decorating options. In addition to a complete product line, we have
sophisticated printing capabilities, an in-house graphic arts department,
low-cost manufacturing capability with 14 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 coordinates with our product
design engineers to satisfy customers' needs.
In non-industrial containers, our strongest competitors include Airlite,
Sweetheart 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 United States
manufacturers of aerosol products, and companies that fill aerosol products on a
contractual basis, are our customers for some portion of their needs.
Approximately 20% of the United States injection-molded market consists of
manufacturers who produce overcaps in-house for their own needs.
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
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
44
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 2003, 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.
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 2003, 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. Many of our 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
45
cups. This offers a material competitive advantage versus competitive
thermoformed drink cups.
In fiscal 2003, no single drink cup customer accounted for more than 2% of our
total net sales. Drink cup competitors include Huhtamaki (formerly Packaging
Resources Incorporated), Sweetheart, International Paper, Dopaco, 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 2003, 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. 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 either injection or thermoform
molding presses. In both cases, the process begins with raw plastic pellets
which are then converted into finished
46
products. In the injection process, the raw pellets are melted to a liquid state
and injected into a multi-cavity steel mold where the resin is allowed to
solidify to take the final shape of the part. In the thermoform process, the raw
resin is softened to the point where sheets of material are drawn into
multi-cavity molds and formed over the molds to form the desired shape. The
final parts are then either cut and trimmed in the mold or trimmed as a
secondary process. In both processes, the cured parts are transferred from the
molding process via automated handling equipment to corrugated containers for
shipment to customers or for post-molding secondary operations (offset printing,
labeling, silkscreening, handle applications, etc.). We believe that our
molding, handling, 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 maintenance capability
to support molding and post-molding 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 $153.7 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. The Landis Acquisition
provides the additional capability of in-house mold production, which will be
considered for certain projects. 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 $3.5 million, $2.9 million and $1.9 million on research and development
in 2003, 2002 and 2001, respectively.
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.
47
QUALITY ASSURANCE
Each plant extensively utilizes Total Quality Management philosophies, including
the use of statistical process control and extensive involvement of employees to
increase productivity. This teamwork approach to problem-solving increases
employee participation and provides necessary training at all levels. Teams use
the Six Sigma methodology to improve internal processes and service the
customer. All of our facilities except for two facilities (Richmond and Phoenix)
that were acquired in connection with the Landis Acquisition have been ISO
certified, which demonstrates compliance by a company with a set of shipping,
trading and technology standards promulgated by the International
Standardization Organization ("ISO"). We are actively pursuing ISO certification
in the remaining two facilities. Extensive testing of parts for size, color,
strength and material quality using statistical process control (SPC) techniques
and sophisticated technology is also an ongoing part of our quality assurance
activities.
SYSTEMS
We utilize a fully integrated computer software system at each of our plants
(excluding the Landis facilities, which we anticipate completing the conversion
process by the end of the second quarter of 2004) 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 $140.3 million and over 350 million pounds of resin in fiscal
2003. On a pro forma basis after giving effect to the Landis Acquisition, our
annual resin pound utilization exceeds 500 million pounds with approximately 28%
of our resin pounds being high density polyethylene ("HDPE"), 17% linear low
density polyethylene and 55% polypropylene ("PP"). We have contractual price
escalators and de-escalators tied to the price of resin representing
approximately 55% 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, we have historically had success in passing through price increases
and decreases in the price of resin to customers without indexed price
agreements. For example, in fiscal 2003, our net sales increased by $57.6
million over fiscal 2002, of which approximately $25.6 million was attributable
to increased selling prices. This occurred in an environment of rapidly
escalating resin prices during which our cost of goods sold increased by
approximately $49.5 million. 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. Based on information from Plastics
News, an industry publication, average spot prices of HDPE and PP on December
27, 2003 were $0.515 per pound and $0.470 per pound, respectively, reflecting
increases of $0.12 per pound, or 30%, and $0.08 per pound, or 21%, over the
respective average spot prices from December 28, 2002.
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
48
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
At the end of fiscal 2003, we had approximately 4,700 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. At the end of fiscal 2003, approximately 330 employees of Poly-Seal
Corporation, all of whom 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
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. See "Risk factors--Risks related
to our business--We rely on unpatented proprietary know-how and trade secrets".
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 FOOTAGE USE LEASED
----------------------------------------------------------
Evansville, IN 580,000 Headquarters and Owned
Manufacturing
Henderson, NV 175,000 Manufacturing Owned
Iowa Falls, IA 100,000 Manufacturing Owned
Charlotte, NC 150,000 Manufacturing Owned
Lawrence, KS 424,000 Manufacturing Owned
Suffolk, VA 110,000 Manufacturing Owned
Monroeville, OH 152,000 Manufacturing Owned
Norwich, England 88,000 Manufacturing Owned
Woodstock, IL 170,000 Manufacturing Owned
Streetsboro, OH 140,000 Manufacturing Owned
Baltimore, MD 244,000 Manufacturing Owned
Milan, Italy 125,000 Manufacturing Leased
Chicago, IL 472,000 Manufacturing Leased
Richmond, IN 160,000 Manufacturing Owned
Syracuse, NY 135,000 Manufacturing Leased
Phoenix, AZ 140,000 Manufacturing Leased
49
In addition, we own a property in Monticello, Indiana that was acquired in
connection with the Landis Acquisition that was subsequently closed as part of
our integration efforts. This property is currently on the market for sale.
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 use and management of hazardous
materials, 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 assure
you 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 materials.
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 liability for the entire cost of a cleanup can be imposed on
any responsible party. 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
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. We cannot assure you 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
50
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 through 2001, the most recent
compliance period examined. Therefore, rigid plastic containers are exempt from
the requirements of the Oregon statute. In addition, California's recycling rate
for rigid plastic containers exceeded 25% in 2001, the most recent compliance
period examined. Therefore, rigid plastic containers were exempt from the
requirements of the California statute in 2002. In order to facilitate continued
individual customer compliance with these regulations, we are providing
customers the option of purchasing containers with limited amounts of PCR or
reduced weight.
LEGAL PROCEEDINGS
We are 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.
51
MANAGEMENT
Our directors and executive officers and their ages as of the date of this
prospectus are as follows:
----------------------------------------------------------------------------------------------------
NAME AGE TITLE
----------------------------------------------------------------------------------------------------
Joseph H. Gleberman(1)(2)(3) 46 Chairman and Director
Ira G. Boots(1)(3) 50 President, Chief Executive Officer and Director
James M. Kratochvil 47 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
R. Brent Beeler 51 President, Containers and Consumer Products Division
Gregory J. Landis 53 Director and President, Container Branded Products
Division
William J. Herdrich 53 Executive Vice President and General Manager, Closures
Division
Antonio Gabriele 47 Vice President, International Business Development
Division
Christopher C. Behrens(1)(2) 43 Director
Patrick J. Dalton(2)(4) 35 Director
Douglas F. Londal(1)(3)(4) 38 Director
Mathew J. Lori(3)(4) 39 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 Buyout and has been a Managing Director at Goldman, Sachs & Co.
since 1996. He serves on the Board of Directors of aaiPharma, 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 was named our President, Containers and Consumer Products
Division in October 2003. He had been our 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.
52
Gregory J. Landis became a director upon the closing of the Landis Acquisition.
He is also our President, Container Branded Products Division. Prior to the
closing of the Landis Acquisition, he had been President of Landis since 1991.
William J. Herdrich has been our Executive Vice President and General Manager,
Closures Division 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.
Antonio Gabriele became our Vice President, International Business Development
Division in September, 2003. He was previously employed by Solo Cup Company as
International Sales Manager and National Sales Manager since 1995.
Christopher C. Behrens has been a director since the closing of the Buyout 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, Brand Services Inc. and
Interline Holdings, 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 Buyout 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 Buyout 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, NextMedia Investors
LLC 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 Buyout. 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 seven directors, including Gregory
J. Landis, who became a director of our company upon the closing of the Landis
Acquisition. Pursuant to the stockholders' agreement entered into in connection
with the Landis Acquisition with affiliates of Goldman, Sachs & Co. and
affiliates of J.P. Morgan Securities Inc., described below, affiliates
53
of Goldman, Sachs & Co. has the right to designate two additional members 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 Buyout, 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 28%
of our common stock. Under the terms of this agreement, which was amended upon
the closing of the Landis Acquisition, among other things: (1) GSCP 2000 and
other private equity funds affiliated with Goldman, Sachs & Co., have the right
to designate seven 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.
54
MANAGEMENT COMPENSATION
The following table sets forth a summary of the compensation paid by the Company
to its Chief Executive Officer 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 2003, 2002
and 2001.
SUMMARY COMPENSATION TABLE
----------------------------------------------------------------------------------------------------
LONG TERM
COMPENSATION
------------
ANNUAL SECURITIES
COMPENSATION UNDERLYING
FISCAL --------------------- OPTIONS OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) (#) COMPENSATION(2)
----------------------------------------------------------------------------------------------------
Ira G. Boots....................... 2003 $432,836 $ 150,231 2,383 $ 12,343
President and Chief Executive 2002 424,536 1,452,018 61,814 12,505
Officer 2001 316,461 87,500 - 12,428
James M. Kratochvil................ 2003 $278,867 $ 96,577 1,356 $ 10,151
Executive Vice President, Chief 2002 273,400 945,026 35,040 9,889
Financial Officer, Treasurer and 2001 231,919 64,166 - 9,198
Secretary
R. Brent Beeler.................... 2003 $313,761 $ 111,476 1,356 $ 3,105
President--Containers and 2002 298,172 1,080,496 35,229 2,590
Consumer Products 2001 284,251 78,750 - 3,196
Gregory J. Landis.................. 2003 $ 49,500 $ - - $ 2,688
President--Container Division 2002 - - - -
2001 - - - -
William J. Herdrich................ 2003 $274,180 $ 117,772 1,356 $ 5,109
Executive Vice President and 2002 269,222 983,506 25,581 4,899
General Manager--Closures 2001 258,690 62,800 2,000 3,834
----------------------------------------------------------------------------------------------------
(1) Amounts shown include transaction bonuses of $1,238,298, $788,298, $871,298
and $803,831 paid to Messrs. Boots, Kratochvil, Beeler and Herdrich,
respectively, in connection with the Buyout.
(2) Amounts shown reflect contributions by the Company under the Company's
401(k) plan and the personal use of a Company vehicle.
(3) Amounts shown reflect only the activity since the closing of the Landis
Acquisition.
55
The following table sets forth a summary of the options granted by the Company
to the Named Executive Officers during the 2003 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
-----------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS POTENTIAL
------------------------- REALIZABLE VALUE AT
NUMBER OF ASSUMED RATES OF
SECURITIES % OF TOTAL STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO OPTION TERM
GRANTED EMPLOYEES IN EXERCISE EXPIRATION --------------------
NAME (#) FISCAL YEAR PRICE($) DATE 5%($) 10%($)
-----------------------------------------------------------------------------------------------------
Ira Boots................ 1,589(1) 4.1 100 12/10/13 99,932 253,239
Ira Boots................ 794(2) 2.1 100 12/10/13 49,935 126,540
James M. Kratochvil...... 904(1) 2.3 100 12/10/13 56,853 144,070
James M. Kratochvil...... 452(2) 1.2 100 12/10/13 28,426 72,035
R. Brent Beeler.......... 904(1) 2.3 100 12/10/13 56,853 144,070
R. Brent Beeler.......... 452(2) 1.2 100 12/10/13 28,426 72,035
William J. Herdrich...... 904(1) 2.3 100 12/10/13 56,853 144,070
William J. Herdrich...... 452(2) 1.2 100 12/10/13 28,426 72,035
-----------------------------------------------------------------------------------------------------
(1) Represents options granted on December 10, 2003, 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 December 10, 2003, 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.
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 27, 2003.
FISCAL YEAR-END OPTION VALUES(1)
----------------------------------------------------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE YEAR-END EXERCISABLE/ AT FISCAL YEAR-END
NAME EXERCISE REALIZED UNEXERCISABLE(#)(2) EXERCISABLE/UNEXERCISABLE(2)
----------------------------------------------------------------------------------------------------
Ira G. Boots......... - - 32,917/47,558 $1,536,836/$419,380
James M. Kratochvil.. - - 19,602/26,968 954,647/238,540
R. Brent Beeler...... - - 19,659/27,100 954,647/238,540
Gregory J. Landis.... - - -/- -/-
William J.
Herdrich.......... - - 12,835/20,346 356,917/238,540
----------------------------------------------------------------------------------------------------
(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 27, 2003.
(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 2003
fiscal year.
56
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 137,980 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 Buyout.
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 of
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 Buyout. 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 value attributable to shares of BPC Holding held by such employee
immediately prior to the Buyout 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, and Mr. Herdrich's agreement expires on December 31,
2008. The employment agreements
57
provided for fiscal 2003 base compensation of $432,836, $278,867, $313,761, and
$274,180, respectively. We are currently in the process of negotiating an
employment agreement with Mr. Landis. 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, Herdrich 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 one-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. 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, Landis and Herdrich for fiscal 2003 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 Buyout and the Landis 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 amended and restated 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 Buyout and the Landis
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 amended and restated 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.
58
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.
59
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 March 18, 2004 and pro forma
giving effect to the expected financing of the Transactions 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
COMMON COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK OUTSTANDING*
--------------------------------------------------------------------------------------------
GS Capital Partners 2000, L.P.(2)........................... 1,155,042 33.2%
GS Capital Partners 2000 Offshore, L.P.(2).................. 419,697 12.0
GS Capital Partners 2000 GmbH & Co.
Beteiligungs KG(2)....................................... 48,278 1.4
GS Capital Partners 2000 Employee Fund, L.P.(2)............. 366,766 10.5
Stone Street 2000, L.P.(2).................................. 36,069 1.0
Bridge Street Special Opportunities Fund 2000, L.P.(2)...... 18,034 -
Goldman Sachs Direct Investment Fund 2000, L.P.(2).......... 60,114 1.7
J.P. Morgan Partners Global Investors, L.P.(3).............. 193,108 5.5
J.P. Morgan Partners Global Investors (Cayman), L.P.(3)..... 97,495 2.8
J.P. Morgan Partners Global Investors (Cayman) II,
L.P.(3).................................................. 10,883 -
J.P. Morgan Partners Global Investors A, L.P.(3)............ 27,954 -
J.P. Morgan Partners (BHCA), L.P.(3)........................ 625,112 17.9
Joseph H. Gleberman(4)...................................... 2,104,000 60.4
Christopher C. Behrens(5)................................... 954,552 27.4
Patrick J. Dalton(6)........................................ 2,104,000 60.4
Douglas F. Londal(7)........................................ 2,104,000 60.4
Mathew J. Lori(8)........................................... - -
Ira G. Boots................................................ 73,635(9) 2.1
James M. Kratochvil......................................... 40,749(10) 1.2
R. Brent Beeler............................................. 41,227(11) 1.2
William J. Herdrich......................................... 29,338(12) -
Gregory J. Landis........................................... 100,000 2.9
All executive officers and directors as a group (10
persons)................................................. 3,343,501(13) 96.0
--------------------------------------------------------------------------------------------
* 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 the date of this prospectus, but excludes shares of stock underlying
options held by any other person.
- Less than one percent.
60
(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.
(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 35,690 shares of Holding Common Stock granted
to Mr. Boots, exercisable within 60 days of March 18, 2004.
(10) Includes options to purchase 18,792 shares of Holding Common Stock granted
to Mr. Kratochvil, exercisable within 60 days of March 18, 2004.
(11) Includes options to purchase 18,859 shares of Holding Common Stock granted
to Mr. Beeler, exercisable within 60 days of March 18, 2004.
(12) Includes options to purchase 13,934 shares of Holding Common Stock granted
to Mr. Herdrich, exercisable within 60 days of March 18, 2004.
(13) Includes options to purchase 87,275 shares of Holding Common Stock granted
to executive officers, exercisable within 60 days of March 18, 2004.
61
RELATED PARTY TRANSACTIONS
MANAGEMENT AGREEMENT WITH FIRST ATLANTIC
Prior to the Buyout, 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.
THE BUYOUT
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 Buyout, (1) each share of common
stock of BPC Holding issued and outstanding immediately prior to the effective
time of the Buyout 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 Buyout was converted into one share of common stock of BPC Holding.
Additionally, in connection with the Buyout, 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. Immediately
following the Buyout, private equity funds affiliated with Goldman, Sachs & Co.
owned approximately 63% of the outstanding common stock of BPC Holding, private
equity funds affiliated with J.P. Morgan Chase & Co. owned approximately 29% and
members of our management owned the remaining 8%.
ADVISORY FEES
In connection with the Buyout, 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 Buyout, Berry Plastics sold $250 million of 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 Buyout, 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.
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THE AMENDED AND RESTATED SENIOR SECURED CREDIT FACILITY
In connection with the Buyout, 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, which we recently amended and restated in connection
with the Landis Acquisition. For a description of the senior secured credit
facility, see "Description of other indebtedness--The amended and restated
senior secured credit facility."
STOCKHOLDERS AGREEMENT WITH MAJOR STOCKHOLDERS
In connection with the Buyout, 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 28%
of our common stock. Under the terms of this agreement, which was amended upon
the closing of the Landis Acquisition, among other things: (1) GSCP 2000 and
other private equity funds affiliated with Goldman, Sachs & Co., have the right
to designate seven 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 Buyout, 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 Buyout, Messrs. Boots, Kratochvil, Beeler and Herdrich
together with certain other senior employees acquired shares of BPC Holding
common stock pursuant to an
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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 Buyout; (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 and Herdrich purchased 37,785, 21,957, 22,208
and 15,404 shares of BPC Holding common stock, respectively pursuant to this
program. In connection with these purchases, Messrs. Boots, Kratochvil, Beeler
and Herdrich delivered ten-year promissory notes to BPC Holding in the principal
amounts of $2,518,500, $1,302,900, $1,313,400, and $1,027,000, 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 18, 2004, a total of $2,756,649, $1,426,102, $1,437,595 and
$1,124,113, including principal and accrued interest, was outstanding under the
promissory notes for each of Messrs. Boots, Kratochvil, Beeler and Herdrich,
respectively.
THE LANDIS ACQUISITION
We paid Goldman, Sachs & Co. and its affiliates a total of $1,720,000 and
JPMorgan Partners, an affiliate of J.P. Morgan Chase & Co., a total of $780,000
for advisory and other services related to the Landis Acquisition.
In addition, Goldman Sachs Credit Partners, L.P., and affiliates of Goldman,
Sachs & Co., acted as the joint lead arranger, joint bookrunner and
administrative agent under our amended and restated senior secured credit
facility and received fees of $0.5 million in November 2003 for services
provided. J.P. Morgan Securities Inc., an affiliate of J.P. Morgan Chase & Co.,
acted as the joint lead arranger and joint bookrunner and JPMorgan Chase Bank
acted as syndication agent under our amended and restated senior secured credit
facility and received fees of approximately $0.5 million.
In connection with the Landis Acquisition, Goldman, Sachs & Co. and its
affiliates made an equity contribution of $35.4 million and J.P. Morgan Chase &
Co. and its affiliates made an equity contribution of $16.1 million to us. See
also "The Landis Acquisition".
In connection with the Landis Acquisition, Berry Plastics sold $85.0 million of
notes to various private institutional buyers. Goldman Sachs and J.P. Morgan
acted as joint book-running managers in the transaction and received fees of
approximately $1.0 million and $1.0 million, respectively,for services
performed.
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.
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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 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.
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DESCRIPTION OF OTHER INDEBTEDNESS
THE AMENDED AND RESTATED SENIOR SECURED CREDIT FACILITY
In connection with the Landis Acquisition, we recently amended and restated the
senior secured credit facility that we, BPC Holding and our domestic
subsidiaries are party to 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 amended and
restated senior secured credit facility.
The amended and restated senior secured credit facility consists of our previous
$100 million revolving credit facility, a new $330 million term loan and a new
$50 million term loan. On November 10, 2003, we used $325.9 million of the new
$330 million term loan to refinance in full the balance outstanding under our
prior term loan. The remaining $4.1 million was used to fund a portion of the
purchase price for the Landis Acquisition. The new $50 million term loan was
also used to pay a portion of the purchase price for the Landis Acquisition and
was funded concurrently with the closing of the Landis Acquisition. We are the
borrower under the amended and restated senior secured credit facility. The
maturity date of the term loans is July 22, 2010 and the maturity date of the
revolving credit facility is July 22, 2008. At December 27, 2003, there were no
borrowings outstanding on the revolving credit facility, and $380 million
outstanding on the term loans.
TERM LOANS PREPAYMENT
The term loans amortize quarterly in the aggregate as follows:
- $825,000 each quarter ending June 30, 2004;
- $950,000 each quarter ending June 30, 2009; and
- $89,631,250 each quarter beginning September 30, 2009 and ending June
30, 2010.
The amended and restated 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 on the other hand, as we direct.
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 amended and restated
senior secured credit facility).
REVOLVING LOANS
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 July 22, 2008. The revolving credit facility
allows us to obtain up to $25 million of
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letters of credit instead of borrowing and up to $10 million of swingline loans.
Revolving loans in connection with permitted acquisitions will only be made if a
leverage ratio is met.
INTEREST RATE AND FEES
Borrowings under the amended and restated 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, 1.50% per annum and (ii) with respect to
Eurodollar Rate Loans, 2.50% per annum. With respect to the revolving credit
facility, the "applicable margin" was, 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, depending on our leverage ratio. The "applicable margin" with
respect to Base Rate Loans will always be 1.00% per annum less than the
"applicable margin" for Eurodollar Rate Loans. Interest will be payable
quarterly for Base Rate Loans and at the end of the relevant interest period of
one, two, three, or six months (or quarterly in certain cases) for all
Eurodollar Rate Loans. The interest rate applicable to overdue payments and to
outstanding amounts following an event of default under the amended and restated
senior secured credit facility is equal to the interest rate at the time of an
event of default plus 2.00%. The amended and restated senior secured credit
facility also requires us to pay commitment fees equal to 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,
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 amended and restated 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 guarantee our obligations
under the amended and restated senior secured credit facility. Upon the closing
of the Landis Acquisition, Landis became our wholly-owned subsidiary and a
guarantor of our obligations under the amended and restated senior secured
credit facility.
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REPRESENTATIONS AND WARRANTIES
The amended and restated senior secured credit facility contains representations
and warranties customary for this type of financing.
COVENANTS AND CONDITIONS
In addition to customary affirmative covenants, the amended and restated 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 amended and restated senior secured credit facility includes
negative covenants that restrict our and the guarantors' ability to, among other
things:
- incur additional indebtedness;
- incur liens;
- enter into agreements with negative pledge clauses;
- make investments;
- guarantee obligations;
- pay dividends or make redemptions or other payments in respect of
capital stock;
- make payments with respect to subordinated debt;
- engage in mergers and make acquisitions;
- sell assets;
- make capital expenditures;
- enter into leases;
- engage in transactions with affiliates; and
- make investments in foreign subsidiaries.
The amended and restated senior secured credit facility contains (i) a minimum
interest coverage ratio as of the last day of any quarter of 2.00:1.00 per
quarter for the quarters ending December 2003 and 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 $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 of 5.90:1.00 per quarter for the quarters ending December 2003 and March
2004, 5.75:1.00 per quarter for the quarters ending June 2004 and September
2004, 5.50:1.00 per quarter for the quarters ending December 2004 and through
the quarter ending June 2005, 5.25:1.00 per quarter for the quarters ending
September 2005 and December 2005, 5.00:1.00 per quarter for the quarters ending
March 2006 and June 2006,
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4.75:1.00 per quarter for the quarters ending September 2006 through the quarter
ending March 2007, 4.50:1.00 per quarter for the quarters ending June 2007
through the quarter ending December 2007, 4.25:1.00 per quarter for the quarters
ending March 2008 through the quarter ending December 2008, and 4.00:1.00 per
quarter thereafter.
Certain conditions must be met for us to borrow under the revolving credit
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 amended and restated 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 December
27, 2003.
CAPITAL LEASES
We and our subsidiaries are also party to capital leases entered into in the
ordinary course of business. As of December 27, 2003, we had $24.2 million of
capital leases outstanding.
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 million outstanding as of December
27, 2003, bear interest at a variable rate (1.3% at December 27, 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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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
When we sold the outstanding notes on November 20, 2003, we entered into a
registration rights agreement with the initial purchasers of the outstanding
notes, which requires us to:
- file with the SEC a registration statement related to the exchange
notes;
- use our reasonable best efforts to have the registration statement
declared effective by the SEC under the Securities Act on or before June
17, 2004;
- offer to the holders of the outstanding notes the opportunity to
exchange their outstanding notes for a like principal amount of exchange
notes upon the effectiveness of the registration statement; and
- use our reasonable best efforts to issue on or prior to 60 business
days, or longer, if required by the federal securities laws, after the
date the registration statement is declared effective by the SEC, the
exchange notes for all notes tendered in the exchange offer.
If we fail to satisfy our registration and exchange obligations under the
registration rights agreement, we will be required to pay additional interest to
the holders of the notes.
A copy of the registration rights agreement is filed as an exhibit to the
registration statement of which this prospectus is a part.
TERMS OF THE EXCHANGE OFFER
This prospectus and the accompanying letter of transmittal together constitute
the exchange offer. Upon the terms and subject to the conditions set forth in
this prospectus and in the letter of transmittal, we will accept for exchange
outstanding notes which are properly tendered on or before the expiration date
and are not withdrawn as permitted below. The expiration date for this exchange
offer is 5:00 p.m., New York City time, on April 29, 2004, or such later date
and time to which we, in our sole discretion, extend the exchange offer.
The form and terms of the exchange notes are the same as the form and terms of
the outstanding notes, except that:
- the exchange notes will have been registered under the Securities Act;
- the exchange notes will not bear the restrictive legends restricting
their transfer under the Securities Act; and
- the exchange notes will not contain the registration rights additional
interest provisions contained in the outstanding notes.
Notes tendered in the exchange offer must be in minimum denominations of $1,000
and integral multiples of $1,000 in excess thereof.
We expressly reserve the right, in our sole discretion:
- to extend the expiration date;
- to delay accepting any outstanding notes;
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- if any of the conditions set forth below under "--Conditions to the
exchange offer" have not been satisfied, to terminate the exchange offer
and not accept any outstanding notes for exchange; or
- to amend the exchange offer in any manner.
We will give oral or written notice of any extension, delay, non-acceptance,
termination or amendment as promptly as practicable by a public announcement,
and in the case of an extension, no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
During an extension, all outstanding notes previously tendered will remain
subject to the exchange offer and may be accepted for exchange by us. Any
outstanding notes not accepted for exchange for any reason will be returned
without cost to the holder that tendered them as promptly as practicable after
the expiration or termination of the exchange offer.
HOW TO TENDER NOTES FOR EXCHANGE
When the holder of outstanding notes tenders, and we accept, such notes for
exchange, a binding agreement between us and the tendering holder is created,
subject to the terms and conditions set forth in this prospectus and the
accompanying letter of transmittal. Except as set forth below, a holder of
outstanding notes who wishes to tender such notes for exchange must, on or prior
to the expiration date:
- transmit a properly completed and duly executed letter of transmittal,
including all other documents required by such letter of transmittal, to
the U.S. Bank Trust National Association, which will act as the exchange
agent, at the address set forth below under the heading "--The exchange
agent"; or
- if outstanding notes are tendered pursuant to the book-entry procedures
set forth below, the tendering holder must transmit an agent's message to
the exchange agent at the address set forth below under the heading
"--The exchange agent."
In addition, either:
- the exchange agent must receive the certificates for the outstanding
notes and the letter of transmittal;
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of the book-entry transfer of the outstanding notes being
tendered into the exchange agent's account at the Depository Trust
Company, or DTC, along with the letter of transmittal or an agent's
message; or
- the holder must comply with the guaranteed delivery procedures
described below.
The term "agent's message" means a message, transmitted to DTC and received by
the exchange agent and forming a part of a book-entry transfer, or "book-entry
confirmation," which states that DTC has received an express acknowledgement
that the tendering holder agrees to be bound by the letter of transmittal and
that we may enforce the letter of transmittal against such holder.
The method of delivery of the outstanding notes, the letters of transmittal and
all other required documents is at the election and risk of the holders. If such
delivery is by mail, we recommend registered mail, properly insured, with return
receipt requested. In all cases, you
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should allow sufficient time to assure timely delivery. No letters of
transmittal or notes should be sent directly to us.
Signatures on a letter of transmittal or a notice of withdrawal, as the case may
be, must be guaranteed unless the outstanding notes surrendered for exchange are
tendered:
- by a registered holder of the outstanding notes; or
- for the account of an eligible institution.
An "eligible institution" is a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
If signatures on a letter of transmittal or notice of withdrawal are required to
be guaranteed, the guarantor must be an eligible institution. If outstanding
notes are registered in the name of a person other than the signer of the letter
of transmittal, the outstanding notes surrendered for exchange must be endorsed
by, or accompanied by a written instrument or instruments of transfer or
exchange, in satisfactory form as determined by us in our sole discretion, duly
executed by the registered holder with the holder's signature guaranteed by an
eligible institution.
We will determine all questions as to the validity, form, eligibility (including
time of receipt) and acceptance of outstanding notes tendered for exchange in
our sole discretion. Our determination will be final and binding. We reserve the
absolute right to:
- reject any and all tenders of any outstanding note improperly tendered;
- refuse to accept any outstanding note if, in our judgment or the
judgment of our counsel, acceptance of the outstanding note may be deemed
unlawful; and
- waive any defects or irregularities or conditions of the exchange offer
as to any particular outstanding note either before or after the
expiration date, including the right to waive the ineligibility of any
holder who seeks to tender outstanding notes in the exchange offer.
Our interpretation of the terms and conditions of the exchange offer as to any
particular outstanding notes either before or after the expiration date,
including the letter of transmittal and the instructions to it, will be final
and binding on all parties. Holders must cure any defects and irregularities in
connection with tenders of notes for exchange within such reasonable period of
time as we will determine, unless we waive such defects or irregularities.
Neither we, the exchange agent nor any other person shall be under any duty to
give notification of any defect or irregularity with respect to any tender of
outstanding notes for exchange, nor shall any of us incur any liability for
failure to give such notification.
If a person or persons other than the registered holder or holders of the
outstanding notes tendered for exchange signs the letter of transmittal, the
tendered outstanding notes must be endorsed or accompanied by appropriate powers
of attorney, in either case signed exactly as the name or names of the
registered holder or holders that appear on the outstanding notes.
If trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity sign
the letter of transmittal or any outstanding notes or any power of attorney,
such persons should so indicate when signing, and you must submit proper
evidence satisfactory to us of such person's authority to so act unless we waive
this requirement.
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By tendering, each holder will represent to us that, among other things, the
person acquiring exchange notes in the exchange offer is obtaining them in the
ordinary course of its business, whether or not such person is the holder, and
neither the holder nor such other person has any arrangement or understanding
with any person to participate in the distribution of the exchange notes issued
in the exchange offer. If any holder or any such other person is an "affiliate,"
as defined under Rule 405 of the Securities Act, of us, or is engaged in or
intends to engage in or has an arrangement or understanding with any person to
participate in a distribution of such notes to be acquired in the exchange
offer, such holdee any such rather person:
- may not rely on applicable interpretations of the staff of the SEC; and
- must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
Each broker-dealer who acquired its outstanding notes as a result of
market-making activities or other trading activities, and thereafter receives
exchange notes issued for its own account in the exchange offer, must
acknowledge that it will deliver a prospectus in connection with any resale of
such exchange notes issued in the exchange offer. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. See "Plan of distribution" for a discussion of the exchange
and resale obligations of broker-dealers in connection with the exchange offer.
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF NOTES ISSUED IN THE
EXCHANGE OFFER
Upon satisfaction or waiver of all the conditions to the exchange offer, we will
accept, promptly after the expiration date, all outstanding notes properly
tendered and will issue exchange notes registered under the Securities Act. For
purposes of the exchange offer, we shall be deemed to have accepted properly
tendered outstanding notes for exchange when, as and if we have given oral or
written notice to the exchange agent, with written confirmation of any oral
notice to be given promptly thereafter. See "--Conditions to the exchange offer"
for a discussion of the conditions that must be satisfied before we accept any
outstanding notes for exchange.
For each outstanding note accepted for exchange, the holder will receive an
exchange note registered under the Securities Act having a principal amount
equal to that of the surrendered outstanding note. Accordingly, registered
holders of exchange notes issued in the exchange offer on the relevant record
date for the first interest payment date following the consummation of the
exchange offer will receive interest accruing from the most recent date to which
interest has been paid. Outstanding notes that we accept for exchange will cease
to accrue interest from and after the date of consummation of the exchange
offer. Under the registration rights agreement, we may be required to make
additional payments in the form of penalty interest to the holders of the
outstanding notes under circumstances relating to the timing of the exchange
offer.
In all cases, we will issue exchange notes for outstanding notes that are
accepted for exchange only after the exchange agent timely receives:
- certificates for such outstanding notes or a timely book-entry
confirmation of such outstanding notes into the exchange agent's account
at DTC;
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- a properly completed and duly executed letter of transmittal or an
agent's message; and
- all other required documents.
If for any reason set forth in the terms and conditions of the exchange offer we
do not accept any tendered outstanding notes, or if a holder submits outstanding
notes for a greater principal amount than the holder desires to exchange, we
will return such unaccepted or nonexchanged notes without cost to the tendering
holder. In the case of outstanding notes tendered by book-entry transfer into
the exchange agent's account at DTC, such nonexchanged notes will be credited to
an account maintained with DTC. We will return the outstanding notes or have
them credited to DTC account as promptly as practicable after the expiration or
termination of the exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect to
the outstanding notes at DTC for purposes of the exchange offer within two
business days after the date of this prospectus. Any financial institution that
is a participant in DTC's system must make book-entry delivery of outstanding
notes by causing DTC to transfer such outstanding notes into the exchange
agent's account at DTC in accordance with DTC's procedures for transfer. Such
participant should transmit its acceptance to DTC on or prior to the expiration
date or comply with the guaranteed delivery procedures described below. DTC will
verify such acceptance, execute a book-entry transfer of the tendered
outstanding notes into the exchange agent's account at DTC and then send to the
exchange agent confirmation of such book-entry transfer. The confirmation of
such book-entry transfer will include an agent's -message confirming that DTC
has received an express acknowledgment from such participant that such
participant has received and agrees to be bound by the letter of transmittal and
that we may enforce the letter of transmittal against such participant. Delivery
of exchange notes issued in the exchange offer may be effected through
book-entry transfer at DTC. However, the letter of transmittal or facsimile
thereof or an agent's message, with any required signature guarantees and any
other required documents, must:
- be transmitted to and received by the exchange agent at the address set
forth below under "--The exchange agent" on or prior to the expiration
date; or
- comply with the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If a holder of outstanding notes desires to tender such notes and the holder's
outstanding notes are not immediately available, or time will not permit such
holder's outstanding notes or other required documents to reach the exchange
agent before the expiration date, or the procedure for book-entry transfer
cannot be completed on a timely basis, a tender may be effected if:
- the holder tenders the outstanding notes through an eligible
institution;
- prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed notice of
guaranteed delivery, acceptable to us, by telegram, telex, facsimile
transmission, mail or hand delivery, setting forth the name and address
of the holder of the outstanding notes tendered and the amount of the
outstanding notes being tendered. The notice of guaranteed
74
delivery shall state that the tender is being made and guarantee that
within three New York Stock Exchange trading days after the date of
execution of the notice of guaranteed delivery, the certificates for all
physically tendered outstanding notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, together with a properly
completed and duly executed letter of transmittal or agent's message with
any required signature guarantees and any other documents required by the
letter of transmittal will be deposited by the eligible institution with
the exchange agent; and
- the exchange agent receives the certificates for all physically
tendered outstanding notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, together with a properly completed and
duly executed letter of transmittal or agent's message with any required
signature guarantees and any other documents required by the letter of
transmittal, within three New York Stock Exchange trading days after the
date of execution of the notice of guaranteed delivery.
WITHDRAWAL RIGHTS
You may withdraw tenders of your outstanding notes at any time prior to 5:00
p.m., New York City time, on the expiration date.
For a withdrawal to be effective, you must send a written notice of withdrawal
to the exchange agent at one of the addresses set forth below under "The
exchange agent." Any such notice of withdrawal must:
- specify the name of the person that has tendered the outstanding notes
to be withdrawn;
- identify the outstanding notes to be withdrawn, including the principal
amount of such outstanding notes; and
- where certificates for outstanding notes are transmitted, specify the
name in which outstanding notes are registered, if different from that of
the withdrawing holder.
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and signed notice of withdrawal with
signatures guaranteed by an eligible institution unless such holder is an
eligible institution. If outstanding notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at DTC to be credited with the
withdrawn notes and otherwise comply with the procedures of such facility. We
will determine all questions as to the validity, form and eligibility (including
time of receipt) of such notices and our determination will be final and binding
on all parties. Any tendered notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the exchange offer. Any
outstanding notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder. In the case of outstanding notes tendered by book-entry transfer
into the exchange agent's account at DTC, the outstanding notes withdrawn will
be credited to an account maintained with DTC for the outstanding notes. The
outstanding notes will be returned or credited to DTC account as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. Properly withdrawn outstanding notes may be re-tendered by following one
of the procedures described under
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"--How to tender notes for exchange" above at any time on or prior to 5:00 p.m.,
New York City time, on the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
We are not required to accept the outstanding notes in the exchange offer or to
issue the exchange notes. We may terminate or amend the exchange offer if at any
time before the acceptance of such outstanding notes for exchange:
- any federal law, statute, rule or regulation shall have been adopted or
enacted which, in our judgment, would reasonably be expected to impair
our ability to proceed with the exchange offer;
- any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939, as
amended; or
- there shall occur a change in the current interpretation by the staff
of the SEC which permits the notes issued in the exchange offer in
exchange for the outstanding notes to be offered for resale, resold and
otherwise transferred by such holders, other than broker-dealers and any
such holder which is an "affiliate" of us within the meaning of Rule 405
under the Securities Act, without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
notes acquired in the exchange offer are acquired in the ordinary course
of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such
notes issued in the exchange offer.
The preceding conditions are for our sole benefit, and we may assert them
regardless of the circumstances giving rise to any such condition. We may waive
the preceding conditions in whole or in part at any time and from time to time
in our sole discretion. Our failure at any time to exercise the foregoing rights
shall not be deemed a waiver of any such right, and each such right shall be
deemed an ongoing right which we may assert at any time and from time to time.
THE EXCHANGE AGENT
The U.S. Bank Trust National Association has been appointed as our exchange
agent for the exchange offer. All executed letters of transmittal should be
directed to our exchange agent at the address set forth below. Questions and
requests for assistance, requests for additional copies of this prospectus or of
the letter of transmittal and requests for notices of guaranteed delivery should
be directed to the exchange agent addressed as follows:
By mail:
U.S. Bank Trust National Association
60 Livingston Avenue
1st Floor Bond Drop Window
St. Paul, MN 55107
Attention: Structured Finance Unit
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By hand or overnight mail:
U.S. Bank Trust National Association
60 Livingston Avenue
1st Floor Bond Drop Window
St. Paul, MN 55107
Attention: Structured Finance Unit
By telecopier:
(651) 495-8158
Originals of all documents sent by facsimile should be promptly sent to the
exchange agent by registered or certified mail, by hand, or by overnight
delivery service.
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF SUCH LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN AS
SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF
TRANSMITTAL.
FEES AND EXPENSES
We will not make any payment to brokers, dealers or others soliciting acceptance
of the exchange offer except for reimbursement of mailing expenses.
The cash expenses to be incurred in connection with the exchange offer will be
paid by us and are estimated in the aggregate to be approximately $0.2 million.
TRANSFER TAXES
Holders who tender their outstanding notes for exchange notes will not be
obligated to pay any transfer taxes in connection with the exchange. If,
however, exchange notes issued in the exchange offer are to be delivered to, or
are to be issued in the name of, any person other than the holder of the
outstanding notes tendered, or if a transfer tax is imposed for any reason other
than the exchange of outstanding notes in connection with the exchange offer,
then the holder must pay any such transfer taxes, whether imposed on the
registered holder or on any other person. If satisfactory evidence of payment
of, or exemption from, such taxes is not submitted with the letter of
transmittal, the amount of such transfer taxes will be billed directly to the
tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE OUTSTANDING NOTES
Holders who desire to tender their outstanding notes in exchange for notes
registered under the Securities Act should allow sufficient time to ensure
timely delivery. Neither the exchange agent nor our company is under any duty to
give notification of defects or irregularities with respect to the tenders of
notes for exchange.
Outstanding notes that are not tendered or are tendered but not accepted will,
following the consummation of the exchange offer, continue to accrue interest
and to be subject to the provisions in the indenture regarding the transfer and
exchange of the outstanding notes and the existing restrictions on transfer set
forth in the legend on the outstanding notes and in the offering memorandum
dated November 10, 2003, relating to the outstanding notes. Except in limited
circumstances with respect to specific types of holders of outstanding notes, we
will have no further obligation to provide for the registration under the
Securities Act of such outstanding notes. In general, outstanding notes, unless
registered under the Securities Act,
77
may not be offered or sold except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. We do not currently anticipate that we will take any action to register
the outstanding notes under the Securities Act or under any state securities
laws.
Upon completion of the exchange offer, holders of the outstanding notes will not
be entitled to any further registration rights under the registration rights
agreement, except under limited circumstances.
CONSEQUENCES OF EXCHANGING OUTSTANDING NOTES
Based on interpretations of the staff of the SEC, as set forth in no-action
letters to third parties, we believe that the notes issued in the exchange offer
may be offered for resale, resold or otherwise transferred by holders of such
notes, other than by any holder which is an "affiliate" of us within the meaning
of Rule 405 under the Securities Act. Such notes may be offered for resale,
resold or otherwise transferred without compliance with the registration and
prospectus delivery provisions of the Securities Act, if:
- such holder is not a broker-dealer tendering notes acquired directly
from us;
- such notes issued in the exchange offer are acquired in the ordinary
course of such holder's business; and
- such holder, other than broker-dealers, has no arrangement or
understanding with any person to participate in the distribution of such
notes issued in the exchange offer.
However, the SEC has not considered the exchange offer in the context of a
no-action letter, and we cannot guarantee that the staff of the SEC would make a
similar determination with respect to the exchange offer as in such other
circumstances.
Each holder, other than a broker-dealer, must furnish a written representation,
at our request, that:
- it is not an affiliate of us;
- it is not a broker-dealer tendering notes acquired directly from us;
- it is not engaged in, and does not intend to engage in, a distribution
of the notes issued in the exchange offer and has no arrangement or
understanding to participate in a distribution of notes issued in the
exchange offer; and
- it is acquiring the notes issued in the exchange offer in the ordinary
course of its business.
Each broker-dealer that receives notes issued in the exchange offer for its own
account in exchange for outstanding notes must acknowledge that such outstanding
notes were acquired by such broker-dealer as a result of market-making or other
trading activities and that it will deliver a prospectus in connection with any
resale of such notes issued in the exchange offer. See "Plan of distribution"
for a discussion of the exchange and resale obligations of brokerdealers in
connection with the exchange offer.
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In addition, to comply with state securities laws of certain jurisdictions, the
notes issued in the exchange offer may not be offered or sold in any state
unless they have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and complied with by
the holders selling the exchange notes. We have not agreed to register or
qualify the exchange notes for offer or sale under state securities laws.
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DESCRIPTION OF EXCHANGE NOTES
Definitions of certain terms used in this "Description of exchange notes" may be
found under the heading "Certain definitions." Defined terms used in this
description but not defined below under the heading "Certain definitions" have
the meanings assigned to them in the Indenture. For purposes of this section,
(i) the term "Company" refers only to Berry Plastics Corporation and not to any
of its subsidiaries, (ii) the term "Holding" refers to BPC Holding Corporation,
the parent company of the Company, and not to any of its Subsidiaries and (iii)
unless the context indicates otherwise, the term "Notes" refers to the notes
offered by this prospectus and the $250 million aggregate principal amount of
10 3/4% Senior Subordinated Notes due 2012 that the Company issued under the
Indenture on July 22, 2002 (the "Existing Notes"). Certain of the Company's
Subsidiaries and Holding will guarantee the exchange notes and therefore will be
subject to many of the provisions contained in this "Description of exchange
notes". Each company which guarantees the Notes is referred to in this section
as a "Note Guarantor." Each such guarantee is termed a "Note Guarantee."
The Company will issue the exchange notes under the Indenture, dated as of July
22, 2002, as supplemented, (the "Indenture"), among the Company, the Note
Guarantors and United States Bank Trust National Association, as trustee (the
"Trustee"), incorporated by reference as an exhibit to the registration
statement of which this prospectus is a part. A copy of the Indenture is
available upon request to the Company. The Indenture contains provisions which
define your rights under the Notes. In addition, the Indenture governs the
obligations of the Company and of each Note Guarantor under the Notes. The terms
of the exchange notes include those stated in the Indenture and, upon
effectiveness of a registration statement with respect to the Notes offered
hereby, those made part of the Indenture by reference to the TIA.
Any outstanding notes that remain outstanding after completion of the exchange
offer, together with the exchange notes issued in the exchange offer and the
Existing Notes, will be treated as a single class of securities under the
Indenture, including for the purpose of amending the Indenture.
The following description is meant to be only a summary of certain provisions of
the Indenture and the registration rights agreement. It does not restate the
terms of the Indenture in their entirety. We urge that you carefully read the
Indenture as it, and not this description, governs our obligations and your
rights as Holders.
OVERVIEW OF THE NOTES AND THE NOTE GUARANTEES
THE NOTES
These Notes:
- are general unsecured obligations of the Company;
- are equally in right of payment with any existing and future Senior
Subordinated Indebtedness of the Company;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of the Company;
- are senior in right of payment to all future Subordinated Obligations
of the Company;
80
- are effectively subordinated to all Secured Indebtedness of the Company
and its Subsidiaries to the extent of the value of the assets securing
such Indebtedness; and
- are effectively subordinated to all liabilities (including Trade
Payables) and Preferred Stock of each Subsidiary of the Company that is
not a Note Guarantor.
THE NOTE GUARANTEES
These Notes are guaranteed by Holding, and all existing and future Domestic
Subsidiaries of the Company, except as provided below.
The Note Guarantee of each Note Guarantor:
- is general unsecured obligations of such Note Guarantor;
- ranks equally in right of payment with any existing and future Senior
Subordinated Indebtedness of such Note Guarantor;
- is subordinated in right of payment to all existing and future Senior
Indebtedness of such Note Guarantor;
- is senior in right of payment to all future Subordinated Obligations of
such Note Guarantor;
- is effectively subordinated to all Secured Indebtedness of such Note
Guarantor and its Subsidiaries to the extent of the value of the assets
securing such Indebtedness; and
- is effectively subordinated to the obligations of any Subsidiary of a
Note Guarantor if that Subsidiary is not a Note Guarantor.
The Notes will not be guaranteed by Berry Plastics Acquisition Corporation II,
NIM Holdings Limited, Berry Plastics U.K. Limited, Norwich Acquisition Limited,
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 December 27, 2003, these non-guarantor Subsidiaries (i) had
approximately $13.2 million of total liabilities (including trade payables but
excluding liabilities owed to us) and (ii) had approximately 5% of the Company's
Consolidated assets. These non-guarantor subsidiaries accounted for 3% of our
pro forma net sales for fiscal year 2003.
PRINCIPAL, MATURITY AND INTEREST
We initially issued the outstanding notes in an aggregate principal amount of
$85,000,000. We had previously issued the Existing Notes in an aggregate
principal amount of $250,000,000. The Notes will mature on July 15, 2012. We
will issue the Notes in fully registered form, without coupons, and in
denominations of $1,000 and any integral multiple of $1,000.
Each Note will bear interest at the rate of 10 3/4% per annum beginning from the
most recent interest payment date on which interest has been paid or provided
for on the Existing Notes. We will pay interest semiannually to the Holders of
record at the close of business on the January 1 or July 1 immediately preceding
the relevant interest payment date on January 15 and July 15 of each year.
Interest on the Notes will be computed on the basis of a 360-day year comprised
of twelve 30-day months.
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We will also pay additional interest ("Additional Interest") to Holders of the
outstanding notes if we fail to file a registration statement relating to the
outstanding notes or if the registration statement is not declared effective on
a timely basis or if certain other conditions are not satisfied. These
Additional Interest provisions are more fully explained under the heading
"--Registration rights".
INDENTURE MAY BE USED FOR FUTURE ISSUANCES
We may issue from time to time additional Notes having identical terms and
conditions to the Notes (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 and will vote on all matters with
such Notes.
PAYING AGENT AND REGISTRAR
We will pay the principal of, premium, if any, interest (including Additional
Interest), if any, on the Notes at any office of ours or any agency designated
by us which is located in the Borough of Manhattan, the City of New York. We
have initially designated the corporate trust office of the Trustee to act as
the agent of the Company in such matters. The location of the corporate trust
office is 100 Wall Street, 16th Floor, New York, New York 10005. We, however,
reserve the right to pay interest to Holders by check mailed directly to Holders
at their registered addresses.
Holders may exchange or transfer their Notes at the same location given in the
preceding paragraph. No service charge will be made for any registration of
transfer or exchange of Notes. We, however, may require Holders to pay any
transfer tax or other similar governmental charge payable in connection with any
such transfer or exchange.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, we may not redeem the Notes
prior to July 15, 2007. After this date, we may redeem the Notes, in whole or in
part, on one or more occasions, on not less than 30 nor more than 60 days' prior
notice, at the following redemption prices (expressed as percentages of
principal amount), plus accrued and unpaid interest and Additional Interest
thereon, if any, to, but not including, the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest,
including Additional Interest, if any, due on the relevant interest payment
date), if redeemed during the 12-month period commencing on July 15 of the years
set forth below:
------------------------------------------------------------------------
REDEMPTION
YEAR PRICE
------------------------------------------------------------------------
2007........................................................ 105.375%
2008........................................................ 103.583%
2009........................................................ 101.792%
2010 and thereafter......................................... 100.000%
------------------------------------------------------------------------
Prior to July 15, 2005, we may, on one or more occasions, also redeem up to a
maximum of 35% of the original aggregate principal amount of the Notes
(calculated giving effect to any issuance of Additional Notes) with the Net Cash
Proceeds of one or more Equity Offerings
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(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 United States 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
83
Secured Indebtedness and effectively subordinated to the obligations of any
Subsidiary of a Note Guarantor if that Subsidiary is not a Note Guarantor.
The Company currently conducts most of its operations through its Subsidiaries.
To the extent such Subsidiaries are not Guarantors, creditors of such
Subsidiaries, including trade creditors, and preferred stockholders, if any, of
such Subsidiaries generally will have priority with respect to the assets and
earnings of such Subsidiaries over the claims of creditors of the Company,
including Holders. The Notes, therefore, will be effectively subordinated to the
claims of creditors, including trade creditors, and preferred stockholders, if
any, of Subsidiaries of the Company that are not Note Guarantors. For example,
except under certain circumstances, the Company's Foreign Subsidiaries will not
guarantee the Notes.
As of December 27, 2003:
- we had approximately $406.6 million of Senior Indebtedness to which the
Notes and the Note Guarantees would be subordinated (which amount
excludes $7.4 million of letters of credit and the remaining availability
of $92.6 million under our revolving credit facility;
- we did not have any Senior Subordinated Indebtedness (other than the
Notes);
- we did not have any Subordinated Obligations; and
- our Subsidiaries that are not Note Guarantors had $13.2 million of
liabilities, excluding liabilities owed to us.
As of March 18, 2004, we could incur approximately $87.6 million in additional
senior debt under our amended and restated senior secured credit facility,
subject to conditions to borrowing; however, the covenants under our amended and
restated senior secured credit facility may limit our ability to make such
borrowings.
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;
84
(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.
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
85
"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"):
(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
86
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
87
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.
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
88
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 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
89
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 contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS. (a) The Company will not, and will not permit any
Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Company or any Restricted Subsidiary that is a Note
Guarantor may Incur Indebtedness (including any Receivables Facility) if, on the
date of such Incurrence and after giving effect thereto the Consolidated
Coverage Ratio would be greater than 2:1.
(b) Notwithstanding the foregoing paragraph (a), the Company and its Restricted
Subsidiaries may Incur the following Indebtedness:
(1) Indebtedness in an aggregate principal amount Incurred pursuant to any
Credit Facility and Indebtedness in an aggregate amount outstanding under
any Receivables Facility which together do not exceed $555.0 million less
the aggregate amount of all mandatory repayments of the principal of any
term Indebtedness under the Credit Agreement that have been made by the
Company or any of its Restricted Subsidiaries since the date of the
Indenture with the Net Available Cash of an Asset Disposition pursuant to
clause (a)(3)(A)
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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;
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(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 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
92
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 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),
93
(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");
(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
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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;
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(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;
(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) 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
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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
(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 asset(s) 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,
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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 and 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,
(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";
98
(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 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
99
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:
- the assumption of Indebtedness of the Company (other than obligations
in respect of Disqualified Stock of the Company) or any Restricted
Subsidiary (other than obligations in respect of Disqualified Stock and
Preferred Stock of a Restricted Subsidiary that is a Note Guarantor) and
the release of the Company or such Restricted Subsidiary from all
liability on such Indebtedness in connection with such Asset Disposition;
- any Designated Noncash Consideration received by the Company or any of
its Restricted Subsidiaries in the Asset Disposition; and
- securities or other obligations received by the Company or any
Restricted Subsidiary from the transferee that are (subject to ordinary
settlement periods) converted, sold or exchanged within 30 days of
receipt by the Company or such Restricted Subsidiary into
100
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 (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,
101
(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,
(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,
102
(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
Buyout, 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;
(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.
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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.
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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.
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
105
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
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.
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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,
(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.
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Without the consent of any Holder, the Company, the Note Guarantors and the
Trustee may amend the Indenture, the Notes or the Note Guarantees to:
- cure any ambiguity, omission, defect or inconsistency,
- provide for the assumption by a successor of the obligations of the
Company under the Indenture,
- provide for uncertificated Notes in addition to or in place of
certificated Notes (provided, however, that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or
in a manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code),
- to make any change in the subordination provisions of the Indenture
that would limit or terminate the benefits available to any holder of
Senior Indebtedness of the Company or a Note Guarantor (or any
Representative thereof under such subordination provisions,
- add additional Guarantees with respect to the Notes,
- secure the Notes,
- add to the covenants of the Company or provide any additional rights or
benefits to the Holders or to surrender any right or power conferred upon
the Company,
- make any change that does not adversely affect the rights of any
Holder,
- provide for the issuance of the Exchange Notes or Additional Notes,
- comply with any requirement of the SEC in connection with the
qualification of the Indenture under the TIA or
- to evidence and provide the acceptance of the appointment of a
successor Trustee under the Indenture.
However, no amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any holder of Senior Indebtedness
of the Company or a Note Guarantor then outstanding unless the holders of such
Senior Indebtedness (or any group or Representative thereof authorized to give a
consent) consent to such change.
The consent of the Holders will not be necessary to approve the particular form
of any proposed amendment. It will be sufficient if such consent approves the
substance of the proposed amendment.
After an amendment becomes effective, the Company is required to mail to Holders
a notice briefly describing such amendment. However, the failure to give such
notice to all Holders, or any defect therein, will not impair or affect the
validity of the amendment.
TRANSFER AND EXCHANGE
A Holder will be able to transfer or exchange Notes. Upon any transfer or
exchange, the registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes required by law or permitted by
the Indenture. The Company will not be required to transfer or exchange any Note
selected for redemption or to transfer or exchange any Note for a
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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 United States 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
United States Bank Trust National Association is the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes.
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GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in accordance
with, the laws of the State of New York without giving effect to applicable
principles of conflicts of law to the extent that the application of the law of
another jurisdiction would be required thereby.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company, as
such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or the Note Guarantees or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and 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 United States dollars,
non-callable United States Government Obligations, or a combination of
cash in United States dollars and non-callable United States 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.
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CERTAIN DEFINITIONS
"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" 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,"
111
(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:
(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.
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"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.
"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;
113
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
114
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.
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;
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(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:
(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
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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 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 July 22, 2002, 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,
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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
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such conversion or exchange shall be deemed an occurrence of Indebtedness or
Disqualified Stock, as applicable) or
(3) is redeemable at the option of the holder thereof, in whole or in part,
in the case of each of clauses (1), (2) and (3), on or prior to the 91st day
after the Stated Maturity of the Notes; provided, however, that only the
portion of Capital Stock that so matures or is mandatorily redeemable, is so
convertible or exchangeable or is redeemable at the option of the holder
thereof prior to such date will be deemed Disqualified Stock and any Capital
Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset
sale" or "change of control" occurring prior to the 91st day 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
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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 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
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(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);
(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
121
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.
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For purposes of the definition of "Unrestricted Subsidiary" and the covenant
described under "--Limitation on restricted payments":
(1) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Restricted Subsidiary) of the Fair Market Value of
the net assets of any Restricted Subsidiary of the Company at the time that
such Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the
Company shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary in an amount (if positive) equal to:
(A) the Company's "Investment" in such Subsidiary at the time of such
redesignation less
(B) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the Fair Market Value of the net assets of such Subsidiary
at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its Fair Market Value at the time of such transfer.
"Landis Acquisition" means that transaction defined in the "Landis Acquisition"
section of the Prospectus.
"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
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(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.
"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;
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(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";
(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.
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"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).
"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
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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.
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"Secured Indebtedness" means any Indebtedness of the Company or any Subsidiary
secured by a Lien. "Secured Indebtedness" of a Note Guarantor has a correlative
meaning.
"Senior Subordinated Indebtedness" of the Company means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank equally with the Notes in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of the
Company which is not Senior Indebtedness. "Senior Subordinated Indebtedness" of
a Note Guarantor has a correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC in effect on the date of the Indenture.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"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
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$250,000,000 (or the foreign currency equivalent thereof) and whose
long-term debt is rated "A" (or such similar equivalent rating) or higher by
at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act),
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) or (2) above
entered into with a bank meeting the qualifications described in clause (2)
above,
(4) investments in commercial paper, maturing not more than 270 days after
the date of acquisition, issued by a corporation (other than an Affiliate of
the Company) organized and in existence under the laws of the United States
of America or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of
"P-1" (or higher) according to Moody's or "A-1" (or higher) according to
S&P,
(5) investments in securities with maturities of 270 days or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision
or taxing authority thereof, and rated at least "A" by S&P or "A" by
Moody's,
(6) money market funds at least 95% of the assets of which constitute
Temporary Cash Investments of the kinds described in clauses (1) through (5)
of this definition and
(7) solely in respect of the ordinary course cash management activities of
the Foreign Subsidiaries, equivalents of the investments described in clause
(1) above to the extent guaranteed by the United Kingdom, the European Union
or the country in which the Foreign Subsidiary operates and equivalents of
the investments described in clause (2) above issued, accepted or offered by
(a) the local office of any commercial bank meeting the requirements of
clause (4) above in the jurisdiction of organization of the applicable
Foreign Subsidiary or (b) the local office of any commercial bank organized
under the laws of the jurisdiction of organization of the applicable Foreign
Subsidiary which commercial bank (1) has combined capital and surplus and
undivided profits of not less than $250.0 million, (2) a long-term rating
for Dollar-denominated obligations of at least "A-1" from S&P or the
equivalent rating from Moody's or (3) is organized in the country in which
the Foreign Subsidiary operates.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. sec.sec. 77aaa-77bbbb) as
in effect on the Closing Date.
"Trade Payables" means, with respect to any Person, any accounts payable or any
indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Transactions" has the meaning set forth in the "Summary" section of the
Prospectus.
"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.
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"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.
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.
"United States 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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REGISTRATION RIGHTS; ADDITIONAL INTEREST
We and the note guarantors entered into a registration rights agreement with the
initial purchasers on the closing date for the outstanding notes. In that
agreement, we agreed for the benefit of the holders of the outstanding notes
that we will use our reasonable best efforts to file with the SEC and cause to
become effective a registration statement relating to an offer to exchange the
outstanding notes for an issue of SEC-registered notes with terms identical to
the outstanding notes (except that the exchange notes will not be subject to
restrictions on transfer or to any increase in annual interest rate as described
below).
When the SEC declares this exchange offer registration statement effective, we
will offer the exchange notes in return for the outstanding notes. The exchange
offer will remain open for at least 20 business days after the date we mail
notice of the exchange offer to noteholders. For each outstanding note
surrendered to us under the exchange offer, the noteholder will receive an
exchange note of equal principal amount. Interest on each exchange note will
accrue from the last interest payment date on which interest was paid on the
notes or, if no interest has been paid on the notes, from the closing date for
the outstanding notes.
If applicable interpretations of the staff of the SEC do not permit us to effect
the exchange offer, we will use our reasonable best efforts to cause to become
effective a shelf registration statement relating to resales of the notes and to
keep that shelf registration statement effective until the expiration of the
time period referred to in Rule 144(k) under the Securities Act, or such shorter
period that will terminate when all notes covered by the shelf registration
statement have been sold. We will, in the event of such a shelf registration,
provide to each noteholder copies of a prospectus, notify each noteholder when
the shelf registration statement has become effective and take certain other
actions to permit resales of the notes. A noteholder that sells notes under the
shelf registration statement generally will be required to make certain
representations to us (as described in the registration rights agreement), to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with those sales and will be
bound by the provisions of the registration rights agreement that are applicable
to such a noteholder (including certain indemnification obligations). Holder of
notes will also be required to suspend their use of the prospectus included in
the shelf registration statement under specified circumstances upon receipt of
notice from us. In addition, at the request of Goldman, Sachs & Co. or J.P.
Morgan Securities Inc. we will file a shelf registration statement to enable
them to act as a market maker in the notes.
If the exchange offer is not completed (or, if required, the shelf registration
statement is not declared effective) on or before the later of the date that is
210 days after the closing date the annual interest rate borne by the
outstanding notes will be increased by .25% per annum, increasing an additional
..25% per annum every 90 days thereafter, up to a maximum aggregate increase of
1.0% per annum, until the exchange offer is completed or the shelf registration
statement is declared effective. Following the cure of all registration
defaults, the accrual of this interest will cease.
If we effect the exchange offer, we will be entitled to close the exchange offer
20 business days after its commencement, provided that we have accepted all
notes validly surrendered in accordance with the terms of the exchange offer.
Notes not tendered in the exchange offer shall bear interest at the rate set
forth on the cover page of this prospectus and be subject to all the terms and
conditions specified in the indenture, including transfer restrictions. This
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summary of the provisions of the registration rights agreement does not purport
to be complete and is subject to, and is qualified in its entirely by reference
to, all the provisions of the registration rights agreement, which has been
filed as an exhibit to the registration rights agreement of which this
prospectus is a part.
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CERTAIN MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS
The following summary describes certain material United States federal income
tax consequences and, in the case of a holder that is a non-United States holder
(as defined below), certain material United States federal estate tax
consequences, of purchasing, owning and disposing of the exchange notes and
exchanging the outstanding notes for the exchange notes.
This summary deals only with exchange notes held as capital assets (generally,
investment property) and does not deal with special tax situations such as:
- dealers in securities or currencies;
- traders in securities;
- United States holders (as defined below) whose functional currency is
not the United States dollar;
- persons holding exchange notes as part of a hedge, straddle, conversion
or other integrated transaction;
- certain United States expatriates;
- financial institutions;
- insurance companies; and
- entities that are tax-exempt for United States federal income tax
purposes.
This summary does not discuss all of the aspects of United States federal income
and estate taxation that may be relevant to you in light of your particular
investment or other circumstances. In addition, this summary does not discuss
any United States state, local or foreign income tax consequences or any
non-income tax consequences. This summary is based on United States federal
income tax law, including the provisions of the Internal Revenue Code of 1986,
as amended (the "Internal Revenue Code"), Treasury regulations, administrative
rulings and judicial authority, all as in effect as of the date of this
prospectus. Subsequent developments in United States federal tax law, including
changes in law or differing interpretations, which may be applied retroactively,
could have a material effect on the United States federal tax consequences of
purchasing, owning and disposing of exchange notes as set forth in this summary.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING THE PARTICULAR UNITED STATES
FEDERAL, STATE AND LOCAL AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF
ACQUIRING, OWNING AND DISPOSING OF EXCHANGE NOTES THAT MAY BE APPLICABLE TO YOU.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of the outstanding notes for the exchange notes in the exchange
offer will not be a taxable exchange for United States federal income tax
purposes and, accordingly, for such purposes you will not recognize any taxable
gain or loss as a result of such exchange and you will have the same tax basis
and holding period in the exchange notes as you had in your outstanding notes
immediately before the exchange.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR UNITED STATES HOLDERS
The following summary applies to you only if you are a United States holder (as
defined below).
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DEFINITION OF A UNITED STATES HOLDER
A "United States holder" is a beneficial owner of an exchange note or notes who
or which is for United States federal income tax purposes:
- an individual citizen or resident of the United States;
- a corporation (or other entity classified as a corporation for these
purposes) or a partnership (or other entity classified as a partnership
for these purposes) created or organized in or under the laws of the
United States or of any political subdivision of the United States,
including any State;
- an estate, the income of which is subject to United States federal
income taxation regardless of the source of that income; or
- a trust if (1) 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 or (2) the
trust has a valid election in effect under applicable Treasury
regulations to be treated as a United States person.
If a partnership or other entity treated as a partnership for United States
federal income tax purposes holds an exchange note or notes, the tax treatment
of a partner will generally depend on the status of the partner and the
activities of the partnership. If you are a partner of a partnership holding an
exchange note or notes, we suggest that you consult your tax advisor.
PAYMENTS OF STATED INTEREST
Payments of stated interest on your exchange notes will be taxed as ordinary
interest income. In addition:
- if you use the cash method of accounting for United States federal
income tax purposes, you will have to include the stated interest on your
exchange notes in your gross income at the time you receive the interest;
and
- if you use the accrual method of accounting for United States federal
income tax purposes, you will have to include the stated interest on your
exchange notes in your gross income at the time the interest accrues.
MARKET DISCOUNT AND BOND PREMIUM
If you purchase an exchange note (or purchased the outstanding note for which
the exchange note was exchanged, as the case may be) at a price that is less
than its principal amount, the excess of the principal amount over your purchase
price will be treated as "market discount." However, the market discount will be
considered to be zero if it is less than 1/4 of 1% of the principal amount
multiplied by the number of complete years to maturity from the date you
purchased the exchange note or outstanding note, as the case may be.
Under the market discount rules of the Internal Revenue Code, you generally will
be required to treat any principal payment on, or any gain realized on the sale,
exchange, retirement or other disposition of, an exchange note as ordinary
income (generally treated as interest income) to the extent of the market
discount which accrued but was not previously included in income. In addition,
you may be required to defer, until the maturity of the exchange note or
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its earlier disposition in a taxable transaction, the deduction of all or a
portion of your interest expense on any indebtedness incurred or continued to
purchase or carry the exchange note (or the outstanding note for which the
exchange note was exchanged, as the case may be). In general, market discount
will be considered to accrue ratably during the period from the date of the
purchase of the exchange note (or outstanding note for which the exchange note
was exchanged, as the case may be) to the maturity date of the exchange note,
unless you make an irrevocable election (on an instrument-by-instrument basis)
to accrue market discount under a constant yield method. You may elect to
include market discount in income currently as it accrues (under either a
ratable or constant yield method), in which case the rules described above
regarding the treatment as ordinary income of gain upon the disposition of the
exchange note and upon the receipt of certain payments and the deferral of
interest deductions will not apply. The election to include market discount in
income currently, once made, applies to all market discount obligations acquired
on or after the first day of the first taxable year to which the election
applies, and may not be revoked without the consent of the Internal Revenue
Service.
If you purchase an exchange note (or purchased the outstanding note for which
the exchange note was exchanged, as the case may be) for an amount in excess of
the amount payable at maturity of the exchange note, you will be considered to
have purchased the exchange note (or outstanding note) with "bond premium" equal
to the excess of your purchase price over the amount payable at maturity (or on
an earlier call date if it results in a smaller amortizable bond premium). You
may elect to amortize the premium using a constant yield method over the
remaining term of the exchange note (or until an earlier call date, as
applicable). The amortized amount of the premium for a taxable year generally
will be treated first as a reduction of interest on the exchange note included
in such taxable year to the extent thereof, then as a deduction allowed in that
taxable year to the extent of your prior interest inclusions on the exchange
note, and finally as a carryforward allowable against your future interest
inclusions on the exchange note. The election, once made, is irrevocable without
the consent of the Internal Revenue Service and applies to all taxable bonds
held during the taxable year for which the election is made or subsequently
acquired.
CONSTANT YIELD ELECTION
As an alternative to the above-described rules for including interest payments
and market discount in income and amortizing bond premium, you may elect to
include in gross income all interest that accrues on an exchange note, including
stated interest, market discount (including de minimis market discount) and
adjustments for bond premium, on the constant yield method. If such an election
were made, you would be deemed to have made an election to amortize bond
premium, which as discussed above applies to all debt instruments held or
subsequently acquired by you. Particularly for United States holders who are on
the cash method of accounting, a constant yield election may have the effect of
causing you to include interest in income earlier than would be the case if no
such election were made, and the election may not be revoked without the consent
of the Internal Revenue Service. You should consult your own tax advisor before
making this election.
SALE OR OTHER DISPOSITION OF THE EXCHANGE NOTES
Upon the sale, exchange, retirement, redemption or other disposition of an
exchange note, you generally will recognize taxable gain or loss in an amount
equal to the difference, if any, between the amount realized on the disposition
and your adjusted tax basis in the exchange
135
note. Your adjusted tax basis in an exchange note will generally equal the cost
of the exchange note (or, in the case of an exchange note acquired in exchange
for an outstanding note in the exchange offer, the basis of the outstanding
note), increased by the amount of any market discount previously included in
your gross income, and reduced by the amount of any amortizable bond premium
applied to reduce, or allowed as a deduction against, interest with respect to
your exchange note.
Your gain or loss generally will be capital gain or loss (except with respect to
any amount received that is attributable to accrued but unpaid interest, which
will be taxable in the manner described above under "--United States federal
income tax considerations for United States 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 "--United States
federal income tax considerations for United States holders--Market discount and
bond premium"). Such capital gain or loss will be long-term capital gain or loss
if the exchange note has been held for more than one year at the time of the
disposition (taking into account for this purpose, in the case of an exchange
note received in exchange for an outstanding note in the exchange offer, the
period of time that the outstanding note was held).
Subject to limited exceptions, your capital losses cannot be used to offset your
ordinary income. If you are a non-corporate United States holder, your long-term
capital gain generally will be subject to a maximum tax rate of 15%, scheduled
to increase to 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%, scheduled to increase
to 31% for taxable years beginning on or after January 1, 2011, may apply:
- to any payments made to you of principal of and interest on your
exchange note, and
- to payment of the proceeds of a sale or other disposition of your
exchange note,
if you are a non-corporate United States holder and fail to provide a correct
taxpayer identification number or otherwise comply with applicable requirements
of the backup withholding rules. Information reporting may also apply to
payments made with respect to your exchange note.
Backup withholding is not an additional tax and may be credited against your
United States federal income tax liability, provided that correct information is
provided to the Internal Revenue Service.
UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-UNITED STATES
HOLDERS
The following summary applies to you if you are a beneficial owner of an
exchange note who or which is not a resident alien and not otherwise a United
States holder (a "non-United States holder"). Resident aliens are subject to
United States federal income tax as if they were United States citizens. An
individual may, subject to exceptions, be deemed to be a resident alien, as
opposed to a non-resident alien, by among other ways being present in the United
States:
- for at least 31 days in the calendar year, and
- for an aggregate of at least 183 days during a three-year period ending
in the current calendar year, counting for such purposes all of the days
present in the current year,
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one-third of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year.
UNITED STATES FEDERAL WITHHOLDING TAX
If you are a non-United States holder, 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 your exchange notes, and will not apply to
payments of interest on your exchange notes, under the "portfolio interest"
exception of the Internal Revenue Code, provided that you comply with the
following requirements:
- you do not, directly or indirectly, actually or constructively, own 10%
or more of the total combined voting power of all classes of our stock
entitled to vote within the meaning of section 871(h)(3) of the Internal
Revenue Code and the Treasury regulations thereunder;
- you are not 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);
- you are not a bank receiving interest described in section 881(c)(3)(A)
of the Internal Revenue Code;
- such interest is not effectively connected with your conduct of a
United States trade or business; and
- you provide a properly completed Internal Revenue Service Form W-8BEN,
signed under penalties of perjury, which can reliably be related to you,
certifying that you are not a United States person within the meaning of
the Internal Revenue Code and providing your name and address to:
(A) us or our paying agent; or
(B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of
its trade or business and holds your exchange notes on your behalf and
that certifies to us or our paying agent under penalties of perjury
that it, or the bank or financial institution between it and you, has
received from you your Form W-8BEN and provides us or our paying agent
with a copy of this statement.
Certain Treasury regulations provide alternative methods for satisfying the
certification requirement described in this section. In addition, under these
Treasury regulations:
- if you are a foreign partnership, the certification requirement will
generally apply to partners in you, and you will be required to provide
certain information;
- if you are a foreign trust, the certification requirement will
generally be applied to you or your beneficial owners depending on
whether you are a "foreign complex trust," "foreign simple trust," or
"foreign grantor trust" as defined in the Treasury regulations; and
- look-through rules will apply for tiered partnerships, foreign simple
trusts and foreign grantor trusts.
137
If you are a foreign partnership or a foreign trust, you should consult your own
tax advisor regarding your status under these Treasury regulations and the
certification requirements applicable to you.
If you do not satisfy the requirements described above, payments of interest
made to you will be subject to the 30% United States federal withholding tax,
unless you provide us with a properly executed (1) Internal Revenue Service Form
W-8BEN claiming an exemption from or reduction in withholding under the benefit
of an applicable tax treaty or (2) Internal Revenue Service Form W-8ECI stating
that the interest paid on an exchange note is not subject to withholding tax
because it is effectively connected with your conduct of a trade or business in
the United States.
UNITED STATES FEDERAL INCOME TAX
Except for the possible application of United States withholding tax (see
"United States federal withholding tax" above) and backup withholding tax (see
"Backup withholding and information reporting" below), you generally will not
have to pay United States federal income tax on payments of principal of and
interest on your exchange notes, or on any gain or income realized from the
sale, redemption, retirement at maturity or other disposition of your exchange
notes (provided that, in the case of proceeds representing accrued interest, the
conditions described in "United States federal withholding tax" are met) unless:
- in the case of gain, you are an individual who is present in the United
States for 183 days or more during the taxable year of the sale or other
disposition of your exchange notes, and specific other conditions are
met; or
- the interest, gain or other income is effectively connected with your
conduct of a United States trade or business, and, if an income tax
treaty applies, is generally attributable to a United States "permanent
establishment" maintained by you.
If you are engaged in a trade or business in the United States and interest,
gain or any other income in respect of your exchange notes is effectively
connected with the conduct of your trade or business, and, if an income tax
treaty applies, you maintain a United States "permanent establishment" to which
the interest, gain or other income is generally attributable, you generally will
be subject to United States income tax on a net basis on the interest, gain or
income in the same manner as if you were a United States holder (although
interest is exempt from the withholding tax discussed in the preceding
paragraphs provided that you provide a properly executed applicable Internal
Revenue Service Form W-8ECI on or before any payment date to claim the
exemption).
In addition, if you are a foreign corporation, you may be subject to a branch
profits tax equal to 30% of your effectively connected earnings and profits for
the taxable year, as adjusted for certain items, unless a lower rate applies to
you under a United States income tax treaty with your country of residence. For
this purpose, you must include interest, gain or income on your exchange notes
in the earnings and profits subject to the branch profits tax if these amounts
are effectively connected with the conduct of your United States trade or
business.
UNITED STATES FEDERAL ESTATE TAX
If you are an individual and are not a United States citizen or a resident of
the United States (as specially defined for United States federal estate tax
purposes) at the time of your death,
138
your exchange notes will generally not be subject to the United States federal
estate tax, unless, at the time of your death:
- you directly or indirectly, actually or constructively, own 10% or more
of the total combined voting power of all classes of our stock entitled
to vote within the meaning of section 871(h)(3) of the Internal Revenue
Code and the Treasury regulations thereunder; or
- your interest on the exchange notes is effectively connected with your
conduct of a United States trade or business.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current Treasury regulations, backup withholding and information reporting
will not apply to payments made by us or our paying agent (in its capacity as
such) to you if you have provided the required certification that you are a
non-United States 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 United States holder (as described in "--Definition of
a United States holder" above). We or our paying agent may, however, report
payments of interest on the exchange notes that are made to you.
The gross proceeds from the disposition of your exchange notes may be subject to
information reporting and backup withholding tax at a rate that is currently
28%, scheduled to increase to 31% for taxable years beginning on or after
January 1, 2011. If you sell your exchange notes outside the United States
through a non-United States office of a broker and the sales proceeds are paid
to you outside the United States, then the United States backup withholding and
information reporting requirements generally (except as provided in the
following sentence) will not apply to that payment. However, United States
information reporting, but not backup withholding, will apply to a payment of
sales proceeds, even if that payment is made outside the United States, if you
sell your exchange notes through a non-United States office of a broker that:
- is a United States person (as defined in the Internal Revenue Code);
- derives 50% or more of its gross income in specific periods from the
conduct of a trade or business in the United States;
- is a "controlled foreign corporation" for United States federal income
tax purposes; or
- is a foreign partnership, if at any time during its tax year:
- one or more of its partners are United States persons who in the
aggregate hold more than 50% of the income or capital interests in the
partnership; or
- the foreign partnership is engaged in a United States trade or
business,
unless the broker has documentary evidence in its files that you are a
non-United States person and certain other conditions are met or you otherwise
establish an exemption. If you receive payments of the proceeds of a sale of
your exchange notes to or through a United States office of a broker, the
payments are subject to both United States backup withholding and information
reporting unless you provide a Form W-8BEN certifying that you are a non-United
States person or you otherwise establish an exemption.
139
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.
140
ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with the
exchange of the outstanding notes, or the purchase or holding of the exchange
notes, by employee benefit plans that are subject to Title I of the U.S.
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
individual retirement accounts and other arrangements that are subject to
Section 4975 of the Internal Revenue Code or provisions under any federal,
state, local, non-U.S. or other laws or regulations that are similar to such
provisions of the Internal Revenue Code or ERISA, and entities whose underlying
assets are considered to include "plan assets" of such plans, accounts and
arrangements.
GENERAL FIDUCIARY MATTERS
ERISA and the Code impose certain duties on persons who are fiduciaries of a
plan subject to Title I of ERISA or Section 4975 of the Internal Revenue Code
and prohibit certain transactions involving the assets of a plan and its
fiduciaries or other interested parties. Under ERISA and the Code, any person
who exercises any discretionary authority or control over the administration of
such a plan or the management or disposition of the assets of such a plan, or
who renders investment advice to such a plan for a fee or other compensation,
may be considered to be a fiduciary of the plan.
When considering investing a portion of the assets of any plan in the exchange
notes, a fiduciary should determine whether the investment is in accordance with
the documents and instruments governing the plan and the applicable provisions
of ERISA, the Internal Revenue Code or any similar law relating to a fiduciary's
duties to the plan including, without limitation, the prudence, diversification,
delegation of control and prohibited transaction provisions of ERISA, the
Internal Revenue Code and any other applicable similar laws. The prudence of a
particular investment should be determined by the responsible fiduciary of a
plan by taking into account the plan's particular circumstances and all of the
facts and circumstances of an investment in an exchange note including, but not
limited to, particular risks associated with the investment and the fact that in
the future there may be no market in which such fiduciary will be able to sell
or otherwise dispose of any exchange notes it may purchase.
Any insurance company proposing to invest assets of its general account in the
exchange notes should consider the extent to which such investment would be
subject to the requirements of ERISA in light of the U.S. Supreme Court's
decision in John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings
Bank and under any subsequent legislation or other guidance that has or may
become available relating to that decision, including Section 401(c) of ERISA
and any regulations thereunder published by the U.S. Department of Labor.
PROHIBITED TRANSACTION ISSUES
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit
plans subject to Title I of ERISA or Section 4975 of the Internal Revenue Code
from engaging in specified transactions involving plan assets with persons or
entities who are "parties in interest" within the meaning of ERISA, or
"disqualified persons," within the meaning of Section 4975 of the Internal
Revenue Code, unless an exemption is available. A party in interest or
disqualified person who engages in a non-exempt prohibited transaction may be
subject to excise taxes and other penalties and liabilities under ERISA and the
Internal Revenue Code and, in many circumstances, the transaction must be
unwound. In addition, the fiduciary of the plan that engages in such a
non-exempt prohibited transaction may be subject to penalties and liabilities
141
under ERISA and the Internal Revenue Code. The acquisition and/or holding of
exchange notes by a plan with respect to which we, our affiliates or the initial
purchaser is considered a party in interest or disqualified person may
constitute or result in a direct or indirect prohibited transaction under ERISA
and/or the Internal Revenue Code, unless the investment is acquired and is held
in accordance with an applicable statutory, class or individual prohibited
transaction exemption. In this regard, the U.S. Department of Labor has issued
prohibited transaction class exemptions, or "PTCEs", that may apply to the
acquisition and holding of the exchange notes. These class exemptions include
PTCE 84-14 respecting transactions determined by independent qualified
professional asset managers, PTCE 90-1 respecting insurance company pooled
separate accounts, PTCE 91-38 respecting bank collective investment funds, PTCE
95-60 respecting transactions involving life insurance company general accounts
and PTCE 96-23 respecting transactions determined by in-house asset managers.
However, there can be no assurance that all of the conditions of any such
exemptions will be satisfied, or, if satisfied, that the scope of the relief
will cover all acts that might be construed as prohibited transactions.
Because of the foregoing, the exchange notes should not be acquired or held by
any person investing "plan assets" of any plan, if such acquisition and holding
will constitute a non-exempt prohibited transaction under ERISA and the Internal
Revenue Code or similar violation of any applicable similar laws. Each initial
investor of an exchange note and each subsequent transferee will, by its
acquisition and/or holding be deemed to have represented and warranted that (1)
it is not a plan, or other entity that is subject to prohibited transaction
rules of ERISA, the Code or similar law or (2) its acquisition and/or holding of
such note will not result in a non-exempt prohibited transaction under Section
406 of ERISA, Section 4975 of the Internal Revenue Code or any similar provision
of similar laws.
The foregoing discussion is general in nature and is not intended to be
all-inclusive. Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries, or other persons considering an
investment in the exchange notes on behalf of, or with the assets of any plan,
consult with their counsel regarding the potential applicability of ERISA,
Section 4975 of the Internal Revenue Code and any similar laws to such
investment and whether an exemption would be applicable to the acquisition and
holding of the exchange notes.
142
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the SEC set forth in no-action letters
issued to third parties, we believe that the exchange notes issued pursuant to
the exchange offer in exchange for the outstanding notes may be offered for
resale, resold and otherwise transferred by holders thereof, other than any
holder which is (A) an "affiliate" of our company within the meaning of Rule 405
under the Securities Act, (B) a broker-dealer who acquired notes directly from
our company or (C) broker-dealers who acquired notes as a result of
market-making or other trading activities, without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such exchange notes are acquired in the ordinary course of such holders'
business, and such holders are not engaged in, and do not intent to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of such exchange notes. However, broker-dealers receiving the
exchange notes in the exchange offer will be subject to a prospectus delivery
requirement with respect to resales of such exchange notes. To date, the staff
of the SEC has taken the position that these broker-dealers may fulfill their
prospectus delivery requirements with respect to transactions involving an
exchange of securities such as the exchange pursuant to the exchange offer,
other than a resale of an unsold allotment from the sale of the outstanding
notes to the initial purchasers thereof, with the prospectus contained in the
exchange offer registration statement. Pursuant to the registration rights
agreement, we have agreed to permit these broker-dealers to use this prospectus
in connection with the resale of such exchange notes. We have agreed that, for a
period of 180 days after the exchange offer has been completed, we will make
this prospectus, and any amendment or supplement to this prospectus, available
to any broker-dealer that requests such documents in the letter of transmittal.
Each holder of the outstanding notes who wishes to exchange its outstanding
notes for exchange notes in the exchange offer will be required to make certain
representations to us as set forth in "The exchange offer."
Each broker-dealer that receives exchange notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for outstanding
notes where such outstanding notes were acquired as a result of market-making
activities or other trading activities.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account in the
exchange offer and any broker or dealer that participates in a distribution of
such exchange notes may be deemed to be an "underwriter" within the meaning of
the Securities Act, and any profit on any such resale of exchange notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that, by acknowledging that it will
143
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
We have agreed to pay certain expenses incident to the exchange offer and will
indemnify the holders of the exchange notes, including any broker-dealers,
against certain liabilities, including liabilities under the Securities Act, as
set forth in the registration rights agreement.
LEGAL MATTERS
The validity of the exchange notes will be passed upon for us by Fried, Frank,
Harris, Shriver & Jacobson LLP, New York, New York.
INDEPENDENT AUDITORS
The consolidated balance sheets of BPC Holding Corporation as of December 27,
2003 and December 28, 2002, and the related consolidated statements of
operations, changes in stockholders' equity (deficit), and cash flows for the
year ended December 27, 2003, for the periods from July 22, 2002 to December 28,
2002 (Company), December 30, 2001 to July 21, 2002 (Predecessor), and the year
ended December 29, 2001 (Predecessor) included in this prospectus, have been
audited by Ernst & Young LLP, independent auditors, as stated in their report
appearing herein.
The balance sheets of Landis Plastics Inc., as of December 31, 2002, 2001, 2000
and 1999, and the related statements of income and retained earnings, and cash
flows for the years then ended, included in this prospectus, have been audited
by Roche, Scholz, Roche & Walsh, Ltd., independent auditors, as stated in their
reports appearing herein.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement of Form S-4 that we filed
with the Securities and Exchange Commission (the "SEC"). This prospectus does
not contain all of the information in that registration statement. For further
information with respect to us and the notes, see the registration statement,
including the exhibits.
We are subject to the reporting requirements of the Securities Exchange Act of
1934 and in accordance with its requirements file annual, quarterly and current
reports, proxy statements and other information with the SEC. These reports,
proxy statements and other information may be obtained:
- from the SEC, Public Reference Room, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549; or
- from the Internet site maintained by the SEC at http://.www.sec.gov,
which contains reports, proxy and information statements and other
information regarding issuers, including us, that file electronically
with the SEC.
Some locations may charge prescribed rates or modest fees for copies. For more
information on the public reference room, call the SEC at 1-800-SEC-0330. Our
filings will also be available to the public from commercial document retrieval
services.
144
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.
Following the consummation of the exchange offer, whether or not required by the
SEC, we will file a copy of all the information mentioned above with the SEC for
public availability within the time periods specified in the SEC's rule and
regulations (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospectus investors upon
request.
In addition, we have agreed that we will furnish to holders and securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act of 1933, as
amended (the "Securities Act") until such time as we have either exchanged the
notes pursuant to the exchange offer or until such time as holders of the notes
have disposed of their notes pursuant to an effective registration statement
under the Securities Act.
145
BPC HOLDING CORPORATION
INDEX TO FINANCIAL STATEMENTS
BPC HOLDING CORPORATION AUDITED FINANCIAL STATEMENTS
PAGE
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets at December 27, 2003 and
December 28, 2002........................................ F-3
Consolidated Statements of Operations for the year ended
December 27, 2003, the periods from July 22, 2002 to
December 28, 2002 and from December 30, 2001 to July 21,
2002, and for the year ended December 29, 2001........... F-4
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the year ended December 27, 2003, the
periods from July 22, 2002 to December 28, 2002 and from
December 30, 2001 to July 21, 2002, and for the year
ended December 29, 2001.................................. F-5
Consolidated Statements of Cash Flows for the year ended
December 27, 2003, the periods from July 22, 2002 to
December 28, 2002 and from December 30, 2001 to July 21,
2002, and for the year ended December 29, 2001........... F-6
Notes to Consolidated Financial Statements.................. F-7
LANDIS PLASTICS, INC.
INDEX TO FINANCIAL STATEMENTS
LANDIS PLASTICS, INC. AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-35
Balance Sheets at December 31, 2002 and 2001................ F-36
Statements of Income and Retained Earnings for the years
ended December 31, 2002 and 2001......................... F-37
Statements of Cash Flows for the years ended December 31,
2002 and 2001............................................ F-38
Notes to Financial Statements............................... F-39
Report of Independent Auditors.............................. F-49
Balance Sheets at December 31, 2000 and 1999................ F-50
Statements of Income and Retained Earnings for the years
ended December 31, 2000 and 1999......................... F-51
Statements of Cash Flows for the years ended December 31,
2000 and 1999............................................ F-52
Notes to Financial Statements............................... F-53
LANDIS PLASTICS, INC. UNAUDITED INTERIM FINANCIAL STATEMENTS
Balance Sheets at September 28, 2003 and December 31,
2002..................................................... F-63
Statements of Income and Retained Earnings for the
thirty-nine weeks ended September 28, 2003 and September
29, 2002................................................. F-64
Statements of Cash Flows for the thirty-nine weeks ended
September 28, 2003 and September 29, 2002................ F-65
Notes to Financial Statements............................... F-66
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 27, 2003, and December 28, 2002, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for the year ended December 27, 2003, for the periods
from July 22, 2002 to December 28, 2002 (Company), December 30, 2001 to July 21,
2002 (Predecessor), and the year 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 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 27, 2003 and December 28, 2002, and the
consolidated results of its operations and its cash flows for the year ended
December 27, 2003, for the periods from July 22, 2002 to December 28, 2002
(Company), December 30, 2001 to July 21, 2002 (Predecessor), and the year ended
December 29, 2001 (Predecessor), 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 19, 2004
F-2
BPC HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
-----------------------------------------------------------------------------------------
DECEMBER 27, DECEMBER 28,
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE INFORMATION) 2003 2002
-----------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents................................ $ 26,192 $ 15,613
Accounts receivable (less allowance for doubtful accounts
of $2,717 at December 27, 2003 and $1,990 at December
28, 2002).............................................. 76,152 56,765
Inventories:
Finished goods........................................ 61,556 50,002
Raw materials and supplies............................ 19,988 14,730
---------------------------
81,544 64,732
Prepaid expenses and other current assets................ 19,192 7,018
---------------------------
Total current assets........................................ 203,080 144,128
Property and equipment:
Land..................................................... 7,935 7,040
Buildings and improvements............................... 58,135 49,966
Machinery, equipment and tooling......................... 249,291 139,486
Construction in progress................................. 24,433 12,232
---------------------------
339,794 208,724
Less accumulated depreciation............................ 56,817 15,592
---------------------------
282,977 193,132
Intangible assets:
Deferred financing fees, net............................. 22,283 20,116
Customer relationships, net.............................. 90,540 33,890
Goodwill................................................. 376,769 336,260
Trademarks............................................... 33,448 27,048
Other intangibles, net................................... 6,656 5,883
---------------------------
529,696 423,197
Other....................................................... 53 119
---------------------------
Total assets................................................ $ 1,015,806 $ 760,576
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 43,175 $ 31,204
Accrued expenses and other liabilities................... 21,335 9,926
Accrued interest......................................... 18,132 14,239
Employee compensation and payroll taxes.................. 23,528 15,917
Current portion of long-term debt........................ 9,339 8,641
---------------------------
Total current liabilities................................... 115,509 79,927
Long-term debt, less current portion........................ 742,266 601,302
Deferred income taxes....................................... 720 640
Other long-term liabilities................................. 4,720 3,544
---------------------------
Total liabilities........................................... 863,215 685,413
Stockholders' equity:
Preferred stock; $.01 par value: 500,000 shares
authorized; 0 shares issued and outstanding at December
27, 2003 and December 28, 2002......................... - -
Common stock; $.01 par value: 5,000,000 shares
authorized; 3,397,637 shares issued; and 3,377,923
shares outstanding at December 27, 2003 and 2,777,639
shares issued and 2,757,922 shares outstanding at
December 28, 2002...................................... 34 28
Additional paid-in capital............................... 344,363 281,816
Adjustment of the carryover basis of continuing
stockholders........................................... (196,603) (196,603)
Notes receivable - common stock.......................... (14,157) (14,399)
Treasury stock: 19,714 shares and 0 shares of common
stock at December 27, 2003 and December 28, 2002,
respectively........................................... (1,972) -
Retained earnings........................................ 16,227 3,179
Accumulated other comprehensive income................... 4,699 1,142
---------------------------
Total stockholders' equity.................................. 152,591 75,163
---------------------------
Total liabilities and stockholders' equity.................. $ 1,015,806 $ 760,576
-----------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-3
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
----------------------------------------------------------------------------------------------
COMPANY PREDECESSOR
-------------------------- --------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 27, 7/22/02- 12/30/01- DECEMBER 29,
(IN THOUSANDS OF DOLLARS) 2003 12/28/02 7/21/02 2001
----------------------------------------------------------------------------------------------
Net sales............................ $ 551,876 $ 213,626 $ 280,677 $ 461,659
Cost of goods sold................... 420,750 163,815 207,458 338,000
-------------------------------------------------------
Gross profit......................... 131,126 49,811 73,219 123,659
Operating expenses:
Selling........................... 23,883 10,129 12,080 21,996
General and administrative........ 25,699 7,664 15,750 28,535
Research and development.......... 3,459 1,450 1,438 1,948
Amortization of intangibles....... 3,326 1,159 1,249 12,802
Merger expenses (Predecessor)..... - - 20,987 -
Other expenses.................... 3,569 2,757 2,804 4,911
-------------------------------------------------------
Operating income..................... 71,190 26,652 18,911 53,467
Other expenses (income):
Loss (gain) on disposal of
property and equipment......... (7) 8 291 473
-------------------------------------------------------
Income before interest and taxes..... 71,197 26,644 18,620 52,994
Interest:
Expense........................... (46,251) (20,887) (28,747) (54,397)
Loss on extinguished debt......... (250) - (25,328) -
Income............................ 838 375 5 42
-------------------------------------------------------
Income (loss) before income taxes.... 25,534 6,132 (35,450) (1,361)
Income taxes......................... 12,486 2,953 345 734
-------------------------------------------------------
Net income (loss).................... 13,048 3,179 (35,795) (2,095)
Preferred stock dividends............ - - (6,468) (9,790)
Amortization of preferred stock
discount........................... - - (574) (1,024)
-------------------------------------------------------
Net income (loss) attributable to
common stockholders............... $ 13,048 $ 3,179 $ (42,837) $ (12,909)
----------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-4
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------------------------------------------------------------------------------
COMMON PREFERRED TREASURY ADDITIONAL
STOCK STOCK STOCK WARRANTS COMMON PAID-IN
(IN THOUSANDS OF DOLLARS) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR) STOCK CAPITAL
----------------------------------------------------------------------------------------------------------------------
Predecessor:
Balance at December 30, 2000
(Predecessor)................. $ 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
(Predecessor)................. 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)................. $ - $ - $ - $ - $ - $ -
-----------------------------------------------------------------------------------
Company:
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
-----------------------------------------------------------------------------------
Issuance of common stock......... - - - - 6 62,547
Purchase of treasury stock....... - - - - - -
Interest on notes receivable..... - - - - - -
Translation gain................. - - - - - -
Other comprehensive losses....... - - - - - -
Net income....................... - - - - - -
-----------------------------------------------------------------------------------
Balance at December 27, 2003
(Company)..................... $ - $ - - $ - $ 34 $ 344,363
----------------------------------------------------------------------------------------------------------------------
--------------------------------- -----------------------------------------------------------------------------------------------
ADJUSTMENT OF
THE CARRYOVER NOTES ACCUMULATED
BASIS OF RECEIVABLE-- RETAINED OTHER COMPREHENSIVE
CONTINUING COMMON TREASURY EARNINGS COMPREHENSIVE INCOME
(IN THOUSANDS OF DOLLARS) STOCKHOLDERS STOCK STOCK (DEFICIT) INCOME (LOSS) TOTAL (LOSS)
--------------------------------- -----------------------------------------------------------------------------------------------
Predecessor:
Balance at December 30, 2000
(Predecessor)................. $ - $ - $ - $(218,168) $ (843) $(137,997)
-----------------------------------------------------------------------------------------------
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
(Predecessor)................. - - - (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)
-----------------------------------------------------------------------------------------------
Company:
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
-----------------------------------------------------------------------------------------------
Issuance of common stock......... - - - - - 62,553 -
Purchase of treasury stock....... - 999 (1,972) - - (973) -
Interest on notes receivable..... - (757) - - - (757) -
Translation gain................. - - - - 3,645 3,645 3,645
Other comprehensive losses....... - - - - (88) (88) (88)
Net income....................... - - - 13,048 - 13,048 13,048
-----------------------------------------------------------------------------------------------
Balance at December 27, 2003
(Company)..................... $ (196,603) $ (14,157) $(1,972) $ 16,227 $ 4,699 $ 152,591 $ 16,605
---------------------------------
See notes to consolidated financial statements.
F-5
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------------------------------------
COMPANY PREDECESSOR
-------------------------- --------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 27, 7/22/02- 12/30/01- DECEMBER 29,
(IN THOUSANDS OF DOLLARS) 2003 12/28/02 7/21/02 2001
---------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss)............................... $ 13,048 $ 3,179 $ (35,795) $ (2,095)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation................................. 40,752 16,031 23,526 38,105
Non-cash interest expense.................... 2,318 1,077 1,399 11,268
Amortization of intangibles.................. 3,326 1,159 1,249 12,802
Non-cash compensation........................ - - 1,920 796
Loss on extinguished debt (Predecessor)...... - - 25,328 -
Loss (gain) on sale of property and
equipment................................. (7) 8 291 473
Deferred income taxes........................ 11,791 2,710 - -
Changes in operating assets and liabilities:
Accounts receivable, net.................. (598) 8,717 (15,986) 2,869
Inventories............................... 5,600 (4,091) (4,255) (4,017)
Prepaid expenses and other receivables.... (2,582) (1,280) (603) (50)
Other assets.............................. 32 (354) 2,042 (2,000)
Accrued interest.......................... 3,894 (3,686) 6,741 (1,042)
Payables and accrued expenses............. 2,199 (7,422) 4,735 (2,761)
-------------------------------------------------------
Net cash provided by operating activities....... 79,773 16,048 10,592 54,348
INVESTING ACTIVITIES
Additions to property and equipment............. (29,949) (11,287) (17,396) (32,834)
Proceeds from disposal of property and
equipment.................................... 7 8 9 93
Transaction costs............................... - (12,398) - -
Acquisitions of businesses...................... (235,710) - (3,834) (23,549)
-------------------------------------------------------
Net cash used for investing activities.......... (265,652) (23,677) (21,221) (56,290)
FINANCING ACTIVITIES
Proceeds from long-term borrowings.............. 149,944 580,000 24,492 15,606
Payments on long-term borrowings................ (10,111) (507,314) (13,924) (24,088)
Issuance of preferred stock and warrants........ - - - 9,779
Issuance of common stock........................ 62,553 260,902 - 292
Purchase of treasury stock...................... (973) - - -
Redemption of predecessor stock................. - (290,672) - -
Debt financing costs............................ (4,592) (21,103) - (1,009)
-------------------------------------------------------
Net cash provided by financing activities....... 196,821 21,813 10,568 580
Effect of exchange rate changes on cash......... (363) 1,073 (815) 540
-------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents.................................. 10,579 15,257 (876) (822)
Cash and cash equivalents at beginning of
period....................................... 15,613 356 1,232 2,054
-------------------------------------------------------
Cash and cash equivalents at end of period...... $ 26,192 $ 15,613 $ 356 $ 1,232
---------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-6
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, Ociesse S.r.l and its subsidiary Capsol Berry
Plastics S.p.a., and Landis Plastics, Inc. manufactures and markets plastic
packaging products through its facilities located in Evansville, Indiana;
Henderson, Nevada; Iowa Falls, Iowa; Charlotte, North Carolina; Suffolk,
Virginia; Lawrence, Kansas; Monroeville, Ohio; Norwich, England; Woodstock,
Illinois; Streetsboro, Ohio; Baltimore, Maryland; Milan, Italy; Chicago,
Illinois; Richmond, Indiana; Syracuse, New York; and Phoenix, Arizona.
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. In
2003, the Company initiated the process of closing its Monticello, Indiana
facility, which was acquired in connection with the acquisition of Landis
Plastics, Inc. in November 2003. 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 "2003", "2002," and "2001,"
relate to the fiscal years ended December 27, 2003, December 28, 2002, and
December 29, 2001, 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 $140.3 million and $113.0 million in
2003 and 2002, respectively. Dow Chemical Corporation was the largest supplier
of the Company's total resin material requirements, representing approximately
35% and 43% of such resin requirements in 2003 and 2002, respectively. The
Company also uses other suppliers such as Chevron, Nova, Equistar, Atofina,
Basell, Sunoco, and ExxonMobil to meet its resin requirements.
F-7
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 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. The following table summarizes the activity by
period for the allowance for doubtful accounts.
----------------------------------------------------------------------------------------------
COMPANY PREDECESSOR
-------------------------- --------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 27, 7/22/02- 12/30/01- DECEMBER 29,
2003 12/28/02 7/21/02 2001
----------------------------------------------------------------------------------------------
Balance at beginning of period....... $ 1,990 $ 2,063 $ 2,070 $ 1,724
Charged to costs and expenses........ 150 (291) 164 337
Charged to other accounts(1)......... 545 - - 295
Deductions(2)........................ 32 218 (171) (286)
-------------------------------------------------------
Balance at end of period............. $ 2,717 $ 1,990 $ 2,063 $ 2,070
----------------------------------------------------------------------------------------------
(1) Primarily relates to purchase of accounts receivable and related allowance
through acquisitions.
(2) Uncollectible accounts written off, net of recoveries.
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 ranging from three to 20 years.
The costs in excess of net assets acquired represent the excess purchase price
over the fair value of the net assets acquired in the Merger (see Note 3 below)
and businesses acquired since the
F-8
Merger. 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
Long-lived assets are reviewed for impairment in accordance with SFAS No. 144
whenever facts and circumstances indicate that the carrying amount may not be
recoverable. Specifically, this process involves comparing an asset's carrying
value to the estimated undiscounted future cash flows the asset is expected to
generate over its remaining life. If this process were to result in the
conclusion that the carrying value of a long-lived asset would not be
recoverable, a write-down of the asset to fair value would be recorded through a
charge to operations. Fair value is determined based upon discounted cash flows
or appraisals as appropriate. Long-lived assets that are held for sale are
reported at the lower of the assets' carrying amount or fair value less costs
related to the assets' disposition. No impairments were recorded in these
financial statements.
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.
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 (loss).
REVENUE RECOGNITION
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" ("SAB 101") and SEC Staff
Accounting Bulletin No. 104, "Revenue Recognition" ("SAB 104"). Revenue is
recognized when the title and risk of loss have passed to the customer, there is
persuasive evidence of an arrangement, delivery has occurred or services have
been rendered, the sales price is fixed or determinable, and collectibility is
reasonably assured.
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-
F-9
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
-------------------------- --------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 27, 7/22/02- 12/30/01- DECEMBER 29,
2003 12/28/02 7/21/02 2001
----------------------------------------------------------------------------------------------
Risk-free interest rate.............. 3.0% 4.0% 4.0% 5.5%
Dividend yield....................... 0.0% 0.0% 0.0% 0.0%
Volatility factor.................... .25 .25 .25 .28
Expected option life................. 5.0 years 5.0 years 5.0 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
-------------------------- --------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 27, 7/22/02- 12/30/01- DECEMBER 29,
2003 12/28/02 7/21/02 2001
----------------------------------------------------------------------------------------------
Reported net income (loss)........... $ 13,048 $ 3,179 $ (35,795) $ (2,095)
Stock-based employee compensation
expense included in reported
income (loss), net of tax......... - - 1,920 796
Total stock-based employee
compensation expense determined
under fair value based method, for
all awards, net of tax............ (2,044) (856) (371) (1,401)
-------------------------------------------------------
Pro forma net income (loss).......... $ 11,004 $ 2,323 $ (34,246) $ (2,700)
----------------------------------------------------------------------------------------------
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
F-10
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
adjustments to record the minimum pension liability.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of any contingent assets and liabilities at the financial statement
date and reported amounts of revenue and expenses during the reporting period.
On an on-going basis, the Company reviews its estimates and assumptions. The
Company's estimates were based on its historical experience and various other
assumptions that the Company believes to be reasonable under the circumstances.
Actual results are likely to differ from those estimates under different
assumptions or conditions, but management does not believe such differences will
materially affect the Company's financial position or results of operations.
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. The Merger (see Note 3) and subsequent acquisitions
(see Note 4) have been accounted for under the purchase method of accounting,
and accordingly, the purchase price has been allocated to the identifiable
assets and liabilities
F-11
based on estimated fair values at the acquisition date. The following table
presents the results of the Company on a comparable basis:
----------------------------------------------------------------------------------------------
COMPANY PREDECESSOR
-------------------------- --------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 27, 7/22/02- 12/30/01- DECEMBER 29,
2001 12/28/02 7/21/02 2001
----------------------------------------------------------------------------------------------
Reported net income (loss)........... $ 13,048 $ 3,179 $ (35,795) $ (2,095)
Goodwill amortization, net of tax.... - - - 9,964
-------------------------------------------------------
Adjusted net income (loss)........... $ 13,048 $ 3,179 $ (35,795) $ 7,869
----------------------------------------------------------------------------------------------
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 reclassified the
extraordinary item in the Statements of Operations to continuing operations in
its 2003 financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." The interpretation expands on the disclosure
requirements to be made in interim and annual financial statements. The
interpretation also requires that a liability measured at fair value be
recognized for guarantees even if the probability of payment on the guarantee is
remote. The recognition provisions apply on a prospective basis for guarantees
issued or modified after December 31, 2002. The Company's adoption of the
interpretation at the beginning of fiscal 2003 did not have a material effect on
the Company's accounting or reporting of its guarantees.
In 2003, the FASB issued Interpretation No. 46 ("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 effective for
2003. 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 VIE's. The adoption of FIN 46 did not have a material impact
on the financial position or results of operations of the Company.
Also in 2003, Emerging Issues Task Force ("EITF") reached a consensus on issue
No. 02-16 ("EITF 02-16"), "Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor". EITF 02-16 addressed accounting
for cash consideration received by a reseller from a vendor. Cash consideration
received by a customer from a vendor is presumed to be a reduction of the prices
of the vendor's products or services and should be characterized
F-12
as a reduction of cost of sales when recognized in the customer's income
statement. However, if the consideration is a payment for assets or services
delivered to the vendor, the cash consideration is characterized as revenue when
recognized in the customer's income statement. The EITF also addressed rebates
or refunds and how they should be recognized as a reduction of cost of sales. In
order to recognize a rebate or refund, it must be probable and reasonably
estimable, otherwise, it is not recognized until each specified criteria is met.
The adoption of EITF 02-16 did not have a material impact on the financial
position or results of operations of the Company.
In April 2003, the FASB issued Statement of Financial Accounting Standards No.
149 ("SFAS No. 149"), "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities". 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
adoption of SFAS No. 149 did not have a material impact on the financial
position or results of operations of the Company.
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("SFAS No. 150"). SFAS No. 150 establishes standards for
how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify certain financial instruments as a liability (or as an asset in some
circumstances). SFAS No. 150 was effective for the Company at the beginning of
the first interim period beginning after June 15, 2003. The adoption of SFAS No.
150 did not have a material impact on the financial position or results of
operations of the Company.
In December 2003, the United States Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 104 ("SAB 104"), "Revenue
Recognition". SAB 104 updates portions of the SEC staff's interpretive guidance
provided in SAB 101 and included in Topic 13 of the Codification of Staff
Accounting Bulletins. SAB 104 deletes interpretative material no longer
necessary, and conforms the interpretive material retained, because of
pronouncements issued by the FASB Emerging Issues Task Force on various revenue
recognition topics, including EITF 00-21. The Company adopted this standard on a
prospective basis. The adoption of SAB 104 did not have an impact on the
financial position or results of operations of the Company.
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.
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
F-13
approximately $870.7 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). Immediately following the Merger, the Buyer and its affiliates
owned 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
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. The allocation is preliminary and is subject to
adjustments as any future reductions to the valuation allowance against deferred
tax assets will be credited to goodwill. 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 a loss on extinguished debt. The following
table summarizes the allocation of purchase price.
-----------------------------------------------------------------------
Purchase price.............................................. $ 836,692
Buyer transaction costs..................................... 12,927
Net tangible assets acquired................................ (260,022)
Intangible assets acquired.................................. (67,045)
Adjustment for carryover basis of continuing stockholders... (196,603)
---------
Goodwill.................................................... $ 325,949
-----------------------------------------------------------------------
NOTE 4.ACQUISITIONS
On January 24, 2002, Berry acquired the Alcoa Flexible Packaging injection
molding assets of Mount 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 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 of
approximately $4.6 million. The purchase price was allocated to
F-14
fixed assets ($2.7 million), inventory ($1.1 million), customer relationships
($0.5 million), goodwill ($0.2 million), and other intangibles ($0.1 million).
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.
On May 30, 2003, Berry acquired the injection molded overcap lid assets from APM
Inc. located in Benicia, California ("APM Acquisition") for aggregate
consideration of approximately $0.6 million. The purchase price was allocated to
fixed assets ($0.3 million), inventory ($0.1 million), goodwill ($0.1 million)
and other intangibles ($0.1 million). The purchase was financed through cash
provided by operations. The operations from the APM Acquisition are included in
Berry's operations since the acquisition date using the purchase method of
accounting.
On November 20, 2003, Berry acquired Landis Plastics, Inc. (the "Landis
Acquisition") for aggregate consideration of approximately $229.7 million,
including deferred financing fees. The operations from the Landis Acquisition
are included in Berry's operations since the acquisition date using the purchase
method of accounting. The purchase was financed through the issuance by Berry of
$85.0 million aggregate principal amount of 10 3/4% senior subordinated notes to
various institutional buyers, which resulted in gross proceeds of $95.2 million,
aggregate net borrowings of $54.1 million under Berry's amended and restated
senior secured credit facility from new term loans after giving effect to the
refinancing of the prior term loan, an aggregate common equity contribution of
$62.0 million, and cash on hand. Berry also agreed to acquire, for $32.0
million, four facilities that Landis leased from certain of its affiliates.
Prior to the closing of the Landis Acquisition, the rights and obligations to
purchase the four facilities owned by affiliates of Landis were assigned to an
affiliate of W.P. Carey & Co., L.L.C., which affiliate subsequently entered into
a lease with Landis for the four facilities. In accordance with EITF 95-3, the
Company established opening balance sheet reserves totaling $3.2 million related
to plant shutdown, severance and unfavorable lease arrangement costs, which were
reduced to $2.9 million at December 27, 2003 as a result of payments made in
fiscal 2003. The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of acquisition. The
allocation is preliminary
F-15
and subject to change based on actual expenses and adjustments of estimated
receivables and reserves.
--------------------------------------------------------------------------
NOVEMBER 20,
2003
--------------------------------------------------------------------------
Current assets.............................................. $ 49,901
Property and equipment...................................... 93,722
Goodwill.................................................... 49,393
Customer relationships...................................... 58,200
Trademarks.................................................. 6,400
Covenants not to compete.................................... 800
------------
Total assets................................................ $ 258,416
------------
Current liabilities......................................... $ 27,253
Intercompany debt........................................... 231,163
Stockholders' equity........................................ -
------------
Total liabilities and stockholders' equity.................. $ 258,416
--------------------------------------------------------------------------
The pro forma financial results presented below are unaudited and assume that
the Landis Acquisition occurred at the beginning of the respective period. Pro
forma results have not been adjusted to reflect the acquisitions of Mount
Vernon, CCL, or APM as they do not differ materially from the pro forma results
presented below. The information presented is for informational purposes only
and is not necessarily indicative of the operating results that would have
occurred had the Landis Acquisition been consummated at the above dates, nor are
they necessarily indicative of future operating results. Further, the
information reflects only pro forma adjustments for additional interest expense
and amortization and the elimination of the Merger expenses and loss on
extinguished debt in connection with the Merger, net of the applicable income
tax effects.
----------------------------------------------------------------------------------------------
COMPANY PREDECESSOR
-------------------------- -----------
YEAR ENDED PERIOD FROM PERIOD FROM
DECEMBER 27, 7/22/02- 12/30/01-
2003 12/28/02 7/21/02
----------------------------------------------------------------------------------------------
Pro forma net sales................................. $ 749,591 $ 311,875 $ 394,041
Pro forma net income (loss)......................... 5,526 3,520 (1,062)
----------------------------------------------------------------------------------------------
F-16
NOTE 5.INTANGIBLE ASSETS
Intangible assets consist of the following:
-----------------------------------------------------------------------------------------
DECEMBER 27, DECEMBER 28,
2003 2002
-----------------------------------------------------------------------------------------
Deferred financing fees..................................... $ 26,043 $ 21,411
Customer relationships...................................... 93,561 34,664
Goodwill.................................................... 376,769 336,260
Trademarks.................................................. 33,448 27,048
Covenants not to compete and other.......................... 2,757 1,656
Technology-based............................................ 5,023 4,982
Accumulated amortization.................................... (7,905) (2,824)
---------------------------
$ 529,696 $ 423,197
-----------------------------------------------------------------------------------------
The changes in intangible assets are primarily the result of the Landis
Acquisition, amortization of definite lived intangibles, and the application of
SFAS No. 141.
Future amortization expense for definite lived intangibles at December 27, 2003
for the next five fiscal years is approximately $8.2 million, $8.1 million, $8.0
million, $7.9 million, and $7.8 million for fiscal 2004, 2005, 2006, 2007, and
2008, respectively.
NOTE 6.LONG-TERM DEBT
Long-term debt consists of the following:
-----------------------------------------------------------------------------------------
DECEMBER 27, DECEMBER 28,
2003 2002
-----------------------------------------------------------------------------------------
Berry 10 3/4% Senior Subordinated Notes..................... $ 335,000 $ 250,000
Debt premium on 10 3/4% Notes, net.......................... 10,053 -
Term loans.................................................. 380,000 329,175
Revolving lines of credit................................... 342 692
Nevada Industrial Revenue Bonds............................. 2,000 2,500
Capital leases.............................................. 24,210 27,576
---------------------------
751,605 609,943
Less current portion of long-term debt...................... 9,339 8,641
---------------------------
$ 742,266 $ 601,302
-----------------------------------------------------------------------------------------
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. On November 20, 2003, Berry completed an offering of
$85.0 million aggregate principal amount of 10 3/4% Senior Subordinated Notes
due 2012 (the "Add-on Notes"). The net proceeds to Berry from the sale of the
Add-on Notes, after
F-17
expenses, were $91.8 million. The proceeds from the Add-on Notes were used in
the financing of the Landis Acquisition. The 2002 Notes and Add-on Notes mature
on July 15, 2012. Interest is payable semi-annually on January 15 and July 15 of
each year, which commenced on January 15, 2003 with respect to the 2002 Notes
and commenced on January 15, 2004 with respect to the Add-on Notes. Holding and
all of Berry's domestic subsidiaries fully, jointly, severally, and
unconditionally guarantee on a senior subordinated basis the 2002 Notes and
Add-on Notes. The 2002 Notes and Add-on Notes are not guaranteed by the 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.
Berry is not required to make mandatory redemption or sinking fund payments with
respect to the 2002 Notes and Add-on Notes. On or subsequent to July 15, 2007,
the 2002 Notes and Add-on 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 and Add-on
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 under which the 2002 Notes and Add-on Notes were issued (the
"Indenture"), each holder of notes will have the right to require Berry to
repurchase all or any part of such holder's notes at a repurchase price in cash
equal to 101% of the aggregate principal amount thereof plus accrued interest.
The 2002 Notes and Add-on Notes are treated as a single class under the
Indenture.
AMENDED AND RESTATED CREDIT FACILITY
In connection with the Merger in 2002, 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"). On November 10, 2003, in connection with the Landis
Acquisition, the Credit Facility was amended and restated (the "Amended and
Restated Credit Facility"). The Amended and Restated 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. On November 10,
2003, we used $325.9 million to refinance in full the balance outstanding under
our prior term loan in the Credit Facility. The remaining $4.1 million was used
to fund a portion of the purchase price for the Landis Acquisition. The $50.0
million delayed draw facility was drawn on November 20, 2003 to fund a portion
of the purchase price for the Landis Acquisition. The maturity date of the term
loan and delayed draw term loan is July 22, 2010, and the maturity date of the
revolving credit facility is July 22, 2008. The indebtedness under the Amended
and Restated Credit Facility is guaranteed by BPC Holding and all of its
domestic subsidiaries. The obligations of Berry Plastics under the Amended and
Restated Credit Facility and the guarantees thereof are secured by substantially
all of the assets of such entities. At December 27, 2003, there were no
borrowings outstanding on the revolving credit facility. The revolving credit
facility allows up to $25.0 million of letters of credit to be issued instead of
borrowings under the revolving credit facility and up to $10.0 million of
swingline loans.
The Amended and Restated 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. The Amended and Restated 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
F-18
events (other than in the case of certain foreign subsidiaries). The Company was
in compliance with all the financial and operating covenants at December 27,
2003. The term loan amortizes quarterly as follows: $825,000 each quarter
through June 30, 2009 and $77,756,250 each quarter beginning September 30, 2009
and ending June 30, 2010. The delayed draw term loan facility will amortize
$125,000 each quarter beginning September 30, 2004 through June 30, 2009 and
$11,875,000 each quarter beginning September 30, 2009 and ending June 30, 2010.
Borrowings under the Amended and Restated 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 and delayed draw term loan, the "applicable margin" is (i) with respect to
Base Rate Loans, 1.50% per annum and (ii) with respect to Eurodollar Rate Loans,
2.50% per annum (3.7% at December 27, 2003 and 4.6% at December 28, 2002). With
respect to the revolving credit facility, the "applicable margin" is subject to
a pricing grid which ranges from 2.75% per annum to 2.00% per annum, depending
on the leverage ratio (2.75% based on results through December 27, 2003). 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 was effective January
15, 2003. At December 27, 2003 and December 28, 2002, shareholders' equity has
been reduced by $0.5 million and $0.6 million, respectively, to adjust the
agreement to fair market value. At December 27, 2003, the Company had unused
borrowing capacity under the Amended and Restated Credit Facility's revolving
line of credit of $92.6 million.
NEVADA INDUSTRIAL REVENUE BONDS
The Nevada Industrial Revenue Bonds bear interest at a variable rate (1.3% at
December 27, 2003 and 1.7% at December 28, 2002), require annual principal
payments of $0.5 million on April 1, are collateralized by irrevocable letters
of credit issued under the Amended and Restated 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"). 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 expensed in 2002.
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
F-19
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.
The 1994 Notes and 1998 Notes were retired in connection with the Merger and the
associated premium paid and net deferred financing fees were expensed in 2002.
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. The 1999 Notes were retired in
connection with the Merger and the associated premium for early retirement and
net deferred financing fees were expensed in 2002.
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"). 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 was extinguished in connection with
the Merger and the associated net deferred financing fees were expensed in 2002.
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 expensed in 2002.
OTHER
Future maturities of long-term debt at December 27, 2003 are as follows:
-----------------------------------------------------------------------
2004........................................................ $ 9,339
2005........................................................ 9,552
2006........................................................ 6,788
2007........................................................ 6,946
2008........................................................ 9,420
Thereafter.................................................. 699,507
-----------------------------------------------------------------------
F-20
Interest paid was $40,040, $40,883, and $44,171, for 2003, 2002, and 2001,
respectively. Interest capitalized was $860, $844, and $589, for 2003, 2002, and
2001, respectively.
NOTE 7.LEASE AND OTHER COMMITMENTS
Certain property and equipment are leased using capital and operating leases. In
2003 and 2002, Berry entered into various capital lease obligations with no
immediate cash flow effect resulting in capitalized property and equipment of
$1,717 and $21,169, respectively. Total capitalized lease property consists of
manufacturing equipment and a building with a cost of $34,465 and $32,462 and
related accumulated amortization of $9,791 and $4,247 at December 27, 2003 and
December 28, 2002, respectively. Capital lease amortization is included in
depreciation expense. Total rental expense from operating leases was
approximately $11,216, $9,761, and $8,292 for 2003, 2002, and 2001,
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 27, 2003
---------------------------------
CAPITAL LEASES OPERATING LEASES
-----------------------------------------------------------------------------------------------
2004........................................................ $ 6,184 $ 12,223
2005........................................................ 6,629 10,906
2006........................................................ 2,705 9,165
2007........................................................ 2,657 6,972
2008........................................................ 3,784 6,184
Thereafter.................................................. 4,905 52,154
---------------------------------
26,864 $ 97,604
----------------
Less: amount representing interest....................... (2,654)
--------------
Present value of net minimum lease payments.............. $ 24,210
-----------------------------------------------------------------------------------------------
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.
NOTE 8.INCOME TAXES
For financial reporting purposes, income (loss) before income taxes, by tax
jurisdiction, is comprised of the following:
----------------------------------------------------------------------------------------------
COMPANY PREDECESSOR
-------------------------- --------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 27, 7/22/02- 12/30/01- DECEMBER 29,
2003 12/28/02 7/21/02 2001
----------------------------------------------------------------------------------------------
United States........................ $ 29,556 $ 7,331 $ (33,415) $ 5,046
Foreign.............................. (4,022) (1,199) (2,035) (6,407)
-------------------------------------------------------
$ 25,534 $ 6,132 $ (35,450) $ (1,361)
----------------------------------------------------------------------------------------------
F-21
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 27, DECEMBER 28,
2003 2002
-----------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts.......................... $ 637 $ 583
Inventory................................................ 1,390 1,517
Compensation and benefit accruals........................ 3,119 2,753
Insurance reserves....................................... 679 637
Net operating loss carryforwards......................... 29,546 33,985
Alternative minimum tax (AMT) credit carryforwards....... 3,457 3,055
Other.................................................... 1,601 875
---------------------------
Total deferred tax assets............................. 40,429 43,405
Valuation allowance...................................... (16,911) (28,687)
---------------------------
Deferred tax assets, net of valuation allowance....... 23,518 14,718
Deferred tax liabilities:
Property and equipment................................... 24,239 15,358
---------------------------
Net deferred tax liability.................................. $ (721) $ (640)
-----------------------------------------------------------------------------------------
Income tax expense (benefit) consists of the following:
----------------------------------------------------------------------------------------------
COMPANY PREDECESSOR
-------------------------- --------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 27, 7/22/02- 12/30/01- DECEMBER 29,
2003 12/28/02 7/21/02 2001
----------------------------------------------------------------------------------------------
Current:
Federal........................... $ 402 $ - $ - $ 154
Foreign........................... 61 26 375 125
State............................. 232 217 (30) 455
Deferred:
Federal........................... 8,608 2,280 - -
Foreign........................... - - - -
State............................. 3,183 430 - -
-------------------------------------------------------
Income tax expense................... $ 12,486 $ 2,953 $ 345 $ 734
----------------------------------------------------------------------------------------------
Holding has unused operating loss carryforwards of approximately $76.0 million
for federal and state income tax purposes which begin to expire in 2012. 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 $12.9 million.
F-22
Income taxes paid during 2003, 2002, and 2001 approximated $484, $531, and $314,
respectively.
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
-------------------------- --------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 27, 7/22/02- 12/30/01- DECEMBER 29,
2003 12/28/02 7/21/02 2001
----------------------------------------------------------------------------------------------
Income tax expense (benefit)
computed at statutory rate........ $ 8,721 $ 2,081 $ (12,170) $ (463)
State income tax expense (benefit),
net of federal taxes.............. 2,220 434 (1,035) 795
Amortization of goodwill............. - - - 2,399
Expenses not deductible for income
tax purposes...................... 160 60 3,823 36
Change in valuation allowance........ 1,285 - 9,160 (2,978)
Other................................ 100 378 567 945
-------------------------------------------------------
Income tax expense................... $ 12,486 $ 2,953 $ 345 $ 734
----------------------------------------------------------------------------------------------
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
$1,408, $1,462, and $1,349, for 2003, 2002, and 2001, respectively. The Company
also maintains a defined benefit pension plan covering the Poly-Seal employees
under a collective bargaining agreement. At December 27, 2003 and December 28,
2002, stockholders' equity has been reduced by $550 and $394, respectively, 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.
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
F-23
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 27, 2003 and December 28, 2002, the Company had $14,157 and $14,399,
respectively, in outstanding notes receivable (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 137,980 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.
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
F-24
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.
Information related to the 1996 Option Plan and 2002 Option Plan is as follows:
-----------------------------------------------------------------------------------------------------------------
COMPANY COMPANY PREDECESSOR PREDECESSOR
-------------------- -------------------- -------------------- --------------------
DECEMBER 27, 2003 DECEMBER 28, 2002 JULY 21, 2002 DECEMBER 29, 2001
-------------------- -------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
-----------------------------------------------------------------------------------------------------------------
Options outstanding,
beginning of
period............. 545,684 $ 86 48,218 $ 157 60,420 $132 60,774 $132
Options converted..... - - 102,329 (107) - - - -
Options granted....... 38,713 100 395,137 100 15,345 277 10,975 226
Options exercised..... (9,757) 57 - - (18,134) 177 (2,713) 107
Options canceled...... (43,978) 101 - - (9,413) 389 (8,616) 116
-----------------------------------------------------------------------------------------
Options outstanding,
end of period...... 530,662 94 545,684 86 48,218 157 60,420 155
-----------------------------------------------------------------------------------------
Option price range at
end of period...... $32-$124 $32-$100 $100-$226 $100-$226
Options exercisable at
end of period...... 203,326 120,448 38,573 39,487
Options available for
grant at period
end................ 22,588 42,429 0 13,487
Weighted average fair
value of options
granted during
period............. $28 $30 $30 $34
-----------------------------------------------------------------------------------------------------------------
The following table summarizes information about the options outstanding at
December 27, 2003:
-------------------------------------------------------------------------------------------------
RANGE OF WEIGHTED AVERAGE NUMBER
EXERCISE NUMBER OUTSTANDING REMAINING WEIGHTED AVERAGE EXERCISABLE AT
PRICES AT DECEMBER 27, 2003 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 27, 2003
-------------------------------------------------------------------------------------------------
$32-$72 137,980 9 years $ 49 116,582
$100 227,450 9 years $ 100 37,174
$124 165,232 9 years $ 124 49,570
-------------------------------------------------------------------------------------------------
530,662 203,326
-------------------------------------------------------------------------------------------------
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 28% of the common stock.
GSCP 2000 and other private equity funds affiliated
F-25
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.
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, and $139
in June 2001 and March 2001, respectively, for originating, structuring and
negotiating the acquisitions of Pescor and Capsol, respectively. In
consideration of financial advisory and management consulting services, the
Company paid First Atlantic fees and expenses of $385 and $756 for fiscal 2002
and 2001, 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.
In connection with the Landis Acquisition, the Company paid $1.7 million to
entities affiliated with Goldman, Sachs & Co. and $0.8 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 Add-on Notes and received fees of approximately $1.0 million
and $1.0 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 Amended and Restated
Credit Facility and received fees of $0.5 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 Amended and Restated Credit Facility
for consideration of approximately $0.5 million.
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
F-26
financial instruments approximate fair value at December 27, 2003, except for
the 2002 Notes and Add-on Notes for which the fair value exceeded the carrying
value by $39.4 million.
NOTE 13.ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The accumulated balances related to each component of the other comprehensive
income (loss) consist of the following:
-----------------------------------------------------------------------------------------
DECEMBER 27, DECEMBER 28,
2003 2002
-----------------------------------------------------------------------------------------
Currency translation........................................ $ 5,736 $ 2,091
Minimum pension liability adjustment........................ (550) (394)
Unrealized loss on interest rate collar..................... (487) (555)
---------------------------
$ 4,699 $ 1,142
-----------------------------------------------------------------------------------------
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 (1) Merger expenses, (2) uncompleted acquisition expense, (3)
acquisition integration expense, (4) plant shutdown expense, (5) non-cash
compensation, and (6) 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.
F-27
---------------------------------------------------------------------------------------------
YEAR ENDED
------------------------------------------
COMPANY/
COMPANY PREDECESSOR PREDECESSOR
------------ ------------ ------------
DECEMBER 27, DECEMBER 28, DECEMBER 29,
2003 2002 2001
---------------------------------------------------------------------------------------------
Net sales:
Containers.................................... $ 288,481 $ 250,423 $ 234,441
Closures...................................... 147,297 133,892 132,384
Consumer Products............................. 116,098 109,988 94,834
Adjusted EBITDA:
Containers.................................... 71,027 67,079 63,997
Closures...................................... 30,228 30,555 28,444
Consumer Products............................. 17,582 16,773 18,411
Total assets:
Containers.................................... 605,879 359,635 204,001
Closures...................................... 237,848 229,962 158,009
Consumer Products............................. 172,079 170,979 84,866
Goodwill, net:
Containers.................................... 212,394 170,892 61,048
Closures...................................... 85,756 87,066 39,682
Consumer Products............................. 78,619 78,302 19,193
Reconciliation of Adjusted EBITDA to income
(loss) before income taxes:
Adjusted EBITDA for reportable segments....... $ 118,837 $ 114,407 $ 110,718
Net interest expense.......................... (45,413) (49,254) (54,355)
Depreciation.................................. (40,752) (39,557) (38,105)
Amortization.................................. (3,326) (2,408) (12,802)
Gain (loss) on disposal of property and
equipment.................................. 7 (299) (473)
Merger expenses............................... - (20,987) -
Loss on extinguished debt..................... (250) (25,328) (134)
Uncompleted acquisition expense............... (1,041) (216) -
Acquisition integration expense............... (1,424) (1,353) (2,690)
Plant shutdown expense........................ (1,104) (3,992) (2,221)
Non-cash compensation......................... - - (796)
Management fees............................... - (331) (637)
------------------------------------------
Income (loss) before income taxes............. $ 25,534 $ (29,318) $ (1,361)
---------------------------------------------------------------------------------------------
F-28
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 and
Add-on 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 27,
2003 and December 28, 2002 and for the fiscal years ended December 27, 2003,
December 28, 2002, and December 29, 2001. The equity method has been used with
respect to investments in subsidiaries.
-----------------------------------------------------------------------------------------------------------------
DECEMBER 27, 2003
------------------------------------------------------------------------------------------
BPC HOLDING BERRY PLASTICS COMBINED COMBINED
CORPORATION CORPORATION GUARANTOR NON-GUARANTOR CONSOLIDATING
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-----------------------------------------------------------------------------------------------------------------
CONSOLIDATING BALANCE
SHEETS
Current assets....... $ - $ 67,631 $ 121,605 $ 13,844 $ - $ 203,080
Net property and
equipment......... - 70,873 191,960 20,144 - 282,977
Other noncurrent
assets............ 152,591 855,627 370,199 12,075 (860,743) 529,749
------------------------------------------------------------------------------------------
Total assets......... $ 152,591 $ 994,131 $ 683,764 $ 46,063 $ (860,743) $1,015,806
------------------------------------------------------------------------------------------
Current
liabilities....... $ - $ 53,245 $ 53,408 $ 8,856 $ - $ 115,509
Noncurrent
liabilities....... - 788,295 674,851 28,790 (744,230) 747,706
Equity (deficit)..... 152,591 152,591 (44,495) 8,417 (116,513) 152,591
------------------------------------------------------------------------------------------
Total liabilities and
equity
(deficit)......... $ 152,591 $ 994,131 $ 683,764 $ 46,063 $ (860,743) $1,015,806
-----------------------------------------------------------------------------------------------------------------
F-29
-----------------------------------------------------------------------------------------------------------------
DECEMBER 28, 2002
------------------------------------------------------------------------------------------
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
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 27, 2003 (COMPANY)
------------------------------------------------------------------------------------------
BPC HOLDING BERRY PLASTICS COMBINED COMBINED
CORPORATION CORPORATION GUARANTOR NON-GUARANTOR CONSOLIDATING
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-----------------------------------------------------------------------------------------------------------------
CONSOLIDATING
STATEMENTS OF
OPERATIONS
Net sales............ $ - $ 200,886 $ 328,984 $ 22,006 $ - $ 551,876
Cost of goods sold... - 140,139 259,720 20,891 - 420,750
------------------------------------------------------------------------------------------
Gross profit......... - 60,747 69,264 1,115 - 131,126
Operating expenses... (25,840) 34,536 47,545 3,695 - 59,936
------------------------------------------------------------------------------------------
Operating income
(loss)............ 25,840 26,211 21,719 (2,580) - 71,190
Other expenses
(income).......... - - (7) - - (7)
Interest expense
(income), net..... (763) (592) 45,326 1,442 - 45,413
Loss on extinguished
debt.............. - 250 - - - 250
Income taxes
(benefit)......... 27 12,388 10 61 - 12,486
Equity in net
(income) loss from
subsidiary........ 13,528 27,693 4,083 - (45,304) -
------------------------------------------------------------------------------------------
Net income (loss).... $ 13,048 $ (13,528) $ (27,693) $ (4,083) $ 45,304 $ 13,048
-----------------------------------------------------------------------------------------------------------------
F-30
-----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 27, 2003 (COMPANY)
------------------------------------------------------------------------------------------
BPC HOLDING BERRY PLASTICS COMBINED COMBINED
CORPORATION CORPORATION GUARANTOR NON-GUARANTOR CONSOLIDATING
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-----------------------------------------------------------------------------------------------------------------
CONSOLIDATING
STATEMENTS OF CASH
FLOWS
Net income (loss).... $ 13,048 $ (13,528) $ (27,693) $ (4,083) $ 45,304 $ 13,048
Non-cash expenses.... - 26,817 28,136 3,227 - 58,180
Equity in net
(income) loss from
subsidiary........ 13,528 27,693 4,083 - (45,304) -
Changes in working
capital........... (758) 1,159 7,463 681 - 8,545
------------------------------------------------------------------------------------------
Net cash provided by
(used for)
operating
activities........ 25,818 42,141 11,989 (175) - 79,773
Net cash used for
investing
activities........ - (244,511) (16,474) (4,667) - (265,652)
Net cash provided by
financing
activities........ (25,819) 211,499 5,891 5,250 - 196,821
Effect on exchange
rate changes on
cash.............. - - - (363) - (363)
----------- -------------- ------------ ------------- ------------- ------------
Net increase
(decrease) in cash
and cash
equivalents....... (1) 9,129 1,406 45 - 10,579
Cash and cash
equivalents at
beginning of
year.............. 1 15,157 264 191 - 15,613
------------------------------------------------------------------------------------------
Cash and cash
equivalents at end
of year........... $ - $ 24,286 $ 1,670 $ 236 $ - $ 26,192
-----------------------------------------------------------------------------------------------------------------
F-31
-----------------------------------------------------------------------------------------------------------------------
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
Loss on extinguished debt.. 9,282 6,339 9,498 209 - 25,328
Income taxes (benefit)..... (8,234) 11,016 115 401 - 3,298
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
activities.............. (1,280) 26,196 3,364 (1,640) - 26,640
Net cash used for investing
activities.............. - (18,023) (25,704) (1,171) - (44,898)
Net cash provided by (used
for) 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
-----------------------------------------------------------------------------------------------------------------------
F-32
-----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 29, 2001 (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.................. $ - $ 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) operating
activities.............. (157) 38,826 19,540 (3,861) - 54,348
Net cash used for investing
activities.............. - (30,688) (22,395) (3,207) - (56,290)
Net cash provided by (used
for) financing
activities.............. 377 (9,199) 3,014 6,388 - 580
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-33
NOTE 16.QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table contains selected unaudited quarterly financial data for
fiscal years 2002 and 2001.
------------------------------------------------------------------------------------------------------------
2003 2002
----------------------------------------- -----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD* FOURTH
------------------------------------------------------------------------------------------------------------
Net sales............ $125,398 $146,851 $139,306 $140,321 $122,934 $127,989 $127,575 $115,805
Cost of sales........ 94,321 112,055 106,845 107,529 90,299 94,974 97,492 88,508
-------------------------------------------------------------------------------------
Gross profit......... $ 31,077 $ 34,796 $ 32,461 $ 32,792 $ 32,635 $ 33,015 $ 30,083 $ 27,297
-------------------------------------------------------------------------------------
Net income (loss).... $ 3,079 $ 4,542 $ 4,218 $ 1,209 $ 4,766 $ 5,216 $(42,071) $ (527)
------------------------------------------------------------------------------------------------------------
* 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 loss on extinguished debt of $25,328 incurred in
connection with the Merger.
F-34
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Landis Plastics, Inc.
Gentlemen:
We have audited the accompanying balance sheets of Landis Plastics, Inc. (an
Illinois Corporation), as of December 31, 2002 and 2001, and the related
statements of income and retained earnings, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Landis Plastics, Inc., as of
December 31, 2002 and 2001, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
/s/ Roche, Scholz, Roche & Walsh, Ltd.
February 14, 2003
F-35
LANDIS PLASTICS, INC.
BALANCE SHEETS
-----------------------------------------------------------------------------------------
DECEMBER 31, 2002 AND 2001 2002 2001
-----------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents-unrestricted................... $ 10,028,817 $ 7,613,855
Restricted cash for accrued EEOC settlements............. - 707,493
---------------------------
Total cash and cash equivalents....................... 10,028,817 8,321,348
Receivables:
Trade accounts........................................ 17,605,401 14,255,703
Short-term notes...................................... 133,698 105,924
Current portion of long-term notes.................... 631,935 348,752
Inventory................................................ 19,990,143 18,233,350
Other current assets..................................... 2,401,038 1,873,065
---------------------------
Total current assets.................................. 50,791,032 43,138,142
---------------------------
Property, plant and equipment:
Land and improvements.................................... 848,776 848,776
Buildings and improvements............................... 13,219,540 12,959,854
Machinery and equipment.................................. 156,996,769 150,903,651
Less: accumulated depreciation........................... (99,539,537) (87,129,592)
---------------------------
Total property, plant and equipment, net.............. 71,525,548 77,582,689
---------------------------
Other assets:
Long-term notes receivable, net of current portion....... 2,690,062 3,250,096
Other receivables........................................ 684,521 489,864
Deposits................................................. 1,259,788 1,046,922
Other assets............................................. 360,392 506,403
---------------------------
Total other assets.................................... 4,994,763 5,293,285
---------------------------
Total assets................................................ $127,311,343 $126,014,116
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 6,169,359 $ 6,623,046
Short-term borrowings.................................... 746,762 1,546,586
Current portion of long-term debt........................ 2,200,000 2,200,000
Customer deposits........................................ 108,999 484,334
Accrued payroll and vacation............................. 4,000,774 3,801,105
Accrued property taxes................................... 1,241,500 1,196,500
Other current liabilities................................ 4,098,844 4,804,296
---------------------------
Total current liabilities............................. 18,566,238 20,655,867
---------------------------
Long-term liabilities:
Long-term debt, net of current portion................... 32,036,504 35,636,504
Other long-term liabilities.............................. 83,195 -
---------------------------
Total long-term liabilities............................... 32,119,699 35,636,504
---------------------------
Stockholders' equity:
Common stock............................................. 53,600 53,600
Additional paid-in capital............................... 253,976 98,540
Retained earnings........................................ 76,317,830 69,569,605
---------------------------
Total stockholders' equity............................ 76,625,406 69,721,745
---------------------------
Total liabilities and stockholders' equity.................. $127,311,343 $126,014,116
-----------------------------------------------------------------------------------------
See accompanying notes to financial statements
F-36
LANDIS PLASTICS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
-----------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 2002 2001
-----------------------------------------------------------------------------------------
Revenue
Product sales............................................ $207,824,698 $199,575,739
Other sales.............................................. 3,787,896 1,602,902
---------------------------
Total revenue......................................... 211,612,594 201,178,641
---------------------------
Cost of goods sold
Materials................................................ 74,392,010 70,899,138
Direct labor............................................. 20,771,431 20,226,641
Manufacturing overhead................................... 71,813,423 66,463,619
---------------------------
Total cost of goods sold.............................. 166,976,864 157,589,398
---------------------------
Gross profit................................................ 44,635,730 43,589,243
---------------------------
General expenses
Selling and marketing.................................... 5,015,742 4,629,641
Administrative........................................... 12,554,492 12,712,399
Transportation........................................... 3,094,584 3,149,317
Warehousing.............................................. 10,382,683 10,486,478
Asset impairment loss.................................... - 531,557
---------------------------
Total general expenses................................ 31,047,501 31,509,392
---------------------------
Operating income............................................ 13,588,229 12,079,851
Other income (expense)
Interest income.......................................... 417,965 598,968
Interest expense......................................... (3,111,649) (3,688,284)
Loss on derivative valuation............................. (128,517) -
Miscellaneous income (expense)........................... 47,296 (65,393)
---------------------------
Net income before income taxes.............................. 10,813,324 8,925,142
Provision for state income taxes............................ 22,887 6,980
---------------------------
Net income.................................................. 10,790,437 8,918,162
Retained earnings--beginning of year........................ 69,569,605 65,926,224
Stockholder distributions................................... (4,042,212) (5,274,781)
---------------------------
Retained earnings--end of year.............................. $ 76,317,830 $ 69,569,605
-----------------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-37
LANDIS PLASTICS, INC.
STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 2002 2001
----------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income............................................... $10,790,437 $ 8,918,162
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.......................................... 12,561,305 12,303,665
Amortization.......................................... - 142,871
Non-cash interest on related party loans.............. 34,630 -
Employee stock-based compensation..................... 155,436 -
Asset impairment loss................................. - 531,557
(Gain) loss on sale of equipment...................... (18,755) 19,922
Loss on derivative valuation.......................... 128,517 -
Change in provision for losses on accounts
receivable......................................... 73,003 4,491
(Increase) decrease in:
Accounts receivable................................ (3,422,701) 3,175,379
Inventory.......................................... (1,756,793) (1,496,619)
Other assets....................................... (381,962) 583,469
Increase (decrease) in:
Accounts payable................................... (453,684) 277,146
Customer deposits.................................. (375,335) 74,267
Other current liabilities.......................... (676,701) 145,516
--------------------------
Net cash provided by operating activities....... 16,657,397 24,679,826
--------------------------
Cash flows from investing activities:
Capital acquisitions and equipment deposits.............. (6,579,245) (9,805,814)
Proceeds from sale of equipment.......................... 51,563 11,450
Net short-term loans to related parties.................. (22,929) 12,421
Long-term loan to related parties........................ (71,901) (171,820)
Principal payments from related parties on long-term
loans.................................................. 348,752 353,712
Increase in other receivables............................ (194,657) (195,463)
--------------------------
Net cash used in investing activities........... (6,468,417) (9,795,514)
--------------------------
Cash flows from financing activities:
Net short-term borrowings from related parties........... (839,299) (528,240)
Principal payments on long-term debt..................... (3,600,000) (8,114,059)
Stockholder distributions................................ (4,042,212) (5,274,781)
--------------------------
Net cash used in financing activities........... (8,481,511) (13,917,080)
--------------------------
Net increase in cash........................................ 1,707,469 967,232
Cash and cash equivalents at beginning of year.............. 8,321,348 7,354,116
--------------------------
Cash and cash equivalents at end of year.................... $10,028,817 $ 8,321,348
----------------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-38
LANDIS PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Landis Plastics, Inc. is a closely held corporation that manufactures plastic
products. Offices and plants are located in Chicago Ridge and Alsip, Illinois;
Monticello and Richmond, Indiana; Solvay, New York; and Tolleson, Arizona.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
ACCOUNTS RECEIVABLE
Accounts receivable are stated at the amount management expects to collect from
outstanding balances. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation allowance based on its
assessments of the current status of individual accounts. Balances that are
still outstanding after management has used reasonable collection efforts are
written off through a charge to the valuation allowance and a credit to trade
accounts receivable. Accounts receivable are reduced by an allowance for
doubtful accounts of $114,400 at December 31, 2002, and $41,397 at December 31,
2001.
INVENTORIES
The Company values substantially all of its inventories at cost determined on a
last-in, first-out (LIFO) basis. The LIFO method resulted in a valuation below
cost of $1,759,388 at December 31, 2002, and $144,201 at December 31, 2001.
PROPERTY, PLANT AND EQUIPMENT
Land, buildings and equipment are stated at cost. Depreciation is computed on
the straight-line basis for financial statement purposes over the estimated
useful lives of the assets as follows:
--------------------------------------------------------------------------
Machinery................................................... 10 Years
Transportation equipment.................................... 5-10 Years
Other equipment and fixtures................................ 5-10 Years
Land improvements........................................... 20 Years
Leasehold improvements...................................... 10-40 Years
Buildings................................................... 40 Years
--------------------------------------------------------------------------
F-39
ASSET IMPAIRMENT LOSS
As required by Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the impairment of long-lived assets and for long-lived assets to
be disposed of," the Company recorded losses on long-lived assets. The total
impairment of long-lived assets in 2001 was $531,557 related to a robotic parts
handling system that did not meet performance criteria. The impairment charge
was the difference between the carrying value and the estimated fair value of
the assets. The Company estimated fair values based on discounted future cash
flows.
AMORTIZATION
The discounts relating to the non-interest bearing notes will be amortized over
the two year terms of the notes using the interest expense method.
CASH AND CASH EQUIVALENT
For financial statement presentation purposes, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents. The carrying value of cash equivalents approximates fair
value due to the short term, highly liquid nature of cash equivalents.
CASH FLOW STATEMENT
Cash used by operating activities included payments for interest and income
taxes as follows:
-------------------------------------------------------------------------------------
2002 2001
-------------------------------------------------------------------------------------
Interest paid............................................... $3,130,273 $3,554,208
Income taxes paid........................................... 16,271 35,539
-------------------------------------------------------------------------------------
Supplemental disclosures of noncash investing and financing activities:
Noncash investing and financing transactions consisting of the cost of acquiring
machinery and equipment and the related obligations have been included in fixed
assets and notes payable, respectively, in the accompanying financial statements
at a discounted value. Amortization of the loan discount increased the note
payable by $142,871 during 2001.
Additional noncash investing and financing activities consist of the following:
---------------------------------------------------------------------------------
2002 2001
---------------------------------------------------------------------------------
Capital expenditures included in other accrued
liabilities.............................................. $170,596 $552,698
Stock-based compensation and related credit to additional
paid-in capital.......................................... 155,436 --
---------------------------------------------------------------------------------
DERIVATIVE FINANCIAL INSTRUMENTS
In accordance with SFAS No. 133, derivative financial instruments are reported
on the balance sheet at fair value, and changes in the derivative's fair value
are recognized currently in earnings. The derivative financial instruments are
not designated as hedging instruments. Derivatives are utilized by the Company
in the management of its interest rate exposures. The Company does not use
derivative financial instruments for trading or speculative purposes.
F-40
The Company enters into interest rate swap agreements, which effectively
exchange variable interest rate debt for fixed interest rate debt. The
agreements are used to reduce the exposure to possible increases in interest
rates. The Company enters into these swap agreements with a major financial
institution on a portion of its long-term borrowings. The interest rate swap
agreements involve the periodic exchange of payments without the exchange of the
notional amount upon which the payments are based. The differential to be
received or paid is accrued, as interest rates change, and recognized currently
in the statement of income and retained earnings.
INCOME TAXES
Landis Plastics, Inc. has elected by unanimous consent of its stockholders to be
taxed as an "S" corporation under Section 1362 of the Internal Revenue Code.
Accordingly, no provision or liability for federal income taxes is reflected in
the accompanying statements. Instead, the stockholders are liable for individual
federal income taxes on their respective share of the Company's taxable income.
However, the Company is liable for certain state income taxes. General
investment and employment tax credit carryforwards are available in various
states of approximately $900,000. These credits expire between 2004 and 2017.
NOTE 2. RETIREMENT PLAN
The Company provides a qualified 401(k) savings plan. Eligible employees may
defer between 2% and 10% of compensation each year, not to exceed the maximum
allowed by law. The. Company will match the employee contribution on a 50% basis
up to 6% contributed. In addition, for non-highly compensated employees, the
Company will match the employee contribution 100% for compensation deferrals
between 6% and 8%. No matching contributions will be made for compensation
deferrals in excess of 8%. Company contributions to the plan were $884,763 for
2002, and $854,530 for 2001.
NOTE 3. NOTES RECEIVABLE
Short-Term notes receivable are as follows at December 31:
---------------------------------------------------------------------------------
2002 2001
---------------------------------------------------------------------------------
Due from officers of the Company and beneficiaries of
qualified stockholders' trusts, interest at 4.0% in 2002
and 4.0% in 2001, due on demand, unsecured............... $133,698 $105,924
-------------------
Total short-term notes receivable........................... $133,698 $105,924
---------------------------------------------------------------------------------
F-41
Long-Term notes receivable from related parties are as follows at December 31:
-------------------------------------------------------------------------------------
2002 2001
-------------------------------------------------------------------------------------
Due from beneficiaries of qualified stockholders' trusts;
interest at 6.5%; annual principal payments of $176,792
plus interest until maturity in December, 2006; secured
by stock certificates of Landis Plastics, Inc............ $ 707,167 $ 883,958
Due from various trusts with common beneficiaries as the
qualified stockholders' trusts; interest at 9.0%;
payments including principal and interest of $143,809 in
2003 and $143,809 annually thereafter until maturity in
January, 2006; unsecured, security in real estate is
optional to the company.................................. 465,901 559,367
Due from a trust whose trustee is an officer of the company;
interest at 9.0%; principal payments of $90,543 in
arrears at December 31, 2002; entire balance classified
as short-term as of December 31, 2002; unsecured,
security in real estate is optional to the company....... 218,353 218,353
Due from a trust whose trustee is an officer of the Company;
interest at 6.0%; principal payments of $40,260 in
arrears at December 31, 2002; entire balance classified
as short-term as of December 31, 2002; unsecured,
security in real estate is optional to the Company....... 50,325 50,325
Due from a partnership comprised of trusts with common
beneficiaries as the qualified stockholders' trusts;
interest at 7.5%; payments including principal and
interest of 18,112 monthly until maturity in 2016,
unsecured................................................ 1,808,350 1,886,845
Due from beneficiaries of qualified stockholders' trusts;
interest at 4.0%; principal due on demand; unsecured..... 71,901 -
-----------------------
Total notes receivable...................................... 3,321,997 3,598,848
Less: current portion....................................... (631,935) (348,752)
-----------------------
Notes Receivable, Long-Term................................. $2,690,062 $3,250,096
-------------------------------------------------------------------------------------
NOTE 4. OTHER RECEIVABLES
On November 30, 1999, the Company entered into a certain Split Dollar Life
Insurance Agreement to fund an irrevocable insurance trust of an officer of the
Company. In addition, a Collateral Assignment Agreement was simultaneously
executed, providing the Company a security interest in the cash surrender value
of the policy upon its surrender, or, if not surrendered, in the proceeds
payable upon the death of the second to die under the terms of the policy.
The annual premium due under the terms of the policy currently approximates
$202,500. The Company, at the option of the owner of the policy, can be called
upon each year to pay all or a portion of this premium. The Company is
prohibited from borrowing against the cash surrender value, and cannot assign
its security interest in the policy to anyone except the policy owner or the
owner's nominee. The owner of the policy is the trustee of the irrevocable
trust. The premium balance owed to the Company on December 31, 2002 and 2001,
was $684,521 and $489,864, respectively, and is presented as other receivables
on the balance sheet.
F-42
NOTE 5. SHORT-TERM BORROWINGS
Short-Term borrowings at December 31, 2002 and 2001, consist of the following:
-----------------------------------------------------------------------------------
2002 2001
-----------------------------------------------------------------------------------
Due to officers of the Company and beneficiaries of
qualified stockholders' trusts, interest at 4.0% in 2002
and 4.0% in 2001, due on demand, unsecured............... $746,762 $1,546,586
---------------------
Total Short-Term Borrowings................................. $746,762 $1,546,586
-----------------------------------------------------------------------------------
NOTE 6. LONG-TERM DEBT
Notes payable as of December 31, 2002 and 2001, are as follows:
---------------------------------------------------------------------------------------
2002 2001
---------------------------------------------------------------------------------------
Bank One, interest at the lesser of prime or LIBOR + 1.5%,
monthly principal payments of $83,333 plus interest, due
in 2005, secured by equipment............................ $ 2,836,504 $ 3,836,504
Bank One, interest at the lesser of prime or LIBOR + 1.5%,
monthly principal payments of $100,000 plus interest, due
March 1, 2004, secured by equipment...................... 1,400,000 2,600,000
Due to officer/stockholder of Landis Plastics, Inc.;
interest at 7.0%, semi-annual interest payments of
$49,000, due May 1, 2004, retired in 2002 before
maturity, unsecured...................................... - 1,400,000
C.M. Life Insurance Company, semi-annual interest payments
at 8.88% on senior note until maturity, annual principal
payments of $371,429 beginning in March of 2004 until
maturity in March of 2010, unsecured..................... 2,600,000 2,600,000
Massachusetts Mutual Life Insurance Company, semi-annual
interest payments at 8.88% on three separate senior notes
until maturity, annual principal payments of $2,485,714
beginning in March of 2004 until maturity in March of
2010, unsecured.......................................... 17,400,000 17,400,000
Northern Life Insurance Company, semi-annual interest
payments at 8.88% on senior note until maturity, annual
principal payments of $571,429 beginning in March of 2004
until maturity in March of 2010, unsecured............... 4,000,000 4,000,000
Reliastar Life Insurance Company, semi-annual interest
payments at 8.88% on senior note until maturity, annual
principal payments of $428,571 beginning in March of 2004
until maturity in March of 2010, unsecured............... 3,000,000 3,000,000
F-43
---------------------------------------------------------------------------------------
2002 2001
---------------------------------------------------------------------------------------
Sigler and Company, semi-annual interest payments at 8.88%
on senior note until maturity, annual principal payments
of $428,571 beginning in March of 2004 until maturity in
March 2010, unsecured.................................... 3,000,000 3,000,000
-------------------------
Total Notes Payable......................................... 34,236,504 37,836,504
Less: Current Portion....................................... (2,200,000) (2,200,000)
-------------------------
Long-Term Debt.............................................. $32,036,504 $35,636,504
---------------------------------------------------------------------------------------
Maturities of long-term debt for the next five years are as follows:
--------------------------------------------------------------
2003 2004 2005 2006 2007
--------------------------------------------------------------
$2,200,000 $5,485,714 $5,122,218 $4,285,714 $4,285,714
--------------------------------------------------------------
The provisions of the Company's loan and credit agreements with Bank One require
the maintenance of at least $5,500,000 of working capital, and at each calendar
quarter end a ratio of current assets to current liabilities of not less than
1.22 to 1.0, a ratio of indebtedness to tangible net worth of not greater than
1.0 to 1.0, and a debt service ratio equal or greater than 1.2 to 1.0. The
Company is also required to maintain minimum tangible net worth of at least
$59,000,000 in 2002 and $61,500,000 in 2003. The Company was in compliance with
the aforementioned covenants as of December 31, 2002.
The provisions of the senior notes under the private placement agreement
requires the Company to maintain specified levels of consolidated net worth and
certain financial performance ratios. The covenants also stipulate certain
limitations on additional indebtedness, mergers or consolidations, asset sales,
investments, and transactions with affiliates. At December 31, 2002, the Company
was in compliance with all of these provisions.
NOTE 7. BANK LINE OF CREDIT
Under terms of an unsecured revolving credit agreement with Bank One, the
Company may borrow up to $10,000,000. The agreement expires March 27, 2003. All
borrowings under this agreement will be evidenced by one or more demand notes of
the Company and will bear interest at the lesser of prime or LIBOR +1.5%.
Nothing was borrowed against this agreement as of December 31, 2002 and 2001.
F-44
NOTE 8. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
The aggregate number of shares which the Company is authorized to issue is
100,000, divided into two classes of no par value shares. The designation of
each class and the number of shares of each class are as follows:
------------------------------------------------------------------------------------------------------
SHARES 2001 SHARES 2002 SHARES
SERIES SHARES OUTSTANDING SHARES OUTSTANDING SHARES OUTSTANDING
CLASS ------ AUTHORIZED 12-31-00 ISSUED 12-31-01 ISSUED 12-31-02
------------------------------------------------------------------------------------------------------
Common............... A 50,000 536.00 - 536.00 - 536.00
Common............... B 50,000 4,846.43 79.00 4,925.43 66.00 4,991.43
-------------------------------------------------------------------------------
100,000 5,382.43 79.00 5,461.43 66.00 5,527.43
------------------------------------------------------------------------------------------------------
The Common A and Common B stock are collectively referred to as common stock.
Except for exclusive voting rights and powers, all shares of Common A and Common
B stock are identical in all respects and entitle the holders thereof to the
same rights and privileges. The holders of Common A stock issued and outstanding
possess the exclusive right to notice of stockholders' meetings and the
exclusive voting rights and powers. The holders of Common B stock issued and
outstanding are not entitled to any notice of stockholders' meetings or to vote
upon any question affecting the affairs of the Company.
Changes in additional paid-in capital for the years ended December 31, 2002 and
2001, are as follows:
----------------------------------------------------------------------
Additional paid-in capital at December 31, 2000 and 2001.... $ 98,540
Stock-based compensation award to employees in 2002......... 155,436
--------
Additional paid-in capital at December 31, 2002............. $253,976
----------------------------------------------------------------------
NOTE 9. RESTRICTED STOCK PLAN AND STOCK-BASED COMPENSATION
In May of 2000 the Company adopted a restricted stock plan under which it may
grant shares of non-voting common stock to certain executive employees. The plan
is administered by the Compensation Committee of the Board of Directors and
covers the period from January 1, 2000, to December 31, 2005. The maximum number
of shares of non-voting common stock which may be subject to restricted stock
awards under the plan is 5,000. However, no individual recipient is entitled to
receive an aggregate total of more than ten percent of the shares available
under the plan.
The shares awarded pursuant to this plan are subject to certain restrictions on
transfer. Such restrictions will lapse with respect to one-fourth of the shares
awarded during each of the four consecutive calendar years beginning one year
after the date of issuance, but only if on the date the restrictions are to
lapse the recipient has been an employee of the Company continuously from the
time of the restricted stock award to such date of lapse.
For the years ended December 31, 2002 and 2001, the Company awarded shares of
non-voting common stock to various executive employees subject to the terms of
the restricted stock plan. A total of 66 shares were issued pursuant to the plan
in 2002, and 79 shares were issued in 2001. The weighted-average grant-date fair
value of the awarded stock amounted to $7,809 and $6,406 per share for 2002 and
2001, respectively. Compensation cost was not recognized
F-45
for stock-based employer compensation awards in 2001 because of the vesting
restrictions. Such compensation cost will be recognized in subsequent years as
the restrictions lapse. Compensation cost of $155,436 was recognized in 2002 for
stock-based employer compensation awards related to the shares on which
restrictions lapsed.
NOTE 10. FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held for
trading purposes. The Company estimates that the fair value of all financial
instruments at December 31, 2002, except as noted in the following paragraph,
does not differ materially from the aggregate carrying values of its financial
instruments recorded in the accompanying balance sheet. The estimated fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies. Considerable judgment is required in
interpreting market data to develop the estimates of fair value, and,
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
Based on the borrowing rates currently available to the Company for long-term
debt with similar terms and average maturities, the fair value of long-term debt
is approximately $1.75 million greater than the carrying value as of December
31, 2002.
The Company has entered into an interest rate swap contract with the intent of
managing its exposure to interest rate risk. The contract fixes the interest
rate on approximately $2.84 million and $3.83 million of the Company's floating
rate obligations at December 31, 2002 and 2001, respectively, at an average base
rate of 4.97% per annum until expiration in 2005. Gains and losses from interest
rate swaps are recognized currently in the statement of income and retained
earnings.
The fair value of the interest rate swap agreement is provided to the Company by
a bank known to be a high volume participant in this market. The value
represents the estimated amount the Company would receive or pay to terminate
the agreement taking into consideration current interest rates. In the unlikely
event that the counterparty fails to perform under the contract, the Company
bears the credit risk that payments due to the Company may not be collected.
NOTE 11. CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents and trade receivables.
The Company maintains cash and cash equivalent balances at several financial
institutions located in the Chicago area. Accounts at each institution are
insured by the Federal Deposit Insurance Corporation up to $100,000. The
Company's uninsured cash and cash equivalent balances total $11,753,654 and
$11,739,636 at December 31, 2002 and 2001, respectively.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the Company's routine assessments of the financial strength of
its customers. The Company maintains a provision for potential credit losses
based upon collectibility of all accounts receivable. The Company's historical
experience in collection of accounts receivable falls within the recorded
allowances.
Two major customers in the food industry accounted for approximately 49% of the
Company's product sales in 2002, and 44% of the Company's product sales in 2001.
Also, two major
F-46
suppliers accounted for approximately 83% of the Company's raw material
purchases in 2002, and 87% of the Company's raw material purchases in 2001.
NOTE 12. SELF INSURANCE
Landis Plastics, Inc. maintains outside insurance coverage for worker's
compensation claims in the states of Indiana and Arizona, but is self insured in
the states of Illinois and New York. The Company does, however, maintain outside
insurance coverage for Illinois and New York claims that exceed $300,000 per
occurrence, and $778,819 in aggregate for all claims in a policy year.
In accordance with Illinois state requirements, the Company maintains an
irrevocable standby letter of credit in the amount of $250,000 from Bank One for
the benefit of the Industrial Commission of Illinois. In accordance with New
York state requirements, the Company maintains an irrevocable standby letter of
credit in the amount of $1,010,613 from Bank One for the benefit of the state of
New York Workmen's Compensation Board. No funds were drawn under either letter
of credit in 2002 or 2001.
All approved claims of approximately $519,000 and $487,000 were paid by the
Company in 2002 and 2001, respectively. The Company has recorded an accrued
liability of $719,266 for pending claims as of December 31, 2002.
NOTE 13. LEASE COMMITMENTS
The plants in Chicago Ridge and Alsip, Illinois, are owned by related parties
and leased to the Company under annual agreements expiring December 31, 2003.
The annual rental is $289,000 for the Chicago Ridge facility and $2,810,100 for
the Alsip facility. The Company is liable for property taxes and insurance. The
plants in Indiana are owned by the Company.
The facility in Solvay, New York, is owned by related parties and leased to the
Company under a ten year lease expiring in June, 2004. The annual rental is
$600,000 and the Company is also liable for property taxes and insurance. The
lease provides an option to the Company for two renewal terms for successive
periods of five years each with annual rentals remaining the same.
The facility in Tolleson, Arizona, is owned by related parties and leased to the
Company under an annual agreement expiring December 31, 2003. The annual rental
is $1,200,000 and the Company is also liable for property taxes and insurance.
Minimum future rental payments under noncancelable operating leases having
remaining terms in excess of one year as of December 31, 2002, for each of the
next five years are as follows:
----------------------------------------------------------------------
YEAR AMOUNT
----------------------------------------------------------------------
2003........................................................ $600,000
2004........................................................ 300,000
2005........................................................ -
2006........................................................ -
2007........................................................ -
----------------------------------------------------------------------
The Company also leases warehouses under several operating leases on a month to
month basis. Total rent expense for all operating leases approximated $6 million
for 2002, and $6 million for 2001.
F-47
NOTE 14. STOCKHOLDERS' AGREEMENT
The stockholders of the Company have an agreement stipulating, among other
things, the terms under which the Company's stock can be sold or transferred.
The agreement provides that a stockholder intending to dispose of an interest in
the Company must first obtain written consent of the Company and all other
stockholders. The Company has the option to redeem shares upon the death,
disability, or termination of employment of a stockholder if certain other
stockholders do not exercise their options to purchase. The Company is not
required to redeem shares under any circumstances.
NOTE 15. OTHER COMMITMENTS AND CONTINGENCIES
The Company was a party to several related claims involving employment matters.
In December of 2000, the Company entered into a Consent Decree with the Equal
Employment Opportunity Commission (EEOC) to settle the claims. Under the Consent
Decree, the Company established a claims settlement fund at a bank for $782,000
for the benefit of various claimants. The interest bearing bank account had a
balance of $0 and $707,493 as of December 31, 2002 and 2001, respectively. The
balance in the account is reflected in the financial statements as of December
31, 2002 and 2001, as "restricted cash for accrued EEOC settlements" and the
related current liability is included in "other accrued expenses."
The Company was also a defendant in a third party action arising out of an
injury to an employee. The parties reached a settlement in February of 2002, and
liability was apportioned to an equipment manufacturer and the Company. Landis
Plastics, Inc. agreed to contribute $140,000 to the total settlement of
$425,000. This liability of $140,000 was properly accrued for in the financial
statements as of December 31, 2001, and paid in 2002.
Other claims, suits, and complaints arising in the ordinary course of operations
have been filed or are pending against the Company. In the opinion of
management, such matters are without merit or are of such kind, or involve such
amounts, as would not have a significant effect on the financial position or
results of operations of the Company if disposed of unfavorably.
NOTE 16. RECLASSIFICATIONS
Certain amounts for 2001 have been reclassified to conform with 2002
classifications. Such reclassifications had no effect on reported net income.
F-48
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Landis Plastics, Inc.
Gentlemen:
We have audited the accompanying balance sheets of Landis Plastics, Inc. (an
Illinois Corporation), as of December 31, 2000 and 1999, and the related
statements of income and retained earnings, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Landis Plastics, Inc., as of
December 31, 2000 and 1999, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ ROCHE, SCHOLZ, ROCHE & WALSH, LTD.
February 21, 2001
F-49
LANDIS PLASTICS, INC.
BALANCE SHEETS
-----------------------------------------------------------------------------------------
DECEMBER 31, 2000 AND 1999 2000 1999
-----------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents--unrestricted.................. $ 6,672,749 $ 1,877,886
Restricted cash for accrued EEOC Settlements............. 681,367 -
---------------------------
Total cash and cash equivalents....................... 7,354,116 1,877,886
Receivables:
Trade accounts........................................... 17,435,573 12,734,681
Short-term notes......................................... 118,345 321,917
Current portion of long-term notes....................... 365,703 325,035
Inventory................................................ 16,736,731 19,138,563
Other current assets..................................... 2,681,187 1,843,650
---------------------------
Total current assets.................................. 44,691,655 36,241,732
---------------------------
Property, plant and equipment:
Land and improvements.................................... 828,926 947,014
Buildings and improvements............................... 12,835,190 11,836,436
Machinery and equipment.................................. 140,392,672 122,882,230
Less: accumulated depreciation........................... (75,877,431) (65,192,708)
---------------------------
Total property plant and equipment, net............... 78,179,357 70,472,972
---------------------------
Other assets:
Long-term notes receivable, net of current portion....... 3,415,035 3,569,229
Other receivables........................................ 294,401 101,239
Deposits................................................. 2,958,338 5,608,594
Other assets............................................. 281,750 5,902
---------------------------
Total other assets.................................... 6,949,524 9,284,964
---------------------------
Total assets................................................ $129,820,536 $115,999,668
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 6,345,900 $ 8,198,108
Short-term borrowings.................................... 2,074,826 1,894,073
Current portion of long-term debt........................ 7,371,188 6,036,198
Customer deposits........................................ 410,067 2,783,605
Accrued payroll and vacation............................. 3,059,246 2,988,201
Accrued property taxes................................... 1,281,500 1,136,770
Other accrued expenses................................... 4,762,941 2,814,957
---------------------------
Total current liabilities............................. 25,305,668 25,851,912
---------------------------
Long-term liabilities:
Bank line of credit...................................... - 4,000,000
Long-term debt, net of current portion................... 38,436,504 26,416,685
---------------------------
Total long-term liabilities........................... 38,436,504 30,416,685
---------------------------
Stockholders' equity:
Common stock............................................. 53,600 53,600
Additional paid-in capital............................... 98,540 3,213
Retained earnings........................................ 65,926,224 59,674,258
---------------------------
Total stockholders' equity............................ 66,078,364 59,731,071
---------------------------
Total liabilities and stockholders' equity.................. $129,820,536 $115,999,668
-----------------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-50
LANDIS PLASTICS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
-----------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 2000 1999
-----------------------------------------------------------------------------------------
Revenue
Product sales............................................ $185,967,238 $157,412,421
Other sales.............................................. 8,340,428 10,614,003
---------------------------
Total revenue......................................... 194,307,666 168,026,424
---------------------------
Cost of goods sold
Materials................................................ 72,795,045 56,964,595
Direct labor............................................. 18,635,870 17,532,696
Manufacturing overhead................................... 63,653,075 59,356,910
---------------------------
Total cost of goods sold.............................. 155,083,990 133,854,201
---------------------------
Gross profit................................................ 39,223,676 34,172,223
---------------------------
General expenses
Selling and marketing.................................... 4,107,158 3,907,364
Administrative........................................... 11,361,379 10,526,110
Transportation........................................... 2,324,249 2,483,610
Warehousing.............................................. 8,286,324 7,290,601
Asset impairment loss.................................... 425,556 -
---------------------------
Total general expenses................................ 26,504,666 24,207,685
---------------------------
Operating income............................................ 12,719,010 9,964,538
Other income (expense)
Interest income.......................................... 847,980 466,981
Interest expense......................................... (3,974,909) (2,245,476)
Miscellaneous............................................ 5,291 -
Gain (loss) on sale of equipment......................... 936,990 (4,993)
---------------------------
Net income before income taxes.............................. 10,534,362 8,181,050
Provision for state income taxes............................ 12,348 155,400
---------------------------
Net income.................................................. 10,522,014 8,025,650
Retained earnings--beginning of year........................ 59,674,258 55,258,608
Stockholder distributions................................... (4,270,048) (3,610,000)
---------------------------
Retained earnings--end of year.............................. $ 65,926,224 $ 59,674,258
-----------------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-51
LANDIS PLASTICS, INC.
STATEMENTS OF CASH FLOWS
-----------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 2000 1999
-----------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income............................................... $ 10,522,014 $ 8,025,650
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.......................................... 11,267,089 9,407,211
Amortization.......................................... 504,594 672,539
Employee stock-based compensation..................... 95,327 -
Asset impairment loss................................. 425,556 -
(Gain) loss on sale of equipment...................... (936,990) 4,993
Loss on disposal of intangible asset.................. 10,942 -
Reduction in provision for losses on accounts
receivable......................................... (11,714) (5,433)
(Increase) decrease in:
Accounts receivable................................... (4,689,178) (1,136,098)
Inventory............................................. 2,401,832 (1,970,101)
Other assets.......................................... (1,113,385) (1,046,396)
Other receivables..................................... (193,162) (101,239)
Increase (decrease) in:
Accounts payable...................................... (3,171,873) (904,814)
Customer deposits..................................... (2,373,538) 329,445
Other current liabilities............................. 2,163,759 1,100,841
---------------------------
Net cash provided by operating activities.......... 14,901,273 14,376,598
---------------------------
Cash flows from investing activities:
Capital acquisitions and equipment deposits.............. (16,632,800) (15,631,896)
Proceeds from sale of equipment.......................... 1,187,770 5,350
Long-term loan to related parties........................ (150,000) (1,632,000)
Principal payments from related parties on long-term
loans................................................. 263,526 1,966,187
---------------------------
Net cash used in investing activities.............. (15,331,504) (15,292,359)
---------------------------
Cash flows from financing activities:
Net short-term borrowings from related parties........... 384,325 818,755
Proceeds from long-term debt............................. 30,000,000 18,000,000
Net proceeds or repayment on line of credit.............. (4,000,000) 3,000,000
Principal payments on long-term debt..................... (16,207,816) (9,983,953)
Principal payments on short-term debt.................... - (413,232)
Stockholder distributions................................ (4,270,048) (3,610,000)
Redemption of common stock............................... - (6,604,780)
---------------------------
Net cash provided by financing activities.......... 5,906,461 1,206,790
---------------------------
Net increase in cash........................................ 5,476,230 291,029
Cash and cash equivalents at beginning of year.............. 1,877,886 1,586,857
---------------------------
Cash and cash equivalents at end of year.................... $ 7,354,116 $ 1,877,886
-----------------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-52
LANDIS PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Landis Plastics, Inc. is a closely held corporation that manufactures plastic
products. Offices and plants are located in Chicago Ridge and Alsip, Illinois;
Monticello and Richmond, Indiana; Solvay, New York; and Tolleson, Arizona. Two
major customers in the food industry accounted for approximately 41% of the
Company's product sales in 2000 and 37% of the Company's product sales in 1999.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
ACCOUNTS RECEIVABLE
Accounts receivable are reduced by an allowance for doubtful accounts of $36,906
at December 31, 2000, and $48,620 at December 31, 1999.
INVENTORIES
The Company values substantially all of its inventories at cost determined on a
last-in, first-out (LIFO) basis. The LIFO method resulted in a valuation below
cost of $1,245,042 at December 31, 2000 and $1,907,495 at December 31, 1999.
PROPERTY, PLANT AND EQUIPMENT
Land, buildings and equipment are stated at cost. Depreciation is computed on
the straight-line basis for financial statement purposes over the estimated
useful lives of the assets as follows:
-------------------------------------------------------------------------
Machinery................................................... 10 Years
Transportation equipment.................................... 5-10 Years
Other equipment and fixtures................................ 5-10 Years
Land improvements........................................... 20 Years
Leasehold improvements...................................... 10-40 Years
Buildings................................................... 40 Years
F-53
ASSET IMPAIRMENT LOSS
In 2000, as required by Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the impairment of long-lived assets and for long-lived
assets to be disposed of," the Company recorded losses on long-lived assets. The
total impairment of long-lived assets was $425,556 related to stacking and
handling equipment that did not meet performance criteria. The impairment charge
was the difference between the carrying value and the estimated fair value of
the assets. The Company estimated fair values based on discounted future cash
flows.
AMORTIZATION
The discounts relating to the non-interest bearing notes will be amortized over
the two year terms of the notes using the interest expense method.
CASH AND CASH EQUIVALENTS
For financial statement presentation purposes, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents. They may include cash, money market funds, and
short-term investments in commercial paper.
CASH FLOW STATEMENT
Cash used by operating activities included payments for interest and income
taxes as follows:
-------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------
Interest paid............................................... $2,673,667 $1,565,318
Income taxes paid........................................... 2,348 35,885
Supplemental disclosures of noncash investing and financing activities:
Noncash investing and financing transactions consisting of the cost of acquiring
machinery and equipment and the related obligations have been included in fixed
assets and notes payable, respectively, in the accompanying financial statements
at a discounted value of $4,648,032 at December 31, 1999. Amortization of the
loan discount increased the note payable by $504,594 during 2000, and $672,539
during 1999.
Additional noncash investing and financing activities consist of the following:
-------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------
Capital expenditures included in accounts payable........... $1,319,665 $2,431,743
Long-term debt retired from sale of assets.................. 941,969 -
Stock-based compensation costs and related credit to
additional paid-in-capital............................... 95,327 -
RETIREMENT PLAN
The Company provides a qualified 401(k) savings plan. Eligible employees may
defer between 2% and 10% of compensation each year, not to exceed the maximum
allowed by law. The Company will match the employee contribution on a 50% basis
up to 6% contributed. In addition, for non-highly compensated employees, the
Company will match the employee
F-54
contribution 100% for compensation deferrals between 6% and 8%. No matching
contributions will be made for compensation deferrals in excess of 8%. Company
contributions to the plan were $815,835 for 2000, and $743,254 for 1999.
INCOME TAXES
Landis Plastics, Inc. has elected by unanimous consent of its stockholders to be
taxed as an "S" corporation under Section 1362 of the Internal Revenue Code for
years beginning after December 31, 1986. Accordingly, no provision or liability
for federal income taxes is reflected in the accompanying statements. Instead,
the stockholders are liable for individual federal income taxes on their
respective share of the Company's taxable income. However, the Company is liable
for certain state income taxes. General investment and employment tax credit
carryforwards are available in various states of approximately $760,000. These
credits expire between 2003 and 2014.
NOTE 2. NOTES RECEIVABLE
Short-Term notes receivable are as follows at December 31:
---------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------
Due from officers of the company and beneficiaries of
qualified stockholders' trusts, interest at 7.0%, due on
demand, unsecured........................................ $118,345 $321,917
-------------------
Total short-term notes receivable........................... $118,345 $321,917
---------------------------------------------------------------------------------
Long-Term notes receivable from related parties are as follows at December 31:
-------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------
Due from beneficiaries of qualified stockholders' trusts;
interest at 6.5%; annual principal payments of $176,792
plus interest until maturity in December, 2006; secured
by stock certificates of Landis Plastics, Inc............ $1,060,750 $1,237,542
Due from various trusts with common beneficiaries as the
qualified stockholders' trusts; interest at 9.0%;
payments including principal and interest of $262,161 in
2001 and $183,260 annually thereafter until maturity in
January, 2006; unsecured, security in real estate is
optional to the company.................................. 863,468 942,137
Due from various trusts with common beneficiaries as the
qualified stockholders' trusts; interest at 6.0%;
principal payments of $38,260 plus interest due in 2001
and $18,130 plus interest annually thereafter until
maturity in March, 2003; unsecured, security in real
estate is optional to the company........................ 74,520 82,585
Due from a partnership comprised of trusts with common
beneficiaries as the qualified stockholders' trusts;
interest at 7.0%; principal due on January 1, 2002;
unsecured................................................ 29,000 29,000
Due from a partnership comprised of trusts with common
beneficiaries as the qualified stockholders' trusts;
interest at 7.0%; principal due on January 1, 2002;
unsecured................................................ 116,000 116,000
F-55
-------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------
Due from a partnership comprised of trusts with common
beneficiaries as the qualified stockholders' trusts;
interest at 7.0%; principal due on January 1, 2002;
unsecured................................................ 1,044,000 1,044,000
Due from a partnership comprised of trusts with common
beneficiaries as the qualified stockholders' trusts;
interest at 7.0%; principal due on January 1, 2002;
unsecured................................................ 243,000 243,000
Due from a partnership comprised of trusts with common
beneficiaries as the qualified stockholders' trusts;
interest at 7.0%; principal due on January 1, 2002;
unsecured................................................ 200,000 200,000
Due from a partnership comprised of trusts with common
beneficiaries as the qualified stockholders' trusts;
interest at 7.0%; principal due on January 1, 2002;
unsecured................................................ 150,000 -
-----------------------
Total notes receivable...................................... 3,780,738 3,894,264
Less: current portion....................................... (365,703) (325,035)
-----------------------
Notes receivable, long-term................................. $3,415,035 $3,569,229
-------------------------------------------------------------------------------------
NOTE 3. OTHER RECEIVABLES
On November 30, 1999, the Company entered into a certain Split Dollar Life
Insurance Agreement to fund an irrevocable insurance trust of an officer of the
Company. In addition, a Collateral Assignment Agreement was simultaneously
executed, providing the Company a security interest in the cash surrender value
of the policy upon its surrender, or, if not surrendered, in the proceeds
payable upon the death of the second to die under the terms of the policy.
The annual premium due under the terms of the policy currently approximates
$202,500. The Company, at the option of the owner of the policy, can be called
upon each year to pay all or a portion of this premium. The Company is
prohibited from borrowing against the cash surrender value, and cannot assign
its security interest in the policy to anyone except the policy owner or the
owner's nominee. The owner of the policy is the trustee of the irrevocable
trust. The premium balance owed to the Company on December 31, 2000 and 1999,
was $294,401 and $101,239, respectively, and is presented as other receivables
on the balance sheet.
NOTE 4. SHORT-TERM BORROWINGS
Short-Term borrowings at December 31, 2000 and 1999, consist of the following:
-------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------
Due to officers of the company and beneficiaries of
qualified stockholders' trusts, interest at 7.0%, due on
demand, unsecured........................................ $2,074,826 $1,894,073
-----------------------
Total short-term borrowings................................. $2,074,826 $1,894,073
-------------------------------------------------------------------------------------
F-56
NOTE 5. LONG-TERM DEBT
Notes payable as of December 31, 2000 and 1999, are as follows:
---------------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------------
American National Bank and Trust Company of Chicago,
interest at the lesser of prime or LIBOR + 1.5%,
quarterly principal payments of $125,000, retired in 2000
before maturity, secured by equipment; the 1999
outstanding principal balance was classified as
non-current pursuant to the Company's intention and
ability to refinance this obligation on a long-term
basis.................................................... $ - $ 720,086
American National Bank and Trust Company of Chicago,
interest at the lesser of prime or LIBOR + 1.5%, monthly
principal payments of $83,333 plus interest, due in 2004,
secured by equipment..................................... 4,836,504 5,823,282
Export Development Corporation, imputed interest on ten
separate notes ranging from 6.9375% to 7.44%, principal
balance is due at maturity ranging from February of 1999
to January of 2000, net of unamortized discounts of $0
and $2,000 at December 31, 2000 and 1999, respectively,
unsecured................................................ - 651,536
Export Development Corporation, imputed interest on four
separate notes ranging from 6.9975% to 7.3250%, principal
balance is due at maturity ranging from February of 2000
to December of 2000, net of unamortized discounts of $0
and $125,736 at December 31, 2000 and 1999, respectively,
unsecured................................................ - 2,951,466
Cessna Finance Corporation, interest at prime less 1.25%
included in monthly payments of $6,085.70, retired in
2000 before maturity, secured by equipment............... - 945,441
Export Development Corporation, imputed interest on eight
separate notes ranging from 6.6575% to 7.6675%, principal
balance is due at maturity ranging from January of 2001
to September of 2001, net of unamortized discounts of
$142,871 and $476,797 at December 31, 2000 and 1999,
respectively, unsecured.................................. 5,171,188 4,837,262
American National Bank and Trust Company of Chicago,
interest at the lesser of prime or LIBOR + 1.5%, monthly
principal payments of $119,048 plus interest, retired in
2000 before maturity, secured by equipment; $5,000,000 of
the 1999 outstanding principal balance was classified as
non-current pursuant to the Company's intention and
ability to refinance this obligation on a long-term
basis.................................................... - 9,523,810
American National Bank and Trust Company of Chicago,
interest at the lesser of prime or LIBOR + 1.5%, monthly
principal payments of $100,000 plus interest, due March
1, 2004, secured by equipment............................ 3,800,000 5,000,000
Due to officer/stockholder of Landis Plastics, Inc.;
interest at 7.0%, semi-annual interest payments of
$49,000, due May 1, 2004, unsecured...................... 1,400,000 1,400,000
F-57
---------------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------------
Due to officer/stockholder of Landis Plastics, Inc.;
interest at 7.0%, semi-annual interest payments of
$21,000, due May 1, 2004, unsecured...................... 600,000 600,000
C.M. Life Insurance Company, semi-annual interest payments
at 8.88% on senior note until maturity, annual principal
payments of $371,429 beginning in March of 2004 until
maturity in March of 2010, unsecured..................... 2,600,000 -
Massachusetts Mutual Life Insurance company, semi-annual
interest payments at 8.88% on three separate senior notes
until maturity, annual principal payments of $2,485,714
beginning in March of 2004 until maturity in March of
2010, unsecured.......................................... 17,400,000 -
Northern Life Insurance Company, semi-annual interest
payments at 8.88% on senior note until maturity, annual
principal payments of $571,429 beginning in March of 2004
until maturity in March of 2010, unsecured............... 4,000,000 -
Reliastar Life Insurance Company, semi-annual interest
payments at 8.88% on senior note until maturity, annual
principal payments of $428,571 beginning in March of 2004
until maturity in March of 2010, unsecured............... 3,000,000 -
Sigler and Company, semi-annual interest payments at 8.88%
on senior note until maturity, annual principal payments
of $428,571 beginning in March of 2004 until maturity in
March of 2010, unsecured................................. 3,000,000 -
-------------------------
Total notes payable......................................... 45,807,692 32,452,883
Less: current portion....................................... (7,371,188) (6,036,198)
-------------------------
Long-term debt.............................................. $38,436,504 $26,416,685
---------------------------------------------------------------------------------------
Maturities of long-term debt for the next five years are as follows:
--------------------------------------------------------------
2001 2002 2003 2004 2005
--------------------------------------------------------------
$7,371,188 $2,200,000 $2,200,000 $7,485,714 $5,122,218
The provisions of the Company's loan and credit agreements with American
National Bank and Trust Company of Chicago require the maintenance of at least
$5,500,000 of working capital, and at each calendar quarter end a ratio of
current assets to current liabilities of not less than 1.22 to 1.0, a ratio of
indebtedness to tangible net worth of not greater than 1.0 to 1.0, and a debt
service ratio equal or greater than 1.2 to 1.0. The Company is also required to
maintain minimum tangible net worth of at least $54,000,000 in 2000 and
$56,500,000 in 2001. The Company was in compliance with the aforementioned
covenants as of December 31, 2000.
The provisions of the senior notes under the private placement agreement
requires the Company to maintain specified levels of consolidated net worth and
certain financial performance ratios. The covenants also stipulate certain
limitations on additional indebtedness, mergers or consolidations, asset sales,
investments, and transactions with affiliates. At December 31, 2000, the Company
was in compliance with all of these provisions.
F-58
NOTE 6. BANK LINE OF CREDIT
Under terms of an unsecured revolving credit agreement with American National
Bank and Trust Company of Chicago, the Company may borrow up to $5,000,000. The
agreement has no expiration date. All borrowings under this agreement will be
evidenced by one or more demand notes of the Company and will bear interest at
the bank's prime rate. Nothing was borrowed against this agreement as of
December 31, 2000. $4,000,000 was borrowed as of December 31, 1999, and was
classified as non-current pursuant to the Company's intention and ability to
refinance this obligation on a long-term basis.
NOTE 7. COMMON STOCK AND ADDITIONAL PAID-IN-CAPITAL
The aggregate number of shares which the Company is authorized to issue is
100,000, divided into two classes. The designation of each class, the number of
shares of each class, and the par value, if any, are as follows:
-----------------------------------------------------------------------------------------------
SHARES NEW SHARES
SHARES OUTSTANDING SHARES OUTSTANDING
CLASS SERIES PAR VALUE AUTHORIZED 12-31-99 ISSUED 12-31-00
-----------------------------------------------------------------------------------------------
Common................ A No par value 50,000 536.00 - 536.00
Common................ B No par value 50,000 4,824.00 22.43 4,846.43
-----------------------------------------------
100,000 5,360.00 22.43 5,382.43
-----------------------------------------------------------------------------------------------
The Common A and Common B stock are collectively referred to as common stock.
Except for exclusive voting rights and powers, all shares of Common A and Common
B stock are identical in all respects and entitle the holders thereof to the
same rights and privileges. The holders of Common A stock issued and outstanding
possess the exclusive right to notice of stockholders' meetings and the
exclusive voting rights and powers. The holders of Common B stock issued and
outstanding are not entitled to any notice of stockholders' meetings or to vote
upon any question affecting the affairs of the Company.
Changes in additional paid-in-capital for the years ended December 31, 2000 and
1999, are as follows:
---------------------------------------------------------------------
Additional paid-in-capital at December 31, 1998 and 1999.... $ 3,213
Stock-based compensation award to an employee............... 95,327
-------
Additional paid-in-capital at December 31, 2000............. $98,540
---------------------------------------------------------------------
NOTE 8. RESTRICTED STOCK PLAN AND STOCK-BASED COMPENSATION
In May of 2000 the Company adopted a restricted stock plan under which it may
grant shares of non-voting common stock to certain executive employees. The plan
is administered by the Compensation Committee of the Board of Directors and
covers the period from January 1, 2000, to December 31, 2005. The maximum number
of shares of non-voting common stock which may be subject to restricted stock
awards under the plan is 5,000. However, no individual recipient is entitled to
receive an aggregate total of more than ten percent of the shares available
under the plan.
F-59
The shares awarded pursuant to this plan are subject to certain restrictions on
transfer. Such restrictions will lapse with respect to one-fourth of the shares
awarded on April 30 during each of the four consecutive calendar years beginning
with the first April 30th following the calendar year during which the award is
made, but only if on the date the restrictions are to lapse the recipient has
been an employee of the Company continuously from the time of the restricted
stock award to such date of lapse.
For the year ended December 31, 2000, there were no stock awards subject to the
terms and restrictions of this plan. However, the Company issued 22.43 shares of
non-voting common stock to an executive employee during 2000 which was not
subject to the restricted stock plan. This transaction was recorded in
accordance with SEAS No. 123, "Accounting for Stock-Based Compensation," which
encourages entities to account for various equity instruments using a fair value
approach. An independent appraisal of the Company was utilized to determine fair
value. The total compensation cost recognized for stock-based employee
compensation awards in 2000 was $95,327.
NOTE 9. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held for
trading purposes. The Company estimates that the fair value of all financial
instruments at December 31, 2000, does not differ materially from the aggregate
carrying values of its financial instruments recorded in the accompanying
balance sheet. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies. Considerable judgment is necessarily required in interpreting
market data to develop the estimates of fair value, and, accordingly, the
estimates are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
NOTE 10. CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents and trade receivables.
The Company maintains cash and cash equivalent balances at several financial
institutions located in the Chicago area. Accounts at each institution are
insured by the Federal Deposit Insurance Corporation up to $100,000. The
Company's uninsured cash and cash equivalent balances total $10,503,189 at
December 31, 2000.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the Company's routine assessments of the financial strength of
its customers. The Company's historical experience in collection of accounts
receivable falls within the recorded allowances.
NOTE 11. SELF INSURANCE
Landis Plastics, Inc. maintains outside insurance coverage for worker's
compensation claims in the states of Indiana and Arizona, but is self insured in
the states of Illinois and New York. The company does, however, maintain outside
insurance coverage for Illinois and New York claims that exceed $300,000 per
occurrence, and $778,819 in aggregate for all claims in a policy year.
In accordance with Illinois state requirements, the Company maintains an
irrevocable standby letter of credit in the amount of $250,000 from American
National Bank and Trust Company of Chicago for the benefit of the Industrial
Commission of Illinois. In accordance with New York
F-60
state requirements, the Company maintains an irrevocable standby letter of
credit in the amount of $1,010,613 from American National Bank and Trust Company
of Chicago for the benefit of the state of New York Workmen's Compensation
Board. No funds were drawn under either letter of credit in 2000 or 1999.
All approved claims of approximately $504,000 and $563,300 were paid by the
Company in 2000 and 1999, respectively. The Company has recorded an accrued
liability of $548,091 for pending claims as of December 31, 2000.
NOTE 12. LEASE COMMITMENTS
The plants in Chicago Ridge and Alsip, Illinois, are owned by related parties
and leased to the Company under annual agreements expiring December 31, 2001.
The annual rental is $289,000 for the Chicago Ridge facility and $2,810,100 for
the Alsip facility. The Company is liable for property taxes and insurance. The
plants in Indiana are owned by the Company.
The facility in Solvay, New York, is owned by related parties and leased to the
Company under a ten year lease expiring in June, 2004. The annual rental is
$600,000 and the Company is also liable for property taxes and insurance. The
lease provides an option to the Company for two renewal terms for successive
periods of five years each with annual rentals remaining the same.
The facility in Tolleson, Arizona, is owned by related parties and leased to the
Company under an annual agreement expiring December 31, 2001. The annual rental
is $1,200,000 and the Company is also liable for property taxes and insurance.
Minimum future rental payments under noncancelable operating leases having
remaining terms in excess of one year as of December 31, 2000, for each of the
next five years are as follows:
----------------------------------------------------------------------
YEAR AMOUNT
----------------------------------------------------------------------
2001........................................................ $600,000
2002........................................................ 600,000
2003........................................................ 600,000
2004........................................................ 300,000
2005........................................................ --
----------------------------------------------------------------------
The Company also leases warehouses under several operating leases on a month to
month basis. Total rent expense for all operating leases amounted to $4,732,454
and $4,177,775 for 2000 and 1999, respectively.
NOTE 13. STOCKHOLDERS' AGREEMENT
The stockholders of the Company have an agreement stipulating, among other
things, the terms under which the Company's stock can be sold or transferred.
The agreement provides that a stockholder intending to dispose of an interest in
the Company must first obtain written consent of the Company and all other
stockholders. The Company has the option to redeem shares upon the death,
disability, or termination of employment of a stockholder if certain other
stockholders do not exercise their options to purchase. The Company is not
required to redeem shares under any circumstances.
F-61
NOTE 14. OTHER COMMITMENTS AND CONTINGENCIES
In addition to the standby letters of credit required for self insurance
purposes as identified in Note 11, the Company is contingently liable for
performance under standby letters of credit to collateralize its obligations to
a third party for the purchase of equipment. These irrevocable standby letters
of credit in the amount of $1,381,230 from American National Bank and Trust
Company of Chicago as of December 31, 2000, are for the benefit of an equipment
manufacturing vendor. Management does not expect any material losses to result
from these off-balance-sheet instruments and, therefore, is of the opinion that
the fair value of these instruments is zero.
The Company was a party to several related claims involving employment matters.
In December of 2000, the Company entered into a Consent Decree with the Equal
Employment Opportunity Commission (EEOC) to settle the claims. Under the Consent
Decree, the Company established a claims settlement fund for $782,000, of which,
$681,367 remained in the fund as of December 31, 2000, for the benefit of
various claimants. The $681,367 is reflected in the financial statements as of
December 31, 2000, as "restricted cash for accrued EEOC settlements" and the
related current liability is included in "other accrued expenses."
The Company is also a defendant in a third party action arising out of an injury
to an employee. The plaintiff is seeking $3,000,000 in damages, but the Company
denies any liability for the accident. However, there is a reasonable
possibility that liability would be apportioned to an equipment manufacturer and
the Company. Management believes its potential exposure to be in the range of
$200,000 to $250,000.
Other claims, suits, and complaints arising in the ordinary course of operations
have been filed or are pending against the Company. In the opinion of
management, such matters are without merit or are of such kind, or involve such
amounts, as would not have a significant effect on the financial position or
results of operations of the Company if disposed of unfavorably.
F-62
LANDIS PLASTICS, INC.
BALANCE SHEETS
---------------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) SEPTEMBER 28, 2003 DECEMBER 31, 2002
---------------------------------------------------------------------------------------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 6,903 $ 10,029
Accounts receivable and short-term notes........... 24,868 18,371
Inventories........................................ 22,299 19,990
Other current assets............................... 2,106 2,401
--------------------------------------
Total current assets............................ 56,176 50,791
Property and equipment; net.......................... 64,681 71,526
Other assets......................................... 10,369 4,994
--------------------------------------
Total assets......................................... $131,226 $127,311
--------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 10,113 $ 6,169
Accrued interest................................... 105 792
Other current liabilities.......................... 12,505 9,405
Current portion of long-term debt.................. 5,786 2,200
--------------------------------------
Total current liabilities....................... 28,509 18,566
Long-term liabilities:
Long-term debt, net of current portion............. 26,801 32,037
Other long-term liabilities........................ 83 83
--------------------------------------
Total liabilities.................................... 55,393 50,686
--------------------------------------
Stockholders' equity:
Preferred stock.................................... - -
Common stock....................................... 54 54
Additional paid-in capital......................... 1,258 253
Retained earnings.................................. 74,521 76,318
--------------------------------------
Total stockholders' equity........................... 75,833 76,625
--------------------------------------
Total liabilities and stockholders' equity........... $131,226 $127,311
---------------------------------------------------------------------------------------------
See accompanying notes to financial statements
F-63
LANDIS PLASTICS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
----------------------------------------------------------------------------------------------
FOR THE THIRTY-NINE WEEKS ENDED
(IN THOUSANDS OF DOLLARS) SEPTEMBER 28, 2003 SEPTEMBER 29, 2002
----------------------------------------------------------------------------------------------
(UNAUDITED)
REVENUE
Product sales..................................... $161,010 $152,964
Other sales....................................... 3,515 2,658
---------------------------------------
Total revenue.................................. 164,525 155,622
---------------------------------------
COST OF GOODS SOLD
Materials......................................... 63,931 54,994
Labor and overhead................................ 70,440 68,235
---------------------------------------
Total cost of goods sold....................... 134,371 123,229
---------------------------------------
Gross profit......................................... 30,154 32,393
---------------------------------------
GENERAL EXPENSES
Selling and marketing............................. 4,451 3,524
Administrative.................................... 10,155 8,825
Transportation.................................... 2,618 2,290
Warehousing....................................... 8,424 7,682
---------------------------------------
Total general expenses......................... 25,648 22,321
---------------------------------------
Operating income..................................... 4,506 10,072
Other income (expense)
Interest income................................... 277 411
Interest expense.................................. (2,163) (2,297)
---------------------------------------
Net income before income taxes....................... 2,620 8,186
Provision for state income taxes..................... 77 82
---------------------------------------
Net income........................................... 2,543 8,104
Retained earnings--beginning of year................. 76,318 69,570
Stockholder distributions............................ (4,340) (4,043)
---------------------------------------
Retained earnings--end of period..................... $ 74,521 $73,631
----------------------------------------------------------------------------------------------
See accompanying notes to financial statements
F-64
LANDIS PLASTICS, INC.
STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------------
FOR THE THIRTY-NINE WEEKS ENDED
(IN THOUSANDS OF DOLLARS) SEPTEMBER 28, 2003 SEPTEMBER 29, 2002
----------------------------------------------------------------------------------------------
(UNAUDITED)
Cash flows from operating activities:
Net income........................................ $ 2,543 $ 8,104
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation...................................... 9,586 9,224
Gain on sale of equipment......................... - (37)
(Increase) decrease in:
Accounts receivable............................ (6,914) (4,562)
Inventory...................................... (2,309) (5,318)
Other assets................................... 187 (675)
Increase (decrease) in:
Accounts payable............................... 7,549 4,417
Other current liabilities...................... (631) (631)
---------------------------------------
Net cash provided by operating activities... 10,011 10,522
---------------------------------------
Cash flows from investing activities:
Capital acquisitions and equipment deposits....... (7,718) (4,199)
Proceeds from sale of equipment................... 7 35
Receipts from long term investments............... (15) 46
---------------------------------------
Net cash used in investing activities.......... (7,726) (4,118)
---------------------------------------
Cash flows from financing activities:
Net borrowings from related parties............... (427) (736)
Equity compensation............................... 1,006 -
Principal payments on long-term debt.............. (1,650) (3,050)
Stockholder distributions......................... (4,340) (4,042)
---------------------------------------
Net cash used in financing activities......... (5,411) (7,828)
---------------------------------------
Net decrease in cash................................. (3,126) (1,424)
Cash and cash equivalents at beginning of year....... 10,029 8,321
---------------------------------------
Cash and cash equivalents at end of period........... $ 6,903 $ 6,897
----------------------------------------------------------------------------------------------
See accompanying notes to financial statements
F-65
LANDIS PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Landis Plastics,
Inc. have been prepared in accordance with accounting principles generally
accepted in the United States ("GAAP") for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by GAAP 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.
2. LONG-TERM DEBT
Notes payable as of September 28, 2003 and December 31, 2002, are as follows:
--------------------------------------------------------------------------------
9/28/03 12/31/02
--------------------------------------------------------------------------------
Bank One, interest at the lesser of prime or LIBOR + 1.5%,
monthly principal payments of $83 plus interest, due in
2005, secured by equipment.................................. $ 2,087 $ 2,837
Bank One, interest at the lesser of prime or LIBOR + 1.5%,
monthly principal payments of $100 plus interest, due March
1, 2004, secured by equipment............................... 500 1,400
C.M. Life Insurance Company, semi-annual interest payments
at 8.88% on senior note until maturity, annual principal
payments of $371 beginning in March of 2004 until maturity
in March of 2010, unsecured................................. 2,600 2,600
Massachusetts Mutual Life Insurance Company, semi-annual
interest payments at 8.88% on three separate senior notes
until maturity, annual principal payments of $2,486
beginning in March of 2004 until maturity in March of 2010,
unsecured................................................... 17,400 17,400
Northern Life Insurance Company, semi-annual interest
payments at 8.88% on senior note until maturity, annual
principal payments of $571 beginning in March of 2004 until
maturity in March of 2010, unsecured........................ 4,000 4,000
Reliastar Life Insurance Company, semi-annual interest
payments at 8.88% on senior note until maturity, annual
principal payments of $429 beginning in March of 2004 until
maturity in March of 2010, unsecured........................ 3,000 3,000
Sigler and Company, semi-annual interest payments at 8.88%
on senior note until maturity, annual principal payments of
$429 beginning in March of 2004 until maturity in March
2010, unsecured............................................. 3,000 3,000
------------------
Total notes payable......................................... 32,587 34,237
Less: current portion....................................... (5,786) (2,200)
------------------
Long-term debt.............................................. $26,801 $32,037
--------------------------------------------------------------------------------
F-66
Maturities of long-term debt for the next five years are as follows:
----------------------------------------
2003 2004 2005 2006 2007
----------------------------------------
$550 $5,486 $5,122 $4,286 $4,286
----------------------------------------
The provisions of the Company's loan and credit agreements with Bank One require
the maintenance of at least $5.5 million of working capital, and at each
calendar quarter end a ratio of current assets to current liabilities of not
less than 1.22 to 1.0, a ratio of indebtedness to tangible net worth of not
greater than 1.0 to 1.0, and a debt service ratio equal or greater than 1.2 to
1.0. The Company is also required to maintain minimum tangible net worth of at
least $61.5 million in 2003. The Company was in compliance with the
aforementioned covenants as of September 28, 2003.
The provisions of the senior notes under the private placement agreement
requires the Company to maintain specified levels of consolidated net worth and
certain financial performance ratios. The covenants also stipulate certain
limitations on additional indebtedness, mergers or consolidations, asset sales,
investments, and transactions with affiliates. At September 28, 2003, the
Company was in compliance with all of these provisions.
3. 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. 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 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.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN No. 46"). FIN No. 46 clarifies the application
of Accounting Research Bulletin No. 51, Consolidated Financial Statements, in
determining whether a reporting entity should
F-67
consolidate certain legal entities, including partnerships, limited liability
companies, or trusts, among others, collectively defined as variable interest
entities ("VIEs"). This interpretation applies to VIEs created or obtained after
January 31, 2003, and as of July 1, 2003, to VIEs in which an enterprise holds a
variable interest that it acquired before February 1, 2003. The initial adoption
of this statement did not have a material impact on the Company.
In April 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. Initial
adoption of this statement did not have a material impact on the Company.
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity ("SFAS No. 150"). This statement establishes standards
for how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003. The adoption
of this statement does not result in any material change to the Company's
existing reporting.
4. SUBSEQUENT EVENT
On October 15, 2003, Berry Plastics Corporation ("Berry") announced that it has
entered into a definitive agreement to acquire Landis Plastics, Inc. ("Landis")
for $228.0 million, including repayment of existing indebtedness. The purchase
price will be funded with a combination of debt, an equity investment from
Berry's existing investors and Landis management, and cash on Berry's balance
sheet. The transaction is scheduled to close in the fourth quarter of 2003 and
is subject to customary closing conditions. Berry has also agreed to acquire
four facilities currently leased by Landis from affiliates of Landis. Berry
currently intends to assign its right to purchase these facilities to a third
party and lease them from that third party.
F-68
LANDIS PLASTICS, INC.
BALANCE SHEETS
---------------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) SEPTEMBER 28, 2003 DECEMBER 31, 2002
---------------------------------------------------------------------------------------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 6,903 $ 10,029
Accounts receivable and short-term notes........... 24,868 18,371
Inventories........................................ 22,299 19,990
Other current assets............................... 2,106 2,401
--------------------------------------
Total current assets............................ 56,176 50,791
Property and equipment; net.......................... 64,681 71,526
Other assets......................................... 10,369 4,994
--------------------------------------
Total assets......................................... $131,226 $127,311
--------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 10,113 $ 6,169
Accrued interest................................... 105 792
Other current liabilities.......................... 12,505 9,405
Current portion of long-term debt.................. 5,786 2,200
--------------------------------------
Total current liabilities....................... 28,509 18,566
Long-term liabilities:
Long-term debt, net of current portion............. 26,801 32,037
Other long-term liabilities........................ 83 83
--------------------------------------
Total liabilities.................................... 55,393 50,686
--------------------------------------
Stockholders' equity:
Preferred stock.................................... - -
Common stock....................................... 54 54
Additional paid-in capital......................... 1,258 253
Retained earnings.................................. 74,521 76,318
--------------------------------------
Total stockholders' equity........................... 75,833 76,625
--------------------------------------
Total liabilities and stockholders' equity........... $131,226 $127,311
---------------------------------------------------------------------------------------------
See accompanying notes to financial statements
F-69
LANDIS PLASTICS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
----------------------------------------------------------------------------------------------
FOR THE THIRTY-NINE WEEKS ENDED
(IN THOUSANDS OF DOLLARS) SEPTEMBER 28, 2003 SEPTEMBER 29, 2002
----------------------------------------------------------------------------------------------
(UNAUDITED)
REVENUE
Product sales..................................... $161,010 $152,964
Other sales....................................... 3,515 2,658
---------------------------------------
Total revenue.................................. 164,525 155,622
---------------------------------------
COST OF GOODS SOLD
Materials......................................... 63,931 54,994
Labor and overhead................................ 70,440 68,235
---------------------------------------
Total cost of goods sold....................... 134,371 123,229
---------------------------------------
Gross profit......................................... 30,154 32,393
---------------------------------------
GENERAL EXPENSES
Selling and marketing............................. 4,451 3,524
Administrative.................................... 10,155 8,825
Transportation.................................... 2,618 2,290
Warehousing....................................... 8,424 7,682
---------------------------------------
Total general expenses......................... 25,648 22,321
---------------------------------------
Operating income..................................... 4,506 10,072
Other income (expense)
Interest income................................... 277 411
Interest expense.................................. (2,163) (2,297)
---------------------------------------
Net income before income taxes....................... 2,620 8,186
Provision for state income taxes..................... 77 82
---------------------------------------
Net income........................................... 2,543 8,104
Retained earnings--beginning of year................. 76,318 69,570
Stockholder distributions............................ (4,340) (4,043)
---------------------------------------
Retained earnings--end of period..................... $ 74,521 $73,631
----------------------------------------------------------------------------------------------
See accompanying notes to financial statements
F-70
LANDIS PLASTICS, INC.
STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------------
FOR THE THIRTY-NINE WEEKS ENDED
(IN THOUSANDS OF DOLLARS) SEPTEMBER 28, 2003 SEPTEMBER 29, 2002
----------------------------------------------------------------------------------------------
(UNAUDITED)
Cash flows from operating activities:
Net income........................................ $ 2,543 $ 8,104
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation...................................... 9,586 9,224
Gain on sale of equipment......................... - (37)
(Increase) decrease in:
Accounts receivable............................ (6,914) (4,562)
Inventory...................................... (2,309) (5,318)
Other assets................................... 187 (675)
Increase (decrease) in:
Accounts payable............................... 7,549 4,417
Other current liabilities...................... (631) (631)
---------------------------------------
Net cash provided by operating activities... 10,011 10,522
---------------------------------------
Cash flows from investing activities:
Capital acquisitions and equipment deposits....... (7,718) (4,199)
Proceeds from sale of equipment................... 7 35
Receipts from long term investments............... (15) 46
---------------------------------------
Net cash used in investing activities.......... (7,726) (4,118)
---------------------------------------
Cash flows from financing activities:
Net borrowings from related parties............... (427) (736)
Equity compensation............................... 1,006 -
Principal payments on long-term debt.............. (1,650) (3,050)
Stockholder distributions......................... (4,340) (4,042)
---------------------------------------
Net cash used in financing activities......... (5,411) (7,828)
---------------------------------------
Net decrease in cash................................. (3,126) (1,424)
Cash and cash equivalents at beginning of year....... 10,029 8,321
---------------------------------------
Cash and cash equivalents at end of period........... $ 6,903 $ 6,897
----------------------------------------------------------------------------------------------
See accompanying notes to financial statements
F-71
LANDIS PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Landis Plastics,
Inc. have been prepared in accordance with accounting principles generally
accepted in the United States ("GAAP") for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by GAAP 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.
2. LONG-TERM DEBT
Notes payable as of September 28, 2003 and December 31, 2002, are as follows:
--------------------------------------------------------------------------------
9/28/03 12/31/02
--------------------------------------------------------------------------------
Bank One, interest at the lesser of prime or LIBOR + 1.5%,
monthly principal payments of $83 plus interest, due in
2005, secured by equipment.................................. $ 2,087 $ 2,837
Bank One, interest at the lesser of prime or LIBOR + 1.5%,
monthly principal payments of $100 plus interest, due March
1, 2004, secured by equipment............................... 500 1,400
C.M. Life Insurance Company, semi-annual interest payments
at 8.88% on senior note until maturity, annual principal
payments of $371 beginning in March of 2004 until maturity
in March of 2010, unsecured................................. 2,600 2,600
Massachusetts Mutual Life Insurance Company, semi-annual
interest payments at 8.88% on three separate senior notes
until maturity, annual principal payments of $2,486
beginning in March of 2004 until maturity in March of 2010,
unsecured................................................... 17,400 17,400
Northern Life Insurance Company, semi-annual interest
payments at 8.88% on senior note until maturity, annual
principal payments of $571 beginning in March of 2004 until
maturity in March of 2010, unsecured........................ 4,000 4,000
Reliastar Life Insurance Company, semi-annual interest
payments at 8.88% on senior note until maturity, annual
principal payments of $429 beginning in March of 2004 until
maturity in March of 2010, unsecured........................ 3,000 3,000
Sigler and Company, semi-annual interest payments at 8.88%
on senior note until maturity, annual principal payments of
$429 beginning in March of 2004 until maturity in March
2010, unsecured............................................. 3,000 3,000
------------------
Total notes payable......................................... 32,587 34,237
Less: current portion....................................... (5,786) (2,200)
------------------
Long-term debt.............................................. $26,801 $32,037
--------------------------------------------------------------------------------
F-72
Maturities of long-term debt for the next five years are as follows:
----------------------------------------
2003 2004 2005 2006 2007
----------------------------------------
$550 $5,486 $5,122 $4,286 $4,286
----------------------------------------
The provisions of the Company's loan and credit agreements with Bank One require
the maintenance of at least $5.5 million of working capital, and at each
calendar quarter end a ratio of current assets to current liabilities of not
less than 1.22 to 1.0, a ratio of indebtedness to tangible net worth of not
greater than 1.0 to 1.0, and a debt service ratio equal or greater than 1.2 to
1.0. The Company is also required to maintain minimum tangible net worth of at
least $61.5 million in 2003. The Company was in compliance with the
aforementioned covenants as of September 28, 2003.
The provisions of the senior notes under the private placement agreement
requires the Company to maintain specified levels of consolidated net worth and
certain financial performance ratios. The covenants also stipulate certain
limitations on additional indebtedness, mergers or consolidations, asset sales,
investments, and transactions with affiliates. At September 28, 2003, the
Company was in compliance with all of these provisions.
3. 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. 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 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.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN No. 46"). FIN No. 46 clarifies the application
of Accounting Research Bulletin No. 51, Consolidated Financial Statements, in
determining whether a reporting entity should
F-73
consolidate certain legal entities, including partnerships, limited liability
companies, or trusts, among others, collectively defined as variable interest
entities ("VIEs"). This interpretation applies to VIEs created or obtained after
January 31, 2003, and as of July 1, 2003, to VIEs in which an enterprise holds a
variable interest that it acquired before February 1, 2003. The initial adoption
of this statement did not have a material impact on the Company.
In April 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. Initial
adoption of this statement did not have a material impact on the Company.
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity ("SFAS No. 150"). This statement establishes standards
for how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003. The adoption
of this statement does not result in any material change to the Company's
existing reporting.
4. SUBSEQUENT EVENT
On October 15, 2003, Berry Plastics Corporation ("Berry") announced that it has
entered into a definitive agreement to acquire Landis Plastics, Inc. ("Landis")
for $228.0 million, including repayment of existing indebtedness. The purchase
price will be funded with a combination of debt, an equity investment from
Berry's existing investors and Landis management, and cash on Berry's balance
sheet. The transaction is scheduled to close in the fourth quarter of 2003 and
is subject to customary closing conditions. Berry has also agreed to acquire
four facilities currently leased by Landis from affiliates of Landis. Berry
currently intends to assign its right to purchase these facilities to a third
party and lease them from that third party.
F-74
[Berry Logo]