Filed
Pursuant to Rule No. 424(b)(3)
Registration
No. 333-138380
PROSPECTUS
Berry
Plastics Holding Corporation
OFFER
TO EXCHANGE
$750,000,000
Second Priority Senior Secured Fixed and Floating Rate Notes due 2014, comprised
of $525,000,000 87/8%
Second Priority Senior Secured Fixed Rate Notes due 2014 and $225,000,000
Second
Priority Senior Secured Floating Rate Notes due 2014 registered under the
Securities Act of 1933
For
A
Like Principal Amount of Second Priority Senior Secured Fixed and Floating
Rate
Notes
($750,000,000
Aggregate Principal Amount)
We
offer
to exchange up to $750,000,000 aggregate principal amount of our Second Priority
Senior Secured Fixed and Floating Rate Notes due 2014, comprised of $525,000,000
87/8%
Second
Priority Senior Secured Fixed Rate Notes due 2014 and $225,000,000 Second
Priority Senior Secured Floating Rate Notes due 2014 that are registered
under
the Securities Act of 1933, or the “exchange notes,” for an equal principal
amount of our Second Priority Senior Secured Fixed and Floating Rate Notes
due
2014, comprised of $525,000,000 87/8%
Second
Priority Senior Secured Fixed Rate Notes due 2014 and $225,000,000 Second
Priority Senior Secured Floating Rate Notes due 2014, or the “outstanding
notes,” which we issued previously without registration under the Securities
Act. We refer to the outstanding notes and the exchange notes collectively
in
this prospectus as the “notes.” The exchange notes are substantially identical
to the outstanding notes, except that the exchange notes will not be subject
to
transfer restrictions or entitled to registration rights, and the additional
interest provisions applicable to the outstanding notes in some circumstances
relating to the timing of the exchange offer will not apply to the exchange
notes. The outstanding notes are, and the exchange notes will be, issued
by
Berry Plastics Holding Corporation and fully and unconditionally guaranteed
by
Berry Plastics Corporation, Aerocon, Inc., Berry Iowa Corporation, Berry
Plastics Design Corporation, Berry Plastics Technical Services, Inc., Berry
Sterling Corporation, CPI Holding Corporation, Knight Plastics, Inc., Packerware
Corporation, Pescor, Inc., Poly-Seal Corporation, Venture Packaging, Inc.,
Venture Packaging Midwest, Inc., Berry Plastics Acquisition Corporation III,
Berry Plastics Acquisition Corporation V, Berry Plastics Acquisition Corporation
VII, Berry Plastics Acquisition Corporation VIII, Berry Plastics Acquisition
Corporation IX, Berry Plastics Acquisition Corporation X, Berry Plastics
Acquisition Corporation XI, Berry Plastics Acquisition Corporation XII, Berry
Plastics Acquisition Corporation XIII, Berry Plastics Acquisition Corporation
XV, LLC, Kerr Group, Inc., Saffron Acquisition Corporation, Setco, LLC, Sun
Coast Industries, Inc., Tubed Products, LLC, Cardinal Packaging, Inc. and
Landis
Plastics, Inc., all wholly-owned subsidiaries of Berry Plastics Holding
Corporation. The exchange notes will represent the same debt as the outstanding
notes and we will issue the exchange notes under the same
Indentures.
Terms
of the Exchange Offer
The
exchange offer expires at 5:00 p.m., New York City time, on February 9, 2007,
unless extended. Completion of the exchange offer is subject to certain
customary conditions, which we may waive. The exchange offer is not conditioned
upon any minimum principal amount of the outstanding notes being tendered
for
exchange. You may withdraw tenders of outstanding notes at any time before
the
exchange offer expires.
All
outstanding notes that are validly tendered and not withdrawn will be exchanged
for exchange notes. The exchange of outstanding notes for exchange notes
pursuant to the exchange offer should not be a taxable event for U.S. federal
income tax purposes.
There
is
no existing market for the exchange notes to be issued, and we do not intend
to
apply for listing or quotation on any exchange or other securities
market.
See
“Risk
Factors” beginning on page 24 for a discussion of the factors you should
consider in connection with the exchange offer and exchange of outstanding
notes
for exchange notes.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION
HAS APPROVED OR DISAPPROVED THE OUTSTANDING NOTES OR THE EXCHANGE NOTES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION
TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The
date of this prospectus is January 10, 2007.
You
should rely only on the information contained or incorporated by reference
in
this prospectus. We have not authorized anyone to provide you with different
information. We are not making an offer of these securities in any state or
other jurisdiction where the offer is not permitted. You should not assume
that
the information contained or incorporated by reference in this prospectus is
accurate as of any date other than the date on the front of this
prospectus.
TABLE
OF CONTENTS
|
Prospectus
Summary
|
1
|
|
Where
You Can Find More Information About Us
|
20
|
|
Disclosure
Regarding Forward-Looking
Statements
|
21 |
| Terms Used in this Prospectus | 22 |
|
Risk
Factors
|
24
|
| Risks Related to Our Business | 35 |
|
The
Exchange Offer
|
42
|
|
Use
of Proceeds
|
53
|
|
Capitalization
|
54
|
| Unaudited Pro Forma Condensed Consolidated Financial Information | 55 |
|
Selected
Historical Financial Data
|
63
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
65
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|
Business
|
80
|
|
Management
|
92
|
|
Certain
Relationships and Related Party Transactions
|
98
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|
Principal
Stockholders of Berry Plastics Group
|
99
|
|
Description
of Other Indebtedness
|
101
|
|
Description
of the Exchange Notes
|
104
|
|
Material
United States Federal Income Tax Consequences
|
178
|
|
Plan
of Distribution
|
180
|
|
Legal
Matters
|
181
|
|
Experts
|
181
|
|
Where
You Can Find Additional Information
|
181
|
|
Index
to Financial Statements
|
F-1
|
Each
broker-dealer that receives exchange notes for its own account pursuant to
this
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. The accompanying letter of transmittal
relating to the exchange offer states that by so acknowledging and delivering
a
prospectus, a broker-dealer will not be deemed to admit that it is an
“underwriter” within the meaning of the Securities Act of 1933, as amended. 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
by
such broker-dealer as a result of market-making activities or other trading
activities. We have agreed that, for a period of 180 days after consummation
of
the registered exchange offer, we will make this prospectus available to
any
broker-dealer for use in connection with any resale. See “Plan of
Distribution.”
-i-
The
following summary highlights information contained elsewhere in this prospectus
and is qualified in its entirety by the more detailed information and
consolidated financial statements included elsewhere in this prospectus and
incorporated by reference into this prospectus. This summary is not complete
and
may not contain all of the information that may be important to you. You
should
carefully read the entire prospectus and all information which has been
incorporated by reference into the prospectus, including the “Risk Factors”
section and our consolidated financial statements and notes to those statements,
before making an investment decision.
Our
Company
We
manufacture a broad range of innovative, high quality plastic packaging
solutions using our collection of over 1,500 proprietary molds and an extensive
set of internally developed processes and technologies. Our principal
products are sold in a diverse selection of markets, including
food and beverage, healthcare, personal care, quick service and family dining
restaurants, custom and retail.
Industry
Overview
We
operate in the plastic segment of the $109 billion U.S. packaging sector,
which
accounted for $39 billion, or 36%, of total packaging industry sales in 2003,
the most recently reported year. Plastic packaging has gained, and is
expected to continue to gain, market share versus other packaging materials,
driven by factors including consumer preference, weight advantages, shatter
resistance and barrier properties. The Freedonia Group, Inc. (“Freedonia”)
estimates annual plastic packaging market growth of 5.2% through 2013, compared
to 3.4% annual growth for the overall packaging industry.
The
product categories on which we focus utilize similar manufacturing processes,
share common raw materials (principally polypropylene and polyethylene
resin) and sell into end markets where customers demand innovative packaging
solutions and quick and seamless design and delivery.
Our
Strengths
Our
strengths include:
Leading
positions across a broad product offering. We
have achieved leading competitive positions in many of our major product
lines
including thinwall, pry-off, dairy and clear polypropylene containers;
drink cups; spice and pharmaceutical bottles and prescription vials; and
spirits, continuous thread and pharmaceutical closures.
Large,
diverse and stable customer base. We
sell
our products to over 12,000 customers in diverse industries, including
pharmaceuticals, food, dairy and health and beauty. Our top 10 customers
accounted for less than 30% of net sales and our largest customer accounted
for
less than 7% of net sales for fiscal
2005. The
average term of our relationships with our top 10 customers is 21 years.
Strong
organic growth through continued focus on best-in-class technology and
innovation. We currently
own over 1,500 proprietary molds and have pioneered a variety of production
processes and new products, recent examples of which include an
innovative
-1-
Scale
and
low-cost operations drive profitability. Our
large, high volume equipment and flexible, cross-facility manufacturing
capabilities result in lower unit-production costs than many of our competitors
as we can leverage our fixed costs, higher capacity utilization and longer
production runs. Our scale also enhances our purchasing power and
lowers our cost of raw materials such as resin. In addition, we have broad
distribution capabilities, which reduce shipping costs and allow for quick
turnaround times to our customers. Our managers are charged with
meeting specific cost reduction and productivity improvement targets each
year,
with a material amount of their compensation tied to their performance versus
these targets.
Ability
to pass through changes in the price of resin. We
have
generally been able to pass through to our customers increases in costs of
raw
materials, especially resin, the principal raw material used in manufacturing
our products. We have contractual price escalators/de-escalators tied to
the price of resin with customers representing more than 60% of net sales
that
result in relatively rapid price adjustments to these customers. In addition,
we
have experienced high success rates in quickly passing through increases
and
decreases in the price of resin to customers without indexed price
agreements.
Track
record of strong, stable free cash flow. Our
strong earnings, combined with our modest capital expenditure profile, limited
working capital requirements and relatively low cash taxes due to various
tax
attributes, result in the generation of significant free cash flow.
Motivated
management team with highly successful track
record. Our
12
senior executives possess an average of 20 years of packaging industry
experience, and have combined experience of over 236 years at Berry. This
team has been responsible for developing and executing our strategy that
has
generated a track record of earnings growth and strong free cash flow
and has successfully integrated 22 acquisitions since 1988. Members of our
senior management team and other employees own approximately 23% of the equity
of Berry Plastics Group, our parent company, on a fully diluted basis.
Business
Strategy
Our
business strategy is to maintain and enhance our market position and leverage
our core strengths to increase profitability and maximize free cash flow
through
the continued implementation of the following:
Increase
sales to our existing customers.
We are
expanding our product portfolio, extending existing product lines
and penetrating
new markets with new products, the aim of which is to provide our customers
with a cost-effective, single source from which to purchase a broad range
of
their plastic packaging needs.
Aggressively
pursue new customers.
We believe
that our national direct sales force, our ability to offer new customers
a
cost-effective, single source from which to purchase a broad range of plastic
packaging products and our proven ability to design innovative new products
position us well to continue to grow and diversify our customer base.
Manage
costs and capital expenditures to drive free cash flow and returns on
capital. We
employ
a team culture of continuous improvement operating under an ISO management
system and employing Six Sigma throughout the organization. Our principal
cost-reduction strategies include (i) leveraging our scale to reduce
material costs, (ii) efficiently reinvesting capital into our manufacturing
processes to maintain technological leadership and achieve productivity gains,
(iii) focusing on ways to streamline operations through plant
-2-
Selectively
pursue strategic acquisitions. Our
industry is highly fragmented and our customers are focused on working with
a
small set of key vendors. We have a successful track record of executing
and
integrating acquisitions, having completed 22 acquisitions since 1988, and
have
developed an expertise in synergy realization. We intend to continue to apply
a
selective and disciplined acquisition strategy.
Recent
Developments
On
September 20, 2006, Merger Sub merged with and into BPC Holding Corporation
pursuant to an agreement and plan of merger (the “Merger Agreement”) with BPC
Holding Corporation, Berry Plastics Group, Inc. (f/k/a BPC Holding
Acquisition Corp.) and Merger Sub (a wholly-owned subsidiary of Berry Plastics
Group, Inc.). Following the consummation of the merger of BPC Holding
Corporation and Merger Sub, BPC Holding Corporation changed its name to
Berry
Plastics Holding Corporation. Pursuant to the Merger Agreement, we are now
a
wholly-owned subsidiary of Berry Plastics Group, Inc., the principal
stockholders of which are Apollo Investment Fund VI, L.P., AP Berry Holdings,
LLC and Graham Partners II, L.P. Apollo Investment Fund VI, L.P. and AP Berry
Holdings, LLC are affiliates of Apollo, which is a private investment firm
that
was founded in 1990. Companies owned or controlled by Apollo or in which
Apollo
or its affiliates have a significant equity investment include, among others,
Goodman Global, Inc., Hexion Specialty Chemicals, Inc., Nalco Company,
MetalsUSA, Inc., United Agri Products and Covalence Specialty Materials Holdings
Corp. Graham Partners II, L.P. is an affiliate of Graham Partners, Inc.,
a
private equity firm with over $850 million under management which has global
interests in plastics, packaging, machinery, building products and outsource
manufacturing. Companies owned or controlled by Graham Partners or in which
Graham Partners have significant equity investment include, among others,
National Diversified Sales, Inc., Supreme Corq LLC, Infiltrator Systems,
Inc.,
Nailite International, Inc., Line-X LLC and Western Industries, Inc. We refer
to
the merger and payment of merger consideration as the
“Acquisition.”
The
Acquisition was funded with
shareholders’ equity and the following debt components:
| · |
Proceeds
from our
issuance of $750.0 million aggregate principal amount of outstanding
notes;
|
| · |
New
borrowings of $675.0 million in Term B loans and $20.0 million under
the revolving credit facility, both as available under the senior
secured
credit facilities; and
|
| · |
Proceeds
from our issuance of $425.0 million aggregate principal amount of
senior
subordinated notes to affiliates of Goldman.
|
Pursuant
to the Merger Agreement, certain members of our senior management team and
other
employees have invested in shares of Berry Plastics Group, Inc.'s common
stock (the “management shares”). Options to purchase shares of Berry Plastics
Group, Inc.'s common stock have also been granted to all members of our senior
management team. We expect to grant additional options to purchase common
stock
of Berry Plastics Group, Inc. to other employees in the future from time to
time. Approximately 23% of the outstanding common stock of Berry Plastics
Group,
Inc. on a fully-diluted basis is currently owned by members of our senior
management team and other employees.
-3-
On
September 20, 2006, we used a portion of the proceeds of the Acquisition
funding
to repay the outstanding term loans under our old senior secured credit
agreement and to repurchase all of the $335.0 million in aggregate outstanding
principal amount of our 10 ¾%
Senior
Subordinated Notes due 2012 (the “old notes”) pursuant to a previously launched
tender offer (the “tender offer”). This prospectus is not an offer to exchange,
a solicitation of an offer to exchange or a solicitation of consents with
respect to the old notes. This exchange offer has been made solely pursuant
to a
registration rights agreement, dated as of September 20, 2006 (the “registration
rights agreement”).
Unless
the context indicates otherwise, references in this prospectus to the “senior
secured credit facilities” refers to such facilities following the Acquisition.
Risk
Factors
You
should consider carefully all the information set forth in this prospectus
and,
in particular, you should evaluate the specific factors set forth under “Risk
Factors” for risks you should consider in connection with the exchange
offer.
Additional
Information
Berry
Plastics Holding Corporation is a Delaware Corporation. Our principal executive
offices are located at 101 Oakley Street, Evansville, Indiana 47710. Our
telephone number is (812) 424-2904. Our website address is located at
www.berryplastics.com.
The
information that appears on our website is not a part of, and is not
incorporated into, this prospectus.
-4-
Summary
of the Exchange Offer
The
following is a brief summary of the terms of the exchange offer. For a more
complete description of the exchange offer, see “The Exchange
Offer.”
|
Securities
Offered
|
Up
to $750,000,000 aggregate principal amount of the exchange notes
which
have been registered under the Securities Act.
|
|
The
form and terms of these exchange notes are identical in all material
respects to those of the outstanding notes of the same series except
that:
|
|
|
· the
exchange notes have been registered under the U.S. federal securities
laws
and will not bear any legend restricting their transfer;
|
|
|
· the
exchange notes bear a different CUSIP number than the outstanding
notes;
|
|
|
· the
exchange notes will not be subject to transfer restrictions or entitled
to
registration rights; and
|
|
|
· the
exchange notes will not be entitled to additional interest provisions
applicable to the outstanding notes in some circumstances relating
to the
timing of the exchange offer. See “The Exchange
Offer―Terms
of the Exchange Offer; Acceptance of Tendered Notes.”
|
|
|
The
Exchange Offer
|
We
are offering to exchange the exchange notes for a like principal
amount of
the outstanding notes.
|
|
We
will accept any and all outstanding notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on February 9,
2007.
Holders may tender some or all of their outstanding notes pursuant
to the
exchange offer. However, outstanding notes may be tendered only in
integral multiples of $1,000 in principal amount, subject to a minimum
denomination of $2,000.
|
|
|
In
order to be exchanged, an outstanding note must be properly tendered
and
accepted. All outstanding notes that are validly tendered and not
withdrawn will be exchanged. As of the date of this prospectus, there
are
$750,000,000 aggregate principal amount of outstanding notes, comprised
of
$525,000,000 87/8%
Second Priority Senior Secured Fixed Rate Notes due 2014 and $225,000,000
Second Priority Senior Secured Floating Rate Notes due 2014. We will
issue
exchange notes promptly after the expiration of the exchange offer.
See
“The Exchange Offer―Terms
of the Exchange Offer―Acceptance of Tendered Notes.”
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-5-
|
Transferability
of Exchange Notes
|
Based
on interpretations by the staff of the U.S. Securities and Exchange
Commission, or the "SEC", as detailed in previous no-action letters
issued
to third parties, we believe that the exchange notes issued in the
exchange offer may be offered for resale, resold or otherwise transferred
by you without compliance with the registration and prospectus delivery
requirements of the Securities Act as long as:
|
|
· you
are acquiring the exchange notes in the ordinary course of your
business;
|
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|
· you
are not participating, do not intend to participate and have no
arrangement or understanding with any person to participate in a
distribution of the exchange notes; and
|
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|
· you
are not our “affiliate” as defined in Rule 405 under the Securities
Act.
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If
you are an affiliate of ours, or are engaged in or intend to engage
in or
have any arrangement or understanding with any person to participate
in
the distribution of the exchange notes:
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|
|
· you
cannot rely on the applicable interpretations of the staff of the
SEC;
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|
|
· you
will not be entitled to participate in the exchange offer;
and
|
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|
· you
must comply with the registration and prospectus delivery requirements
of
the Securities Act in connection with any resale transaction.
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|
Each
broker or dealer that receives exchange notes for its own account
in the
exchange offer for outstanding notes that were acquired as a result
of
market-making or other trading activities must acknowledge that it
will
comply with the prospectus delivery requirements of the Securities
Act in
connection with any offer to resell or other transfer of the exchange
notes issued in the exchange offer.
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-6-
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Furthermore,
any broker-dealer that acquired any of its outstanding notes directly
from
us, in the absence of an exemption therefrom,
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|
· may
not rely on the applicable interpretation of the staff of the SEC’s
position contained in Exxon Capital Holdings Corp., SEC no-action
letter
(April 13, 1988), Morgan, Stanley & Co. Inc., SEC no-action letter
(June 5, 1991) and Shearman & Sterling, SEC no-action letter (July 2,
1993); and
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· must
comply with the registration and prospectus delivery requirements
of the
Securities Act in connection with any resale of the exchange
notes.
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See
“Plan of Distribution.”
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|
We
do not intend to apply for listing of the exchange notes on any securities
exchange or to seek approval for quotation through an automated quotation
system. Accordingly, there can be no assurance that an active market
will
develop upon completion of the exchange offer or, if developed, that
such
market will be sustained or as to the liquidity of any
market.
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Expiration
Date
|
The
exchange offer will expire at 5:00 p.m., New York City time, on February
9, 2007, unless we extend the expiration date.
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Exchange
Date; Issuance of Exchange Notes
|
The
date of acceptance for exchange of the outstanding notes is the exchange
date, which will be the first business day following the expiration
date
of the exchange offer. We will issue the exchange notes in exchange
for
the outstanding notes tendered and accepted in the exchange offer
promptly
following the exchange date. See “The Exchange Offer―Terms
of the Exchange Offer; Acceptance of Tendered Notes.”
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|
Conditions
to the Exchange Offer
|
The
exchange offer is subject to customary conditions. We may assert
or waive
these conditions in our reasonable discretion. See “The Exchange
Offer―Conditions
to the Exchange Offer” for more information regarding conditions to the
exchange offer.
|
-7-
|
Special
Procedures for Beneficial Holders
|
If
you beneficially own outstanding notes that are registered in the
name of
a broker, dealer, commercial bank, trust company or other nominee
and you
wish to tender in the exchange offer, you should contact such registered
holder promptly and instruct such person to tender on your behalf.
See
“The Exchange
Offer―Procedures for Tendering Outstanding
Notes.”
|
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Effect
of Not Tendering
|
Any
outstanding notes that are not tendered in the exchange offer, or
that are
not accepted in the exchange, will remain subject to the restrictions
on
transfer. Since the outstanding notes have not been registered under
the
U.S. federal securities laws, you will not be able to offer or sell
the
outstanding notes except under an exemption from the requirements
of the
Securities Act or unless the outstanding notes are registered under
the
Securities Act. Upon the completion of the exchange offer, we will
have no
further obligations, except under limited circumstances, to provide
for
registration of the outstanding notes under the U.S. federal securities
laws. See “The Exchange
Offer―Effect of Not Tendering.”
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Withdrawal
Rights
|
You
may withdraw your tender at any time before the exchange offer
expires.
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Interest
on Exchange Notes and the Outstanding Notes
|
The
exchange notes will bear interest from the most recent interest payment
date to which interest has been paid on the outstanding notes, or,
if no
interest has been paid, from September 20, 2006. Interest on the
outstanding notes accepted for exchange will cease to accrue upon
the
issuance of the exchange notes.
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Acceptance
of Outstanding Notes and Delivery of Exchange Notes
|
Subject
to the conditions
stated in the section “The Exchange Offer―Conditions to the Exchange
Offer”
of this prospectus, we will accept for exchange any and all outstanding
notes which are properly tendered in the exchange offer before 5:00
p.m.,
New York City time, on the expiration
date. The exchange notes will be delivered promptly after the expiration
date. See “The Exchange Offer―Terms of the Exchange Offer; Acceptance of
Tendered Notes.”
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Material
United States Federal Income Tax Considerations
|
The
exchange by a holder of outstanding notes for exchange notes to be
issued
in the exchange offer should not result in a taxable transaction
for U.S.
federal income tax purposes. See “Material United States Federal Income
Tax Consequences.”
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-8-
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Accounting
Treatment
|
We
will not recognize any gain or loss for accounting purposes upon
the
completion of the exchange offer. The expenses of the exchange offer
that
we pay will be charged to expense in accordance with generally accepted
accounting principles. See “The
Exchange Offer―Accounting Treatment.”
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Exchange
Agent
|
Wells
Fargo Bank, National Association, the trustee under the Indenture,
is
serving as exchange agent in connection with the exchange offer.
The
address and telephone number of the exchange agent are listed under
the
heading “The Exchange Offer―Exchange
Agent.”
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Use
of Proceeds
|
We
will not receive any proceeds from the issuance of exchange notes
in the
exchange offer. We will pay all expenses incident to the exchange
offer.
See “Use of Proceeds.”
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-9-
Summary
of the Terms of the Exchange Notes
The
form
and terms of the exchange notes and the outstanding notes are identical in
all
material respects, except that the transfer restrictions, registration rights
and additional interest provisions in some circumstances relating to the timing
of the exchange offer, which are applicable to the outstanding notes, do not
apply to the exchange notes. The exchange notes will evidence the same debt
as
the outstanding notes and will be governed by the same Indenture.
|
Issuer
|
Holdings
|
|
Securities
|
$750,000,000
aggregate principal amount of Second Priority Senior Secured Notes
due
2014, comprised of $525,000,000 aggregate principal amount of our
8
7/8%
second priority senior secured fixed rate notes due 2014 and $225,000,000
aggregate principal amount of our second priority senior secured
floating
rate notes due 2014.
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Maturity
Date
|
September
15, 2014.
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Fixed
Rate Notes
|
The
fixed rate notes will bear interest at a rate of 8 7/8%
per annum, payable semiannually on March 15 and September 15 of
each year, commencing March 15, 2007.
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Floating
Rate Notes
|
The
floating rate notes will bear interest at a rate of LIBOR plus 3.875%
per
annum, which will reset quarterly. Interest on the floating rate
notes
will be payable quarterly on March 15, June 15,
September 15 and December 15 of each year, commencing December
15, 2006.
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Collateral
|
The
exchange notes and the guarantees of the exchange notes will be secured
by
a second priority security interest in the collateral granted to
the
collateral agent for the benefit of the holders of the exchange notes
and
other future parity lien debt that may be issued pursuant to the
terms of
the Indenture governing the exchange notes. These liens will be junior
in
priority to the liens on the same collateral securing our senior
secured
credit facilities and to all other permitted prior liens, including
liens
securing certain hedging obligations and cash management obligations.
The
liens securing priority lien obligations are held by the collateral
agent
under our senior secured credit facilities.
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-10-
|
The
collateral securing the exchange notes will be substantially all
of our
and the guarantors’ property and assets that will secure our senior
secured credit facilities, which excludes (i) any license, contract
or
agreement of ours or the guarantors, if and only for so long as the
grant
of a security interest under the security documents would result
in a
breach or default under, or abandonment, invalidation or unenforceability
of that license, contract or agreement; (ii) any bank accounts, securities
accounts or cash and (iii) certain other limited exclusions. While
the collateral securing our senior secured credit facilities will
include
the equity interests of substantially all of our domestic subsidiaries
and
“first-tier” foreign subsidiaries, the collateral securing the exchange
notes will not include securities and other equity interests of our
subsidiaries (including all guarantor subsidiaries). For more information,
see “Description
of the Notes—Security for the Exchange Notes.”
At
July 1, 2006, the estimated book value of the collateral which secures
the
senior secured credit facilities and the exchange notes was $793.6
million.
|
|
|
Intercreditor
Agreement
|
The
trustee under the Indenture governing the exchange notes and the
collateral agent under our senior secured credit facilities have
entered
into an intercreditor agreement as to the relative priorities of
their
respective security interests in our assets securing the exchange
notes
and borrowings under our senior secured credit facilities and certain
other matters relating to the administration of security interests.
The
terms of the intercreditor agreement are set forth under “Description of
the Notes—Security for the Exchange Notes.”
|
|
Optional
Redemption
|
|
|
Fixed
Rate Notes
|
Prior
to September 15, 2010, we may redeem some or all of the fixed rate
exchange notes at a price equal to 100% of the principal amount of
the
fixed rate exchange notes redeemed plus accrued and unpaid interest
and
additional interest, if any, to the redemption date plus the “applicable
premium.” On or after September 15, 2010, we may redeem some or all of the
fixed rate exchange notes at the redemption prices set forth in this
prospectus. Additionally, on or prior to September 15, 2009, we may
redeem
up to 35% of the aggregate principal amount of the fixed rate exchange
notes with the net proceeds of specified equity offerings at the
redemption price set forth in this prospectus. See “Description of the
Exchange Notes—Optional Redemption—Fixed Rate Exchange
Notes.”
|
-11-
|
Floating
Rate Notes
|
On
or after September 15, 2008, we may redeem some or all of the floating
rate exchange notes at the redemption prices set forth in this prospectus.
Additionally, on or prior to September 15, 2008, we may redeem up
to 35%
of the aggregate principal amount of the floating rate exchange notes
with
the net proceeds of specified equity offerings at the redemption
price set
forth in this prospectus. See “Description of the Exchange Notes—Optional
Redemption—Floating Rate Exchange Notes.”
|
|
Change
of Control
|
If
a change of control occurs, we must give holders of the exchange
notes an
opportunity to sell to us their exchange notes at a purchase price
of 101%
of the principal amount of such exchange notes, plus accrued and
unpaid
interest to the date of purchase. The term “Change of Control” is defined
under “Description of the Exchange Notes—Change of Control.”
|
|
Guarantees
|
The
exchange notes will be guaranteed, jointly and severally, on a second
priority senior secured basis, by each of our domestic subsidiaries
that
guarantees our senior secured credit facilities.
|
|
Ranking
|
The
exchange notes and the guarantees thereof will be our and the guarantors’
second priority senior secured obligations and will:
|
|
· rank
equally in right of payment with all of our and the guarantors’ existing
and future senior indebtedness;
|
|
|
· rank
senior to all of our and the guarantors’ existing and future subordinated
indebtedness, including the senior subordinated notes; and
|
|
|
· be
effectively subordinated to all of our first priority secured debt,
including the borrowings under the senior secured credit facilities,
to
the extent of the collateral securing such debt.
|
|
|
The
exchange notes will also be effectively junior to liabilities of
the
non-guarantor subsidiaries. As of July 1, 2006, our non-guarantor
subsidiaries had liabilities of $56.5 million.
|
|
|
As
of September 20, 2006, we had outstanding on a consolidated
basis:
|
-12-
|
· $720.4
million of secured senior indebtedness constituting first priority
lien
obligations, primarily consisting of the term B loans under the senior
secured credit facilities;
|
|
|
· $1,470.4
million of secured senior indebtedness, consisting primarily of the
term B
loans under the senior secured credit facilities and the outstanding
notes; and
|
|
|
· $425.0
million of unsecured senior subordinated indebtedness, consisting
of the
senior subordinated notes.
|
|
|
Restrictive
Covenants
|
The
Indenture governing the exchange notes contains covenants that will
limit
our ability and certain of our subsidiaries’ ability to:
|
|
· incur
or guarantee additional indebtedness;
· pay
dividends and make other restricted payments;
· create
restrictions on the payment of dividends or other distributions to
us from
our restricted subsidiaries;
· create
or incur certain liens;
· make
certain investments;
· engage
in sales of assets and subsidiary stock; and
· transfer
all or substantially all of our assets or enter into merger or
consolidation Acquisition.
|
|
|
These
covenants are subject to a number of important limitations and exceptions
as described under “Description of the Exchange Notes—Certain Covenants.”
Certain covenants will cease to apply to the exchange notes at all
times
after the exchange notes have investment grade ratings from both
Moody’s
Investors Service, Inc., or Moody’s, and Standard & Poor’s
Ratings Group, or S&P; provided that no event of default has occurred
and is continuing. Similarly, the “Change of Control” covenant will be
suspended with respect to the exchange notes during all periods when
the
notes have investment grade ratings from Moody’s and S&P; provided
that no event of default has occurred and is
continuing.
|
-13-
|
Listing
|
We
expect that the exchange notes will be eligible for trading in PORTAL,
a
subsidiary of The Nasdaq Stock Market, Inc.
|
-14-
Summary
Historical and Unaudited Pro Forma Financial Data
The
following table sets forth
certain of our historical and pro forma financial data. Our fiscal years are
52-
or 53-week periods ending generally on the Saturday closest to December 31.
All
references herein to “fiscal 2005,” “fiscal 2004” and “fiscal 2003” relate to
the fiscal years ended December 31, 2005, January 1, 2005 and December 27,
2003,
respectively. The summary historical financial data for fiscal 2005, fiscal
2004
and fiscal 2003 have been derived from our consolidated financial statements
and
related notes thereto included elsewhere in this prospectus, which have been
audited by Ernst & Young LLP, an independent registered public accounting
firm.
The
summary historical
financial data as of and for the 26 weeks ended July 1, 2006 and July 2, 2005
is
derived from our unaudited financial statements included elsewhere in this
prospectus. The summary historical financial data set forth below should be
read
in conjunction with and is qualified in its entirety by reference to the audited
and unaudited consolidated financial statements and the related notes included
elsewhere in this prospectus.
The
following table also includes summary unaudited pro forma financial information
as of and for fiscal 2005 and for the 26 week periods ended July 2, 2005 and
July 1, 2006. The
summary unaudited pro forma financial information has been derived from the
pro
forma financial information set forth under “Unaudited Pro Forma Condensed
Consolidated Financial Information,” which has been prepared to give pro forma
effect to the Acquisition. The summary unaudited pro forma condensed
consolidated statement of income data gives effect to the Acquisition as if
it
had occurred on the first day of the applicable period. The summary unaudited
pro forma condensed consolidated balance sheet data as of July 1, 2006 gives
effect to the Acquisition as if it had occurred on July 1, 2006.
The
Acquisition has been accounted for using the purchase method of accounting.
The
final allocation of the purchase price in the Acquisition will be determined
at
a later date and depend on a number of factors, including the final valuation
of
our tangible and identifiable intangible assets acquired and liabilities assumed
in the Acquisition. An independent third-party appraiser will perform a
valuation of these assets as of the closing date of the Acquisition, and upon
a
final valuation the purchase allocation will be adjusted. Such final
adjustments, including increases to depreciation and amortization resulting
from
the allocation of purchase price to amortizable tangible and intangible assets,
may be material. This valuation will be based on the actual net tangible and
intangible assets and liabilities that existed as of the closing date of the
Acquisition. In addition, we will record an adjustment to stockholders’ equity
at a later date to adjust the carryover basis of continuing ownership.
As
a
result of the Acquisition, Holdings is a wholly-owned subsidiary of Berry
Plastics Group with assets liabilities and an equity structure that will not
be
comparable to historical periods. Consequently, our historical consolidated
financial information may not be comparable to or indicative of our future
performance.
The
summary unaudited pro forma financial information is for informational purposes
only and does not purport to represent what our results of operation or
financial position would have been if the Acquisition had occurred as of the
dates indicated or what such results will be for future periods, and such
information does not purport to project the results of operations for any future
period.
-15-
The
following data should be read in conjunction with “Risk Factors,” “Unaudited Pro
Forma Condensed Consolidated Financial Information,” “Selected Historical
Financial Data,” “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” our consolidated financial statements and
related notes thereto included elsewhere in this prospectus and our consolidated
financial statements and related notes thereto of our November 14, 2006 Form
10-Q incorporated by reference herein.
|
Historical
|
Pro
Forma
|
||||||||||||||||||||||||
|
26
Weeks Ended
|
26
Weeks Ended
|
||||||||||||||||||||||||
|
Fiscal
2003
|
Fiscal
2004
|
Fiscal
2005
|
July 2,
2005
|
July 1,
2006
|
Fiscal
2005
|
July
2,
2005
|
July 1,
2006
|
||||||||||||||||||
|
(dollars
in thousands)
|
|||||||||||||||||||||||||
|
Statement
of Income Data:
|
|||||||||||||||||||||||||
|
Net
sales
|
$
|
551,876
|
$
|
814,213
|
$
|
1,169,704
|
$
|
508,181
|
$
|
731,078
|
$
|
1,338,019
|
$
|
676,496
|
$
|
731,078
|
|||||||||
|
Cost
of goods sold
|
420,750
|
639,329
|
943,370
|
417,493
|
583,941
|
1,082,478
|
556,601
|
583,941
|
|||||||||||||||||
|
Gross
profit
|
131,126
|
174,884
|
226,334
|
90,688
|
147,137
|
255,541
|
119,895
|
147,137
|
|||||||||||||||||
|
Operating
expenses
|
59,936
|
81,008
|
110,545
|
40,227
|
70,282
|
134,162
|
62,344
|
71,921
|
|||||||||||||||||
|
Operating
income
|
71,190
|
93,876
|
115,789
|
50,461
|
76,855
|
121,379
|
57,551
|
75,216
|
|||||||||||||||||
|
Other
expenses (income)(1)
|
(7
|
)
|
—
|
1,354
|
1,569
|
(299
|
)
|
8,705
|
8,920
|
(299
|
)
|
||||||||||||||
|
Loss
on extinguished debt(2)
|
250
|
—
|
7,045
|
7,045
|
—
|
—
|
—
|
—
|
|||||||||||||||||
|
Interest
expense, net(3)
|
45,413
|
53,185
|
73,274
|
30,123
|
44,511
|
167,861
|
83,815
|
84,114
|
|||||||||||||||||
|
Income
(loss)before income taxes
|
25,534
|
40,691
|
34,116
|
11,724
|
32,643
|
(55,187
|
)
|
(35,184
|
)
|
(8,599
|
)
|
||||||||||||||
|
Income
taxes (benefit)
|
12,486
|
17,740
|
14,325
|
6,174
|
14,731
|
(24,835
|
)
|
(15,832
|
)
|
(3,869
|
)
|
||||||||||||||
|
Net
income (loss)
|
$
|
13,048
|
$
|
22,951
|
$
|
19,791
|
$
|
5,550
|
$
|
17,912
|
$
|
(30,352
|
)
|
$
|
(19,352
|
)
|
$
|
(4,730
|
)
|
||||||
|
Balance
Sheet Data
(at
period end):
|
|||||||||||||||||||||||||
|
Working
capital(4)
|
$
|
88,850
|
$
|
118,981
|
$
|
211,118
|
$
|
154,675
|
$
|
196,032
|
$
|
196,032
|
|||||||||||||
|
Total
assets
|
1,015,806
|
1,005,144
|
1,647,830
|
1,553,641
|
1,673,286
|
2,672,929
|
|||||||||||||||||||
|
Total
debt
|
751,605
|
697,558
|
1,160,620
|
1,167,554
|
1,135,820
|
1,896,659
|
|||||||||||||||||||
|
Stockholders’
equity
|
152,591
|
183,891
|
203,388
|
182,692
|
227,669
|
483,519
|
|||||||||||||||||||
|
Other
Data:
|
|||||||||||||||||||||||||
|
Depreciation
and Amortization(5)
|
$
|
44,078
|
$
|
60,816
|
$
|
88,720
|
$
|
34,149
|
$
|
53,996
|
$
|
105,368
|
$
|
50,797
|
$
|
53,996
|
|||||||||
|
Capital
Expenditure(6)
|
29,949
|
52,624
|
57,829
|
32,303
|
52,217
|
68,681
|
43,155
|
52,217
|
|||||||||||||||||
|
Ratio
of Earnings to Fixed Charges(7)
|
1.5X
|
1.7X
|
1.4X
|
1.4X
|
1.7X
|
(7
|
)
|
(7
|
)
|
(7
|
)
|
||||||||||||||
|
EBITDA(8)
|
115,275
|
154,692
|
203,155
|
83,041
|
131,150
|
212,708
|
94,094
|
129,511
|
|||||||||||||||||
|
Bank
Compliance EBITDA(8)
|
$
|
250,602
|
$
|
113,059
|
$
|
149,547
|
|||||||||||||||||||
-16-
(1) Other
expenses (income) consist of net losses (gains) on disposal of property and
equipment and unrealized loss (gain) on investment in Southern
Packaging.
(2) In
2005,
the loss on extinguished debt represents unamortized deferred financing costs
on
the term loan expensed as a result of an amendment to our existing senior
secured credit facilities. The loss on extinguished debt in 2003 represents
the
legal costs associated with amending our existing senior secured credit
facilities in connection with the acquisition (the “Landis Acquisition”) of
Landis Plastics, Inc. (“Landis”).
(3) Includes
non-cash interest expense of $2,318, $1,862, $1,945, $982 and $954, in fiscal
2003, 2004 and 2005 and the 26 weeks ended July 2, 2005 and July 1, 2006,
respectively, and pro forma non-cash interest expense of $5,230 for fiscal
2005
and $2,615 for the twenty-six week periods ended July 2, 2005 and July 1,
2006.
(4) Represents
total current assets (other than cash) less total current liabilities (other
than accrued interest and the current portion of long-term debt).
(5)
Depreciation
and amortization excludes non-cash amortization of deferred financing fees
and
debt premium/discount amortization, which are included in interest
expense.
(6) Pro
Forma
capital expenditures include purchases made by Kerr Group, Inc. prior to our
acquisition of the company.
(7) For
the
purposes of calculating the ratio of earnings to fixed charges, earnings
represent income (loss) before income taxes plus fixed charges. Fixed charges
consist of financing costs and the portion of operational rental expense which
management believes is representative of interest within rent expense. The
ratio
of earnings to fixed charges should be read in conjunction with the financial
statements and other financial data included in this prospectus. Pro forma
fiscal 2005 and the pro forma 26 weeks ended July 2, 2005 and July 1, 2006
have
a shortfall of $53,957, $34,697 and $7,465 respectively.
(8) EBITDA
represents net income before interest expense, net, income taxes and
depreciation and amortization. Bank Compliance EBITDA represents EBITDA as
further adjusted. Bank Compliance EBITDA is a financial measure used in the
indentures governing the notes being offered hereby and the new senior
subordinated notes and in our new senior secured credit facilities as a
component of a coverage ratio that is used to test whether certain transactions
are permitted. Adjustments to arrive at Bank
Compliance EBITDA are
permitted in calculating covenant compliance in the indenture governing the
notes. We believe that the inclusion of these adjustments to net income applied
in presenting Bank
Compliance EBITDA are
appropriate to provide additional information to investors about certain
non-cash items and about unusual items that we do not expect to continue at
the
same level in the future. Bank
Compliance EBITDA differs
from the term “EBITDA” as it is commonly used. EBITDA and Bank
Compliance EBITDA are
not
measures of financial performance under GAAP and may not be comparable to
similarly titled measures of other companies. You should not consider our EBITDA
or Bank
Compliance EBITDA as
alternatives to operating or net income, determined in accordance with GAAP,
as
indicators of our operating performance, or as an alternative to cash flows
from
operating activities, determined in accordance with GAAP.
-17-
Reconciliation
of net income (loss) to EBITDA and Bank Compliance EBITDA
|
Historical
|
Pro
Forma
|
||||||||||||||||||||||||
|
26
Weeks Ended
|
26
Weeks Ended
|
||||||||||||||||||||||||
|
Fiscal
2003
|
Fiscal
2004
|
Fiscal
2005
|
July 2,
2005
|
July 1,
2006
|
Fiscal
2005
|
July
2, 2005
|
July
1, 2006
|
||||||||||||||||||
|
(dollars
in thousands)
|
|||||||||||||||||||||||||
|
Net
income (loss)
|
$
|
13,048
|
$
|
22,951
|
$
|
19,791
|
$
|
5,550
|
$
|
17,912
|
$
|
(30,352
|
)
|
$
|
(19,352
|
)
|
$
|
(4,730
|
)
|
||||||
|
Interest
expense, net(a)
|
45,663
|
53,185
|
80,319
|
37,168
|
44,511
|
167,861
|
83,815
|
84,114
|
|||||||||||||||||
|
Income
taxes (benefit)
|
12,486
|
17,740
|
14,325
|
6,174
|
14,731
|
(24,835
|
)
|
(15,832
|
)
|
(3,869
|
)
|
||||||||||||||
|
Depreciation
and amortization
|
44,078
|
60,816
|
88,720
|
34,149
|
53,996
|
100,034
|
45,463
|
53,996
|
|||||||||||||||||
|
EBITDA
|
$
|
115,275
|
$
|
154,692
|
$
|
203,155
|
$
|
83,041
|
$
|
131,150
|
$
|
212,708
|
$
|
94,094
|
$
|
129,511
|
|||||||||
|
Adjustments
to Pro Forma EBITDA:
|
|||||||||||||||||||||||||
|
Management
fees
|
$
|
3,000
|
1,500
|
1,639
|
|||||||||||||||||||||
|
Non-cash
compensation(b)
|
2,152
|
—
|
1,976
|
||||||||||||||||||||||
|
One-time
expenses(c)
|
9,742
|
2,965
|
7,921
|
||||||||||||||||||||||
|
Pro
forma synergies(d)
|
23,000
|
14,500
|
8,500
|
||||||||||||||||||||||
|
Bank
Compliance EBITDA
|
$
|
250,602
|
$
|
113,059
|
$
|
149,547
|
|||||||||||||||||||
__________________
(a) Includes
loss on extinguished debt.
(b) Represents
equity-based compensation paid to management.
(c) Represents
non-recurring items such as expenses related to the integration of the June
2005
acquisition (the “Kerr Acquisition”) of the Kerr Group, Inc. (“Kerr”), gains on
investment and project start-up costs from July 3, 2005.
(d) Represents
the estimated pro forma impact of synergies from the Kerr Acquisition and from
the joint purchasing of resin and other materials and services with other
companies owned by Apollo.
-18-
Reconciliation
of net cash provided by operating activities to Bank Compliance
EBITDA.
|
Pro
Forma
|
||||||||||
|
26
Weeks Ended
|
||||||||||
|
Fiscal
2005
|
July
2, 2005
|
July
1, 2006
|
||||||||
|
Net
cash provided by operating activities (historical)
|
101,546
|
51,385
|
87,142
|
|||||||
|
Pro
forma adjustments:
|
||||||||||
|
Management
fees
|
(3,000
|
)
|
(1,500
|
)
|
(1,639
|
)
|
||||
|
Kerr
acquisition
|
11,199
|
11,199
|
-
|
|||||||
|
Cash
interest expense
|
(91,132
|
)
|
(51,974
|
)
|
(37,857
|
)
|
||||
|
Net
cash provided by operating activities (pro forma)
|
18,613
|
9,110
|
47,646
|
|||||||
|
Cash
income taxes
|
1,556
|
533
|
898
|
|||||||
|
Cash
interest expense
|
162,461
|
81,115
|
81,414
|
|||||||
|
Increase
in working capital
|
32,230
|
3,336
|
1,529
|
|||||||
|
Management
fees
|
3,000
|
1,500
|
1,639
|
|||||||
|
One-time
expenses (See Note (c) in previous table)
|
9,742
|
2,965
|
7,921
|
|||||||
|
Pro
forma synergies (See Note (d) in previous table)
|
23,000
|
14,500
|
8,500
|
|||||||
|
Bank
Compliance EBITDA
|
250,602
|
113,059
|
149,547
|
|||||||
-19-
WHERE
YOU CAN FIND MORE INFORMATION ABOUT US
We
have
filed with the U.S. Securities and Exchange Commission, or the “SEC,” a
registration statement on Form S-4, which we refer to as the “exchange offer
registration statement,” under the Securities Act of 1933, as amended, and the
rules and regulations thereunder, which we refer to collectively as the
“Securities Act,” covering the exchange notes being offered. This prospectus
does not contain all the information in the exchange offer registration
statement. For further information with respect to Berry Plastics Holding
Corporation and the exchange offer, reference is made to the exchange offer
registration statement. 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 of each contract, agreement or
other
document filed as an exhibit to the exchange offer registration statement,
we
encourage you to read the documents contained in the exhibits.
After
the
registration statement becomes effective, we will file annual, quarterly
and
current reports and other information with the SEC. You may read and copy
any
document we file with the SEC at the SEC’s public reference room at 100 F
Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for
further information on the public reference room. Our SEC filings are also
available to the public at the SEC’s website at http://www.sec.gov.
You
may
obtain copies of the information and documents referenced
or
incorporated by reference
in this
prospectus at no charge by accessing the SEC’s website at http://www.sec.gov
or by
requesting them from us in writing or by telephone at:
Berry
Plastics Holding Corporation
101
Oakley Street
Evansville,
Indiana 47710
(812)
424-2904
To
obtain
timely delivery of any of our filings, agreements or other documents, you
must
make your request to us no later than February 1, 2007. In the event that
we
extend the exchange offer, you must submit your request at least five business
days before the expiration date of the exchange offer, as extended. We may
extend the exchange offer in our sole discretion. See “Exchange Offer” for more
detailed information.
-20-
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains “forward-looking statements,” within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act
of
1934, as amended (the “Exchange Act”), with respect to our financial condition,
results of operations and business and our expectations or beliefs concerning
future events. Such statements include, in particular, statements about our
plans, strategies and prospects under the headings “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and “Business.”
The
safe
harbor provisions of Section 27A of the Securities Act and Section 21E of
the
Exchange Act of 1934 do not apply to any such statements which are made in
connection with this exchange offer. 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 that identify forward-looking statements. All
forward-looking statements involve risks and uncertainties. Many risks and
uncertainties are inherent in our industry and markets. Others are more specific
to our operations. The occurrence of the events described and the achievement
of
the expected results depend on many events, some or all of which are not
predictable or within our control. Actual results may differ materially from
the
forward-looking statements contained in this prospectus. Factors that could
cause actual results to differ materially from those expressed or implied
by the
forward-looking statements include:
| · |
risks
associated with our substantial indebtedness and debt service;
|
| · |
changes
in prices and availability of resin and other raw materials and our
ability to pass on changes in raw material prices on a timely basis;
|
| · |
risks
of competition, including foreign competition, in our existing and
future
markets;
|
| · |
risks
related to our acquisition strategy and integration of acquired
businesses;
|
| · |
reliance
on unpatented proprietary know-how and trade secrets;
|
| · |
increases
in the cost of compliance with laws and regulations, including
environmental laws and regulations;
|
| · |
catastrophic
loss of one of our key manufacturing facilities;
|
| · |
increases
in the amounts we are required to contribute to our pension plans;
|
| · |
our
ownership structure following the Acquisition;
|
| · |
reduction
in net worth; and
|
| · |
the
other factors discussed in the section of this prospectus titled
“Risk
Factors.”
|
We
caution you that the foregoing list of important factors may not contain
all of
the material factors that are important to you. In addition, in light of
these
risks and uncertainties, the matters referred to in the forward-looking
statements contained in this prospectus may not in fact occur. We undertake
no
obligation to publicly update or revise any forward-looking statement as
a
result of new information, future events or otherwise, except as otherwise
required by law.
-21-
TERMS
USED IN THIS PROSPECTUS
Unless
otherwise indicated, in this prospectus:
| · |
the
term “Holdings” refers to Berry Plastics Holding Corporation (f/k/a BPC
Holding Corporation), the parent company of Berry Plastics
Corporation;
|
| · |
the
terms “we,” “us” and the “Company” refer to Holdings and its predecessors
and consolidated subsidiaries, which are being acquired pursuant
to the
Acquisition;
|
| · |
the
term “BPC Holding Corporation” refers to Berry Plastics Holding
Corporation prior to the consummation of the Acquisition and before
it
changed its name to Berry Plastics Holding
Corporation;
|
| · |
the
term “Berry Plastics Group” refers to Berry Plastics Group, Inc., a
Delaware corporation;
|
| · |
the
term “Merger Sub” refers to BPC Acquisition Corp., a Delaware corporation
and wholly-owned subsidiary of Berry Plastics Group which merged
with and
into BPC Holding Corporation pursuant to the Merger Agreement;
|
| · |
the
term “Apollo” refers to Apollo Management, L.P. and its affiliates;
|
| · |
the
term “Graham Partners” refers to Graham Partners, Inc. and its affiliates;
|
| · |
the
term “Sponsors” refers to Apollo and Graham Partners;
|
| · |
the
term “guarantors” refers to each of the existing and future domestic
subsidiaries of Holdings that will guarantee the notes;
|
| · |
the
term “outstanding notes” refers to the 8
7/8%
Second Priority Senior Secured Fixed Rate Notes due 2014 and the
Second
Priority Senior Secured Floating Rate Notes due 2014 which we issued
previously without registration under the Securities Act.
|
| · |
the
term “exchange notes” refers to 8
7/8%
Second Priority Senior Secured Fixed Rate Notes due 2014 and the
Second
Priority Senior Secured Floating Rate Notes due 2014 that are registered
under the Securities Act of 1933, and which we are hereby offering
to
exchange for the outstanding notes;
|
| · |
the
term “fixed rate notes” refers to the portion of the exchange notes
comprised of the 8
7/8%
Second Priority Senior Secured Fixed Rate Notes due 2014;
|
| · |
the
term “floating rate notes” refers to the portion of the exchange notes
comprised of the Second Priority Senior Secured Floating Rate Notes
due
2014;
|
| · |
the
term “Goldman” refers to The Goldman Sachs Group, Inc. and its
affiliates;
|
| · |
the
term “notes” refers to the outstanding notes and the exchange
notes;
|
| · |
the
term “PE” refers to polyethylene;
|
| · |
the
term “PET” refers to polyethylene terephthalate;
|
-22-
| · |
the
term “PP” refers to polypropylene;
|
| · |
the
term “HDPE” refers to high density polyethylene; and
|
| · |
the
term “LDPE” refers to low density polyethylene.
|
Our
fiscal years are 52- or 53-week periods ending generally on the Saturday
closest
to December 31. All references herein to “fiscal 2005,” “fiscal 2004,” and
“fiscal 2003” relate to the fiscal years ended December 31, 2005, January 1,
2005, and December 27, 2003, respectively.
-23-
Investing
in the notes involves a high degree of risk. You should carefully consider
the
following risk factors and all other information contained and incorporated
by
reference in this prospectus,
including our financial statements and the related notes, before deciding to
participate in the exchange offer. The risks described below are not the only
risks facing us. Additional risks and uncertainties not currently known to
us or
those we currently view to be immaterial may also materially and adversely
affect our business, financial condition or results of operations. If any of
the
following risks materialize, our business, financial condition or results of
operations could be materially and adversely affected. In that case, you may
lose some or all of your investment.
Risks
Related to our Exchange Notes
and the Exchange Offer
If
you fail to exchange your outstanding notes, they will continue to be restricted
securities
and may become less liquid.
Outstanding
notes that you do not tender or that we do not accept will, following the
exchange offer, continue to be restricted securities, and you may not offer
to
sell them except under an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. We will issue the
exchange notes in exchange for the outstanding notes in the exchange offer
only
following the satisfaction of the procedures and conditions set forth in “The
Exchange Offer―Procedures for Tendering Outstanding Notes.” Such procedures and
conditions include timely receipt by the exchange agent of such outstanding
notes and of a properly
completed and duly executed letter of transmittal. Because we anticipate that
most holders of the outstanding notes will elect to exchange their outstanding
notes, we expect that the liquidity of the market for the outstanding notes
remaining after the completion of the exchange offer will be substantially
limited. Any outstanding notes tendered and exchanged in the exchange offer
will
reduce the aggregate principal amount at maturity of the outstanding notes.
Further, following the exchange offer, if you did not tender your outstanding
notes, you generally will not have any further registration rights, and such
outstanding notes will continue to be subject to certain transfer
restrictions.
You
may find it difficult to sell your exchange notes because there is no existing
trading market for the exchange notes.
The
exchange notes are being offered to the holders of the outstanding notes. The
outstanding notes were issued on September 20, 2006, primarily to a small number
of institutional investors. There is no existing trading market for the exchange
notes and there can be no assurance regarding the future development of a market
for the exchange notes, or the ability of the holders of the exchange notes
to
sell their exchange notes or the price at which such holders may be able to
sell
their exchange notes. If such a market were to develop, the exchange notes
could
trade at prices that may be higher or lower than the initial offering price
of
the outstanding notes depending on many factors, including prevailing interest
rates, our financial position, operating results and the market for similar
securities. We do not intend to apply for listing or quotation of the exchange
notes on any exchange and we do not know the extent to which investor interest
will lead to the development of a trading market or how liquid that market
might
be. The initial purchasers of the outstanding notes are not obligated to make
a
market in the exchange notes, and any market-making may be discontinued at
any
time
-24-
without
notice. Therefore, there can be no assurance as to the liquidity of any trading
market for the exchange notes or that an active market for the exchange notes
will develop. As a result, the market price of the exchange notes, as well
as
your ability to sell the exchange notes, could be adversely
affected.
Historically,
the market for non-investment grade debt has been subject to disruptions that
have caused substantial volatility in the prices of such securities. There
can
be no assurance that the market for the exchange notes will not be subject
to
similar disruptions. Any such disruptions may have an adverse effect on holders
of the exchange notes.
Broker-dealers
may become subject to the registration and prospectus delivery
requirements
of the Securities Act and any profit on the resale of the exchange notes may
be
deemed to be underwriting compensation under the Securities
Act.
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 comply
with the registration and prospectus delivery requirements of the Securities
Act
in connection with any resale transaction by that broker-dealer. Any profit
on
the resale of the exchange notes and any commission or concessions received
by a
broker-dealer may be deemed to be underwriting compensation under the Securities
Act.
You
may not receive the exchange notes in the exchange offer if the exchange offer
procedures are not properly followed.
We
will
issue the exchange notes in exchange for your outstanding notes only if you
properly tender the outstanding notes before expiration of the exchange offer.
Neither we nor the exchange agent are under any duty to give notification of
defects or irregularities with respect to the tenders of the outstanding notes
for exchange. If you are the beneficial holder of outstanding notes that are
held through your broker, dealer, commercial bank, trust company or other
nominee, and you wish to tender such notes in the exchange offer, you should
promptly contact the person through whom your outstanding notes are held and
instruct that person to tender on your behalf.
Our
substantial indebtedness could affect our ability to meet our obligations under
the exchange notes and may otherwise restrict our activities.
We
have a
significant amount of indebtedness. On September 20, 2006, we had a total
indebtedness of $1,895.4
million (of which $750.0 million consists of outstanding notes) and we would
have been able to borrow a further $165.1 million under the revolving portion
of
our senior secured credit facilities. We
are
permitted by the terms of the exchange notes and our other debt instruments
to
incur substantial additional indebtedness, subject to the restrictions therein.
Our inability to generate sufficient cash flow to satisfy our debt obligations,
or to refinance our obligations on commercially reasonable terms, would have
a
material adverse effect on our business, financial condition and results of
operations.
Our
substantial indebtedness could have important consequences to you. For example,
it could:
| · |
make
it more difficult for us to satisfy our obligations under our
indebtedness, including
the exchange notes;
|
-25-
| · |
limit
our ability to borrow money for our working capital, capital expenditures,
debt service requirements or other corporate purposes;
|
| · |
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;
|
| · |
limit
our ability to respond to business opportunities; 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.
|
Despite
our substantial indebtedness, we and our subsidiaries may still be able to
incur
significantly more debt. This could intensify the risks described above.
The
terms
of the Indentures governing the exchange notes and the senior subordinated
notes
and the terms of our senior secured credit facilities will contain restrictions
on our and our subsidiaries’ ability to incur additional indebtedness, including
senior secured indebtedness that will be effectively senior to the exchange
notes to the extent of the assets securing such indebtedness. However, these
restrictions will be subject to a number of important qualifications and
exceptions, and the indebtedness incurred in compliance with these restrictions
could be substantial. Accordingly, we or our subsidiaries could incur
significant additional indebtedness in the future, much of which could
constitute secured or senior indebtedness. As of September 20,
2006,
we had $165.1 million available for additional borrowing under the revolving
credit facility, all
of
which is secured. In addition to the exchange notes, the senior subordinated
notes and our borrowings under the senior secured credit facilities, the
covenants under any other existing or future debt instruments could allow us
to
borrow a significant amount of additional indebtedness. The more leveraged
we
become, the more we, and in turn our security holders, become exposed to the
risks described above under “—
Our
substantial indebtedness could affect our ability to meet our obligations under
the exchange notes and may otherwise restrict our activities.”
We
may not be able to generate sufficient cash to service all of our indebtedness,
including the exchange
notes, and may be forced to take other actions to satisfy our obligations under
our indebtedness that may not be successful.
Our
ability to pay principal and interest on the exchange notes and to satisfy
our
other debt obligations will depend upon, among other things:
| · |
our
future financial and operating performance, which will be affected
by
prevailing
economic conditions and financial, business, regulatory and other
factors,
many of which are beyond our control; and
|
| · |
the
future availability of borrowings under our senior secured credit
facilities, which depends on, among other things, our complying with
the
covenants in our senior secured credit facilities.
|
We
cannot
assure you that our business will generate sufficient cash flow from operations,
or that future borrowings will be available to us under our senior secured
credit
-26-
facilities
or otherwise, in an amount sufficient to fund our liquidity needs, including
the
payment of principal and interest on the exchange notes. See “Forward-Looking
Statements” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity and Capital Resources Following the
Acquisition.”
If
our
cash flows and capital resources are insufficient to service our indebtedness,
we may be forced to reduce or delay capital expenditures, sell assets, seek
additional capital or restructure or refinance our indebtedness, including
the
exchange notes. These alternative measures may not be successful and may not
permit us to meet our scheduled debt service obligations. Our ability to
restructure or refinance our debt will depend on the condition of the capital
markets and our financial condition at such time. Any refinancing of our debt
could be at higher interest rates and may require us to comply with more onerous
covenants, which could further restrict our business operations. In addition,
the terms of existing or future debt agreements, including our senior secured
credit facilities and the Indentures governing the exchange notes and the senior
subordinated notes, may restrict us from adopting some of these alternatives.
In
the absence of such operating results and resources, we could face substantial
liquidity problems and might be required to dispose of material assets or
operations to meet our debt service and other obligations. We may not be able
to
consummate those dispositions for fair market value or at all. Furthermore,
any
proceeds that we could realize from any such dispositions may not be adequate
to
meet our debt service obligations then due.
Repayment
of our debt, including the exchange notes, is dependent on cash flow generated
by our subsidiaries.
Our
subsidiaries own a significant portion of our assets and conduct a significant
portion of our operations. Accordingly, repayment of our indebtedness, including
the exchange notes, is dependent, to a significant extent, on the generation
of
cash flow by our subsidiaries and (if they are not guarantors of the exchange
notes) their ability to make such cash available to us, by dividend, debt
repayment or otherwise. Unless they are guarantors of the exchange notes, our
subsidiaries do not have any obligation to pay amounts due on the exchange
notes
or to make funds available for that purpose. Our subsidiaries may not be able
to, or may not be permitted to, make distributions to enable us to make payments
in respect of our indebtedness, including the exchange notes. Each subsidiary
is
a distinct legal entity and, under certain circumstances, legal and contractual
restrictions may limit our ability to obtain cash from our subsidiaries. While
the Indenture governing the exchange notes limits the ability of our
subsidiaries to incur consensual restrictions on their ability to pay dividends
or make other intercompany payments to us, these limitations are subject to
certain qualifications and exceptions. In the event that we do not receive
distributions from our non-guarantor subsidiaries, we may be unable to make
required principal and interest payments on our indebtedness, including the
exchange notes.
The
collateral securing the exchange notes is subject
to control by creditors with first priority liens. If there is a default, the
value of the collateral may not be sufficient to repay both the first priority
creditors and the holders of the exchange notes.
The
exchange notes will be secured on a second priority basis by substantially
all
of the collateral securing our senior secured credit facilities on a first
priority basis. In addition, under the terms of the Indenture governing the
exchange notes, we will be permitted in the future to incur additional
indebtedness and other obligations that may share in the second priority liens
on the collateral securing the exchange notes, and in certain circumstances,
in
the first priority liens on the collateral securing our senior secured credit
facilities.
The
holders of obligations secured by the first priority liens on the collateral
will be entitled to receive proceeds from any realization of the collateral
to
repay their obligations in full before the holders of the exchange notes and
other obligations secured by second priority liens will be entitled to any
recovery from the collateral. We cannot assure you that, in the event of a
foreclosure, the proceeds from the sale
-27-
of
all of
such collateral would be sufficient to satisfy the amounts outstanding under
the
exchange notes and other obligations secured by the second priority liens,
if
any, after payment in full of all obligations secured by the first priority
liens on the collateral. If such proceeds were not sufficient to repay amounts
outstanding under the exchange notes, then holders of the exchange notes
(to the
extent not repaid from the proceeds of the sale of the collateral) would
only
have an unsecured claim against our remaining assets, which claim will rank
equal in priority to the unsecured claims with respect to any unsatisfied
portion of the obligations secured by the first priority liens and our other
unsecured senior indebtedness. On September 20, 2006, the aggregate amount
of
senior secured indebtedness outstanding and constituting first priority lien
obligations was approximately $720.4 million (excluding $165.1 million borrowing
availability under the revolving credit facility). Under the Indenture governing
the exchange notes, we could also incur additional indebtedness secured by
first
priority liens and second priority liens so long as such first and second
priority liens are securing indebtedness permitted to be incurred by the
covenants described under “Description of the Exchange Notes” and certain other
conditions are met. Our ability to designate future debt as either first
priority secured or second priority secured and, in either event, to enable
the
holders thereof to share in the collateral on either a priority basis or
a pari
passu basis with holders of the exchange notes and our senior secured credit
facilities, may have the effect of diluting the ratio of the value of such
collateral to the aggregate amount of the obligations secured by the collateral.
It
may be difficult to realize the value of the collateral
securing the exchange notes.
The
collateral securing the exchange notes will be subject to any and all
exceptions, defects, encumbrances, liens and other imperfections as may be
accepted by the trustee for the exchange notes and any other creditors that
also
have the benefit of first liens on the collateral securing the exchange notes
from time to time, whether on or after the date the exchange notes are issued.
The initial purchasers have neither analyzed the effect of, nor participated
in
any negotiations relating to such exceptions, defects, encumbrances, liens
and
other imperfections. The existence of any such exceptions, defects,
encumbrances, liens and other imperfections could adversely affect the value
of
the collateral securing the exchange notes as well as the ability of the
collateral agent, to realize or foreclose on such collateral.
The
collateral securing the exchange notes does not include all of our or the
guarantors’ assets. In particular, the collateral does not include (i) any
property or assets owned by our foreign subsidiaries and two of our domestic
subsidiaries, (ii) any license, contract or agreement, if and only for so long
as the grant of a security interest under the security documents relating to
the
exchange notes would result in a breach or default under, or abandonment,
invalidation or unenforceability of, such license, contract or agreement, (iii)
any securities or other equity interests of our subsidiaries (including all
guarantor subsidiaries), (iv) any vehicle, (v) any bank accounts, securities
accounts or cash, (vi) real property held by us or any of our subsidiaries
as a
lessee under a lease, and (vii) certain other exceptions described in such
security documents. No appraisals of any collateral have been prepared in
connection with this offering. The value of the collateral at any time will
depend on market and other economic conditions, including the availability
of
suitable buyers. By their nature, some or all of the pledged assets may be
illiquid and may have no readily ascertainable market value. We cannot assure
you that the fair market value of the collateral as of the date of this
prospectus exceeds the principal amount of the debt
-28-
secured
thereby. The value of the assets pledged as collateral for the exchange notes
could be impaired in the future as a result of changing economic conditions,
our
failure to implement our business strategy, competition and other future trends.
In the event that a bankruptcy case is commenced by or against us, if the value
of the collateral is less than the amount of principal and accrued and unpaid
interest on the exchange notes and all other senior secured obligations,
interest may cease to accrue on the exchange notes from and after the date
the
bankruptcy petition is filed.
The
security interest of the collateral agent will be subject to practical problems
generally associated with the realization of security interests in collateral.
For example, the collateral agent may need to obtain the consent of a third
party to obtain or enforce a security interest in a contract. We cannot assure
you that the collateral agent will be able to obtain any such consent. We also
cannot assure you that the consents of any third parties will be given when
required to facilitate a foreclosure on such assets. Accordingly, the collateral
agent may not have the ability to foreclose upon those assets and the value
of
the collateral may significantly decrease.
The
lien-ranking provisions set forth in the Indenture
governing the exchange notes and the intercreditor agreement will substantially
limit the rights of the holders of the exchange notes with respect to the
collateral securing the exchange notes.
The
rights of the holders of the exchange notes with respect to the collateral
securing the exchange notes will be substantially limited pursuant to the terms
of the lien-ranking provisions set forth in the Indenture governing the exchange
notes and the intercreditor agreement. Under those lien-ranking provisions,
at
any time that obligations that have the benefit of the first priority liens
are
outstanding, any actions that may be taken in respect of the collateral,
including the ability to cause the commencement of enforcement proceedings
against the collateral and to control the conduct of such proceedings, and
the
approval of amendments to, releases of collateral from the lien of, and waivers
of past defaults under, the collateral documents, will be at the direction
of
the holders of the obligations secured by the first priority liens. The trustee,
on behalf of the holders of the exchange notes, will not have the ability to
control or direct such actions, even if the rights of the holders of the
exchange notes are adversely affected. Additional releases of collateral from
the second priority lien securing the exchange notes are permitted under some
circumstances. The holders will also waive certain rights normally accruing
to
secured creditors in a bankruptcy. See “Description of the Exchange
Notes—Security for the Exchange Notes.”
Your
rights in the collateral may be adversely affected
by the failure to perfect security interests in collateral.
Applicable
law provides that a security interest in certain tangible and intangible assets
can only be properly perfected and its priority retained through certain actions
undertaken by the secured party. The liens in the collateral securing the
exchange notes may not be perfected with respect to the claims of the exchange
notes if the collateral agent is not able to take the actions necessary to
perfect any of these liens on or prior to the date of the Indenture governing
the exchange notes. There can be no assurance that the lenders under our senior
secured credit facilities will have taken all actions necessary to create
properly perfected security interests in the collateral securing the exchange
notes, which, as a result of the intercreditor agreement, may result in the
loss
of the priority of the security interest in favor of the holders of exchange
notes to which they would have been entitled as a result of such non-perfection.
In addition, applicable law provides that certain property and rights acquired
after the grant of a
-29-
general
security interest, such as real property, equipment subject to a certificate
and
certain proceeds, can only be perfected at the time such property and rights
are
acquired and identified. We and our guarantors have limited obligations to
perfect the security interest of the holders of exchange notes in specified
collateral. There can be no assurance that the trustee, as collateral agent
for
the exchange notes, will monitor, or that we will inform the trustee of, the
future acquisition of property and rights that constitute collateral, and that
the necessary action will be taken to properly perfect the security interest
in
such after-acquired collateral. The collateral agent for the exchange notes
has
no obligation to monitor the acquisition of additional property or rights that
constitute collateral or the perfection of any security interest. Such failure
may result in the loss of the security interest in the collateral or the
priority of the security interest in favor of the exchange notes against third
parties.
Bankruptcy
laws may limit your ability to realize value from the collateral.
The
right
of the collateral agent to repossess and dispose of the collateral upon the
occurrence of an event of default under the Indenture governing the exchange
notes is likely to be significantly impaired by applicable bankruptcy law if
a
bankruptcy case were to be commenced by or against us before the collateral
agent repossessed and disposed of the collateral. Upon the commencement of
a
case under the bankruptcy code, a secured creditor such as the collateral agent
is prohibited from repossessing its security from a debtor in a bankruptcy
case,
or from disposing of security repossessed from such debtor, without bankruptcy
court approval, which may not be given. Moreover, the bankruptcy code permits
the debtor to continue to retain and use collateral even though the debtor
is in
default under the applicable debt instruments, provided that the secured
creditor is given “adequate protection.” The meaning of the term “adequate
protection” may vary according to circumstances, but it is intended in general
to protect the value of the secured creditor’s interest in the collateral as of
the commencement of the bankruptcy case and may include cash payments or the
granting of additional security if and at such times as the bankruptcy court
in
its discretion determines that the value of the secured creditor’s interest in
the collateral is declining during the pendency of the bankruptcy case. A
bankruptcy court may determine that a secured creditor may not require
compensation for a diminution in the value of its collateral if the value of
the
collateral exceeds the debt it secures.
In
view
of the lack of a precise definition of the term “adequate protection” and the
broad discretionary power of a bankruptcy court, it is impossible to predict:
| · |
how
long payments under the exchange notes could be delayed following
commencement
of a bankruptcy case;
|
| · |
whether
or when the collateral agent could repossess or dispose of the collateral;
|
| · |
the
value of the collateral at the time of the bankruptcy petition; or
|
| · |
whether
or to what extent holders of the exchange notes would be compensated
for
any delay in payment or loss of value of the collateral through the
requirement of “adequate protection.”
|
In
addition, the intercreditor agreement provides that, in the event of a
bankruptcy, the trustee, as the collateral agent for the exchange notes, may
not
object to a number of important matters following the filing of a bankruptcy
petition so long as any first lien debt is outstanding. After such a filing,
the
value of the collateral securing the exchange notes could materially deteriorate
and you would be unable to raise an objection. The right of the holders of
obligations secured by first priority liens on the collateral to foreclose
upon
and sell the collateral
-30-
upon
the
occurrence of an event of default also would be subject to limitations under
applicable bankruptcy laws if we or any of our subsidiaries become subject
to a
bankruptcy proceeding.
Any
disposition of the collateral during a bankruptcy case would also require
permission from the bankruptcy court. Furthermore, in the event a bankruptcy
court determines the value of the collateral is not sufficient to repay all
amounts due on first priority lien debt and, thereafter, the exchange notes,
the
holders of the exchange notes would hold a secured claim to the extent of the
value of the collateral to which the holders of the exchange notes are entitled
and unsecured claims with respect to such shortfall. The bankruptcy code only
permits the payment and accrual of post-petition interest, costs and attorney’s
fees to a secured creditor during a debtor’s bankruptcy case to the extent the
value of its collateral is determined by the bankruptcy court to exceed the
aggregate outstanding principal amount of the obligations secured by the
collateral.
Any
future pledge of collateral might be avoidable in bankruptcy.
Any
future pledge of collateral in favor of the collateral agent for the exchange
notes, including pursuant to security documents delivered after the date of
the
Indenture governing the exchange notes, might be avoidable by the pledgor (as
debtor in possession) or by its trustee in bankruptcy if certain events or
circumstances exist or occur, including, among others, if the pledgor is
insolvent at the time of the pledge, the pledge permits the holders of the
exchange notes to receive a greater recovery than if the pledge had not been
given and a bankruptcy proceeding in respect of the pledgor is commenced within
90 days following the pledge, or, in certain circumstances, a longer period.
If
we default on our obligations to pay our other indebtedness,
we may not be able to make payments on the exchange notes.
Any
default under the agreements governing our indebtedness, including a default
under our senior secured credit facilities that is not waived by the required
lenders, and the remedies sought by the holders of such indebtedness could
prohibit us from making payments of principal, premium, if any, or interest
on
the exchange notes and could substantially decrease the market value of the
exchange notes. If we are unable to generate sufficient cash flow and are
otherwise unable to obtain funds necessary to meet required payments of
principal, premium, if any, or interest on our indebtedness, or if we otherwise
fail to comply with the various covenants, including financial and operating
covenants, in the instruments governing our indebtedness (including our senior
secured credit facilities), we could be in default under the terms of the
agreements governing such indebtedness. In the event of such default, the
holders of such indebtedness could elect to declare all the funds borrowed
thereunder to be due and payable, together with accrued and unpaid interest.
More specifically, the lenders under the revolving credit facility could elect
to terminate their commitments, cease making further loans and institute
foreclosure proceedings against our assets, and we could be forced into
bankruptcy or liquidation. If our operating performance declines, we may in
the
future need to seek waivers from the required lenders under our senior secured
credit facilities to avoid being in default. If we breach our covenants under
our senior secured credit facilities and seek a waiver, we may not be able
to
obtain a waiver from the required lenders. If this occurs, we would be in
default under our senior secured credit facilities, the lenders could exercise
their rights as described above, and we could be forced into bankruptcy or
liquidation. See “Description of Other Indebtedness” and “Description of the
Exchange Notes.”
-31-
The
exchange notes will be structurally subordinated to all liabilities of our
non-guarantor subsidiaries.
The
exchange notes are structurally subordinated to the indebtedness and other
liabilities of our subsidiaries that are not guaranteeing the exchange notes,
which include two of our domestic subsidiaries and all of our non-U.S.
subsidiaries. These non-guarantor subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts
due
pursuant to the exchange notes, or to make any funds available therefor, whether
by dividends, loans, distributions or other payments. In fiscal 2005, the
subsidiaries that are not guaranteeing the exchange notes had net sales of
$27.3
million and held $56.0 million of our total assets. Any right that we or the
subsidiary guarantors have to receive any assets of any of the non-guarantor
subsidiaries upon the liquidation or reorganization of those subsidiaries,
and
the consequent rights of holders of exchange notes to realize proceeds from
the
sale of any of those subsidiaries’ assets, will be effectively subordinated to
the claims of those subsidiaries’ creditors, including trade creditors and
holders of preferred equity interests of those subsidiaries. Accordingly, in
the
event of a bankruptcy, liquidation or reorganization of any of our non-guarantor
subsidiaries, these non-guarantor subsidiaries will pay the holders of their
debts, holders of preferred equity interests and their trade creditors before
they will be able to distribute any of their assets to us.
Federal
and state fraudulent transfer laws permit a court, under certain circumstances,
to void the exchange
notes and the guarantees of the exchange notes, and, if that occurs, you may
not
receive any payments on the exchange notes.
The
issuance of the exchange notes and the guarantees of the exchange notes may
be
subject to review under federal and state fraudulent transfer and conveyance
statutes if a bankruptcy, liquidation or reorganization case or a lawsuit,
including under circumstances in which bankruptcy is not involved, were
commenced at some future date by us, by the exchange Note Guarantors or on
behalf of our unpaid creditors or the unpaid creditors of an exchange Note
Guarantor. While the relevant laws may vary from state to state, under such
laws
the payment of consideration in the Acquisition, including the proceeds from
the
issuance of the exchange notes will generally be a fraudulent conveyance if
(i) the consideration was paid with the intent of hindering, delaying or
defrauding creditors or (ii) we or any of our subsidiary exchange Note
Guarantors, as applicable, received less than reasonably equivalent value or
fair consideration in return for issuing either the exchange notes or an
exchange note guarantee, and, in the case of (ii) only, one of the
following is also true:
| · |
we
or any of our subsidiary exchange Note Guarantors were or was insolvent
or
rendered insolvent by reason of issuing the exchange notes or the
exchange
note guarantees;
|
| · |
payment
of the consideration left us or any of our subsidiary exchange Note
Guarantors with an unreasonably small amount of capital to carry
on the
business; or
|
| · |
we
or any of our subsidiary exchange Note Guarantors intended to, or
believed
that we or it would, incur debts beyond our or its ability to pay
as they
mature.
|
If
a
court were to find that the issuance of the exchange notes or an exchange note
guarantee was a fraudulent conveyance, the court could void the payment
obligations under the exchange notes or such exchange note guarantee or further
subordinate the exchange notes or such exchange note guarantee to presently
existing and future indebtedness of ours or such subsidiary exchange Note
Guarantor, or require the holders of the exchange notes to repay
any
-32-
amounts
received with respect to the exchange notes or such exchange note guarantee.
In
the event of a finding that a fraudulent conveyance occurred, you may not
receive any repayment on the exchange notes. Further, the voidance of the
exchange notes could result in an event of default with respect to our other
debt and that of our subsidiary exchange Note Guarantors that could result
in
acceleration of such debt.
The
measures of insolvency for purposes of fraudulent conveyance laws vary depending
upon the law of the jurisdiction that is being applied. Generally, an entity
would be considered insolvent if, at the time it incurred indebtedness:
| · |
the
sum of its debts, including contingent liabilities, was greater than
the
fair saleable
value of all 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
and
liabilities, including contingent liabilities, as they become absolute
and
mature; or
|
| · |
it
could not pay its debts as they become due.
|
We
cannot
be certain as to the standards a court would use to determine whether or not
we
or the subsidiary guarantors were solvent at the relevant time, or regardless
of
the standard used, that the issuance of the exchange notes and the guarantees
would not be subordinated to our or any subsidiary guarantor’s other debt.
If
the
exchange note guarantees were legally challenged, any exchange note guarantee
could also be subject to the claim that, since the exchange note guarantee
was
incurred for our benefit, and only indirectly for the benefit of the subsidiary
exchange Note Guarantor, the obligations of the applicable subsidiary exchange
Note Guarantor were incurred for less than fair consideration. A court could
thus void the obligations under the exchange note guarantees, subordinate them
to the applicable subsidiary exchange Note Guarantor’s other debt or take other
action detrimental to the holders of the exchange notes.
Because
each exchange Note Guarantor’s liability under its exchange note guarantees may
be reduced to zero, avoided or released under certain circumstances,
you may not receive any payments from some or all of the exchange Note
Guarantors.
You
have
the benefit of the exchange note guarantees of the exchange Note Guarantors.
However, the exchange note guarantees by the exchange Note Guarantors are
limited to the maximum amount that the exchange Note Guarantors are permitted
to
guarantee under applicable law. As a result, an exchange Note Guarantor’s
liability under its exchange note guarantee could be reduced to zero, depending
on the amount of other obligations of such exchange Note Guarantor. Further,
under the circumstances discussed more fully above, a court under Federal or
state fraudulent conveyance and transfer statutes could void the obligations
under an exchange note guarantee or further subordinate it to all other
obligations of the exchange Note Guarantor. In addition, you will lose the
benefit of a particular exchange note guarantee if it is released under certain
circumstances described under “Description of the Exchange Notes—Exchange Note
Guarantees.”
-33-
The
terms of our senior secured credit facilities and the Indentures governing
the
exchange notes and the senior subordinated notes may restrict our current and
future operations, particularly our ability to respond to changes in our
business or to take certain actions.
Our
senior secured credit facilities and the Indentures governing the exchange
notes
and the senior subordinated notes will contain, and any future indebtedness
of
ours would likely contain, a number of restrictive covenants that will impose
significant operating and financial restrictions on us, including restrictions
on our ability to, among other things:
| · |
incur
or guarantee additional debt;
|
| · |
pay
dividends and make other restricted payments;
|
| · |
create
or incur certain liens;
|
| · |
make
certain investments;
|
| · |
engage
in sales of assets and subsidiary stock;
|
| · |
enter
into transactions with affiliates;
|
| · |
transfer
all or substantially all of our assets or enter into merger or
consolidation transactions; and
|
| · |
make
capital expenditures.
|
In
addition, our senior secured credit facilities will require us to maintain
a
maximum total net first lien leverage ratio. As a result of these covenants,
we
will be limited in the manner in which we conduct our business, and we may
be
unable to engage in favorable business activities or finance future operations
or capital needs.
A
failure
to comply with the covenants contained in our senior secured credit facilities,
the Indentures governing the exchange notes and the senior subordinated notes
or
any other existing indebtedness could result in an event of default under our
senior secured credit facilities, the Indentures governing the exchange notes
and the senior subordinated notes or any other existing agreements, which,
if
not cured or waived, could have a material adverse affect on our business,
financial condition and results of operations. In the event of any default
under
our senior secured credit facilities, the Indentures governing the exchange
notes and senior subordinated notes or any other indebtedness, the lenders
thereunder:
| · |
will
not be required to lend any additional amounts to us;
|
| · |
could
elect to declare all borrowings outstanding, together with accrued
and
unpaid interest and fees, to be due and payable;
|
| · |
may
have the ability to require us to apply all of our available cash
to repay
these borrowings; or
|
| · |
may
prevent us from making debt service payments under our other agreements,
including the Indenture governing the exchange notes, any of which
could
result in an event of default under the exchange notes.
|
If
the
indebtedness under our senior secured credit facilities or our other
indebtedness, including the exchange notes, were to be accelerated, there can
be
no assurance that our assets would be sufficient to repay such indebtedness
in
full. See “Description of Other Indebtedness” and “Description of the Exchange
Notes.”
-34-
We
may not be able to repurchase the exchange notes upon a change of control.
Upon
a
change of control as defined in the Indenture governing the exchange notes,
we
will be required to make an offer to repurchase all outstanding exchange notes
at 101% of their principal amount and an offer to repurchase all outstanding
senior subordinated notes at 101% of their principal amount, in each case plus
accrued and unpaid interest, unless we have previously given notice of our
intention to exercise our right to redeem the exchange notes. We may not have
sufficient financial resources to purchase all of the exchange notes that are
tendered upon a change of control offer or, if then permitted under the
Indenture governing the exchange notes, to redeem the exchange notes. A failure
to make the applicable change of control offer or to pay the applicable change
of control purchase price when due would result in a default under each of
the
Indentures. The occurrence of a change of control would also constitute an
event
of default under our senior secured credit facilities and may constitute an
event of default under the terms of our other indebtedness. The terms of the
loan and security agreement governing our senior secured credit facilities
limit
our right to purchase or redeem certain indebtedness. In the event any purchase
or redemption is prohibited, we may seek to obtain waivers from the required
lenders under our senior secured credit facilities to permit the required
repurchase or redemption, but the required lenders have no obligation to grant,
and may refuse to grant such a waiver. A change of control is defined in the
Indenture governing the exchange notes and would not include all transactions
that could involve a change of control of our day-to-day operations, including
a
transaction involving the Management Group as defined in the Indenture governing
the exchange notes. See “Description of the Exchange Notes—Change of Control.”
There
may be no active trading market for the exchange
notes, and if one develops, it may not be liquid.
The
exchange notes constitute a new issue of securities for which there is no
established trading market. We do not intend to list the exchange notes on
any
national securities exchange or to seek the admission of the exchange notes
for
quotation through the National Association of Securities Dealers Automated
Quotation System. Although the initial purchasers have advised us that they
currently intend to make a market in the exchange notes, they are not obligated
to do so and may discontinue such market making activity at any time without
notice. In addition, market-making activity will be subject to the limits
imposed by the Securities Act and the Securities Exchange Act of 1934, as
amended, or the Exchange Act, and may be limited during the exchange offer
and
the pendency of any shelf registration statement. Although we expect that the
notes will be eligible for trading in PORTAL, there can be no assurance as
to
the development or liquidity of any market for the exchange notes, the ability
of the holders of the exchange notes to sell their exchange notes or the price
at which the holders would be able to sell their exchange notes. Future trading
prices of the exchange notes will depend on many factors, including:
| · |
our
operating performance and financial condition;
|
| · |
our
ability to complete this offer to exchange the outstanding notes
for the
exchange notes;
|
| · |
the
interest of securities dealers in making a market; and
|
| · |
the
market for similar securities.
|
Historically,
the market for non-investment grade debt has been subject to disruptions that
have caused substantial volatility in the prices of securities similar to the
exchange notes
offered
hereby. The market for the exchange notes, if any, may be subject to similar
disruptions. Any such disruptions may adversely affect the value of your
exchange notes.
RISKS
RELATED TO OUR BUSINESS
Increases
in resin prices or a shortage of available resin could harm our financial
condition and results of operations.
To
produce our products, we use large quantities of plastic resins, which accounted
for 41% of our cost of goods sold in fiscal 2005. Plastic resins are subject
to
price fluctuations, including those arising from supply shortages and changes
in
the prices of natural gas, crude
-35-
oil
and
other petrochemical intermediates from which resins are produced. Over the
past
several years, we have at times experienced rapidly increasing resin prices.
If
rapid increases in resin prices continue, our revenue and profitability may
be
materially and adversely affected, both in the short-term as we attempt to
pass
through changes in the price of resin to customers under current agreements
and
in the long-term as we negotiate new agreements or if our customers seek
product
substitution.
While
customers representing more than 60% of our net sales are subject to contractual
price escalators and de-escalators tied to resin prices, and while historically,
we have generally been able to pass on a significant portion of the increases
in
resin prices to our customers over a period of time, there have nonetheless
been
negative short-term impacts to our financial performance. Certain of our
customers (currently accounting for fewer than 10% of our net sales) purchase
our products pursuant to arrangements that exhibit fixed-price characteristics
in respect of which we have at times and may continue to enter into hedging
or
similar arrangements, although such hedging arrangements may not always be
available. 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
may have a material adverse effect on our competitive position and financial
performance.
We
source
plastic resin primarily from major industry suppliers such as Basell, Chevron,
Dow, Exxon, Mobil, Huntsman, Lyondell, Nova, Sunoco and Total. We have
long-standing relationships with certain of these suppliers but have not entered
into a firm supply contract with any of them. 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
materially negatively impact our competitive position versus companies that
are
able to better or more cheaply source resin.
We
plan
to pursue opportunities to purchase resin jointly with other Apollo portfolio
companies. While
we
anticipate that these joint-purchasing opportunities should generate benefits
in
terms of our ability to manage our material, we
cannot
assure you that we will be able to execute such arrangements effectively or
that
we will realize any or all of the anticipated benefits from them.
We
may not be able to compete successfully and our customers may not continue
to
purchase our products.
We
face
intense competition in the sale of our products and compete with multiple
companies in each of our product lines. We compete on the basis of a number
of
considerations, including price, service, quality, product characteristics
and
the ability to supply
-36-
products
to customers in a timely manner. Our products also compete with metal, glass,
paper and other packaging materials as well as plastic packaging materials
made
through different manufacturing processes. Some of these competitive products
are not subject to the impact of changes in resin prices which may have a
significant and negative impact on our competitive position versus substitute
products. Our competitors may have financial and other resources that are
substantially greater than ours and may be better able than us to withstand
price competition. In addition, some of our customers do and could in the future
choose to manufacture the products they require for themselves. Each of our
product lines faces a different competitive landscape. 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 do not have long-term
arrangements with many of our customers these competitive factors could cause
our customers to shift suppliers and/or packaging material quickly.
We
may pursue and execute acquisitions, which could adversely affect our business.
As
part
of our growth strategy, we plan to consider the acquisition of other companies,
assets and product lines that either complement or expand our existing business
and create economic value. We cannot assure you that we will be able to
consummate any such transactions or that any future acquisitions will be
consummated at acceptable prices and terms. We continually evaluate potential
acquisition opportunities in the ordinary course of business, including those
that could be material in size and scope. Acquisitions involve a number of
special risks, including:
| · |
the
diversion 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;
|
| · |
possible
adverse effects on our reported operating results, particularly during
the
first several reporting periods after such acquisitions are completed;
and
|
| · |
the
loss of key employees and the difficulty of presenting a unified
corporate
image.
|
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 historical
acquisitions and any future acquisitions. We have typically required selling
stockholders to indemnify us against certain undisclosed liabilities. However,
we cannot assure you that indemnification rights we have obtained, or will
in
the future obtain, will 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.
In
addition, we may not be able to successfully integrate future acquisitions
without substantial costs, delays or other problems. The costs of such
integration could have a material adverse effect on our operating results and
financial condition. 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
-37-
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.
We
may not be successful in protecting our intellectual
property rights, including our unpatented proprietary know-how and trade
secrets, or in avoiding claims that we infringed on the intellectual property
rights of others.
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 third parties. While we attempt to ensure that our
intellectual property and similar proprietary rights are protected 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. 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.
Our
success depends in part on our ability to obtain, or license from third parties,
patents, trademarks, trade secrets and similar proprietary rights without
infringing on the proprietary rights of third parties. Although we believe
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 such persons. Furthermore, no assurance can
be
given that we will not be subject to claims asserting the infringement of the
intellectual property rights of third parties seeking damages, the payment
of
royalties or licensing fees and/or injunctions against the sale of our products.
Any such litigation could be protracted and costly and could have a material
adverse effect on our business and results of operations.
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 treatment, storage and disposal
of
solid and hazardous wastes and require clean up of contaminated sites. While
we
have not been required historically to make significant capital expenditures
in
order to comply with applicable environmental laws and regulations, we cannot
predict with any certainty our future capital expenditure requirements because
of continually changing compliance standards and environmental technology.
Furthermore, violations or contaminated sites that we do not know about
(including contamination caused by prior owners and operators of such sites)
(or
newly discovered information) could result in additional compliance or
remediation costs or other liabilities, which
-38-
could
be
material. We have limited insurance coverage for potential environmental
liabilities associated with historic and current operations and we do not
anticipate increasing such coverage in the future. We may also assume
significant environmental liabilities in acquisitions. In addition, federal,
state, local and foreign governments could enact laws or regulations concerning
environmental matters that increase the cost of producing, or otherwise
adversely affect the demand for, plastic products. Legislation that would
prohibit, tax or restrict the sale or use of certain types of plastic and other
containers, and would require diversion of solid wastes such as packaging
materials from disposal in landfills, has been or may be introduced in the
U.S.
Congress, in state legislatures and other legislative bodies. While container
legislation has been adopted in a few jurisdictions, similar legislation has
been defeated in public referenda in several states, local elections and many
state and local legislative sessions. Although we believe that the laws
promulgated to date have not had a material adverse effect on us, there can
be
no assurance that future legislation or regulation would not have a material
adverse effect on us. Furthermore, a decline in consumer preference for plastic
products due to environmental considerations could have a negative effect on
our
business.
The
Food
and Drug Administration (“FDA”) regulates the material content of direct-contact
food and drug packages we manufacture pursuant to the Federal Food, Drug and
Cosmetic Act. Furthermore, some of our products are regulated by the Consumer
Product Safety Commission (“CPSC”) pursuant to various federal laws, including
the Consumer Product Safety Act and the Poison Prevention Packaging 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
our products that directly contact food and drug 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 not to be 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.”
In
the event of a catastrophic loss of one of our key manufacturing facilities,
our
business would be adversely affected.
While
we
manufacture our products in a large number of diversified facilities and
maintain insurance covering our facilities, including business interruption
insurance, a catastrophic loss of the use of all or a portion of one of our
key
manufacturing facilities due to accident, labor issues, weather conditions,
natural disaster or otherwise, whether short or long-term, could have a material
adverse effect on us.
Our
future required cash contributions to our pension
plans may increase.
Congress
recently passed legislation (which was signed into law by President Bush) to
reform funding requirements for underfunded pension plans. The legislation,
among other things, increases the percentage funding target from 90% to 100%
and
requires the use of a more current mortality table in the calculation of minimum
yearly funding requirements. In fiscal 2005, we contributed $0.5 million to
our
U.S. defined benefit pension plans. Our future required cash contributions
to
our U.S. defined benefit pension plans may increase based on the funding reform
provisions that were enacted into law. In addition, if the performance of assets
in our
-39-
pension
plans does not meet our expectations, if the Pension Benefit Guaranty
Corporation, or PBGC, requires additional contributions to such plans as a
result of the Acquisition, or if other actuarial assumptions are modified,
our
future required cash contributions could increase. Any such increases could
have
a material and adverse effect on our business, financial condition or results
of
operations.
The
need
to make these cash contributions may reduce the cash available to meet our
other
obligations, including our obligations with respect to the exchange notes,
or to
meet the needs of our business. In addition, the PBGC may terminate our defined
benefit pension plans under limited circumstances, including in the event the
PBGC concludes that its risk may increase unreasonably if such plans continue.
In the event a plan is terminated for any reason while it is underfunded, we
could be required to make an immediate payment to the PBGC of all or a
substantial portion of such plan’s underfunding, as calculated by the PBGC based
on its own assumptions (which might result in a larger pension obligation than
that based on the assumptions we have used to fund such plan), and the PBGC
could assert a lien on material amounts of our assets.
Our
business operations could be significantly disrupted
if members of our senior management team were to leave.
Our
success depends to a significant degree upon the continued contributions of
our
senior management team. Our senior management team has extensive manufacturing,
finance and engineering experience, and we believe that the depth of our
management team is instrumental to our continued success. While we have entered
into employment agreements with certain executive officers, the loss of any
of
our key executive officers in the future could significantly impede our ability
to successfully implement our business strategy, financial plans, expansion
of
services, marketing and other objectives.
Goodwill
and other intangibles represent a significant
amount of our net worth, and a write-off could result in lower reported net
income and a reduction of our net worth.
As
of
July 1, 2006, on a pro forma basis, the net value of our goodwill and other
intangibles was approximately $1,848.3 million. In
July
2001, the Financial Accounting Standards Board issued Statements of Financial
Accounting Standards No. 142, Goodwill
and Other Intangible Assets.
Under
this accounting 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 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
non-cash 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.
We
are controlled by Apollo, and its interests as an equity holder may conflict
with yours as a creditor.
A
majority of the common stock of our parent company, Berry Plastics Group, on
a
fully-diluted basis, is held by Apollo. Apollo controls Berry Plastics Group
and
therefore us as a wholly-owned subsidiary of Berry Plastics Group. As a result,
Apollo has the power to elect a
-40-
majority
of the members of our board of directors, appoint new management and approve
any
action requiring the approval of the holders of Berry Plastics Group’s stock,
including approving acquisitions or sales of all or substantially all of our
assets. The directors elected by Apollo have the ability to control decisions
affecting our capital structure, including the issuance of additional capital
stock, the implementation of stock repurchase programs and the declaration
of
dividends. Apollo’s interests may not in all cases be aligned with your
interests as a holder of the exchange notes. For example, if we encounter
financial difficulties or are unable to pay our debts as they mature, Apollo’s
interests, as equity holders, might conflict with your interests as a holder
of
the exchange notes. Affiliates of Apollo may also have an interest in pursuing
acquisitions, divestitures, financings and other transactions that, in their
judgment, could enhance their equity investments, even though such transactions
might involve risks to you as a holder of the exchange notes. Additionally,
Apollo is in the business of investing in companies and may, from time to time,
acquire and hold interests in businesses that compete directly or indirectly
with us. Furthermore, Apollo has no continuing obligation to provide us with
debt or equity financing or to provide us with joint purchasing or similar
opportunities with its other portfolio companies. Apollo may also pursue
acquisition opportunities that may be complementary to our business and, as
a
result, those acquisition opportunities may not be available to us.
-41-
Purpose
and Effect of the Exchange Offer
We
entered into a registration rights agreement with the initial purchasers of
the
outstanding notes, in which we agreed to file a registration statement relating
to an offer to exchange the outstanding notes for the exchange notes. The
registration statement of which this prospectus forms a part was filed in
compliance with this obligation. We also agreed to use our commercially
reasonable efforts to file the registration statement as soon as practicable
with the SEC and to use all commercially reasonable efforts to cause it to
become effective under the Securities Act as promptly as possible but in no
event later than the 365th
day
after September 20, 2006. The exchange notes will have terms substantially
identical to the outstanding notes except that the exchange notes do not contain
terms with respect to transfer restrictions and registration rights and
additional interest payable for the failure to consummate the exchange offer.
Within
180 days of the occurrence of any of the circumstances outlined below, we have
agreed to file a shelf registration statement with the SEC to cover the resale
of the outstanding notes by the holders thereof. We have further agreed that
we
will use our commercially reasonable efforts to cause the SEC to declare such
a
shelf registration statement effective within 365 days of the occurrence of
such
an event and to keep the shelf registration statement effective for up to two
years after the effective date of the shelf registration statement. The
circumstances are:
| · |
the
exchange offer is not permitted by applicable law or SEC policy;
|
| · |
the
exchange offer is not consummated within 30 days of the date on which
the
exchange offer is required to be mailed to the holders of outstanding
notes; or
|
| · |
any
holder of outstanding notes notifies us prior to the 20th day following
consummation of the exchange offer that:
|
| (a) |
it
is prohibited by law or SEC policy from participating in the exchange
offer; or
|
| (b) |
that
it may not resell the exchange notes acquired by it in the exchange
offer
to the public without delivering a prospectus (other than by reason
of
such holder’s status as our affiliate) and the prospectus contained in
this exchange offer registration statement is not appropriate or
available
for such resales; or
|
| (c) |
that
it is a broker-dealer and owns outstanding notes acquired directly
from us
or our affiliate.
|
Transferability
of the Exchange Notes
We
are
making this exchange offer in reliance on interpretations of the staff of the
SEC set forth in several no-action letters. However, we have not sought our
own
no-action letter. Based upon these interpretations, we believe that you, or
any
other person receiving exchange notes, may offer for resale, resell or otherwise
transfer such exchange notes without complying with the registration and
prospectus delivery requirements of the U.S. federal securities laws,
if:
-42-
| · |
you,
or the person or entity receiving such exchange notes, is acquiring
such
exchange
notes in the ordinary course of business;
|
| · |
neither
you nor any such person or entity is participating in or intends
to
participate
in a distribution of the exchange notes within the meaning of the
U.S.
federal securities laws;
|
| · |
neither
you nor any such person or entity has an arrangement or understanding
with
any person or entity to participate in any distribution of the exchange
notes;
|
| · |
neither
you nor any such person or entity is our “affiliate” as such term is
defined under Rule 405 under the Securities Act;
and
|
| · |
you
are not acting on behalf of any person or entity who could not truthfully
make these statements.
|
In
order
to participate in the exchange offer, each holder of exchange notes must
represent to us that each of these statements is true:
| · |
such
holder is not an affiliate of ours;
|
| · |
such
holder is not engaged in and does not intend to engage in, and has
no
arrangement or understanding with any person to participate in a
distribution of the exchange notes;
and
|
| · |
any
exchange notes such holder receives will be acquired in the ordinary
course business.
|
Broker-dealers
and each holder of outstanding notes intending to use the exchange offer to
participate in a distribution of exchange notes (1) may not rely under the
SEC’s
policy, as of September 20, 2006, on the applicable interpretation of the staff
of the SEC’s position contained in Exxon Capital Holdings Corp., SEC no-action
letter (April 13, 1988), Morgan, Stanley & Co. Inc., SEC no-action letter
(June 5, 1991) and Shearman & Sterling, SEC no-action letter (July 2, 1993)
and (2) must comply with the registration and prospectus requirements of the
Securities Act in connection with a secondary resale transaction and will
deliver a prospectus in connection with any such resale of the 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 the exchange notes
received in exchange for the outstanding notes where such outstanding notes
were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. We have agreed that for a period of not less than 180 days
after the expiration date for the exchange offer, we will make this prospectus
available to broker-dealers for use in connection with any such resale, if
requested by the initial purchasers or by a broker-dealer that receives the
exchange notes for its own account in the exchange offer in exchange for the
outstanding notes, as a result of market-making activities or other trading
activities.
Maturity
and Interest on the Exchange Notes
Interest
will accrue at a per annum rate of 87/8%
on the
fixed rate exchange notes and LIBOR (reset quarterly) plus 3.875% on the
floating rate exchange notes from the most recent date to which interest on
the
outstanding notes has been paid or, if no interest has been paid, from September
20, 2006.
Interest
on the fixed rate exchange notes will be paid semiannually to holders of record
at the close of business on March 1 and September 1 immediately preceding the
interest payment date on March 15 and September 15 of each year, commencing
on
March 15, 2007.
-43-
Interest
on the floating rate exchange notes will be paid quarterly to holders of record
at the close of business on March 1, June 1, September 1 and December 1
immediately preceding the interest payment date on March 15, June 15, September
15 and December 15 of each year, commencing on December 15, 2006.
The
exchange notes will mature on September 15, 2014.
Terms
of the Exchange Offer; Acceptance of Tendered
Notes
Upon
the
terms and subject to the conditions of the exchange offer, we will accept any
and all outstanding notes validly tendered and not withdrawn prior to 5:00
p.m.,
New York City time, on February 9, 2007. The date of acceptance for exchange
of
the outstanding notes, and completion of the exchange offer, is the exchange
date, which will be the first business day following the expiration date (unless
extended as described in this prospectus). We will issue, on or promptly after
the exchange date, an aggregate principal amount of up to $750,000,000 of
exchange notes in exchange for a like principal amount of outstanding notes
tendered and accepted in the exchange offer. Holders may tender some or all
of
their outstanding notes pursuant to the exchange offer. However, outstanding
notes may be tendered only in integral multiples of $1,000, subject to a minimum
denomination of $2,000.
The
form
and terms of the exchange notes will be identical in all material respects
to
the form and terms of the outstanding notes except that:
| · |
the
exchange notes have been registered under the U.S. federal securities
laws
and will not bear any legend restricting their
transfer;
|
| · |
the
exchange notes bear a different CUSIP number from the outstanding
notes;
|
| · |
the
exchange notes will not be subject to transfer restrictions or entitled
to
registration rights; and
|
| · |
the
holders of the exchange notes will not be entitled to certain rights
under
the registration rights agreement, including the provisions for an
increase in the interest rate on the outstanding notes in some
circumstances relating to the timing of the exchange
offer.
|
The
exchange notes will evidence the same debt as the outstanding notes. Holders
of
exchange notes will be entitled to the benefits of the Indenture.
As
of the
date of this prospectus, $750.0 million aggregate principal amount of the
outstanding notes was outstanding. The exchange notes offered will be limited
to
$750.0 million in aggregate principal amount.
In
connection with the issuance of the outstanding notes, we have arranged for
the
outstanding notes to be issued in the form of global notes through the
facilities of The Depository Trust Company, or “DTC” acting as depositary. The
exchange notes will also be issued in the form of global notes registered in
the
name of DTC or its nominee and each beneficial owner’s interest in it will be
transferable in book-entry form through DTC.
Holders
of outstanding notes do not have any appraisal or dissenters’ rights in
connection with the exchange offer. Outstanding notes which are not tendered
for
exchange or are tendered but not accepted in connection with the exchange offer
will remain outstanding and be entitled to the benefits of the Indenture under
which they were issued, including accrual of interest, but, subject to a limited
exception, will not be entitled to any registration rights under the applicable
registration rights agreement. See “Effect of Not Tendering.”
-44-
We
will
be deemed to have accepted validly tendered outstanding notes when and if we
have given oral or written notice to the exchange agent of our acceptance.
The
exchange agent will act as agent for the tendering holders for the purpose
of
receiving the exchange notes from us. If any tendered outstanding notes are
not
accepted for exchange because of an invalid tender, the occurrence of other
events described in this prospectus or otherwise, we will return the
certificates for any unaccepted outstanding notes, at our expense, to the
tendering holder promptly after expiration of the exchange offer.
Holders
who tender outstanding notes in the exchange offer will not be required to
pay
brokerage commissions or fees with respect to the exchange of outstanding notes.
Tendering holders will also not be required to pay transfer taxes in the
exchange offer. We will pay all charges and expenses in connection with the
exchange offer as described under the subheading “Solicitation of Tenders; Fees
and Expenses.” However, we will not pay any taxes incurred in connection with a
holder’s request to have exchange notes or non-exchanged notes issued in the
name of a person other than the registered holder. See “Transfer Taxes” in this
section below.
Expiration
Date; Extensions; Amendment
The
exchange offer will expire at 5:00 p.m., New York City time, on February 9,
2007, or the “expiration date,” unless we extend the exchange offer. To extend
the exchange offer, we will notify the exchange agent and each registered holder
of outstanding notes of any extension before 9:00 a.m. New York City time,
on
the next business day after the previously scheduled expiration date. We reserve
the right to extend the exchange offer, delay accepting any tendered outstanding
notes or, if any of the conditions described below under the heading “Conditions
to the Exchange Offer” have not been satisfied, to terminate the exchange offer.
Subject to the terms of the registration rights agreement, we also reserve
the
right to amend the terms of the exchange offer in any manner. We
will
give oral or written notice of such delay, extension, termination or amendment
to the exchange agent.
If
we
amend the exchange offer in a manner that we consider material, we will disclose
such amendment by means of a prospectus supplement, and we will extend the
exchange offer for a period of five to ten business days.
If
we
determine to make a public announcement of any delay, extension, amendment
or
termination of the exchange offer, we will do so by making a timely release
through an appropriate news agency.
If
we
delay accepting any outstanding notes or terminate the exchange offer, we
promptly will pay the consideration offered, or return any outstanding notes
deposited, pursuant to the exchange offer as required by Rule 14e-1(c) under
the
Exchange Act.
Procedures
for Tendering Outstanding Notes
We
understand that the exchange agent has confirmed with DTC that any financial
institution that is a participant in DTC’s system may use its Automated Tender
Offer Program, or “ATOP,” to tender outstanding notes. We further understand
that the exchange agent will request, within two business days after the date
the exchange offer commences, that DTC establish an account relating to the
outstanding notes for the purpose of facilitating the exchange offer, and any
participant may make book-entry delivery of outstanding notes by
-45-
causing
DTC to transfer the outstanding notes into the exchange agent’s account in
accordance with ATOP procedures for transfer. Although delivery of the
outstanding notes may be effected through book-entry transfer into the exchange
agent’s account at DTC, unless an agent’s message is received by the exchange
agent in compliance with ATOP procedures, an appropriate letter of transmittal
properly completed and duly executed with any required signature guarantee
and
all other required documents must in each case be transmitted to and received
or
confirmed by the exchange agent at its address set forth below on or prior
to
the expiration date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under the
procedures.
The
term
“agent’s message” means a message, transmitted by DTC and received by the
exchange agent and forming part of a book-entry confirmation, stating that
DTC
has received an express acknowledgment from a participant tendering outstanding
notes that are the subject of the book-entry confirmation and that the
participant has received and agrees to be bound by the terms of the letter
of
transmittal and that we may enforce such agreement against the participant.
An
agent’s message must, in any case, be transmitted to and received or confirmed
by the exchange agent, at its address set forth under the caption “Exchange
Agent” below, prior to 5:00 p.m., New York City time, on the expiration date.
Delivery of documents to DTC in accordance with its procedures does not
constitute delivery to the exchange agent.
Unless
the tender is being made in book-entry form, to tender in the exchange offer,
you must:
| · |
complete,
sign and date the letter of transmittal, or a facsimile of the letter
of
transmittal;
|
| · |
have
the signatures guaranteed if required by the letter of transmittal;
and
|
| · |
mail
or otherwise deliver the letter of transmittal or such facsimile,
together
with the outstanding notes and any other required documents, to the
exchange agent prior to 5:00 p.m., New York City time, on the expiration
date.
|
By
executing the letter of transmittal, you will make to us the representations
set
forth in the second paragraph under the heading “Transferability of the Exchange
Notes.”
All
tenders not withdrawn before the expiration date and the acceptance of the
tender by us will constitute agreement between you and us under the terms and
subject to the conditions in this prospectus and in the letter of transmittal
including an agreement to deliver good and marketable title to all tendered
notes prior to the expiration date free and clear of all liens, charges, claims,
encumbrances, adverse claims and rights and restrictions of any
kind.
The
method of delivery of outstanding notes and the letter of transmittal and all
other required documents to the exchange agent is at the election and sole
risk
of the holder. Instead of delivery by mail, you should use an overnight or
hand
delivery service. In all cases, you should allow for sufficient time to ensure
delivery to the exchange agent before the expiration of the exchange offer.
You
may request your broker, dealer, commercial bank, trust company or nominee
to
effect these transactions for you. You should not send any note, letter of
transmittal or other required document to us.
Any
beneficial owner whose outstanding notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder to tender on behalf of
-46-
the
beneficial owner. If the beneficial owner wishes to tender on that owner’s own
behalf, the beneficial owner must, prior to completing and executing the letter
of transmittal and delivering such beneficial owner’s outstanding notes, either
make appropriate arrangements to register ownership of the outstanding notes
in
such beneficial owner’s name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
The
exchange of outstanding notes will be made only after timely receipt by the
exchange agent of certificates for outstanding notes, a letter of transmittal
and all other required documents, or timely completion of a book-entry transfer.
If any tendered notes are not accepted for any reason or if outstanding notes
are submitted for a greater principal amount than the holder desires to
exchange, the exchange agent will return such unaccepted or non-exchanged notes
to the tendering holder promptly after the expiration or termination of the
exchange offer. In the case of outstanding notes tendered by book-entry
transfer, the exchange agent will credit the non-exchanged notes to an account
maintained with The Depository Trust Company.
Guarantee
of Signatures
Signatures
on letters of transmittal or notices of withdrawal must be guaranteed by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or another “eligible
guarantor institution” within the meaning of Rule 17Ad-15 under the Exchange
Act, unless the original notes tendered pursuant thereto are
tendered:
| · |
by
a registered holder who has not completed the box entitled “Special
Issuance Instructions” or “Special Delivery Instructions” on the letter of
transmittal; and
|
| · |
for
the account of an eligible guarantor
institution.
|
In
the
event that a signature on a letter of transmittal or a notice of withdrawal
is
required to be guaranteed, such guarantee must be made by:
| · |
a
member firm of a registered national securities exchange of the National
Association
of Securities Dealers, Inc.;
|
| · |
a
commercial bank or trust company having an office or correspondent
in the
United States; and
|
| · |
another
eligible guarantor institution.
|
Signature
on the Letter of Transmittal; Bond Powers and Endorsements
If
the
letter of transmittal is signed by a person other than the registered holder
of
the outstanding notes, the registered holder must endorse the outstanding notes
or provide a properly completed bond power. Any such endorsement or bond power
must be signed by the registered holder as that registered holder’s name appears
on the outstanding notes. Signatures on such outstanding notes and bond powers
must be guaranteed by an “eligible guarantor institution.”
-47-
If
you
sign the letter of transmittal or any outstanding notes or bond power as a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation, fiduciary or in any other representative capacity, you must so
indicate when signing. You must submit satisfactory evidence to the exchange
agent of your authority to act in such capacity.
Determination
of Valid Tenders; Our Rights under the Exchange Offer
All
questions as to the validity, form, eligibility, time of receipt, acceptance
and
withdrawal of tendered notes will be determined by us in our sole discretion,
which determination will be final and binding on all parties. We expressly
reserve the absolute right, in our sole discretion, to reject any or all
outstanding notes not properly tendered or any outstanding notes the acceptance
of which would, in the opinion of our counsel, be unlawful. We also reserve
the
absolute right in our sole discretion to waive or amend any conditions of the
exchange offer or to waive any defects or irregularities of tender for any
particular note, whether or not similar defects or irregularities are waived
in
the case of other notes. Our interpretation of the terms and conditions of
the
exchange offer will be final and binding on all parties. No alternative,
conditional or contingent tenders will be accepted. Unless waived, any defects
or irregularities in connection with tenders of outstanding notes must be cured
by the tendering holder within such time as we determine.
Although
we intend to request the exchange agent to notify holders of defects or
irregularities in tenders of outstanding notes, neither we, the exchange agent
nor any other person will have any duty to give notification of defects or
irregularities in such tenders or will incur any liability to holders for
failure to give such notification. Holders will be deemed to have tendered
outstanding notes only when such defects or irregularities have been cured
or
waived. Any outstanding notes received by the exchange agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the exchange agent to the tendering holders,
unless otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.
Guaranteed
Delivery Procedures
If
you
desire to tender outstanding notes pursuant to the exchange offer and (1)
certificates representing such outstanding notes are not immediately available,
(2) time will not permit your letter of transmittal, certificates representing
such outstanding notes and all other required documents to reach the exchange
agent on or prior to the expiration date, or (3) the procedures for book-entry
transfer (including delivery of an agent’s message) cannot be completed on or
prior to the expiration date, you may nevertheless tender such outstanding
notes
with the effect that such tender will be deemed to have been received on or
prior to the expiration date if all the following conditions are
satisfied:
| · |
you
must effect your tender through an “eligible guarantor institution,” which
is defined above under the heading “Guarantee of
Signatures.”
|
| · |
a
properly completed and duly executed notice of guaranteed delivery,
substantially in the form provided by us herewith, or an agent’s message
with respect to guaranteed delivery that is accepted by us, is received
by
the exchange agent on or prior to the expiration date as provided
below;
and
|
-48-
| · |
the
certificates for the tendered notes, in proper form for transfer
(or a
book entry confirmation of the transfer of such notes into the exchange
agent account at DTC as described above), together with a letter
of
transmittal (or a manually signed facsimile of the letter of transmittal)
properly completed and duly executed, with any signature guarantees
and
any other documents required by the letter of transmittal or a properly
transmitted agent’s message, are received by the exchange agent within
three New York Stock Exchange, Inc. trading days after the date of
execution of the notice of guaranteed
delivery.
|
The
notice of guaranteed delivery may be sent by hand delivery, facsimile
transmission or mail to the exchange agent and must include a guarantee by
an
eligible guarantor institution in the form set forth in the notice of guaranteed
delivery.
Withdrawal
Rights
Except
as
otherwise provided in this prospectus, you may withdraw tendered notes at any
time before 5:00 p.m., New York City time, on the expiration date. For a
withdrawal of tendered notes to be effective, a written or facsimile
transmission notice of withdrawal must be received by the exchange agent on
or
prior to the expiration of the exchange offer at the address set forth herein.
Any notice of withdrawal must:
| · |
specify
the name of the person having tendered the outstanding notes to be
withdrawn;
|
| · |
identify
the outstanding notes to be withdrawn (including the certificate
number(s)
of the outstanding notes physically delivered) and principal amount
of
such notes, or, in the case of notes transferred by book-entry transfer,
the name and number of the account at
DTC;
|
| · |
be
signed by the holder in the same manner as the original signature
on the
letter of transmittal by which such outstanding notes were tendered,
with
any required signature guarantees, or be accompanied by documents
of
transfer sufficient to have the trustee with respect to the outstanding
notes register the transfer of such outstanding notes into the name
of the
person withdrawing the tender; and
|
| · |
specify
the name in which any such notes are to be registered, if different
from
that of the registered holder.
|
If
the
outstanding notes have been tendered under the book entry delivery procedure
described above, any notice of withdrawal must specify the name and number
of
the account at DTC to be credited with the withdrawn outstanding notes and
otherwise comply with the procedures of DTC’s book entry transfer
facility.
We
will
determine all questions as to the validity, form and eligibility (including
time
of receipt) of such outstanding notes in our sole discretion, and our
determination will be final and binding on all parties. Any permitted withdrawal
of notes may not be rescinded. Any notes properly withdrawn will thereafter
be
deemed not to have been validly tendered for purposes of the exchange offer.
The
exchange agent will return any withdrawn notes without cost to the holder
promptly after withdrawal of the notes. Holders may retender properly withdrawn
notes at any time before the expiration of the exchange offer by following
one
of the procedures described above under the heading “Procedures for Tendering
Outstanding Notes.”
-49-
Conditions
to the Exchange Offer
Notwithstanding
any other term of the exchange offer, we will not be required to accept for
exchange, or issue any exchange notes for, any outstanding notes, and may
terminate or amend the exchange offer before the expiration of
the exchange offer, if:
| · |
we
determine that the exchange offer violates any law, statute, rule,
regulation or interpretation by the staff of the SEC or any order
of any
governmental agency or court of competent jurisdiction;
or
|
| · |
any
action or proceeding is instituted or threatened in any court or
by or
before any governmental agency relating to the exchange offer which,
in
our judgment, could reasonably be expected to impair our ability
to
proceed with the exchange offer.
|
The
conditions listed above are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any of these conditions. We
may
waive these conditions in our reasonable discretion in whole or in part at
any
time and from time to time prior to the expiration date. The failure by us
at
any time to exercise any of the above rights shall not be considered a waiver
of
such right, and such right shall be considered an ongoing right which may be
asserted at any time and from time to time.
In
addition, we will not accept for exchange any outstanding notes tendered, and
no
exchange notes will be issued in exchange for those outstanding notes, if at
any
time any stop order is threatened or issued with respect to the registration
statement for the exchange offer and the exchange notes or the qualification
of
the Indenture under the Trust Indenture Act of 1939. In any such event, we
must
use commercially reasonable efforts to obtain the withdrawal or lifting of
any
stop order at the earliest possible moment.
Effect
of Not Tendering
To
the
extent outstanding notes are tendered and accepted in the exchange offer, the
principal amount of outstanding notes will be reduced by the amount so tendered
and a holder’s ability to sell untendered outstanding notes could be adversely
affected. In addition, after the completion of the exchange offer, the
outstanding notes will remain subject to restrictions on transfer. Because
the
outstanding notes have not been registered under the U.S. federal securities
laws, they bear a legend restricting their transfer absent registration or
the
availability of a specific exemption from registration. The holders of
outstanding notes not tendered will have no further registration rights, except
that, under limited circumstances, we may be required to file a “shelf”
registration statement for a continuous offer of outstanding notes.
Accordingly,
the outstanding notes not tendered may be resold only:
| · |
to
us or our subsidiaries;
|
| · |
pursuant
to a registration statement which has been declared effective under
the
Securities Act;
|
| · |
for
so long as the outstanding notes are eligible for resale pursuant
to Rule
144A under the Securities Act to a person the seller reasonably believes
is a qualified institutional buyer that purchases for its own account
or
for the account of a qualified
institutional buyer to whom notice is given that the transfer is
being
made in reliance on Rule 144A;
or
|
-50-
| · |
pursuant
to any other available exemption from the registration requirements
of the
Securities Act (in which case we and the trustee shall have the right
to
require the delivery of an opinion of counsel, certifications and/or
other
information satisfactory to us and the trustee), subject in each
of the
foregoing cases to any requirements of law that the disposition of
the
seller’s property or the property of such investor account or accounts be
at all times within its or their control and in compliance with any
applicable state securities laws.
|
Upon
completion of the exchange offer, due to the restrictions on transfer of the
outstanding notes and the absence of such restrictions applicable to the
exchange notes, it is likely that the market, if any, for outstanding notes
will
be relatively less liquid than the market for exchange notes. Consequently,
holders of outstanding notes who do not participate in the exchange offer could
experience significant diminution in the value of their outstanding notes,
compared to the value of the exchange notes.
Regulatory
Approvals
Other
than the U.S. federal securities laws, there are no U.S. federal or state
regulatory requirements that we must comply with and there are no approvals
that
we must obtain in connection with the exchange offer.
Solicitation
of Tenders; Fees and Expenses
We
will
bear the expenses of soliciting tenders and are mailing the principal
solicitation. However, our officers and regular employees and those of our
affiliates may make additional solicitation by telegraph, telecopy, telephone
or
in person.
We
have
not retained any dealer-manager in connection with the exchange offer. We will
not make any payments to brokers, dealers, or others soliciting acceptances
of
the exchange offer. However, we may pay the exchange agent reasonable and
customary fees for its services and may reimburse it for its reasonable
out-of-pocket expenses.
We
will
pay the cash expenses incurred in connection with the exchange offer. These
expenses include fees and expenses of the exchange agent and trustee, accounting
and legal fees and printing costs, among others.
Fees
and Expenses
We
will
not make any payment to brokers, dealers or others soliciting acceptances of
the
exchange offer. We will pay certain other expenses to be incurred in connection
with the exchange offer, including the fees and expenses of the exchange agent
and certain accounting and legal fees.
Holders
who tender their outstanding notes for exchange will not be obligated to pay
transfer taxes. However, if:
-51-
| · |
exchange
notes are to be delivered to, or issued in the name of, any person
other
than the registered holder of the outstanding notes
tendered;
|
| · |
tendered
outstanding notes are registered in the name of any person other
than the
person signing the letter of transmittal;
or
|
| · |
a
transfer tax is imposed for any reason other than the exchange of
outstanding notes in connection with the exchange
offer,
|
then
the
amount of any such transfer taxes (whether imposed on the registered holder
or
any other person) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption from them is not submitted with
the letter of transmittal, the amount of such transfer taxes will be billed
directly to the tendering holder.
Transfer
Taxes
We
will
pay all transfer taxes, if any, required to be paid by us in connection with
the
exchange of the outstanding notes for the exchange notes. However, holders
who
instruct us to register exchange notes in the name of, or request that
outstanding notes not tendered or not accepted for exchange be returned to,
a
person other than the registered holder, will be responsible for the payment
of
any transfer tax arising from such transfer.
Accounting
Treatment
The
exchange notes will be recorded at the same carrying value as the outstanding
notes as reflected in our accounting records on the date of the exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes
upon
the completion of the exchange offer. The expenses of the exchange offer that
we
pay will be charged to expense in accordance with generally accepted accounting
principles.
The
Exchange Agent
Wells
Fargo Bank, National Association is serving as the exchange agent for the
exchange offer. ALL EXECUTED LETTERS OF TRANSMITTAL SHOULD BE SENT TO THE
EXCHANGE AGENT AT THE ADDRESS LISTED BELOW. Questions, requests for assistance
and requests for additional copies of this prospectus or the letter of
transmittal should be directed to the exchange agent at the address or telephone
number listed below.
|
|
|
|
||
|
By
Registered or Certified Mail:
|
|
Wells
Fargo Bank, N.A.
Corporate
Trust Operations
MAC
N9303-121
P.O.
Box 1517
Minneapolis,
MN 55480
|
||
|
By
Overnight Courier or Regular Mail:
|
|
Wells
Fargo Bank, N.A.
Corporate
Trust Operations
MAC
N9303-121
6th
& Marquette Avenue
Minneapolis,
MN 55479
|
||
|
By
Hand Delivery:
|
|
Wells
Fargo Bank, N.A.
Corporate
Trust Services
608
2nd Avenue South
Northstar
East
Building―12th Floor
Minneapolis,
MN 55402
|
||
|
Confirm
by Telephone:
|
|
(800)
344-5128
|
||
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
TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
-52-
We
will
not receive any proceeds from the issuance of exchange notes in the exchange
offer. The net proceeds from the issuance of the outstanding notes were used
to
consummate the Acquisition. The outstanding notes bear interest at a rate of
87/8%
per
annum, in respect of the outstanding fixed rate notes and LIBOR (adjusted
quarterly) plus 3.875% per annum, in respect of the outstanding floating rate
notes, and mature on September 15, 2014. In consideration for issuing the
exchange notes, we will receive in exchange the outstanding notes of like
principal amount. The outstanding notes surrendered in exchange for exchange
notes will be retired and canceled and cannot be reissued. Accordingly, issuance
of the exchange notes will not result in any increase in our indebtedness.
We
have agreed to bear the expenses of the exchange offer. No underwriter is being
used in connection with the exchange offer.
-53-
CAPITALIZATION
The
following table sets forth our cash and capitalization as of July 1, 2006 both
on an actual basis and on a pro forma basis to give effect to the Acquisition.
You should read this table in conjunction with the “Unaudited Pro Forma
Condensed Consolidated Financial Information,” “Selected Historical Financial
Data” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” the related notes included elsewhere in this
prospectus and the consolidated financial statements and the notes thereto
appearing in our November 14, 2006 10-Q, incorporated by reference herein.
|
|
As
of July 1, 2006
|
||||||
|
|
Actual
|
Pro Forma
|
|||||
|
|
(in
millions)
|
||||||
|
Cash
|
$
|
35.3
|
$
|
20.0
|
|||
|
|
|||||||
|
Long-term
debt, including current portion:
|
|||||||
|
Revolving
Credit Facility(1)
|
$
|
—
|
$
|
20.0
|
|||
|
Term
B loans
|
—
|
675.0
|
|||||
|
Notes
offered hereby
|
—
|
750.0
|
|||||
|
Senior
subordinated notes
|
—
|
425.0
|
|||||
|
Other
existing debt
|
1,135.8
|
26.7(2
|
)
|
||||
|
|
|||||||
|
Total
long-term debt, including current portion
|
1,135.8
|
1,896.7
|
|||||
|
Total
stockholders’ equity
|
227.7
|
483.5(3
|
)
|
||||
|
|
|||||||
|
Total
capitalization
|
$
|
1,363.5
|
$
|
2,380.2
|
|||
|
|
|||||||
|
(1)
|
Our
current revolving credit facility provides for available borrowings
of
$200.0 million. On the closing date of the Acquisition, $165.1 million
of
the revolving credit facility was available for borrowing.
|
|
(2)
|
Consists
of capital leases that remained outstanding after the Acquisition.
|
|
(3)
|
Pro
forma stockholders’ equity consists of cash equity investments in Berry
Plastics Group.
|
-54-
The
following tables set forth unaudited pro forma condensed consolidated financial
information of Holdings as of and for the 26 weeks ended July 1, 2006 and
July 2, 2005 and fiscal 2005 and have been derived by application of pro
forma adjustments to our audited and unaudited historical consolidated financial
statements included elsewhere in this prospectus. The unaudited pro forma
condensed consolidated statements of operations give effect to the Acquisition
as if it had occurred on the first day of the applicable period. The unaudited
pro forma balance sheet gives effect to the Acquisition as if it had occurred
on
July 1, 2006.
The
unaudited pro forma condensed consolidated financial information includes
adjustments directly attributable to the Kerr Acquisition and the Acquisition
that are expected to have a continuing impact on us. The pro forma adjustments
are described in the notes accompanying the unaudited pro forma condensed
consolidated financial information. The pro forma adjustments are based upon
available information and certain assumptions we believe are reasonable.
The
Acquisition has been accounted for using the purchase method of accounting.
The
final allocation of the purchase price in the Acquisition will be determined
at
a later date and depend on a number of factors, including the final valuation
of
our tangible and identifiable intangible assets acquired and liabilities assumed
in the Acquisition. An independent third-party appraiser will perform a
valuation of these assets as of the closing date of the Acquisition, and upon
a
final valuation the purchase allocation will be adjusted. Such final
adjustments, including increases to depreciation and amortization resulting
from
the allocation of purchase price to amortizable tangible and intangible assets,
may be material. This valuation will be based on the actual net tangible and
intangible assets and liabilities that existed as of the closing date of the
Acquisition. In addition, we will record an adjustment to stockholders’ equity
at a later date to adjust the carryover basis of continuing ownership.
As
a
result of the Acquisition, Holdings is a wholly-owned by Berry Plastics Group
with assets, liabilities and an equity structure that will not be comparable
to
historical periods.
The
unaudited pro forma condensed consolidated financial information does not
purport to represent what our results of operations and financial condition
would have been had the Kerr Acquisition and the Acquisition actually occurred
as of the dates indicated, nor does it project our results of operations for
any
future period or our financial condition at any future date.
The
unaudited pro forma condensed consolidated financial information should be
read
in conjunction with “Risk Factors,” “Selected Historical Financial Data,”
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” our historical consolidated financial statements included
elsewhere in this prospectus and the consolidated financial statements and
the
notes thereto, appearing in our November 14, 2006 10-Q, incorporated by
reference herein.
-55-
BPC
Holding Corporation
Unaudited
Pro Forma Condensed Consolidated Balance Sheet
As
of July 1, 2006
(dollars
in thousands)
|
|
Historical
|
Pro
Forma
Adjustments
|
Pro
Forma
|
|||||||
|
Assets
|
|
|
|
|||||||
|
Current
Assets:
|
|
|
|
|||||||
|
Cash
and cash equivalents
|
$
|
35,251
|
$
|
(15,251(a
|
))
|
$
|
20,000
|
|||
|
Accounts
receivable (less allowance for doubtful accounts of $6,376 at July
1,
2006)
|
166,924
|
—
|
166,924
|
|||||||
|
Inventories
|
163,354
|
—
|
163,354
|
|||||||
|
Other
current assets
|
37,868
|
—
|
37,868
|
|||||||
|
|
||||||||||
|
Total
current assets
|
403,397
|
(15,251
|
)
|
388,146
|
||||||
|
Property,
plant and equipment (less accumulated depreciation)
|
436,470
|
—
|
436,470
|
|||||||
|
Intangible
assets
|
833,419
|
1,014,894(b
|
)
|
1,848,313
|
||||||
|
|
||||||||||
|
Total
assets
|
$
|
1,673,286
|
$
|
999,643
|
$
|
2,672,929
|
||||
|
|
||||||||||
|
Liabilities
and Stockholders’ Equity
|
||||||||||
|
Current
Liabilities:
|
||||||||||
|
Accounts
payable
|
$
|
97,310
|
$
|
—
|
$
|
97,310
|
||||
|
Accrued
interest
|
17,046
|
(17,046(c
|
))
|
—
|
||||||
|
Other
current liabilities
|
74,804
|
—
|
74,804
|
|||||||
|
Current
portion of long-term debt
|
14,419
|
(1,200(d
|
))
|
13,219
|
||||||
|
|
||||||||||
|
Total
current liabilities
|
203,579
|
(18,246
|
)
|
185,333
|
||||||
|
Long-term
debt, less current portion
|
1,121,401
|
762,039(e
|
)
|
1,883,440
|
||||||
|
Other
liabilities
|
120,637
|
—
|
120,637
|
|||||||
|
|
||||||||||
|
Total
liabilities
|
1,445,617
|
743,793
|
2,189,410
|
|||||||
|
Total
stockholders’ equity
|
227,669
|
255,850(f
|
)
|
483,519
|
||||||
|
|
||||||||||
|
Total
liabilities and stockholders’ equity
|
$
|
1,673,286
|
$
|
999,643
|
$
|
2,672,929
|
||||
|
|
||||||||||
-56-
Notes
to Unaudited Pro Forma Condensed Consolidated Balance
Sheet
(dollars
in thousands)
(a) This
adjustment reflects the elimination of cash of $35,251 not being acquired in
the
Acquisition plus a draw of $20,000 on the revolving line of credit at closing
for general working capital purposes.
(b) The
Acquisition will be accounted for as a purchase. Preliminarily, we have
allocated the excess of the purchase price over the net assets acquired to
goodwill (included in intangible assets). Under GAAP, goodwill is not amortized
but is reviewed for impairment annually. We have not begun the process of
reviewing our net assets to determine the amount of any write-up or write-down
to fair value of the net assets acquired in connection with the Acquisition.
Accordingly, the allocation described below is subject to change. If our
non-goodwill assets are written up to fair value in connection with the
Acquisition, our expenses in the future will be higher as a result of increased
depreciation and amortization of our assets. Similarly, if our non-goodwill
assets are written down to fair value, our depreciation and amortization will
decrease in the future.
|
Purchase
price
|
$
|
2,223,300
|
||
|
Estimated
transaction costs
|
110,219
|
|||
|
|
||||
|
Total
consideration
|
2,333,519
|
|||
|
Less:
Net assets acquired(1)
|
1,318,625
|
|||
|
|
||||
|
Net
adjustments(2)
|
$
|
1,014,894
|
||
|
|
||||
-57-
(1) Net
assets acquired equals the historical basis of the assets acquired $(1,638,035)
less liabilities assumed in
the
Acquisition not
reflected in the purchase price above $(319,410).
(2) Assumes
a
100% step up in basis pursuant to purchase accounting. The final net adjustments
will be lower to reflect an adjustment to stockholders’ equity at a later date
relating to the carryover basis of continuing ownership. The Company currently
estimates the step up will be limited by 11%.
(c) This
adjustment reflects the elimination of the accrued interest as of July 1,
2006 on the debt being repurchased or repaid in connection with the Acquisition.
(d) This
adjustment reflects the elimination of the current portion of long-term debt
being repurchased or repaid in connection with the Acquisition offset by the
current portion of the long-term debt being incurred to finance the Acquisition.
|
Current
portion of debt being repurchased or repaid
|
$
|
(7,950
|
)
|
|
|
Current
portion of debt being incurred
|
6,750
|
|||
|
|
||||
|
Net
adjustment
|
$
|
(1,200
|
)
|
|
|
|
||||
(e) This
adjustment reflects the incurrence of the long-term debt being incurred to
finance the Acquisition offset by the elimination of the long-term debt being
repurchased or repaid in connection with the Acquisition. This adjustment
assumes all of the old notes are repurchased in the tender offer at the closing
of the Acquisition.
|
Term
B loans
|
$
|
675,000
|
||
|
Revolving
Credit Facility
|
20,000
|
|||
|
Senior
subordinated notes
|
425,000
|
|||
|
Outstanding
notes
|
750,000
|
|||
|
Long-term
debt being repurchased or repaid, less current portion
|
(1,107,961
|
)
|
||
|
|
||||
|
Net
adjustment
|
$
|
762,039
|
||
|
|
||||
(f) This
adjustment reflects the increase to stockholders’ equity resulting from the
equity capital being contributed.
-58-
BPC
Holding Corporation
Unaudited
Pro Forma Condensed Consolidated Statement of Operations
For
the 26 Weeks Ended July 1, 2006
(dollars
in thousands)
|
|
Historical
|
Pro
Forma
Adjustments
|
Pro Forma
|
|||||||
|
Net
sales
|
$
|
731,078
|
$
|
—
|
$
|
731,078
|
||||
|
Cost
of goods sold
|
583,941
|
—
|
583,941
|
|||||||
|
|
||||||||||
|
Gross
profit
|
147,137
|
—
|
147,137
|
|||||||
|
Operating
expenses
|
70,282
|
1,639(a,h
|
)
|
71,921
|
||||||
|
|
||||||||||
|
Operating
income (loss)
|
76,855
|
(1,639)
|
75,216
|
|||||||
|
Other
income
|
(299
|
)
|
—
|
(299
|
)
|
|||||
|
Interest
expense, net
|
44,511
|
39,603(b
|
)
|
84,114
|
||||||
|
|
||||||||||
|
Income
(loss) before taxes
|
32,643
|
(41,242
|
)
|
(8,599
|
)
|
|||||
|
Taxes
(benefit)
|
14,731
|
(18,600(c
|
))
|
(3,869
|
)
|
|||||
|
|
||||||||||
|
Net
income (loss)
|
$
|
17,912
|
$
|
(22,642
|
)
|
$
|
(4,730
|
)
|
||
|
|
||||||||||
-59-
Berry
Plastics Holding Corporation
Unaudited
Pro Forma Condensed Consolidated Statement of Operations
For
the 26 Weeks Ended July 2, 2005
(dollars
in thousands)
|
|
Historical
|
Kerr(d)
|
Adjustments
Relating
to
Kerr Acquisition
|
Adjustments
Relating
to
the Transactions
|
Pro Forma
|
|||||||||||
|
Net
sales
|
$
|
508,181
|
$
|
168,315
|
$
|
—
|
$
|
—
|
$
|
676,496
|
||||||
|
Cost
of goods sold
|
417,493
|
139,108
|
—
|
—
|
556,601
|
|||||||||||
|
|
||||||||||||||||
|
Gross
profit
|
90,688
|
29,207
|
—
|
—
|
119,895
|
|||||||||||
|
Operating
expenses
|
40,227
|
15,283
|
5,334(e
|
)
|
1,500(a,h)
|
62,344
|
||||||||||
|
|
||||||||||||||||
|
Operating
income (loss)
|
50,461
|
13,924
|
(5,334
|
)
|
(1,500)
|
57,551
|
||||||||||
|
Other
expenses
|
1,569
|
7,351
|
—
|
—
|
8,920
|
|||||||||||
|
Interest
expense, net
|
30,123
|
4,343
|
8,081(f
|
)
|
41,268(b
|
)
|
83,815
|
|||||||||
|
Debt
extinguishment fee
|
7,045
|
—
|
—
|
(7,045(g
|
))
|
—
|
||||||||||
|
|
||||||||||||||||
|
Income
(loss) before taxes
|
11,724
|
2,230
|
(13,415
|
)
|
(35,723
|
)
|
(35,184
|
)
|
||||||||
|
Taxes
(benefit)
|
6,174
|
701
|
(5,138
|
)
|
(17,569(c
|
))
|
(15,832
|
)
|
||||||||
|
|
||||||||||||||||
|
Net
income (loss)
|
$
|
5,550
|
$
|
1,529
|
$
|
(8,277
|
)
|
$
|
(18,154
|
)
|
$
|
(19,352
|
)
|
|||
|
|
||||||||||||||||
-60-
BPC
Holding Corporation
Unaudited
Pro Forma Condensed Consolidated Statement of Operations
For
Fiscal 2005
(dollars
in thousands)
|
|
Historical
|
Kerr(d)
|
Adjustments
Relating
to
Kerr Acquisition
|
Adjustments
Relating
to
the Transactions
|
Pro Forma
|
|||||||||||
|
Net
sales
|
$
|
1,169,704
|
$
|
168,315
|
$
|
—
|
$
|
—
|
$
|
1,338,019
|
||||||
|
Cost
of goods sold
|
943,370
|
139,108
|
—
|
—
|
1,082,478
|
|||||||||||
|
|
||||||||||||||||
|
Gross
profit
|
226,334
|
29,207
|
—
|
—
|
255,541
|
|||||||||||
|
Operating
expenses
|
110,545
|
15,283
|
5,334(e
|
)
|
3,000(ah
|
)
|
134,162
|
|||||||||
|
|
||||||||||||||||
|
Operating
income (loss)
|
115,789
|
13,924
|
(5,334
|
)
|
(3,000)
|
121,379
|
||||||||||
|
Other
expenses
|
1,354
|
7,351
|
—
|
—
|
8,705
|
|||||||||||
|
Interest
expense, net
|
73,274
|
4,343
|
8,081(f
|
)
|
82,163(b
|
)
|
167,861
|
|||||||||
|
Debt
extinguishment fee
|
7,045
|
—
|
—
|
(7,045(g
|
))
|
—
|
||||||||||
|
|
||||||||||||||||
|
Income
(loss) before taxes
|
34,116
|
2,230
|
(13,415
|
)
|
(78,118
|
)
|
(55,187
|
)
|
||||||||
|
Taxes
(benefit)
|
14,325
|
701
|
(5,138
|
)
|
(34,723(c
|
))
|
(24,835
|
)
|
||||||||
|
|
||||||||||||||||
|
Net
income (loss)
|
$
|
19,791
|
$
|
1,529
|
$
|
(8,277
|
)
|
$
|
(43,395
|
)
|
$
|
(30,352
|
)
|
|||
|
|
||||||||||||||||
-61-
Notes
to Unaudited Pro Forma Condensed Consolidated Statements of
Operations
(dollars
in thousands)
(a) This
adjustment reflects the estimated management fees that will be paid to the
Sponsors after the Acquisition. It is calculated as the greater of $3,000 or
1.25% of Adjusted EBITDA per year.
(b) This
adjustment reflects the elimination of the historical interest expense incurred
on the debt being repurchased or repaid in connection with the Acquisition,
including the elimination of the amortization of debt financing costs, offset
by
the estimated interest expense on the debt being incurred in connection with
the
Acquisition and the amortization of deferred financing costs incurred in
connection therewith. New annual cash interest expense is assumed to be $162,930
related to the $750,000 in aggregate principal amount of outstanding notes,
the $425,000 in aggregate principal amount of the senior subordinated notes,
the
term B loans under the senior secured credit facilities in the principal amount
of $675,000 and existing capital leases. LIBOR used in the calculation of our
assumed interest rates was 5.25%. A 0.125% increase in the variable interest
rate on our variable rate borrowings would increase the foregoing annual cash
interest expense by $1,125. This adjustment also assumes amortization of $43,063
of debt issuance costs on a straight-line basis over the life of the related
debt. This would have resulted in non-cash interest expense for fiscal 2005,
on
a pro forma basis, of $600 for the revolving portion of the senior secured
credit facilities, $1,700 for the term B loans under the senior secured credit
facilities, $1,800 for the outstanding notes and $1,300 for the senior
subordinated notes.
(c) This
adjustment reflects the elimination of the historic tax expense on the income
of
the Company and Kerr and the new calculation of tax expense (benefit) based
on a
rate of 45% on pro forma pre-tax income.
(d) Reflects
Kerr’s historical results of operations from January 2, 2005 through June 3,
2005.
(e) This
adjustment reflects the addition of intangible amortization in connection with
the Kerr Acquisition.
(f) This
adjustment reflects the addition of interest expense in connection with the
Kerr Acquisition.
(g) This
adjustment reflects the elimination of deferred financing fees written off
in
connection with an amendment to our old senior secured credit facilities in
2005.
(h) The
pro
forma statements assume that the excess of the purchase price over the net
assets acquired will all be allocated to goodwill. We have not begun the process
of reviewing our assets to determine the amount of any write up or write down
to
fair value of our fixed assets or definite lived intangible assets. A $10,000
adjustment to our definite lived intangible assets would be a $500 annual
adjustment to our amortization expense. A $5,000 adjustment to our fixed assets
would be a $1,000 annual adjustment to our depreciation expense.
-62-
SELECTED
HISTORICAL FINANCIAL DATA
The
following selected financial data are derived from our consolidated financial
statements. The data should be read in connection with the consolidated
financial statements, related notes and other financial information included
herein or which has been incorporated by reference into this prospectus. Our
fiscal years are 52- or 53-week periods ending generally on the Saturday closest
to December 31. All references herein to “2005,” “2004,” “2003,” “2002,” and
“2001” relate to the fiscal years ended December 31, 2005, January 1, 2005,
December 27, 2003, December 28, 2002, and December 29, 2001, respectively.
The
results under Holding’s prior ownership have been combined with results
subsequent to the merger on July 22, 2002, whereby 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 Corporation (the
“Goldman merger”). The selected historical consolidated financial information
for the 26 weeks ended July 1, 2006 and July 2, 2005 have been derived from
our
unaudited consolidated financial statements included elsewhere in this
prospectus. Our historical consolidated financial information may not be
comparable to or indicative of our future performance. For a discussion of
certain factors that materially affect the comparability of the consolidated
financial data or cause the data reflected herein not to be indicative of our
future financial condition or results of operations, see “Risk Factors.”
For
the
purpose of this table, “Predecessor” refers to BPC Holding Corporation before
the Goldman merger, and “Company” refers to BPC Holding Corporation after the
Goldman merger but before the consummation of the Acquisition.
|
|
Predecessor
|
Combined
Company
&
Predecessor
|
Company
|
Company
|
Company
|
26
Weeks Ended
|
||||||||||||||||
|
|
Fiscal Year
|
July 2,
2005
|
July 1,
2006
|
|||||||||||||||||||
|
|
2001
|
2002
|
2003
|
2004
|
2005
|
|||||||||||||||||
|
|
(dollars in
thousands)
(unaudited)
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
|
Statement
of Income Data:
|
|
|
|
|
|
|
|
|||||||||||||||
|
Net
sales
|
$
|
461,659
|
$
|
494,303
|
$
|
551,876
|
$
|
814,213
|
$
|
1,169,704
|
$
|
508,181
|
$
|
731,078
|
||||||||
|
Cost
of goods sold
|
338,000
|
371,273
|
420,750
|
639,329
|
943,370
|
417,493
|
583,941
|
|||||||||||||||
|
|
||||||||||||||||||||||
|
Gross
profit
|
123,659
|
123,030
|
131,126
|
174,884
|
226,334
|
90,688
|
147,137
|
|||||||||||||||
|
Operating
expenses(1)
|
70,192
|
77,467
|
59,936
|
81,008
|
110,545
|
40,227
|
70,282
|
|||||||||||||||
|
Operating
income
|
53,467
|
45,563
|
71,190
|
93,876
|
115,789
|
50,461
|
76,855
|
|||||||||||||||
|
Other
expenses (income)(2)
|
473
|
299
|
(7
|
)
|
—
|
1,354
|
1,569
|
(299
|
)
|
|||||||||||||
|
Loss
on extinguished debt(3)
|
—
|
25,328
|
250
|
—
|
7,045
|
7,045
|
—
|
|||||||||||||||
|
Interest
expense, net(4)
|
54,355
|
49,254
|
45,413
|
53,185
|
73,274
|
30,123
|
44,511
|
|||||||||||||||
|
Income
(loss) before income taxes
|
(1,361
|
)
|
(29,318
|
)
|
25,534
|
40,691
|
34,116
|
11,724
|
32,643
|
|||||||||||||
|
Income
taxes
|
734
|
3,298
|
12,486
|
17,740
|
14,325
|
6,174
|
14,731
|
|||||||||||||||
|
Net
income (loss)
|
(2,095
|
)
|
(32,616
|
)
|
13,048
|
22,951
|
19,791
|
5,550
|
17,912
|
|||||||||||||
|
Preferred
stock dividends
|
9,790
|
6,468
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
|
Amortization
of preferred stock discount
|
1,024
|
574
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
|
Net
income (loss) attributable to common stockholders
|
$
|
(12,909
|
)
|
$
|
(39,658
|
)
|
$
|
13,048
|
$
|
22,951
|
$
|
19,791
|
$
|
5,550
|
$
|
17,912
|
||||||
|
|
||||||||||||||||||||||
|
Balance
Sheet Data (at period end):
|
||||||||||||||||||||||
|
Working
capital(5)
|
$
|
48,351
|
$
|
71,468
|
$
|
88,850
|
$
|
118,981
|
$
|
211,118
|
$
|
154,675
|
$
|
196,032
|
||||||||
|
Total
assets
|
446,876
|
760,576
|
1,015,806
|
1,005,144
|
1,647,830
|
1,553,641
|
1,673,286
|
|||||||||||||||
|
Total
debt
|
485,881
|
609,943
|
751,605
|
697,558
|
1,160,620
|
1,167,554
|
1,135,820
|
|||||||||||||||
|
Stockholders’
equity (deficit)
|
(139,601
|
)
|
75,163
|
152,591
|
183,891
|
203,388
|
182,692
|
227,669
|
||||||||||||||
|
Other
Data:
|
||||||||||||||||||||||
|
Depreciation
and amortization(6)
|
50,907
|
41,965
|
44,078
|
60,816
|
88,720
|
34,149
|
53,996
|
|||||||||||||||
|
Capital
expenditures
|
32,834
|
28,683
|
29,949
|
52,624
|
57,829
|
32,303
|
52,217
|
|||||||||||||||
-63-
|
(1)
|
Operating
expenses include $20,987 related to the Goldman merger during fiscal
2002.
|
|
(2)
|
Other
expenses (income) consist of net losses (gains) on disposal of property
and equipment and unrealized loss (gain) on investment in Southern
Packaging.
|
|
(3)
|
In
2005, the loss on extinguished debt represents unamortized deferred
financing costs on our existing term loan expensed as a result of
an
amendment to our old senior secured credit facilities. The loss on
extinguished debt in 2003 represents the legal costs associated with
amending our old senior secured credit facilities in connection with
the
Landis Acquisition. As a result of the retirement of outstanding
indebtedness, $6,600 of existing deferred financing fees and $18,700
of
prepayment fees and related charges were charged to expense in 2002
as a
loss on extinguished debt.
|
|
(4)
|
Includes
non-cash interest expense of $11,268, $2,476, $2,318, $1,862, $1,945,
$982
and $954 in fiscal 2001, 2002, 2003, 2004, and 2005 and the 26 weeks
ended
July 2, 2005 and July 1, 2006, respectively.
|
|
(5)
|
Represents
total current assets (other than cash) less total current liabilities
(other than accrued interest and the current portion of long-term
debt).
|
|
(6)
|
Depreciation
and amortization excludes non-cash amortization of deferred financing
fees
and debt premium/discount amortization, which are included in interest
expense.
|
-64-
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of our results of operations and financial
condition covers periods prior to the consummation of the Acquisition.
Accordingly, the discussion and analysis of historical periods does not reflect
the significant impact that the Acquisition will have on us, including
significantly increased leverage and liquidity requirements. You should read
the
following discussion of our results of operations and financial condition with
the “Unaudited Pro Forma Condensed Consolidated Financial Information,”
“Selected Historical Financial Data” and the audited condensed consolidated
financial statements and related notes included elsewhere, or incorporated
by
reference, 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.
Actual results may differ materially from those contained in any forward looking
statements. See “Disclosure Regarding Forward-Looking Statements.”
Overview
We
believe we are one of the world’s leading manufacturers and suppliers of
value-added plastic packaging products. We manufacture a broad range of
innovative, high quality packaging solutions using our collection of over 1,500
proprietary molds and an extensive set of internally developed processes and
technologies. We sell our packaging solutions to over 12,000 customers comprised
of a favorable balance of leading national blue-chip customers as well as a
collection of smaller local specialty businesses. We believe that our
proprietary tools and technologies, low-cost manufacturing capabilities and
significant operating and purchasing scale provide us with a competitive
advantage in the marketplace. Our unique combination of leading market
positions, proven management team, product and customer diversity and
manufacturing and design innovation provides access to a variety of growth
opportunities and has allowed us to achieve consistent organic volume growth
in
excess of market growth rates.
The
Acquisition
On
September 20, 2006, Merger Sub merged with and into Holdings pursuant to the
Merger Agreement with Holdings, Berry Plastics Group and Merger Sub (a
wholly-owned subsidiary of Berry Plastics Group). Pursuant to the Merger
Agreement, we are now a wholly-owned subsidiary of Berry Plastics Group, the
principal stockholder of which is Apollo.
In
connection with the Acquisition, affiliates of the Sponsors, a minority
investor, and
certain members of our senior management team and other employees have invested
cash of approximately $483.5 million in shares of Berry Plastics Group’s common
stock.
The
Acquisition was funded with shareholders’ equity and following debt components:
| · |
Proceeds
from our
issuance of $750.0 million aggregate principal amount of outstanding
notes;
|
| · |
New
borrowings of $675.0 million in Term B loans and $20.0 million under
the revolving credit facility, both as available under the senior
secured
credit facilities; and
|
| · |
Proceeds
from our issuance of $425.0 million aggregate principal amount of
senior
subordinated notes to Goldman.
|
-65-
Debt
Service Obligations
Because
we have a significant amount of indebtedness, our ability to generate sufficient
cash flow from operations to pay our debt service obligations is a principal
focus of management in our business planning and budgeting. Among
the
important factors that affect our cash flow is the extent to which we can offset
the impact of plastic resin costs by maintaining a stable material spread,
which
is the difference between selling prices and resin costs on a per-pound basis.
As discussed in more detail below under “Resin Cost Sensitivity”, our
maintenance of a stable material spread is challenged in periods of rapid
changes in raw material costs.
Our
net
cash provided by operating activities for the 26 weeks ended July 1, 2006
(“YTD”) was $87.1 million, compared to $51.4 million for the 26 weeks ended July
2, 2005 (“Prior YTD”). The increase of $35.7 million is primarily the result of
improved operations as operating income before depreciation and amortization
increased $46.2 million over the Prior YTD. While we anticipate that we will
continue to generate sufficient cash flow to service our indebtedness over
the
next several years, a number of factors could adversely affect our ability
to
repay or refinance indebtedness, including those described under “Risk
Factors—To service our indebtedness, we will require a significant amount of
cash. Our ability to generate or borrow cash depends on many factors beyond
our
control”.
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 in this prospectus.
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, although no assurance can be given as to such effect. 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.
Allowance
for doubtful accounts.
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 $6.4 million and $5.8 million as of
July 1, 2006 and December 31, 2005, respectively.
-66-
Inventory
obsolescence.
We
evaluate our reserve for inventory obsolescence on a quarterly basis and review
inventory on-hand to determine future salability. We base our determinations
on
the age of the inventory and the experience of our personnel. We reserve
inventory that we deem to be not salable in the quarter in which we make the
determination. We believe, based on past history and our policies and
procedures, that our net inventory is salable. A ten percent increase or
decrease in our inventory obsolescence experience would not have a material
impact on our results of operations. Our reserve for inventory obsolescence
was
$8.4 million and $8.5 million as of July 1, 2006 and December 31,
2005, respectively.
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. Based on our analysis, we believe that our recorded medical
claims liability should be sufficient. A ten percent increase or decrease in
our
medical claims experience would not have a material impact on our results of
operations. Our accrued liability for medical claims was $5.1 million, including
reserves for expected medical claims incurred but not reported, as of
July 1, 2006 and December 31, 2005.
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 should be sufficient. A ten percent increase or decrease in our
workers’ compensations claims experience would not have a material impact on our
results of operations. Our accrued liability for workers’ compensation claims
was $4.3 million and $4.7 million as of July 1, 2006 and December 31,
2005, respectively.
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 elsewhere in
this
prospectus.
Goodwill
and Other Indefinite Lived Intangible Assets. In
accordance with the methodology described in SFAS No. 142, Goodwill
and Other Intangible Assets,
we
review our goodwill and other indefinite lived intangible assets for impairment
whenever events or changes in circumstances indicate the carrying amount of
such
assets may not be recoverable. Impairment losses are recorded 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.
In
addition, we annually review our goodwill and other indefinite lived intangible
assets for impairment. No impairments were recorded in the financial statements
included elsewhere in this prospectus.
-67-
Deferred
Taxes and Effective Tax Rates. We
estimate the effective tax rates and associated liabilities or assets for each
of our legal entities 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 U.S. 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.
Pension.
Pension
benefit costs include assumptions for the discount rate, retirement age, and
expected return on plan assets. Retiree medical plan costs include assumptions
for the discount rate, retirement age, and health-care-cost trend rates. These
assumptions have a significant effect on the amounts reported. Periodically,
we
evaluate the discount rate and the expected return on plan assets in our defined
benefit pension and retiree health benefit plans. In evaluating these
assumptions, we consider many factors, including an evaluation of the discount
rates, expected return on plan assets and the health-care-cost trend rates
of
other companies; our historical assumptions compared with actual results; an
analysis of current market conditions and asset allocations; and the views
of
advisers. In evaluating our expected retirement age assumption, we consider
the
retirement ages of our past employees eligible for pension and medical benefits
together with our expectations of future retirement ages. We believe our pension
and retiree medical plan assumptions are appropriate based upon the above
factors. A one percent increase or decrease in our health-care-cost trend rates
would not have a material impact on our results of operations. Also, a one
quarter percentage point change in our discount rate or expected return on
plan
assets would not have a material impact on our results of operations.
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 Holdings 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.
Recent
Acquisitions
On
November 20, 2003, we acquired Landis 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 (i) the issuance of $85.0 million aggregate principal amount of the
old notes, which resulted in gross proceeds of $95.2 million,
(ii) aggregate net term loan borrowings of $54.1 million under our old
senior secured credit facilities, after giving effect to the refinancing of
our
prior term loan, (iii) an aggregate common equity contribution of $62.0
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
-68-
(iv) cash
on hand. We 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, 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.
On
April 11, 2005, one of our subsidiaries, Berry Plastics de México, S. de
R.L. de C.V., acquired all of the injection molding aerosol overcap and closure
assets from Euromex Plastics, S.A. de C.V. (“Euromex”), an injection molding
manufacturer located in Toluca, Mexico (the “Mexico Acquisition”), for aggregate
consideration of approximately $8.2 million. The purchase was financed through
borrowings under our revolving line of credit under our old senior secured
credit facilities and cash on hand. The operations from the Mexico Acquisition
have been included in our operations since the acquisition date.
On
June 3, 2005, we acquired Kerr, a manufacturer and marketer of closures,
bottles, vials, and tubes, for aggregate consideration of approximately $454.8
million, including direct costs associated with the acquisition. The operations
from the Kerr Acquisition have been included in our operations since the
acquisition date. The purchase price was financed through additional term loan
borrowings under an amendment to our old senior secured credit facilities and
cash on hand.
13
Weeks Ended July 1, 2006 (the “Quarter”) compared
to the 13 Weeks Ended July 2, 2005 (the “Prior Quarter”)
Net
Sales.
Net
sales increased 33% to $375.1 million for the Quarter from $282.9 million for
the Prior Quarter. This $92.2 million increase included approximately $14.6
million or 5% due to the pass through of higher resin costs to our customers,
increased base business volume of approximately $2.3 million or 1%, and
acquisition volume of $75.3 million primarily attributable to the Kerr
Acquisition or 27%. Our resin pounds sold, excluding acquired businesses,
increased by 1% in the Quarter over the Prior Quarter. The following discussion
in this section provides a comparison of net sales by business segment. Open
top
net sales increased $18.3 million from the Prior Quarter to $222.8 million
for
the Quarter. The increase in open top net sales was primarily a result of
increased selling prices and base business volume growth in several of the
division’s product lines with significant volume growth in the thermoformed PP
drink cup line of 26%. Closed top net sales increased $73.9 million from the
Prior Quarter to $152.3 million for the Quarter. The increase in closed top
net
sales can be primarily attributed to net sales in the Quarter from the Kerr
Acquisition of $75.3 million and increased selling prices on base business
partially offset by softness in the overcaps and base closure businesses.
Gross
Profit.
Gross
profit increased by $26.4 million to $75.8 million (20% of net sales) for the
Quarter from $49.4 million (17% of net sales) for the Prior Quarter. This 53%
dollar increase
includes
the combined impact of the additional sales volume noted above, productivity
improvement
initiatives, our financial and mechanical resin hedging programs, and the timing
effect of the 5% increase in net selling prices due to higher resin costs passed
through to our customers. The increase in gross profit percentage from 17%
in
the Prior Quarter to 20% in the Quarter can be primarily attributed to the
5%
increase in net selling prices due to higher resin costs passed through to
our
customers and improvements in the margins of acquired businesses, partially
offset by increased raw material costs. In addition, in the Prior Quarter,
an
expense of $0.7 million was charged to cost of goods sold related to the
write-up and subsequent sale of Kerr’s finished goods inventory to fair market
value in accordance with purchase accounting. Significant productivity
improvements were made since the Prior Quarter, including the installation
of
state-of-the-art equipment at several of our facilities. These
-69-
productivity
improvements were more than offset by increased costs from inflation such as
higher energy prices.
Operating
Expenses.
Selling
expenses increased by $2.1 million to $9.7 million for the Quarter from $7.6
million for the Prior Quarter principally as a result of increased selling
expenses associated with higher sales, including the Kerr Acquisition, partially
offset by cost reduction efforts. General and administrative expenses increased
by $7.5 million from $9.5 million for the Prior Quarter to $17.0 million for
the
Quarter primarily as a result of general and administrative expenses from the
Kerr Acquisition, increased accrued employee bonus expense, and $1.0 million
of
stock option expense recorded in the Quarter. Research and development expenses
increased by $0.5 million over the Prior Quarter primarily due to the Kerr
Acquisition and increased development efforts. Amortization of intangibles
increased $3.3 million from the Prior Quarter to $5.3 million in the Quarter
primarily due to the amortization of intangible assets from the Kerr
Acquisition. Transition expenses related to integrating acquired businesses
were
$2.7 million and $0.4 million in the Quarter and Prior Quarter, respectively.
This increase of $2.3 million is primarily due to costs associated with the
Kerr
Acquisition in the Quarter.
Interest
Expense, Net.
Net
interest expense decreased $0.9 million to $22.5 million for the Quarter
compared to $23.4 million for the Prior Quarter primarily due to a write off
of
unamortized deferred financing fees of $7.0 million as a result of an amendment
to our old senior secured credit facilities in the Prior Quarter partially
offset by interest expense on additional indebtedness utilized to finance the
Kerr Acquisition.
Income
Taxes. For
the
Quarter, we recorded income tax expense of $7.4 million or an effective tax
rate
of 43%. 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 $5.0 million from $2.4 million in the Prior
Quarter, or an effective tax rate of 57%, was primarily attributed to the
increase in income before income taxes.
Net
Income.
Net
income was $9.7 million for the Quarter compared to $1.8 million for the Prior
Quarter for the reasons discussed above.
26
Weeks Ended July 1, 2006 (“YTD”) Compared to 26 Weeks Ended July 2,
2005 (“Prior YTD”)
Net
Sales.
Net
sales increased $222.9 million, or 43%, to $731.1 million for the YTD from
$508.2 million for the Prior YTD with an approximate 7% increase in net selling
price due to higher resin costs passed through to our customers. Our base
business volume, excluding selling price changes and acquired business,
increased by approximately $3.6 million or 1% in the YTD over the Prior YTD.
Including acquired business, on a pro forma basis, but excluding selling price
changes, our total sales volume increased by approximately 3% in the YTD over
the Prior YTD. Our resin pounds sold, excluding acquired businesses, increased
by 1% in the YTD over the Prior YTD. The following discussion in this section
provides a comparison by business segment. Open top net sales increased $40.7
million from the Prior YTD to $429.1 million for the YTD. The increase in open
top net sales was primarily a result of increased selling prices and base
business volume growth in several of the division’s product lines
with significant volume growth in the thermoformed PP drink cup line of
24%. Closed top net sales increased $182.2 million from the Prior YTD to $302.0
million for the YTD. The increase in closed top net sales can be primarily
attributed to net sales in the YTD from the Kerr Acquisition and Mexico
Acquisition of $181.9 million and $1.8 million, respectively, and
-70-
increased
selling prices partially offset by softness in the overcaps and base closure
businesses.
Gross
Profit.
Gross
profit increased by $56.4 million to $147.1 million (20% of net sales) for
the
YTD from $90.7 million (18% of net sales) for the Prior YTD. This 62% dollar
increase was primarily attributed to the increased sales volume noted above.
The
increase in gross profit percentage from 18% in the Prior YTD to 20% in the
YTD
can be primarily attributed to the 7% increase in net selling prices due to
higher resin costs passed through to our customers as well as improvements
in
the margins of acquired businesses, partially offset by increased raw material
costs. In addition, in the Prior YTD, an expense of $0.7 million was charged
to
cost of goods sold related to the write-up and subsequent sale of Kerr’s
finished goods inventory to fair market value in accordance with purchase
accounting. Significant productivity improvements were made since the Prior
YTD,
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 $5.2 million to $20.1 million for the YTD from $14.9
million for the Prior YTD principally as a result of increased selling expenses
associated with higher sales partially offset by cost reduction efforts. General
and administrative expenses increased $13.4 million from $18.4 million for
the
Prior YTD to $31.8 million for the YTD primarily as a result of general and
administrative expenses from the Kerr Acquisition, increased accrued employee
bonus expense, and $2.0 million of stock option expense recorded YTD. Research
and development expenses increased by $1.4 million over the Prior YTD primarily
due to the Kerr Acquisition and increased development efforts. An increase
of
amortization of intangibles of $6.9 million for the YTD from the Prior YTD
is
primarily due to the amortization of intangible assets from the Kerr
Acquisition. Transition expenses related to integrating acquired businesses
were
$3.8 million and $0.7 million in the YTD and Prior YTD, respectively. This
increase of $3.1 million is primarily due to costs associated with the Kerr
Acquisition.
Interest
Expense, Net.
Net
interest expense increased $7.3 million to $44.5 million for the YTD compared
to
$37.2 million for the Prior YTD primarily due to increased rates of interest
on
borrowings and increased borrowings to finance the Kerr Acquisition partially
offset by a write off of unamortized deferred financing fees of $7.0 million
as
a result of an amendment to our old senior secured credit facilities in the
Prior YTD.
Income
Taxes. For
the
YTD, we recorded income tax expense of $14.7 million or an effective tax rate
of
45%. The effective tax rate was 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 $8.5 million from $6.2 million in the Prior
YTD, or an effective tax rate of 53%, was attributed to the increase in income
before income taxes.
Net
Income.
Net
income was $17.9 million for the YTD compared to $5.6 million for the Prior
YTD
for the reasons discussed above.
Year
Ended December 31, 2005 Compared to Year Ended January 1, 2005
Net
Sales. Net
sales
increased 44% to $1,169.7 million in 2005 from $814.2 million in 2004. This
$355.5 million increase included approximately $89.5 million or 11% due to
the
pass through of higher resin costs to our customers, increased base business
volume of approximately $32.7 million or 4%, and acquisition volume of $233.3
million or 29%. In 2005, we reorganized our operations into two reportable
segments: open top and closed top. The realignment occurred in an effort to
integrate the operations of acquired businesses, better service our customers,
and provide a more efficient organization. Prior periods have been
-71-
restated
to be aligned with the new reporting structure in order to provide comparable
results. Open top net sales increased $116.4 million in 2005 primarily due
to
the higher selling prices noted above and strong base business volume growth.
The open top division recorded base business volume growth in several product
categories with the thermoformed drink cup product line volume increasing over
40% in 2005. Closed top net sales increased $239.0 million with the Kerr
Acquisition and Mexico Acquisition providing closed top net sales of
approximately $229.1 million and $4.2 million, respectively in 2005. The
increase in closed top net sales was primarily a result of the Kerr Acquisition
and Mexico Acquisition and increased selling prices on base business.
Gross
Profit. Gross
profit increased $51.4 million from $174.9 million (21% of net sales) in 2004
to
$226.3 million (19% of net sales) in 2005. This increase of 29% includes the
combined impact of the additional sales volume, productivity improvement
initiatives, our financial and mechanical resin hedging programs, and the timing
effect of the 11% increase in net selling prices due to higher resin costs
passed through to our customers. This was partially offset by increased raw
material costs and increased manufacturing costs primarily due to cost
inflation. The decline in gross profit percentage from 21% in 2004 to 19% in
2005 can be attributed in part to the mathematical effect of the 11% increase
in
net selling prices due to higher resin costs passed through to our customers.
Also, the historical margin percentage of the business acquired in the Kerr
Acquisition was significantly less than our historical gross margin percentage,
which reduced our consolidated margin percentage. In addition, an expense of
$0.7 million was charged to cost of goods sold in 2005 related to the write-up
and subsequent sale of Kerr’s finished good inventory to fair market value in
accordance with purchase accounting. We have continued to consolidate products
and business of recent acquisitions to the most efficient tooling and plant
location, providing customers with improved products and customer service.
Operating
Expenses. Selling
expenses increased by $7.7 million to $34.1 million for 2005 from $26.4 million
for 2004 principally as a result of increased selling expenses associated with
higher sales partially offset by cost reduction efforts. General and
administrative expenses increased from $38.5 million to $49.5 million in 2005.
This increase of $11.0 million can be primarily attributed to general and
administrative expenses from the Kerr Acquisition and increased accrued bonus
expenses. Research and development costs increased $2.3 million to $6.1 million
in 2005 primarily as a result of the Kerr Acquisition and increased development
efforts. Intangible asset amortization increased from $6.5 million in 2004
to
$15.6 million for 2005, primarily as a result of additional intangible assets
resulting from the Kerr Acquisition. Other expenses were $5.2 million for 2005
compared to $5.8 million for 2004. Other expenses in 2005 primarily relate
to
transition expenses as a result of the Kerr Acquisition and Mexico Acquisition.
Other expenses in 2004 include transition expenses of $4.0 million related
to
the Landis Acquisition and $1.8 million related to the shutdown and
reorganization of facilities.
Interest
Expense, Net. Net
interest expense, including amortization of deferred financing costs and debt
premium, for 2005 was $80.3 million (7% of net sales) compared to $53.2 million
(7% of net sales) in 2004, an increase of $27.1 million. This increase is
primarily attributed to a write off of unamortized deferred financing fees
of
$7.0 million as a result of an amendment to our old senior secured credit
facilities, additional indebtedness utilized to finance the Kerr Acquisition,
and increased rates of interest on borrowings.
Income
Taxes. In
2005,
we recorded income tax expense of $14.3 million, or an effective tax rate of
42%, compared to $17.7 million, or an effective tax rate of 44%, in 2004. The
decrease of $3.4 million can be attributed to a decrease in net income before
income taxes for the reasons stated above. The effective tax rate is greater
than the statutory rate due to the impact of state taxes and foreign location
losses.
-72-
Net
Income. We
recorded net income of $19.8 million in 2005 compared to $23.0 million in 2004
for the reasons stated above.
Year
Ended January 1, 2005 Compared to Year Ended December 27, 2003
Net
Sales. Net
sales
increased 48% to $814.2 million in 2004 from $551.9 million in 2003. This $262.3
million increase included approximately $23.5 million or 4% due to the pass
through of higher resin costs to our customers, increased base business volume
of approximately $29.5 million or 6%, and acquisition volume of $209.3 million
or 38%. In 2005, we reorganized our operations into two reportable segments:
open top and closed top. The realignment occurred in an effort to integrate
the
operations of acquired businesses, better service our customers, and provide
a
more efficient organization. Prior periods have been restated to be aligned
with
the new reporting structure in order to provide comparable results. Open top
net
sales increased $254.6 million in 2004 primarily due to the higher selling
prices noted above, acquisition volume, and strong base business volume growth.
The Landis Acquisition provided open top net sales of approximately $227.9
million in 2004 versus $20.1 million in 2003. Due to the movement of business
between the acquired Landis facilities and our pre-existing facilities, the
amount of sales related to the Landis Acquisition is estimated. The open top
division recorded base business volume growth in several product categories
with
the thermoformed drink cup product line volume increasing over 93% in 2004.
Closed top net sales increased $7.7 million primarily due to the higher selling
prices noted above and increased volume in the U.S. closure product line.
Gross
Profit. Gross
profit increased $43.8 million from $131.1 million (24% of net sales) in 2003
to
$174.9 million (21% of net sales) in 2004. This increase of 33% includes the
combined impact of the additional sales volume, productivity improvement
initiatives, and the timing effect of the 4% increase in net selling prices
due
to higher resin costs passed through to our customers partially offset by
increased raw material costs. The historical margin percentage of the business
acquired in the Landis Acquisition was significantly less than our historical
gross margin percentage, which reduced our consolidated margin percentage.
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 Landis integration, in the fourth quarter
of
2003, we closed our Monticello, Indiana facility, which was acquired in the
Landis Acquisition. The business from this location was distributed throughout
our facilities. In addition, we completed the integration of the Landis
facilities in 2004 to our integrated computer software system. Also, significant
productivity improvements were made on the base business in 2004, 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 $2.5 million to $26.4 million for 2004 from $23.9 million
principally as a result of increased selling expenses associated with higher
sales partially offset by cost reduction efforts. General and administrative
expenses increased from $25.7 million to $38.5 million in 2004. This increase
of
$12.8 million can be primarily attributed to the Landis Acquisition and
increased accrued bonus expenses. Research and development costs increased
$0.3
million to $3.8 million in 2004 primarily as a result of the Landis Acquisition.
Intangible asset amortization increased from $3.3 million in 2003 to $6.5
million for 2004, primarily as a result of additional intangible assets
resulting from the Landis Acquisition. Other expenses were $5.8 million for
2004
compared to $3.6 million for 2003. Other expenses in 2004 include transition
expenses of $4.0 million related to the Landis Acquisition and $1.8 million
related to the shutdown and reorganization of facilities. Other expenses in
2003
include transition expenses of $1.5 million related to recently
acquired
-73-
businesses
and reorganization of facilities, $1.1 million related to the shutdown of
facilities, and $1.0 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 2004 was $53.2 million (7% of net sales) compared to $45.7 million
(8% of net sales) in 2003, an increase of $7.5 million. This increase is
primarily attributed to additional indebtedness utilized to finance the Landis
Acquisition partially offset by decreased rates of interest on borrowings and
debt principal reductions.
Income
Taxes. In
2004,
we recorded income tax expense of $17.7 million for income taxes, or an
effective tax rate of 44%, compared to $12.5 million, or an effective tax rate
of 49%, for fiscal 2003. 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 $5.2 million over 2003 can
be
primarily attributed to improved operating performance.
Net
Income. We
recorded net income of $23.0 million in 2004 compared to $13.0 million in 2003
for the reasons stated above.
Income
Tax Matters
As
of
December 31, 2005, we had unused operating loss carryforwards of $65.9
million for federal income tax purposes which begin to expire in 2012.
Alternative minimum tax credit carryforwards of approximately $6.4 million
are
available to us indefinitely to reduce future years’ federal income taxes. As a
result of the Acquisition and Kerr Acquisition, the unused operating loss
carryforward is subject to an annual limitation. We are in the process of
finalizing the computation to determine the limitation due to the Acquisition
and the Kerr Acquisition and have preliminarily estimated the aggregate limit
as
a result of the Acquisition and Kerr Acquisition to be approximately $29.6
million per year. As part of the effective tax rate calculation, 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. Our valuation allowance against deferred
tax assets was $6.7 million and $6.2 million as of December 31, 2005 and
January 1, 2005, respectively.
Liquidity
and Capital Resources
We
are a
highly leveraged company, having incurred substantial debt as part of the
Acquisition, including the outstanding notes which we are hereby offering to
exchange for the exchange notes, which will result in a significant increase
in
our interest expense in future periods. Payments required to service this
indebtedness will substantially increase our liquidity requirements as compared
to prior years. Our primary sources of liquidity are cash flow from operations
and funds available under our senior secured credit facilities. We expect that
ongoing requirements for debt service and capital expenditures will be funded
from these sources of funds.
The
Acquisition was funded with
shareholders’ equity and the following debt components:
| · |
Proceeds
from our issuance of $750.0 million aggregate principal amount of
outstanding notes;
|
| · |
New
borrowings of $675.0 million in Term B loans and $20.0 million under
the revolving credit facility, both as available under the senior
secured
credit facilities; and
|
-74-
| · |
Proceeds
from our issuance of $425.0 million aggregate principal amount of
senior
subordinated notes to Goldman.
|
As
of
September 20, 2006, we had $1,895.4 million of total indebtedness
outstanding as follows (in $ millions):
|
|
Total Debt at
September
20, 2006
|
Short-Term Debt
and
Current
Maturities
of
Long-Term Debt
|
Long-Term
Portion
|
|||||||
|
Senior
secured credit facilities:
|
||||||||||
|
Term
B Loans
|
$
|
675.0
|
$
|
5.1
|
$
|
669.9
|
||||
|
Revolving
Credit Facility
|
20.0
|
—
|
20.0
|
|||||||
|
Senior
Subordinated notes
|
425.0
|
—
|
425.0
|
|||||||
|
Outstanding
Notes
|
750.0
|
—
|
750.0
|
|||||||
|
Capital
Leases
|
25.4
|
6.3
|
19.1
|
|||||||
|
|
|
|
||||||||
|
|
$
|
1,895.4
|
$
|
11.4
|
$
|
1,884.0
|
||||
We
have a
further $165.1 million available under the revolving credit facility, which
is
part of our senior secured credit facilities. Any borrowings under the revolving
credit facility would be available to fund our working capital requirements,
capital expenditures and for other general corporate purposes. The term B loans
under the senior secured facilities require scheduled quarterly payments
beginning in December 2006, each equal to 0.25% of the original principal amount
of the loans for the first 6 years and 3 quarters. The remaining balance of
the
term B loans is due and payable in full in September 2013. The revolving credit
facility is available until September 2012. The outstanding notes will, and
if
exchanged the exchange notes will, mature on September 15, 2014 and the
senior subordinated notes will mature on September 15, 2016. Our senior
secured credit facilities, the outstanding notes and the senior subordinated
notes are guaranteed by substantially all of our existing, and certain of our
future, domestic subsidiaries.
Our
senior secured credit facilities contain various restrictive covenants. They
prohibit us from prepaying indebtedness that is junior to such debt (subject
to
certain exceptions) and require us to maintain our secured leverage ratio below
a maximum ratio. In addition, our senior secured credit facilities, among
other things, limit our ability to incur indebtedness or liens, make investments
or declare or pay dividends. The Indentures governing the notes and the senior
subordinated notes, among other things: (i) limit our ability and the
ability of our subsidiaries to incur additional indebtedness, incur liens,
pay
dividends or make certain other restricted payments and enter into certain
transactions with affiliates; and (ii) place restrictions on our ability
and the ability of our subsidiaries to merge or consolidate with any other
person or sell, assign, transfer, convey or otherwise dispose of all or
substantially all of our assets. However, all of these covenants are subject
to
significant exceptions. For more information, see “Description of Other
Indebtedness” and “Description of the Notes.”
Our
ability to make scheduled payments of principal, to pay interest on, or to
refinance our indebtedness, including the outstanding notes or, if exchanged,
the exchange notes, or to fund planned capital expenditures will depend on
our
ability to generate cash in the future. This
-75-
ability,
to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control.
Based
on
our current level of operations, we believe that cash flow from operations
and
available cash, together with available borrowings under our senior secured
credit facilities, will be adequate to meet our short-term liquidity needs.
We
cannot
assure you, however, that our business will generate sufficient cash flow from
operations or that future borrowings will be available to us under our senior
secured credit facilities in an amount sufficient to enable us to pay our
indebtedness, including the outstanding notes or, if exchanged, the exchange
notes, or to fund our other liquidity needs. If we consummate an acquisition,
our debt service requirements could increase. We may need to refinance all
or a
portion of our indebtedness, including the outstanding notes or, if exchanged,
the exchange notes, on or before maturity. In addition, upon the occurrence
of
certain events, such as a change of control, we could be required to repay
or
refinance our indebtedness. We cannot assure you that we will be able to
refinance any of our indebtedness, including our senior secured credit
facilities and the outstanding notes or, if exchanged, the exchange notes,
on
commercially reasonable terms or at all. See “Risk Factors—Risk Factors Related
to an Investment in the Notes—We may not be able to generate sufficient cash to
service all of our indebtedness, including the notes, and may be forced to
take
other actions to satisfy our obligations under our indebtedness that may not
be
successful.”
Contractual
Obligations and Off Balance Sheet Transactions
As
of
December 31, 2005, after giving
pro
forma effect to the Acquisition, our contractual obligations would have included
the following:
|
|
Payments
Due by Period at December 31, 2005
|
|||||||||||||||
|
Pro
Forma Contractual Obligations
|
Total
|
<
1 year
|
1-3
years
|
4-5
years
|
>
5 years
|
|||||||||||
|
(dollars
in thousands)
|
||||||||||||||||
|
Term
B loans
|
$
|
675,000
|
$
|
6,750
|
$
|
13,500
|
$
|
13,500
|
$
|
641,250
|
||||||
|
Revolving
Credit Facility
|
20,000
|
—
|
—
|
—
|
20,000
|
|||||||||||
|
Outstanding
notes
|
750,000
|
—
|
—
|
—
|
750,000
|
|||||||||||
|
Senior
subordinated notes
|
425,000
|
—
|
—
|
—
|
425,000
|
|||||||||||
|
Other
long-term debt—capital leases
|
31,048
|
6,925
|
9,743
|
6,351
|
8,029
|
|||||||||||
|
Interest
on long-term debt obligations(1)
|
1,335,063
|
161,313
|
322,625
|
322,625
|
528,500
|
|||||||||||
|
Operating
lease obligations
|
187,804
|
25,015
|
40,797
|
33,157
|
88,835
|
|||||||||||
|
Purchase
obligations(2)
|
61,504
|
61,504
|
—
|
—
|
—
|
|||||||||||
|
Totals
|
$
|
3,485,419
|
$
|
261,507
|
$
|
386,665
|
$
|
375,633
|
$
|
2,461,614
|
||||||
|
(1)
|
Based
on long-term debt obligations outstanding as of July 1, 2006 after
giving pro forma effect to the Acquisition.
|
|
(2)
|
Represents
open purchase commitments for purchases of resin and capital expenditures
in the normal course of operations.
|
-76-
Cash
Flow
Net
cash
provided by operating activities was $87.1 million for the YTD compared to
$51.4
million for the Prior YTD. The increase of $35.7 million is primarily the result
of improved operations as operating income before depreciation and amortization
increased $46.2 million over the Prior YTD. Net cash provided by operating
activities was $101.5 million in 2005 as compared to $75.2 million in 2004.
This
increase of $26.3 million can be primarily attributed to improved operating
performance partially offset by increased working capital needs due to revenue
growth and increased resin costs. Net cash provided by operating activities
was
$75.2 million in 2004 as compared to $79.8 million in 2003. This decrease of
$4.6 million can be primarily attributed to increased working capital needs
due
to revenue growth, increased resin costs, and increased quantities of resin
as a
result of strategic prepurchases of resins partially offset by improved
operating performance.
Net
cash
used for investing activities decreased from $498.7 million for the Prior YTD
to
$52.2 million for the YTD primarily as a result of the Kerr Acquisition in
the
Prior YTD. Capital spending of $52.2 million in the YTD included $6.1 million
for buildings and systems, $14.2 million for molds, $22.4 million for molding
and decorating machines, and $9.5 million for accessory equipment and systems.
Net cash used for investing activities increased from $45.5 million in 2004
to
$520.0 million in 2005 primarily as a result of the Kerr Acquisition and Mexico
Acquisition in 2005. Our capital expenditure budget for 2006 is expected to
be
approximately $90.0 million, which includes a significant amount of expenditures
for capacity additions and other growth opportunities across our business,
as
well as expenditures related to cost-saving opportunities and our estimated
annual level of maintenance capital expenditures of approximately $22.0
million. Net
cash
used for investing activities decreased from $265.7 million in 2003 to $45.5
million in 2004 primarily as a result of the Landis Acquisition in 2003 and
the
receipt of $7.4 million in 2004 related to the working capital adjustment from
the Landis Acquisition. In addition, Berry Plastics U.K. Limited, one of our
foreign subsidiaries, sold the manufacturing equipment, inventory, and accounts
receivable of its U.K. milk cap business to Portola Packaging U.K. Limited.
The
transaction valued at approximately $4.0 million closed in April 2004. The
U.K.
milk cap business represented less than $3.0 million of our annual consolidated
net sales. Capital expenditures in 2005 were $57.8 million, an increase of
$5.2
million from $52.6 million in 2004. Capital expenditures in 2005 included
investments of $9.0 million for facility additions and renovations, production
systems and offices necessary to support production operating levels throughout
the company, $19.7 million for molds, $10.4 million for molding and decorating
equipment, and $18.7 million for accessory equipment and systems.
Net
cash
used for financing activities was $24.6 million for the YTD compared to $452.7
million provided by financing activities in the Prior YTD. This change of $477.3
million can be primarily attributed to the financing obtained in connection
with
the Kerr Acquisition in the Prior YTD. In addition, in June 2006, we made a
voluntary prepayment of $20.0 million on our old senior term loan facility.
Net
cash provided by financing activities was $443.2 million in 2005 as compared
to
cash used for financing activities of $55.7 million in 2004. The change can
be
primarily attributed to the financing of the Kerr Acquisition and Mexico
Acquisition in 2005. Net cash used for financing activities was $55.7 million
in
2004 as compared to cash provided by financing activities of $196.8 million
in
2003. The change can be primarily attributed to the Landis Acquisition financing
in 2003 and the voluntary prepayment of $45.0 million on our old senior term
loans in 2004.
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Increased
working capital needs occur whenever we experience strong incremental demand
or
a significant rise in the cost of raw material, particularly plastic resin.
However, we anticipate
that our cash interest, working capital and capital expenditure requirements
for
2006 will be satisfied through a combination of funds generated from operating
activities and cash on hand, together with borrowings under our senior secured
credit facilities. We base such belief on historical experience and the
substantial funds available under our senior secured credit facilities. However,
we cannot predict our future results of operations and our ability to meet
our
obligations involves numerous risks and uncertainties, including, but not
limited to, those described in the “Risk Factors” section. In particular,
increases in the price of resin which we are unable to pass through to our
customers or significant acquisitions could severely impact our liquidity.
Interest
Rate Sensitivity
We
are
exposed to market risk from changes in interest rates primarily through our
senior secured credit facilities. Our senior secured credit facilities comprise
of (i) a $675.0 million term loan and (ii) a $200.0 million revolving
credit facility. Borrowings under our senior secured credit facilities bear
interest, at our option, at either an alternate base rate or an adjusted
LIBOR rate for a one-, two-, three- or six month interest period, or a nine-
or
twelve-month period, if available to all relevant lenders, in each case, plus
an
applicable margin. The alternate base rate is the mean the greater of
(i) Credit Suisse’s prime rate and (ii) one-half of 1.0% over the
weighted average of rates on overnight Federal Funds as published by the Federal
Reserve Bank of New York. The adjusted LIBOR rate is determined by reference
to
settlement rates established for deposits in dollars in the London interbank
market for a period equal to the interest period of the applicable loan and
the
maximum reserve percentages established by the Board of Governors of the U.S.
Federal Reserve to which our lenders are subject.
Resin
Cost Sensitivity
We
are
exposed to market risk from changes in plastic resin prices that could impact
our results of operations and financial condition. We purchased approximately
$385.0 million of resin in fiscal 2005 with approximately 23% of our resin
pounds, on a pro forma basis, being HDPE, 11% LDPE, 62% PP, 3% PET and 1% other.
We have contractual price escalators and de-escalators tied to the price of
resin with customers representing more than 60% of net sales that result in
price increases/decreases to these 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. Less than 10% of our net sales are generated
from arrangements that exhibit fixed-price characteristics, and we have at
times
and may continue to enter into negotiated purchase agreements with resin
suppliers to lock-in a level of profitability on these arrangements. We also
opportunistically pursue resin forward hedging transactions in order to manage
our resin spend and further align our costs with our prices to our customers.
We
can further seek to 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 and reducing the quantity of resin in certain of
our
products. We believe that using the methods described above we have a proven
strategy for managing changes in resin prices as evidenced by our consistent
profitability and earnings growth throughout recent periods of historically
high
resin volatility. We plan to pursue opportunities to purchase resin jointly
with
other Apollo portfolio companies which we anticipate should generate further
benefits in terms of our ability to further manage our material.
Our
plastic resin purchasing strategy is to deal with only high-quality, dependable
suppliers, such as Basell, Chevron, Dow, ExxonMobil, Huntsman, Lyondell, Nova,
Sunoco and Total. We believe that we have maintained strong relationships with
these key suppliers and expect that such relationships will continue into the
foreseeable future. The resin market is a global market and, based on our
experience, we believe that adequate quantities of plastic resins will be
available at market prices, but we can give you no assurances as to such
availability or the prices thereof.
-78-
Our
Company
We
believe we are one of the world’s leading manufacturers and suppliers of
value-added plastic packaging products. We manufacture a broad range of
innovative, high quality packaging solutions using our collection of over 1,500
proprietary molds and an extensive set of internally developed processes and
technologies. Our principal products include open top containers, drink cups,
bottles, closures and overcaps, tubes and prescription vials which we sell
into
a diverse selection of attractive and stable end markets, including food and
beverage, healthcare, personal care, quick service and family dining
restaurants, custom and retail. We sell our packaging solutions to over 12,000
customers comprised of a favorable balance of leading national blue-chip
customers as well as a collection of smaller local specialty businesses. We
believe that our proprietary tools and technologies, low-cost manufacturing
capabilities and significant operating and purchasing scale provide us with
a
competitive advantage in the marketplace. Our unique combination of leading
market positions, proven management team, product and customer diversity and
manufacturing and design innovation provides access to a variety of growth
opportunities and has allowed us to achieve consistent organic volume growth
in
excess of market growth rates.
We
operate in the plastic packaging segment of the $109 billion U.S. packaging
sector, which accounted for $39 billion, or 36%, of total U.S. packaging
industry sales in 2003. Demand for plastic packaging products is driven by
the
consumption of consumer products including food, beverages, pharmaceuticals
and
personal care products. The U.S. plastic packaging industry is expected to
grow
5.2% per year to $65 billion in sales, or 43% of the total U.S. packaging
market, by 2013. According to Freedonia, while the packaging industry as a
whole
is expected to grow at 3.4% per year, plastic packaging has and is expected
to continue to outpace the growth of other packaging types as a result of
conversions from paper, metal and glass to plastic due to cost and performance
advantages. These advantages include plastic’s inherent weight benefits, shatter
resistance, barrier properties, printability, strength, resistance to rust
and
ease of dispensing. In addition, further growth in plastic packaging has been
enhanced by technological advances that continue to reduce product costs,
enhance plastic performance and improve graphics characteristics.
Our
Strengths
We
believe that our consistent financial performance is the direct result of the
following competitive strengths:
Leading
positions across a broad product offering. Through
quality manufacturing, innovative product design, a focus on customer service
and a skilled and dedicated workforce, we have achieved leading competitive
positions in the majority of our major product lines including thinwall,
pry-off, dairy and clear PP containers; drink cups; spice and pharmaceutical
bottles and prescription vials; and spirits, continuous thread and
pharmaceutical closures. We believe that our leading market positions enable
us
to attract blue chip customers, cross-sell products, launch new products and
maintain high margins relative to our competitors.
Large,
diverse and stable customer base. We
sell
our products to over 12,000 customers in a diverse base of industries, including
pharmaceuticals, food, dairy and health and beauty. Our top 10 customers
accounted for less than 30% of net sales and our largest
-79-
customer
accounted for less than 7% of
net
sales for fiscal
2005.
Our
co-design capabilities and proactive approach to customer service makes us
an
integral part of our customers’ long-term marketing and packaging decisions.
This commitment to service and quality has resulted in numerous single-source
and long-term relationships. For example, the average term of our relationships
with our top 10 customers is 21 years. We have received numerous service,
quality and package design awards from customers including Alberto Culver,
Bayer, Clorox, Kraft and Perseco (McDonald’s).
Strong
organic growth through continued focus on best-in-class technology and
innovation. We
believe that our manufacturing technology and expertise are among the best
in
the industry and that we are a leader in manufacturing expertise and new product
innovation, as evidenced by our offering of an extensive proprietary product
line of value-added plastic packaging in North America. We currently own over
1,500 proprietary molds and have pioneered a variety of production processes
such as what we believe to be the world’s largest deep draw PP thermoforming
system for drink cups. Other recent examples of product design successes include
an innovative prescription package for Target Stores, a proprietary flip-top
closure for tubes and our Vent Band™ compression closure for isotonic beverages
(e.g.,
Gatorade®).
This
skill set has allowed us to consistently achieve annual organic volume growth
in
excess of market growth rates. We focus our research and development efforts
on
high value-added products that offer unique performance characteristics and
provide opportunities to achieve premium pricing and further enhance our
strategic position with our customers. Our sales force of over 100 dedicated
professionals works collaboratively with our customers’ marketing departments in
identifying and delivering new package designs.
Scale
and low-cost operations drive profitability. We
are
one of the largest domestic manufacturers and suppliers of plastic packaging
products and we believe we are one of the lowest cost manufacturers in the
industry. We believe our size enables us to achieve superior operating
efficiencies and financial results through several scale-driven advantages.
Our
large, high volume equipment and flexible, cross-facility manufacturing
capabilities result in lower unit-production costs than many of our competitors
as we can leverage our fixed costs, higher capacity utilization and longer
production runs. Our scale also enhances our purchasing power and lowers our
cost of raw materials such as resin. In addition, as a result of the strategic
location of our 25 manufacturing facilities and our national footprint of
several warehouse and distribution facilities which are located near our
customers, we have broad distribution capabilities, which reduce shipping costs
and allow for quick turnaround times to our customers. In addition, each of
our
over 240 managers is charged with meeting specific productivity improvement
targets each year, with a material amount of their compensation tied to their
performance versus these targets.
Ability
to pass through changes in the price of resin. We
have
generally been able to pass through to our customers increases in costs of
raw
materials, especially resin, the principal raw material used in manufacturing
our products. Historically, we have consistently grown our earnings even during
periods of volatility in raw material markets. We have contractual price
escalators/de-escalators tied to the price of resin with customers representing
more than 60% of net sales that result in relatively rapid price adjustments
to
these customers. In addition, we have experienced high success rates in quickly
passing through increases and decreases in the price of resin to customers
without indexed price agreements. We
plan
to pursue opportunities to purchase resin jointly with other Apollo portfolio
companies which we anticipate should generate further benefits in terms of
our
ability to further manage our material.
-80-
Track
record of strong, stable free cash flow. Our
strong earnings, combined with our modest capital expenditure profile, limited
working capital requirements and relatively low cash taxes due to various tax
attributes result in the generation of significant free cash flow. We have
a
consistent track record of generating high free cash flow as a percentage of
net
sales relative to our plastic packaging peers. In addition, the capital
expenditures required to support our targeted manufacturing platforms and market
segments is lower than in many other areas of the plastic packaging industry.
Motivated
management team with highly successful track record. We
believe our management team is among the deepest and most experienced in the
packaging industry. Our 12 senior executives possess an average of 20 years
of
packaging industry experience, and have combined experience of over 236 years
at
Berry. The senior management team includes President and CEO Ira Boots, who
has
been with us for 28 years, and COO Brent Beeler and CFO Jim Kratochvil, who
have
each been with us for over 21 years. This team has been responsible for
developing and executing our strategy that has generated a track record of
earnings growth and strong free cash flow. In addition, management has
successfully integrated 22 acquisitions since 1988, and has generally achieved
significant reductions in manufacturing and overhead costs of acquired companies
by introducing advanced manufacturing processes, reducing headcount,
rationalizing facilities and tools, applying best practices and capitalizing
on
economies of scale. Members of our senior management team and certain other
employees own approximately 23% of the equity of Berry Plastics Group on a
fully
diluted basis.
Our
Strategy
Our
goal
is to maintain and enhance our market position and leverage our core strengths
to increase profitability and maximize free cash flow. Our strategy to achieve
these goals includes the following elements:
Increase
sales to our existing customers.
We
believe we have significant opportunities to increase our share of the packaging
purchases made by our over 12,000 existing customers as we expand our product
portfolio and extend our existing product lines. For example, our open top
and
closed top divisions are penetrating new markets with new products such as
plastic ice cream containers, thermoformed PP containers in the prepared foods
and deli packaging market, extruded bottles for shaving can systems in the
shave
gel market, and plastic pry-off containers in the home improvement market.
We
believe our broad and growing product lines will allow us to capitalize on
the
corporate consolidation occurring among our customers and the continuing
consolidation of their vendor relationships. With our extensive manufacturing
capabilities, product breadth and national distribution capabilities, we can
provide our customers with a cost-effective, single source from which to
purchase a broad range of their plastic packaging needs. For example, we were
recently awarded all the cultured dairy container business from Dean Foods,
in
addition to the single source position we already maintain with respect to
Dean
Foods frozen foods plastic packaging.
Aggressively
pursue new customers.
We
intend
to aggressively pursue new customer relationships in order to drive additional
organic growth. We believe that our national direct sales force, our ability
to
offer new customers a cost-effective, single source from which to purchase
a
broad range of plastic packaging products and our proven ability to design
innovative new products position us well to continue to grow and diversify
our
customer base. For example, our proprietary deep draw polypropylene
thermoforming technology has allowed us to recently add Yum! Brands as a
customer.
-81-
Manage
costs and capital expenditures to drive free cash flow and returns on
capital.
We
continually focus on reducing our costs in order to maintain and enhance our
low-cost position. We employ a team culture of continuous improvement operating
under an ISO management system and employing Six Sigma throughout the
organization. Our principal cost-reduction strategies include
(i) leveraging our scale to reduce material costs, (ii) efficiently
reinvesting capital into our manufacturing processes to maintain technological
leadership and achieve productivity gains, (iii) focusing on ways to
streamline operations through plant and overhead rationalization and
(iv) monitoring and rationalizing the number of vendors from which we
purchase materials in order to increase our purchasing power. Return on capital
is a key metric throughout the organization and we require that capital
expenditures meet certain return thresholds, which encourages prudent levels
of
spending on expansion and cost saving opportunities.
Selectively
pursue strategic acquisitions.
In
addition to the significant growth in earnings and cash flow we expect to
generate from organic volume growth and continued cost reductions, we believe
that there is an opportunity for future growth through selective and prudent
acquisitions. Our industry is highly fragmented and our customers are focused
on
working with a small set of key vendors. We have a successful track record
of
executing and integrating acquisitions, having completed 22 acquisitions since
1988, and have developed an expertise in synergy realization. We intend to
continue to apply a selective and disciplined acquisition strategy, which is
focused on improving our financial performance in the long-term and further
developing our scale and diversity in new or existing product lines.
Products,
Markets and Customers
The
product categories on which we focus utilize similar manufacturing processes,
share common raw materials (principally PP and PE resin) and sell into end
markets where customers demand innovative packaging solutions and quick and
seamless design and delivery. We organize our business into two operating
divisions: open top and closed top.
The
following table displays our net sales by division for each of the past five
fiscal years. Additional financial information about our business segments
is
provided in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and “Notes to Consolidated Financial Statements”, which
are included elsewhere in this prospectus.
|
($
in millions)
|
2001
|
2002
|
2003
|
2004
|
2005
|
|||||||||||
|
Open
Top
|
$
|
329.3
|
$
|
360.4
|
$
|
404.6
|
$
|
659.2
|
$
|
775.7
|
||||||
|
Closed
Top
|
132.4
|
133.9
|
147.3
|
155.0
|
394.0
|
|||||||||||
|
Total
Net Sales
|
$
|
461.7
|
$
|
494.3
|
$
|
551.9
|
$
|
814.2
|
$
|
1,169.7
|
||||||
Open
Top
Our
open
top division is comprised of three product categories: containers, drink cups,
and housewares. The largest end-uses for our containers are food products,
building products,
-82-
chemicals
and dairy products. We believe that we offer one of the broadest product lines
among U.S.-based injection-molded plastic container and drink cup manufacturers
and are a leader in thermoformed container and drink cup offerings, which
provide a superior combination of value and quality relative to competing
processes. Many of our open top products are manufactured from proprietary
molds
that we develop and own, which results in significant switching costs
to our customers. In addition to a complete product line, we have
sophisticated printing capabilities and in-house graphic arts and tooling
departments, which allow us to integrate ourselves into, and add material value
to, our customers’ packaging design process. Our product engineers work directly
with customers to design and commercialize new drink cups and containers. In
order to identify new markets and applications for existing products and
opportunities to create new products, we rely extensively on our national sales
force. Once these opportunities are identified, our sales force works with
our
product design engineers and artists to satisfy customers’ needs. Our low-cost
manufacturing capability with plants strategically located throughout the United
States and a dedication to high-quality products and customer service have
allowed us to further develop and maintain strong relationships with our
attractive base of franchise customers. We have a diverse customer base for
our
open top products, and no single open top customer exceeded 7% of our total
net
sales in fiscal 2005. Our primary competitors include Airlite, Huhtamaki,
Letica, Polytainers, Radnor Holdings and Solo. These competitors individually
only compete on certain of our open top products, whereas we offer the entire
selection of open top products described below.
Containers.
We
manufacture a collection of nationally branded container products and also
seek
to develop customized container products for niche applications by leveraging
of
our state-of-the-art design, decoration and graphic arts capabilities. This
mix
allows us to both achieve significant economies of scale, while also maintaining
an attractive portfolio of specialty products. 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.
Drink
Cups. We
believe that we are the largest provider of large size thermoformed PP
and injection-molded plastic drink cups in the United States. We are the
leading producer of 32 ounce or larger thermoformed PP drink cups and offer
a product line with sizes ranging from 12 to 44 ounces. Our thermoform
process uses PP instead of more expensive polystyrene in producing deep draw
drink cups to generate a cup of superior quality with a material competitive
cost advantage versus thermoformed polystyrene drink cups. Additionally, we
produce injection-molded plastic cups that range in size from 12 to 64 ounces.
Primary markets for our plastic drink cups are quick service and family dining
restaurants, convenience stores, stadiums and retail stores. Many of our cups
are decorated, often as promotional items, and we believe we have a reputation
in the industry for innovative, state-of-the-art graphics.
Housewares.
Our
participation in the housewares market is focused on producing 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 strategy 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 the 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 entire seasonal housewares department.
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Closed
Top
Our
closed top division is comprised of three product categories; closures and
overcaps, prescription vials and bottles and tubes. We believe that this line
of
products gives us a competitive advantage in being able to provide a complete
plastic package to our customers. We have a number of leading positions in
which
we have been able to leverage this capability such as prescription vial packages
and Tab II®
pharmaceutical packages. Our design center and product development engineers,
combined with our world class manufacturing facilities, give us the ability
to
take projects from concept to end product. We utilize the latest in
manufacturing technology, from mold design to vision systems, to meet our high
quality standards. We have a diverse customer base for our closed top products,
and no single closed top customer exceeded 3% of our total net sales in fiscal
2005. Our primary competitors include Alcoa, Cebal, Graham Packaging,
Owens-Illinois, Phoenix, Rexam, Seaquist and Silgan. These competitors
individually only compete on certain of our closed top products. We believe
that
we are the only industry participant that offers the entire product line of
closed top products described below.
Closures
and Overcaps. We
are a
leading producer of closures and overcaps in many of our product lines including
continuous thread and child resistant closures and aerosol overcaps. We
currently sell our closures into numerous end markets, including pharmaceutical,
vitamin and nutritional, healthcare, food and beverage and personal care. In
addition to traditional closures, we are a provider of a wide selection of
custom closure solutions including fitments and plugs for medical applications,
cups and spouts for liquid laundry detergent and dropper bulb assemblies for
medical and personal care applications. Further, we believe that we are the
leading domestic 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. We believe our technical capabilities, expertise and
low
cost position have allowed us to become the leading provider of closures and
overcaps to a diverse set of leading companies in the markets we serve. Our
manufacturing advantage is driven by our position on the forefront of various
processes including the latest in single and bi-injection technology, molding
of
thermoplastic and thermoset resins, compression molding of thermoplastic resins,
accurate reproduction of colors and proprietary packing technology that
minimizes freight cost and warehouse space. Many of our overcaps and closures
are manufactured from proprietary molds, which we develop and own and which
results in significant switching costs to our customers. In addition, we utilize
state of the art lining, assembly, and decorating equipment in secondary
operations. We have a strong reputation for quality and have received numerous
“Supplier Quality Achievement Awards” from customers in different markets.
Prescription
Vials and Bottles. Our
prescription vial and bottle businesses target similar markets as our closure
business. We believe we are the leading supplier of spice containers in the
United States and have a leadership position in various vitamin and nutritional
markets, as well as selling bottles into prescription and pharmaceutical
applications. Additionally, we are a leading supplier in the prescription vial
market, supplying a complete line of amber plastic vials with both one-piece
and
two-piece child-resistant closures. We offer a variety of personal care
packages, and see the personal care market as a strong opportunity to grow
our
business. While offering a set of stock bottles in the vitamin and nutritional
markets, our design capabilities, along with internal engineering strength
give
us the ability to compete on customized designs to provide differentiation
from
traditional packages. We expect our bottle segment to experience continued
growth in the healthcare product line, as the patented child resistant and
senior friendly Tab II®
product
offering gains popularity. Our strong product offerings in continuous threaded,
child-resistant, and tamper-evident closures, make “one-stop”
-84-
shopping
available to many key customers. We offer our customers decorated bottles with
hot stamping, silk screening and labeling.
Tubes.
We
believe that we are one of the largest suppliers of plastic squeeze tubes in
the
United States. We offer a complete line of tubes from ½”
to
23/16”
in
diameter. Our focus has been to ensure
that we are able to meet the increasing trend towards large diameter tubes
with
high-end decoration. The majority of our tubes are sold in the personal care
market, focusing on products like facial/cold creams, shampoos, conditioners,
bath/shower gels, lotions, sun care, hair gels and anti-aging creams. We also
sell our tubes into the pharmaceutical and household chemical
markets. We believe that our ability to provide creative package designs, with
state of the art decorating, combined with a complementary line of dispensing
closures, makes us a preferred supplier for many customers in our target
markets.
Marketing
and sales
We
reach
our large and diversified base of over 12,000 customers primarily through our
direct field sales force of over 100 dedicated professionals. Our field sales,
production and support staff meet with customers to understand their needs
and
improve our product offerings and services. While certain of these field sales
representatives are focused on individual product lines, our team is encouraged
to sell all of 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 third party manufacturing
representatives to assist our direct sales force. Highly skilled customer
service representatives are strategically located throughout 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 and customer service representatives to
satisfy customers’ needs through the production of high-quality, value-added
products and on-time deliveries.
Our
sales
force is also 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
manufacture our products utilizing several primary molding methods including:
injection, thermoforming, compression, tube extrusion and blow molding. These
processes begin with raw plastic pellets, which are then converted into finished
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.
Compression molding is a high-speed process that begins with a continuously
extruded plastic melt stream that is cut while remaining at molding temperature
and carried to the mold cavity. Independent mold cavities close around the
molten plastic, compressing it to form the part, which is cooled and ejected.
In
the tube extrusion process, we extrude resin that is solidified in the shape
of
a tube and then cut to length. The tube then has the head added by using another
extruder that extrudes molten resin into a steel die where the cut tube is
inserted into the steel die. In blow molding we use
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three
blow molding systems: injection, extrusion, and stretch blow. Injection blow
molding involves injecting molten resin into a multiple cavity steel die and
allowing it to solidify into a preform. The parts are then indexed to a blow
station where high-pressure air is used to form the preform into the bottle.
In
extrusion blow molding, we extrude molten plastic into a long tube and then
aluminum dies clamp around the tube and high-pressure air is used to form the
bottle. In stretch blow molding, we inject molten plastic into a multi-cavity
steel mold where the parts are allowed to cool in the mold until they are
solidified. The parts are then brought to a stretch blow molding machine where
they are reheated and then placed in aluminum dies where high pressure air
is
used to form the bottle.
The
final
cured parts are transferred from the primary molding process to corrugated
containers for shipment to customers or for post-molding secondary operations
(offset printing, labeling, lining, silkscreening, handle applications, etc.).
We believe that our molding, handling, and post-molding capabilities are among
the best in the industry. 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
post-molding technology. We utilize state-of-the-art robotic packaging processes
for large volume products, which enable 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. Capital expenditures for 2006 are expected to be
approximately $90.0 million, which includes a significant amount of expenditures
for capacity additions and other growth opportunities across our business as
well as expenditures related to cost-saving opportunities and our estimated
annual level of maintenance capital expenditures of approximately $22.0 million.
Research
and product development and design
We
believe our technology base and research and development support are among
the
best in the plastics packaging industry. Using three-dimensional computer aided
design technology, our full time product designers develop innovative product
designs and models for the packaging market. 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 or built by one of our two
in-house tooling divisions located in Evansville and Chicago. Our engineers
oversee the mold-building process from start to finish. We currently have a
collection of over 1,500 proprietary molds. 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.
Additionally,
at our technical center in Lancaster, Pennsylvania, we prototype new ideas,
conduct research and development of new products and processes, and qualify
production molding systems that go directly to our facilities and into
production. We also have a complete product testing and quality laboratory
at
our technical center. With this combination of manufacturing simulation and
quality systems support we are able to improve time to market and reduce cost.
We spent $3.9 million, $6.1 million, $3.8 million and $3.5 million on research
and development in the 26 weeks ended July 1, 2006 and fiscal years 2005, 2004,
and 2003, respectively.
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We
also
utilize our in-house graphic design department to develop color and styles
for
new products. Our design professionals work directly with our customers to
develop new styles and use computer-generated graphics to enable our customers
to visualize the finished product.
Quality
assurance
Each
plant extensively utilizes Total Quality Management philosophies, including
the
use of statistical process control and extensive involvement of employee teams
to increase productivity. This teamwork approach to problem-solving increases
employee participation and provides necessary training at all levels. Our teams
also utilize the Six Sigma methodology to improve internal processes and provide
a systematic approach to problem solving resulting in improved customer service.
The drive for team work and continuous improvement is an ongoing quality focus.
All of our facilities are ISO9001/2000 certified or are working toward such
certification. Certification requires a demonstrated compliance by a company
with a set of shipping, trading and technology standards promulgated by the
International Organization for Standardization (“ISO”). Extensive testing of
parts for size, color, strength and material quality using statistical process
control techniques and sophisticated technology is also an ongoing part of
our
quality assurance activities.
Systems
All
of
our facilities are on the same integrated accounting and control system that
allows for consistency in reporting and efficient consolidation. This enterprise
resource planning (“ERP”) system produces complete financial and operational
reports and is expandable to add new features and/or locations as we grow.
All
of our facilities, excluding the Milan facility and one Kerr facility,
utilize the manufacturing applications of our standard ERP system. The remaining
Kerr facility is scheduled to be converted to the manufacturing
applications of the system by the end of the first quarter of fiscal 2007.
We
also utilize many other applications to support business processes.
Sources
and availability of raw materials
The
most
important raw material purchased by us is plastic resin. We purchased
approximately $385.0 million of resin in fiscal 2005 with approximately 23%
of
our resin pounds, on a pro forma basis, being HDPE, 11% LDPE, 62% PP, 3% PET
and
1% other. We have contractual price escalators and de-escalators tied to the
price of resin with customers representing more than 60% of net sales that
result in price increases/decreases to these 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. Less than 10% of our net sales
are generated from arrangements that exhibit fixed-price characteristics, and
we
have at times and may continue to enter into negotiated purchase agreements
with
resin suppliers to lock-in a level of profitability on these arrangements.
We
also opportunistically pursue resin forward hedging transactions in order to
manage our resin spend and further align our costs with our prices to our
customers. We can further seek to 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 and reducing the quantity of resin
in
certain of our products. We feel that based upon the combination of the methods
described above we have the ability to manage changes in resin prices as
evidenced by our consistent profitability and earnings growth throughout recent
periods of historically high resin volatility. We plan to pursue opportunities
to jointly
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purchase
resin with other Apollo portfolio companies. These joint-purchasing
opportunities should generate further benefits in terms of our ability to manage
our material.
Our
plastic resin purchasing strategy is to deal with only high-quality, dependable
suppliers, such as Basell, Chevron, Dow, ExxonMobil, Huntsman, Lyondell, Nova,
Sunoco and Total. We believe that we have maintained strong relationships with
these key suppliers and expect that such relationships will continue into the
foreseeable future. The resin market is a global market and, based on our
experience, we believe that adequate quantities of plastic resins will be
available at market prices, but we can give you no assurances as to such
availability or the prices thereof.
Employees
As
of
July 1, 2006, we had approximately 6,800 employees. Poly-Seal Corporation,
a
wholly owned subsidiary, and the United Steelworkers of America are parties
to a
collective bargaining agreement which expires in April 2009. As of July 1,
2006,
approximately 300 employees of Poly-Seal Corporation, all of which are located
in our Baltimore facility, were covered by this agreement. None of our other
domestic employees are covered by collective bargaining agreements. We believe
our relations with our employees are good.
Patents
and trademarks
We
rely
on a combination of patents, trade secrets, unpatented know-how, trademarks,
copyrights and other intellectual property rights, nondisclosure agreements
and
other protective measures to protect our proprietary rights. We do not believe
that any individual item of our intellectual property portfolio is material
to
our current business. We employ various methods, including confidentiality
and
non-disclosure agreements with third parties, employees and consultants, to
protect our trade secrets and know-how. We have licensed, and may license in
the
future, patents, trademarks, trade secrets, and similar proprietary rights
to
and from third parties.
Properties
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:
|
Location
|
Square Footage
|
Use
|
Owned/Leased
|
|
Evansville,
IN
|
552,000
|
Headquarters and manufacturing
|
Owned
|
|
Evansville,
IN
|
223,000
|
Manufacturing
|
Leased
|
|
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
|
350,000
|
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
|
215,000
|
Manufacturing
|
Leased
|
|
Phoenix,
AZ
|
266,000
|
Manufacturing
|
Leased
|
|
Ahoskie,
NC
|
150,000
|
Manufacturing
|
Owned
|
|
Bowling
Green, KY
|
168,000
|
Manufacturing
|
Leased
|
|
Sarasota,
FL
|
74,000
|
Manufacturing
|
Owned
|
|
Jackson,
TN
|
211,000
|
Manufacturing
|
Leased
|
|
Anaheim,
CA
|
248,000
|
Manufacturing
|
Leased
|
|
Cranbury,
NJ
|
204,000
|
Manufacturing
|
Leased
|
|
Easthampton,
MA
|
210,000
|
Manufacturing
|
Leased
|
|
Oxnard,
CA
|
110,000
|
Manufacturing
|
Leased
|
|
Toluca,
Mexico
|
172,000
|
Manufacturing
|
Leased
|
|
5,511,000
|
-88-
Environmental
matters and government regulation
Our
past
and present operations and our past and present ownership and operations of
real
property are subject to extensive and changing federal, state, local and foreign
environmental laws and regulations pertaining to the discharge of materials
into
the environment, the handling and disposition of wastes, and cleanup of
contaminated soil and ground water, or otherwise relating to the protection
of
the environment. We believe that we are in substantial compliance with
applicable environmental laws and regulations. However, we cannot predict with
any certainty that we will not in the future incur liability, which could be
significant 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 regulated
materials, which could be material.
We
may
from time to time be required to conduct remediation of releases of regulated
materials at our owned or operated facilities. None of our pending remediation
projects are expected to result in material costs. Like any manufacturer, we
are
also 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 Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
(“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, and for damages
to natural resources. Liability under CERCLA is retroactive, and, under certain
circumstances, liability for the entire cost of a cleanup can be imposed on
any
responsible party. No such notices are currently pending which are expected
to
result in material costs.
The
Food
and Drug Administration (“FDA”) regulates the material content of direct-contact
food and drug packages, including certain packages we manufacture pursuant
to
the Federal Food, Drug and Cosmetics Act. Certain of our products are also
regulated by the Consumer Product Safety Commission (“CPSC”) pursuant to various
federal laws, including the
-89-
Consumer
Product Safety Act and the Poison Prevention Packaging 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 laws exist 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 our products
that directly contact food and drug 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 particular, certain states have
enacted legislation requiring products packaged in plastic containers to comply
with standards intended to encourage recycling and increased use of recycled
materials. In addition, various consumer and special interest groups have
lobbied from time to time for the implementation of these and other similar
measures. We believe that the legislation promulgated to date and such
initiatives to date have not had a material adverse effect on us. There can
be
no assurance that any such future legislative or regulatory efforts or future
initiatives would not have a material adverse effect on us.
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.
-90-
Executive
Officers, Officer and Directors
The
following table provides information regarding the executive officers, officers
and certain members of the board of directors of Berry Plastics Group, of which
we are a wholly owned subsidiary, following the consummation of the Acquisition.
|
Name
|
Age
|
Title
|
|
Ira
G. Boots
|
52
|
President,
Chief Executive Officer and Director
|
|
R.
Brent Beeler
|
53
|
Executive
Vice President and Chief Operating Officer
|
|
James
M. Kratochvil
|
50
|
Executive
Vice President, Chief Financial Officer, Treasurer and
Secretary
|
|
Anthony
M. Civale
|
32
|
Director
|
|
Patrick
J. Dalton
|
38
|
Director
|
|
Donald
C. Graham
|
73
|
Director
|
|
Steven
C. Graham
|
47
|
Director
|
|
Joshua
J. Harris
|
41
|
Director
|
|
Robert
V. Seminara
|
34
|
Director
|
The
following table provides information regarding the executive officers, officers
and certain members of the board of directors of Berry Plastics Holding
Corporation following the consummation of the Acquisition.
|
Name
|
Age
|
Title
|
|
Ira
G. Boots
|
52
|
President,
Chief Executive Officer and Director
|
|
R.
Brent Beeler
|
53
|
Executive
Vice President and Chief Operating Officer
|
|
James
M. Kratochvil
|
50
|
Executive
Vice President, Chief Financial Officer, Treasurer and
Secretary
|
|
Anthony
M. Civale
|
32
|
Director
|
|
Robert
V. Seminara
|
34
|
Director
|
Ira
G. Boots
has been
President and Chief Executive Officer since June 2001 of Holdings and Berry
Plastics Corporation, and a Director of Holdings and Berry Plastics Corporation
since April 1992. Prior to that, Mr. Boots served as Chief Operating Officer
of
Berry Plastics Corporation since August 2000 and Vice President of Operations,
Engineering and Product Development of Berry Plastics Corporation since April
1992. Mr. Boots was employed by our predecessor company from 1984 to December
1990 as Vice President, Operations.
R.
Brent Beeler
was
named Executive Vice President and Chief Operating Officer of Holdings and
Berry
Plastics Corporation in May 2005. He formerly served as President—Containers and
Consumer Products of Berry Plastics Corporation since October 2003 and has
been
an Executive Vice President of Holdings since July 2002. He had been Executive
Vice President and General Manager—Containers and Consumer Products of Berry
Plastics Corporation since October 2002 and was Executive Vice President and
General Manager—Containers since August 2000. Prior to that, Mr. Beeler was
Executive Vice President, Sales and Marketing of Berry Plastics Corporation
since February 1996 and Vice President, Sales and Marketing of Berry Plastics
Corporation since December 1990. Mr. Beeler was employed by
-91-
our
predecessor company from October 1988 to December 1990 as Vice President, Sales
and Marketing and from 1985 to 1988 as National Sales Manager.
James
M. Kratochvil
has been
Executive Vice President, Chief Financial Officer, Treasurer and Secretary
of
Holdings and Berry Plastics Corporation since December 1997. He formerly served
as Vice President, Chief Financial Officer and Secretary of Berry Plastics
Corporation since 1991, and as Treasurer of Berry Plastics Corporation since
May
1996. He formerly served as Vice President, Chief Financial Officer and
Secretary of Holdings since 1991. Mr. Kratochvil was employed by our predecessor
company from 1985 to 1991 as Controller.
Anthony M.
Civale
has been
a member of our Board of Directors since the consummation of the Acquisition.
Mr. Civale is a Partner at Apollo, where he has worked since 1999. Prior to
that
time, Mr. Civale was employed by Deutsche Bank Securities in the Corporate
Finance Department. Mr. Civale also serves on the boards of directors of Goodman
Global Holdings, Inc. and Covalence Specialty Materials Corp.
Patrick
J. Dalton has
been
a member of our Board of Directors since the consummation of the Acquisition.
Mr. Dalton is a Partner and member of the Investment Committee of Apollo
Investment Management, L.P., Apollo’s business development corporation, where he
has worked since 2004. Prior to that time, Mr. Dalton was employed by Goldman,
Sachs & Co. in the Principal Investment Area. Mr. Dalton has served, or
was an observer, on the boards of directors of Berry Plastics Corporation,
Playpower Inc., Pro Mach Inc., and Hanley Wood, LLC as well as a number of
other
private companies.
Donald
C. Graham
founded
the Graham Group, an industrial and investment concern, and has been a member
of
our Board of Directors since the consummation of the Acquisition. The Graham
Group is engaged in a broad array of businesses, including industrial process
technology development, capital equipment production, and consumer and
industrial products manufacturing. Mr. Graham founded Graham Packaging Company,
in which he sold a controlling interest in 1998. The Graham Group’s three legacy
industrial businesses operate in more than 80 locations worldwide, with combined
sales of more than $2.75 billion. Mr. Graham currently serves on the board
of
directors of Western Industries, Inc., Supreme Corq LLC, National Diversified
Sales, Inc., Infiltrator Systems, Inc., Touchstone Wireless Repair and Logistics
LP, Nurture, Inc., Graham Engineering Corporation and Graham Architectural
Products Corporation.
Steven
C. Graham
founded
Graham Partners and has been a member of our Board of Directors since the
consummation of the Acquisition. Prior to founding Graham Partners in 1998,
Mr.
Graham oversaw the Graham Group’s corporate finance division starting in 1988.
Prior to 1988, Mr. Graham was a member of the investment banking division of
Goldman, Sachs & Co., and was an Acquisition Officer for the RAF Group,
a private equity investment group. Mr. Graham currently serves on the board
of
directors of Graham Architectural Products Corporation, Western Industries,
Inc., National Diversified Sales, Inc., HB&G Building Products, Inc.,
Nailite International, Inc., Dynojet, Inc., Supreme Corq LLC, Line-X, LLC,
Abrisa Industrial Glass, Inc., Infiltrator Systems, Inc., The Masonry Group
LLC,
and ICG Commerce Holdings, Inc.
Joshua J.
Harris has
been
a member of our Board of Directors since the consummation of the Acquisition.
Mr. Harris is a founding Senior Partner at Apollo and has served as an officer
of certain affiliates of Apollo since 1990. Prior to that time, Mr. Harris
was a
member of the Mergers and Acquisitions Department of Drexel Burnham Lambert
Incorporated. Mr. Harris is also a director of Hexion Specialty Chemicals,
Inc.,
Allied Waste Industries, Inc., Metals USA, Inc., Nalco Corporation, Covalence
Specialty Materials Corp., Quality Distribution Inc., United Agri Products
and
Verso Paper Inc.
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Robert V.
Seminara
has been
a member of our Board of Directors since the consummation of the Acquisition.
Mr. Seminara is a Partner at Apollo, where he has worked since 2003. Prior
to
that time, Mr. Seminara was a managing director of Evercore Partners LLC. Mr.
Seminara also serves on the boards of directors of Hexion Specialty Chemicals,
Inc., Covalence Specialty Materials Corp. and World Kitchen
Inc.
Board
Committees
Our
Board
of Directors has a Compensation Committee, an Audit Committee and Executive
Committee. The Compensation Committee makes recommendations concerning salaries
and incentive compensation for our employees and consultants. The Audit
Committee recommends the annual appointment of auditors with whom the Audit
Committee reviews the scope of audit and non-audit assignments and related
fees,
accounting principles we use in financial reporting, internal auditing
procedures and the adequacy of our internal control procedures.
Compensation
for Directors
Non-employee
directors receive $12,500 per quarter plus $2,000 for each meeting they attend
and are reimbursed for out of pocket expenses incurred in connection with their
duties as directors. Non-employee directors each received 2,000 stock options
in
connection with the consummation of the Acquisition. 1,334 of these options
were
vested and exercisable immediately and have a fixed exercise price of $100
per
share, which was the fair market value at the date of grant. The remaining
666
options vest and become exercisable over a five year period, beginning January
1, 2007, and have an exercise price that commenced at the fair market value
of
$100 per share and increases at a rate of 15% per year.
Employees
who are directors receive no cash consideration for serving on our Board of
Directors, but they are reimbursed for out-of-pocket expenses incurred in
connection with their duties as directors.
Executive
Compensation
Our
executive officers receive no cash consideration for their services to Holdings,
but are reimbursed for out-of-pocket expenses incurred in connection with their
duties as executive officers of Holdings. The following table sets forth a
summary of the compensation paid by Berry Plastics Corporation, a wholly owned
subsidiary of Holdings, to the individual who has acted as its Chief Executive
Officer since the date of the Acquisition and the four other most highly
compensated executive officers of Berry Plastics Corporation as of the date
of
this prospectus (collectively, the “Named Executive Officers”) for services
rendered in all capacities to us during fiscal 2005, 2004 and 2003.
-93-
SUMMARY
COMPENSATION TABLE
|
Annual
Compensation
|
Long
Term
Compensation
|
||||
|
Name
and Principal Position
|
Fiscal
Year
|
Salary
|
Bonus
|
Securities
Underlying
Options
(#)
|
Other
Compensation
(1)
|
|
Ira
G. Boots
President
and Chief Executive Officer
|
2005
|
$
455,749
|
$
299,323
|
—
|
$
15,494
|
|
2004
|
442,226
|
214,200
|
—
|
15,494
|
|
|
2003
|
432,836
|
150,231
|
2,383
|
12,343
|
|
|
James
M. Kratochvil
Executive
Vice President, Chief Financial Officer, Treasurer and
Secretary
|
2005
|
$
293,373
|
$
192,422
|
—
|
$
11,685
|
|
2004
|
284,909
|
137,700
|
—
|
11,576
|
|
|
2003
|
278,867
|
96,577
|
1,356
|
10,151
|
|
|
R.
Brent Beeler
Executive
Vice President and Chief Operating Officer
|
2005
|
$
382,828
|
$
236,325
|
3,000
|
$
5,034
|
|
2004
|
345,995
|
156,503
|
—
|
4,028
|
|
|
2003
|
313,761
|
111,476
|
1,356
|
3,105
|
|
|
Randall
J. Hobson
President
- Closed Top Division
|
2005
|
$
177,805
|
$
95,900
|
1,256
|
$
3,021
|
|
2004
|
140,374
|
66,634
|
—
|
2,774
|
|
|
2003
|
133,662
|
46,734
|
432
|
2,733
|
|
|
G.
Adam Unfried
President
- Open Top Division
|
2005
|
$
183,447
|
$
90,420
|
1,256
|
$
3,262
|
|
2004
|
132,556
|
53,550
|
—
|
3,244
|
|
|
2003
|
107,436
|
35,471
|
432
|
2,660
|
|
__________________
(1) Amounts
shown reflect contributions by the Company under the Company’s 401(k) plan and
the personal use of a Company vehicle.
Option
Grants Following the Acquisition
The
following table shows all grants of options to acquire shares of common stock
of
Berry Plastics Group made to the Named Executive Officers since the
Acquisition.
|
Individual
Grants
|
Exercise
Price($)
|
Expiration
Date
|
Potential
Realizable
Value
at Assumed
Rates
of Stock Price
Appreciation
for
Option
Term
|
|||
|
Number
of
Securities
Underlying
Options
Granted
(#)
|
%
of Total
Options
Granted
to
Employees
per
Fiscal
Year
|
|||||
|
Name
|
5%($)
|
10%($)
|
||||
|
Ira
Boots(1)
|
12,141
|
2.4
|
100
|
9/19/2016
|
763,547
|
1,934,911
|
|
Ira
Boots(2)
|
12,141
|
2.4
|
100
|
9/19/2016
|
763,547
|
1,934,911
|
|
Ira
Boots(3)
|
12,141
|
2.4
|
100
|
9/19/2016
|
—
|
—
|
|
James
M. Kratochvil(1)
|
6,954
|
1.4
|
100
|
9/19/2016
|
437,337
|
1,108,259
|
|
James
M. Kratochvil(2)
|
6,954
|
1.4
|
100
|
9/19/2016
|
437,337
|
1,108,259
|
|
James
M. Kratochvil(3)
|
6,954
|
1.4
|
100
|
9/19/2016
|
—
|
—
|
|
R.
Brent Beeler(1)
|
6,954
|
1.4
|
100
|
9/19/2016
|
437,337
|
1,108,259
|
|
R.
Brent Beeler(2)
|
6,954
|
1.4
|
100
|
9/19/2016
|
437,337
|
1,108,259
|
|
R.
Brent Beeler(3)
|
6,954
|
1.4
|
100
|
9/19/2016
|
—
|
—
|
|
Randall
J. Hobson(1)
|
4,560
|
0.9
|
100
|
9/19/2016
|
286,778
|
726,727
|
|
Randall
J. Hobson(2)
|
4,560
|
0.9
|
100
|
9/19/2016
|
286,778
|
726,727
|
|
Randall
J. Hobson(3)
|
4,560
|
0.9
|
100
|
9/19/2016
|
—
|
—
|
|
G.
Adam Unfried(1)
|
4,560
|
0.9
|
100
|
9/19/2016
|
286,778
|
726,727
|
|
G.
Adam Unfried(2)
|
4,560
|
0.9
|
100
|
9/19/2016
|
286,778
|
726,727
|
|
G.
Adam Unfried(3)
|
4,560
|
0.9
|
100
|
9/19/2016
|
—
|
—
|
___________________
-94-
|
(1)
|
Represents
options granted on September 20, 2006, which (i) have an exercise
price
fixed at $100 per share, which was the fair market value of a share
of
Berry Plastics Group’s common stock on the date of grant, and (ii) vest
and become exercisable over a five year period beginning on January
1,
2007 and ending on the last day of 2011 based on continued service
with
the Company.
|
|
(2)
|
Represents
options granted on September 20, 2006, which (i) have an exercise
price
fixed at $100 per share, which was the fair market value of a share
of
Berry Plastics Group’s common stock on the date of grant, and (ii) vest
and become exercisable based on the achievement by Holdings of certain
financial targets, or if such targets are not achieved, based on
continued
service with the Company.
|
|
(3)
|
Represents
options granted on September 20, 2006, which (i) have an exercise
price
which commenced at $100 per share, which was the fair market value
of a
share of Berry Plastics Group’s common stock on the date of grant and will
increase at the rate of 15% per year during the term of the option,
and
(ii) vest and become exercisable over a five year period beginning
on
January 1, 2007 and ending on the last day of 2011 based on continued
service with the Company.
|
Employment
Agreements
In
connection with the Acquisition, Berry Plastics Corporation entered into
employment agreements with each of Messrs. Boots, Beeler, and Kratochvil that
supersede their previous employment agreements with Berry Plastics Corporation
and that expire on December 31, 2011. In addition, Messrs. Hobson and Unfried
entered into amendments to their existing employment agreements with Berry
Plastics Corporation that extend the terms of such agreements through December
31, 2011 (each of the agreements with Messrs. Boots, Beeler, Kratochvil, Hobson
and Unfried, as amended, an “Employment Agreement” and, collectively, the
“Employment Agreements”). The Employment Agreements provided for fiscal 2005
base compensation as disclosed in the “Summary Compensation Table” above.
Salaries are subject in each case to annual adjustment at the discretion of
the
Compensation Committee of the Board of Directors of Berry Plastics Corporation.
The Employment Agreements entitle each executive to participate in all other
incentive compensation plans established for executive officers of Holdings.
Holdings may terminate each Employment Agreement for “cause” or a “disability”
(as such terms are defined in the Employment Agreements). Specifically, if
any
of Messrs. Boots, Beeler, Kratochvil, Hobson, and Unfried is terminated by
Berry
Plastics Corporation without ‘‘cause’’ or resigns for ‘‘good reason’’ (as such
terms are defined in the
-95-
Employment
Agreements), that individual is entitled to: (1) the greater of (a) base salary
until the later of one year after termination or (b) 1/12 of 1 year’s base
salary for each year of employment up to 30 years with Berry Plastics
Corporation or a predecessor in interest (excluding Messrs. Hobson and Unfried
which would be entitled to (a) only) and (2) the pro rata portion of his annual
bonus. Each Employment Agreement also includes customary noncompetition,
nondisclosure and nonsolicitation provisions.
In
addition, in connection with each of the Employment Agreements, the Named
Executive Officers purchased Berry Plastics Group common stock, as described
under “ - Management Equity Buy-In”, and were granted options to purchase Berry
Plastics Group Common Stock, as described under “- Option Grants Following the
Acquisition.”
Management
Equity Buy-In
In
connection with
the
Acquisition, members of our management team have made equity investments in
Berry Plastics Group through the purchase of common stock in Berry Plastics
Group. Such members of senior management and other employees have made their
equity investments in Berry Plastics Group by using a portion of the
compensation they received, or would have otherwise received, in connection
with
the Acquisition. The purchase price paid for their equity was based on the
purchase price paid by the Sponsors. The equity securities that they have
purchase are subject to restrictions on transfer, repurchase rights and other
limitations set forth in a stockholders agreement. See “Certain Relationships
and Related Party Transactions.” In total, our employees, including members of
our senior management team, own approximately 23% of the equity of Berry
Plastics Group on a fully diluted basis. We have made, and from time to time
in
the future we may make, secured loans to certain of our employees who are not
executive officers to finance the purchase of Berry Plastics Group common stock
by such employees.
2006
Equity
Incentive Plan
In
connection with the Acquisition, we have adopted an equity incentive plan for
the benefit of certain of our employees, which we refer to as the 2006 Equity
Incentive Plan. The purpose of the 2006 Equity Incentive Plan is to further
our
growth and success, to enable our directors, executive officers and employees
to
acquire shares of our common stock, thereby increasing their personal interest
in our growth and success, and to provide a means of rewarding outstanding
performance by such persons. Options granted under the 2006 Equity Incentive
Plan may not be assigned or transferred, except to us or by will or the laws
of
descent or distribution. The 2006 Equity Incentive Plan will terminate ten
years
after its adoption and no options may be granted under the plan thereafter.
The
2006 Equity Incentive Plan allows for the issuance of non-qualified options,
options intended to qualify as “incentive stock options” within the meaning of
the Internal Revenue Code of 1986, as amended, and stock appreciation rights.
The
employees participating in the 2006 Equity Incentive Plan will receive options
and stock appreciation rights under the 2006 Equity Incentive Plan pursuant
to
individual option and stock appreciation rights agreements, the terms and
conditions of which will be substantially identical. Each option agreement
will
provide for the issuance of options to purchase common stock of Berry Plastics
Group.
As
of
September 30, 2006, there were outstanding options to purchase 494,720 shares
of
Berry Plastics Group common stock and stock appreciation rights with respect
to
5,464 shares of Berry Plastics Group common stock.
-96-
We
will
make cash payments to Berry Plastics Group to enable it to pay any
(i) federal, state or local income taxes to the extent that such income
taxes are directly attributable to our and our subsidiaries’ income,
(ii) franchise taxes and other fees required to maintain Berry Plastics
Group’s legal existence and (iii) corporate overhead expenses incurred in
the ordinary course of business and salaries or other compensation of employees
who perform services for both Berry Plastics Group and us.
In
connection with the Acquisition, the Sponsors and certain of our employees
who
invested in Berry Plastics Group entered into a stockholders agreement. The
stockholders agreement provides for, among other things, a restriction on the
transferability of each such person’s equity ownership in us, tag-along rights,
drag-along rights, piggyback registration rights and repurchase rights by us
in
certain circumstances.
The
Sponsors have entered into a management agreement with us and Berry Plastics
Group relating to the provision of certain financial and strategic advisory
services and consulting services. We pay the Sponsors an
annual management fee equal to the greater of $3.0 million and 1.25%
of our Adjusted EBITDA, as defined in the indenture, and reimburse the Sponsors
for out-of-pocket expenses incurred in the performance of their obligations
under the agreement. We have agreed to indemnify the Sponsors and each of their
affiliates and their directors, officers and representatives for losses relating
to the services contemplated by the management agreement. The
management agreement expires on December 31, 2012, subject to automatic yearly
extensions unless terminated by any party upon prior notice. In
addition, the Sponsors have the right to terminate the agreement at any time,
in
which case the Sponsors will receive additional consideration equal to the
present value of $21 million less the aggregate amount of annual management
fees
previously paid to the Sponsors and the employee stockholders will receive
a
payment based on such amount. We paid the Sponsors a fee of $20.0 million
for services rendered in connection with the Acquisition and reimbursed the
Sponsors for certain expenses incurred in rendering those services.
-97-
We
are a
wholly-owned subsidiary of Berry Plastics Group. The following table sets
forth
certain information regarding the beneficial ownership of the common stock,
of
Berry Plastics Group with respect to each person that is a beneficial owner
of
more than 5% of its outstanding common stock and beneficial ownership of
its
common stock by each director and each executive officer named in the Summary
Compensation Table and all directors and executive officers as a group as
of
September 20, 2006:
|
Name
and Address of Owner(1)
|
|
Number
of Shares of
Common
Stock(1)
|
Percent
of Class
|
||
|
Apollo
Investment Fund VI, L.P.(2)
|
|
3,559,930
|
|
72.1
|
%
|
|
AP
Berry Holdings, LLC(3)
|
|
1,641,269
|
|
33.3
|
%
|
|
Graham
Berry Holdings, LP(4)
|
|
500,000
|
|
10.1
|
%
|
|
Ira
G. Boots(5)
|
119,395
|
2.4
|
%
|
||
|
R.
Brent Beeler(5)
|
68,010
|
1.4
|
%
|
||
|
James
M. Kratochvil(5)
|
67,787
|
1.4
|
%
|
||
|
Anthony
M. Civale(6),(7)
|
1,334
|
*
|
|||
|
Patrick
J. Dalton(6),(7)
|
1,334
|
*
|
|||
|
Donald
C. Graham(6),(8)
|
1,334
|
*
|
|||
|
Steven
C. Graham(6),(8)
|
1,334
|
*
|
|||
|
Joshua
J. Harris(6),(7)
|
1,334
|
*
|
|||
|
Robert
V. Seminara(6),(7)
|
1,334
|
*
|
|||
|
All
directors and executive officers as
a group (9 persons)
(6)
|
263,196
|
5.3
|
%
|
||
*
Less
than 1% of common stock outstanding.
| (1) |
The
amounts and percentages of common stock beneficially owned are reported
on
the basis of regulations of the SEC governing the determination of
beneficial ownership of securities. Under the rules of the SEC, a
person
is deemed to be a “beneficial owner” of a security if that person has or
shares voting power, which includes the power to vote or direct the
voting
of such security, or investment power, which includes the power to
dispose
of or to direct the disposition of such security. A person is also
deemed
to be a beneficial owner of any securities of which that person has
a
right to acquire beneficial ownership within 60 days. Securities
that can
be so acquired are deemed to be outstanding for purposes of computing
such
person’s ownership percentage, but not for purposes of computing any other
person’s percentage. Under these rules, more than one person may be deemed
beneficial owner of the same securities and a person may be deemed
to be a
beneficial owner of securities as to which such person has no economic
interest. Except as otherwise indicated in these footnotes, each
of the
beneficial owners has, to our knowledge, sole voting and investment
power
with respect to the indicated shares of common
stock.
|
| (2) |
Represents
all equity interests of Berry Plastics Group held of record by controlled
affiliates of Apollo Investment Fund VI, L.P., including AP Berry
Holdings, LLC and BPC Co-Investment Holdings, LLC. Apollo Management
VI,
L.P. has the voting and investment power over the shares held on
behalf of
Apollo. Each of Messrs. Civale,
|
-98-
|
Dalton,
Harris, and Seminara, who have relationships with Apollo, disclaim
beneficial ownership of any shares of Berry Plastics Group that may
be
deemed beneficially owned by Apollo Management VI, L.P., except to
the
extent of any pecuniary interest therein. Each of Apollo Management
VI,
L.P., AP Berry Holdings, LLC and its affiliated investment funds
disclaims
beneficial ownership of any such shares in which it does not have
a
pecuniary interest. The address of Apollo Management VI, L.P., Apollo
Investment Fund VI, L.P., and AP Berry Holdings LLC is c/o Apollo
Management, L.P., 9 West 57th Street, New York, New York
10019.
|
| (3) |
The
address of AP Berry Holdings LLC is c/o Apollo Management, L.P.,
9 West
57th Street, New York, New York 10019.
|
| (4) |
Represents
all equity interests of Berry Plastics Group held of record by controlled
affiliates of Graham Berry Holdings, LLC. Graham Partners II, L.P.
has the
voting and investment power over the shares held by Graham Berry
Holdings,
LLC. Each of Messrs. Steven Graham and Donald Graham, who have
relationships with Graham Partners II, L.P., disclaim beneficial
ownership
of any shares of Berry Plastics Group that may be deemed beneficially
owned by Graham Partners II, L.P. except to the extent of any pecuniary
interest therein. Each of Graham Partners II, L.P. and its affiliates
disclaims beneficial ownership of any such shares in which it does
not
have a pecuniary interest. The address of Graham Partners II, L.P.
and
Graham Berry Holdings, LLC is 3811 West Chester Pike, Building 2,
Suite
200 Newton Square, Pennsylvania 19073.
|
| (5) |
The
address of Messrs. Boots, Beeler and Kratochvil is c/o Berry Plastics
Holding Corporation, 101 Oakley Street, Evansville, Indiana
47710
|
| (6) |
Includes
1,334 shares underlying options that are vested or scheduled to vest
within 60 days of September 20, 2006 for each of Messrs. Civale,
Dalton,
Donald Graham, Steven Graham, Harris and
Seminara.
|
| (7) |
The
address of Messrs. Civale, Harris, Seminara and Dalton is c/o Apollo
Management, L.P., 9 West 57th Street, New York, New York
10019.
|
| (8) |
The
address of Messrs. Steven Graham and Donald Graham is c/o Graham
Partners
II, L.P. is 3811 West Chester Pike, Building 2, Suite 200 Newton
Square,
Pennsylvania 19073.
|
-99-
Senior
Secured Credit Facilities
Our
senior secured credit facilities are provided by a syndicate of banks and
other
financial institutions. Our senior secured credit facilities provides financing
of up to $875.0 million, consisting of:
| · |
$675.0
million in term B loans that mature on September 20, 2013, all of
which
has been drawn in connection with the consummation of the Acquisition;
and
|
| · |
a
$200.0 million revolving credit facility, that matures on September
20,
2012, $20.0 million of which has been drawn in connection with the
consummation of the Acquisition, which includes borrowing capacity
available for letters of credit and for borrowings on same-day notice,
referred to as swingline loans.
|
Interest
Rate and Fees
The
interest rates per annum applicable to loans under our senior secured credit
facilities are, at our option, equal to either an alternate base rate or
an
adjusted LIBOR rate for a one-, two-, three- or six-month interest period,
or a
nine- or twelve-month period, if available from all relevant lenders, in
each
case, plus an applicable margin. The alternate base rate means the greater
of
(i) Credit Suisse’s prime rate and (ii) one-half of 1.0% over the
weighted average of rates on overnight Federal Funds as published by the
Federal
Reserve Bank of New York. The Adjusted LIBOR rate is determined by reference
to
settlement rates established for deposits in dollars in the London interbank
market for a period equal to the interest period of the applicable loan and
the
maximum reserve percentages established by the Board of Governors of the
U.S.
Federal Reserve to which our lenders are subject.
In
addition to paying interest on outstanding principal under our senior secured
credit facilities, we are required to pay a commitment fee to the lenders
under
the revolving credit facility in respect of the unutilized commitments
thereunder at a rate equal to 0.50% per annum (subject to reduction upon
attainment of certain leverage ratios). We also pay customary letter of credit
and agency fees.
Prepayments
Our
senior secured credit facilities requires us to prepay outstanding term loans,
subject to certain exceptions, with:
| · |
beginning
with our first full fiscal year after the closing, 50% (which percentage
is subject to a minimum of 0% upon the achievement of certain leverage
ratios) of excess cash flow (as defined in the credit agreement)
less the
amount of certain voluntary prepayments as described in the credit
agreement;
|
| · |
so
long as our total net first lien leverage ratio is above a certain
threshold, 100% of the net cash proceeds of any incurrence of debt
other
than excluded debt issuances (as defined in the credit agreement);
and
|
| · |
so
long as our total net first lien leverage ratio is above a certain
threshold, 100% of the net cash proceeds of all non-ordinary course
asset
sales and casualty and condemnation events, if we do not reinvest
or
commit to reinvest those proceeds
|
| · |
in
assets to be used in our business or to make certain other permitted
investments within 15 months.
|
-100-
We
may
voluntarily repay outstanding loans under the senior secured credit facilities
at any time without premium or penalty, other than customary “breakage” costs
with respect to eurocurrency loans.
Amortization
The
term
B loans amortize each year in an amount equal to 1% per annum in equal
quarterly installments for the first six years and nine months, with the
remaining amount payable on September 20, 2013.
Principal
amounts outstanding under the revolving credit facility will be due and payable
in full on September 20, 2012.
Guarantee
and Security
All
obligations under our senior secured credit facilities are unconditionally
guaranteed by Berry Plastics Group and, subject to certain exceptions, each
of
our existing and future direct and indirect domestic subsidiaries, which
we
refer to collectively as “U.S. Guarantors.”
All
obligations under our senior secured credit facilities, and the guarantees
of
those obligations (as well as any interest-hedging or other swap agreements),
are secured by substantially all of our assets as well as those of Berry
Plastics Group and each U.S. Guarantor, including, but not limited to, the
following and subject to certain exceptions:
| · |
a
first priority pledge of all of our equity interests by Holdings,
a pledge
of 100% of the equity interests of all U.S. Guarantors and a first
priority pledge of 65% of the voting
equity interests of certain of our foreign subsidiaries; and
|
| · |
a
first priority security interest in substantially all of our tangible
and
intangible assets as well as those of Berry Plastics Group and each
U.S.
Guarantor.
|
Certain
Covenants and Events of Default
The
senior secured credit facilities contains customary covenants that, among
other
things, restrict, subject to certain exceptions, our ability, and the ability
of
our subsidiaries, to incur indebtedness, sell assets, make investments, engage
in acquisitions, mergers or consolidations and make dividend and other
restricted payments.
In
addition, the senior secured credit facilities requires us to maintain a
maximum
total net first lien leverage ratio.
The
senior secured credit facilities also contains certain customary affirmative
covenants and events of default.
Senior
Subordinated Notes
Pursuant
to a note purchase agreement (the “Senior Subordinated Note Purchase Agreement”)
and a related Indenture, we have issued $425.0 million in aggregate
principal amount of senior subordinated notes to Goldman in a private placement
that is exempt from registration under the Securities Act. The senior
subordinated notes are unsecured, senior
-101-
subordinated
obligations and are guaranteed on an unsecured, senior subordinated basis
by
each of our subsidiaries that guarantees our senior secured credit facilities
and the outstanding notes which we are hereby offering to exchange for the
exchange notes. The senior subordinated notes will mature in 2016.
The
senior subordinated notes bear interest at a rate of 11% per annum. Such
interest is payable quarterly in cash; provided,
however,
that on
any quarterly interest payment date on or prior to the third anniversary
of the
issuance of the senior subordinated notes, we may elect to pay up to 3% of
the
interest payable on such date by capitalizing such interest and adding it
to the
outstanding principal amount of the senior subordinated notes. After the
third
anniversary of the issuance of the senior subordinated notes, all interest
on
the senior subordinated notes will be payable only in cash.
The
senior subordinated notes may be redeemed at our option under circumstances
and
at redemption prices set forth in the Indenture governing the senior
subordinated notes. Upon the occurrence of a change of control, we are required
to offer to repurchase all of the senior subordinated notes. Such Indenture
sets
forth covenants and events of default that are substantially similar to those
set forth in the Indenture governing the outstanding notes which we are hereby
offering to exchange for the exchange notes. The Senior Subordinated Note
Purchase Agreement contains additional affirmative covenants and certain
customary representations, warranties and conditions.
-102-
The
terms
of the exchange notes and the outstanding notes are identical in all material
respects, except:
| · |
the
exchange notes will have been registered under the Securities
Act;
|
| · |
the
exchange notes will not contain transfer restrictions and registration
rights that relate to the outstanding notes;
and
|
| · |
the
exchange notes will not contain provisions relating to the payment
of
additional interest to the holders of the outstanding notes under
the
circumstances related to the timing of the exchange
offer.
|
Any
outstanding notes that remain outstanding after the exchange offer, together
with the exchange notes issued in the exchange offer, will be treated as
a
single class of securities for voting purposes under the applicable Indenture
under which they were issued. You can find the definitions of certain terms
used
in this description under the subheading “Certain Definitions.” In this
description, the words “Issuer” and “we,” “us” and “our” mean Holdings, a
Delaware corporation, and not any of its subsidiaries. References to the
“notes”
refer to the outstanding and exchange notes.
We
issued
$750.0 million in aggregate principal amount of the outstanding notes to
the
initial purchasers on September 20, 2006. The initial purchasers sold the
outstanding notes to “qualified institutional buyers,” as defined in Rule 144A
under the Securities Act. The terms of the exchange notes are substantially
identical to the terms of the outstanding notes. However, the exchange notes
are
not subject to transfer restrictions, registration rights or additional interest
provisions unless held by certain broker-dealers, affiliates of Holdings
or
certain other persons. See “The Exchange Offer―Transferability
of the Exchange Notes.” In
addition, we do not plan to list the exchange notes on any securities exchange
or seek quotation on any automated quotation system. The outstanding notes
are
traded on Nasdaq’s PORTAL system.
For
purposes of this summary, the term “notes” refers to both the outstanding notes
and the exchange notes.
The
following description is a summary of the material provisions of the Indenture.
It does not restate the Indenture in its entirety. We urge you to read the
Indenture because it, and not this description, define your rights as holders
of
the notes. Copies of the Indenture are available upon request to us at the
address indicated under “Where You Can Find More Information About Us.” Certain
defined terms used in this description but not defined below under “Certain
Definitions” have the meanings assigned to them in the Indenture.
The
registered holder of a note will be treated as the owner of it for all purposes.
Only registered holders will have rights under the Indenture.
General
The
outstanding notes are and the exchange notes will be issued under an Indenture
(the “Indenture”), dated as of September 20, 2006, among the Issuer, the Note
Guarantors, and Wells Fargo Bank, N.A., as Trustee. Copies of the Indenture
may
be obtained from the Issuer upon request.
The
following summary of certain provisions of the Indenture, the notes and the
Registration Rights Agreement does not purport to be complete and is subject
to,
and is qualified in its entirety by reference to, all the provisions of the
Indenture and the Registration Rights Agreement, including the definitions
of
certain terms therein and those terms made a part
-103-
thereof
by the TIA. Capitalized terms used in this “Description of the Notes” section
and not otherwise defined have the meanings set forth in the section “—Certain
Definitions.”
We
will
issue the exchange notes with an initial aggregate principal amount of $750.0
million, comprised of $525.0 million in initial aggregate principal amount
of fixed rate notes (the “fixed rate notes”) and $225.0 million in initial
aggregate principal amount of floating rate notes (the “floating rate notes”).
The Issuer may issue additional notes from time to time after this offering.
Any
offering of additional notes is subject to the covenants described below
under
the caption “—Certain Covenants—Limitation on Incurrence of Indebtedness and
Issuance of Disqualified Stock and Preferred Stock” and “—Certain
Covenants—Liens.” The fixed rate notes and any additional fixed rate notes
subsequently issued under the Indenture will be treated as a single class
for
all purposes under the Indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. Unless the context otherwise
requires, for all purposes of the Indenture and this “Description of the Notes,”
references to the fixed rate notes include any additional fixed rate notes
actually issued. The floating rate notes and any additional floating rate
notes
subsequently issued under the Indenture will be treated as a single class
for
all purposes under the Indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. Unless the context otherwise
requires, for all purposes of the Indenture and this “Description of the Notes,”
references to the floating rate notes include any additional floating rate
notes
actually issued.
Principal
of, premium, if any, and interest on the notes will be payable, and the notes
may be exchanged or transferred, at the office or agency designated by the
Issuer (which initially shall be the principal corporate trust office of
the
Trustee).
The
notes
will be issued only in fully registered form, without coupons, in minimum
denominations of $2,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of notes, but the
Issuer may require payment of a sum sufficient to cover any transfer tax
or
other similar governmental charge payable in connection therewith.
References
herein to the notes include the fixed rate notes and the floating rate notes.
However, the fixed rate notes and the floating rate notes are two separate
series of notes under the Indenture for purposes of, among other things,
payments of principal and interest, rescinding certain Events of Default
and
consenting to certain amendments to the Indenture and the notes.
Terms
of the Notes
Fixed
Rate Notes
The
fixed
rate notes, which are senior obligations of the Issuer, have the benefit
of the
second-priority security interest in the Collateral described below under
“—Security for the Notes” and mature on September 15, 2014. Each fixed rate
note bears interest at a rate per annum of 87/8%
from
September 20, 2006 or from the most recent date to which interest has been
paid
or provided for, payable semiannually to holders of record at the close of
business on March 1 or September 1 immediately preceding the interest
payment date on March 15 and September 15 of each year, commencing
March 15, 2007.
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Floating
Rate Notes
The
floating rate notes, which are senior obligations of the Issuer, have the
benefit of the second-priority security interest in the Collateral described
below under “—Security for the Notes” and mature on September 15, 2014.
Interest on the floating rate notes accrues at a rate per annum, reset
quarterly, equal to LIBOR plus 3.875%, as determined by the calculation agent
(the “Calculation Agent”), which initially is the Trustee. Interest on the
floating rate notes will be payable quarterly in arrears on March 15,
June 15, September 15 and December 15, commencing on
December 15, 2006. The Issuer will make each interest payment to the
holders of record of the floating rate notes on the immediately preceding
March 1, June 1, September 1 and December 1. Interest on the
floating rate notes accrues from the September 20, 2006.
The
amount of interest for each day that the floating rate notes are outstanding
(the “Daily Interest Amount”) is calculated by dividing the interest rate in
effect for such day by 360 and multiplying the result by the principal amount
of
the floating rate notes. The amount of interest to be paid on the floating rate
notes for each Interest Period is calculated by adding the Daily Interest
Amounts for each day in the Interest Period.
All
percentages resulting from any of the above calculations are rounded, if
necessary, to the nearest one hundred thousandth of a percentage point, with
five one-millionths of a percentage point being rounded upwards (e.g.,
9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)) and all
dollar
amounts used in or resulting from such calculations are rounded to the nearest
cent (with one-half cent being rounded upwards).
The
interest rate on the floating rate notes will in no event be higher than
the
maximum rate permitted by New York law as the same may be modified by U.S.
law
of general application.
The
Calculation Agent will, upon the request of any holder of floating rate notes,
provide the interest rate then in effect with respect to the floating rate
notes. All calculations made by the Calculation Agent in the absence of manifest
error are conclusive for all purposes and binding on the Issuer, the Note
Guarantors and the holders of the floating rate notes.
Optional
Redemption
Fixed
Rate Notes
On
or
after September 15, 2010, the Issuer may redeem the fixed rate notes at its
option, in whole at any time or in part from time to time, upon not less
than 30
nor more than 60 days’ prior notice mailed by first-class mail to each holder’s
registered address, at the following redemption prices (expressed as a
percentage of principal amount), plus accrued and unpaid interest and additional
interest, if any, to 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), if redeemed during the 12-month period commencing
on
September 15 of the years set forth below:
|
Period
|
Redemption Price
|
|
|
2010
|
104.438%
|
|
|
2011
|
102.219%
|
|
|
2012
and thereafter
|
100.000%
|
|
-105-
In
addition, prior to September 15, 2010, the Issuer may redeem the fixed rate
notes at its option, in whole at any time or in part from time to time, upon
not
less than 30 nor more than 60 days’ prior notice mailed by first-class mail to
each holder’s registered address, at a redemption price equal to 100% of the
principal amount of the fixed rate notes redeemed plus the Applicable Premium
as
of, and accrued and unpaid interest and additional interest, if any, to,
the
applicable 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).
Notwithstanding
the foregoing, at any time and from time to time on or prior to
September 15, 2009, the Issuer may redeem in the aggregate up to 35% of the
original aggregate principal amount of the fixed rate notes (calculated after
giving effect to any issuance of additional fixed rate notes) with the net
cash
proceeds of one or more Equity Offerings (1) by the Issuer or (2) by
any direct or indirect parent of the Issuer, in each case to the extent the
net
cash proceeds thereof are contributed to the common equity capital of the
Issuer
or used to purchase Capital Stock (other than Disqualified Stock) of the
Issuer
from it, at a redemption price (expressed as a percentage of principal
amount thereof) of 108.875%, plus accrued and unpaid interest and additional
interest, if any, to 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 at
least 65% of the original aggregate principal amount of the fixed rate notes
(calculated after giving effect to any issuance of additional fixed rate
notes)
remain outstanding after each such redemption; provided,
further,
that
such redemption shall occur within 90 days after the date on which any such
Equity Offering is consummated upon not less than 30 nor more than 60 days’
notice mailed to each holder of fixed rate notes being redeemed and otherwise
in
accordance with the procedures set forth in the Indenture.
Notice
of
any redemption upon any Equity Offering may be given prior to the completion
thereof, and any such redemption or notice may, at the Issuer’s discretion, be
subject to one or more conditions precedent, including, but not limited to,
completion of the related Equity Offering.
Floating
Rate Notes
On
or
after September 15, 2008, the Issuer may redeem the floating rate notes at
its option, in whole at any time or in part from time to time, upon not less
than 30 nor more than 60 days’ prior notice mailed by first-class mail to each
holder’s registered address, at the following redemption prices (expressed as a
percentage of principal amount), plus accrued and unpaid interest and additional
interest, if any, to 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), if redeemed during the twelve-month period commencing
on
September 15 of the years set forth below:
|
Period
|
Redemption Price
|
|
2008
|
102.000%
|
|
2009
|
101.000%
|
|
2010
and thereafter
|
100.000%
|
Notwithstanding
the foregoing, at any time and from time to time on or prior to
September 15, 2008, the Issuer may redeem in the aggregate up to 35% of the
original aggregate principal amount of the floating rate notes (calculated
after
giving
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effect
to any issuance of additional floating rate notes) with the net cash proceeds
of
one or more Equity Offerings (1) by the Issuer or (2) by any direct or
indirect parent of the Issuer, in each case to the extent the net cash proceeds
thereof are contributed to the common equity capital of the Issuer or used
to
purchase Capital Stock (other than Disqualified Stock) of the Issuer from
it, at
a redemption price (expressed as a percentage of principal amount thereof)
of
100% plus a premium (expressed as a percentage of principal amount thereof)
equal to the interest rate per annum on the floating rate notes applicable
on
the date on which notice of redemption is given, plus accrued and unpaid
interest and additional interest, if any, to 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 at
least 65% of the original aggregate principal amount of the floating rate
notes
(calculated after giving effect to any issuance of additional floating rate
notes) must remain outstanding after each such redemption; provided, further,
that such redemption shall occur within 90 days after the date on which any
such
Equity Offering is consummated upon not less than 30 nor more than 60 days’
notice mailed to each holder of floating rate notes being redeemed and otherwise
in accordance with the procedures set forth in the Indenture.
Notice
of
any redemption upon any Equity Offering may be given prior to the completion
thereof, and any such redemption or notice may, at the Issuer’s discretion, be
subject to one or more conditions precedent, including, but not limited to,
completion of the related Equity Offering.
In
the
case of any partial redemption, selection of fixed rate notes or floating
rate
notes, as the case may be, for redemption will be made by the Trustee on
a pro
rata basis to the extent practicable; provided
that no
notes of $2,000 or less shall be redeemed in part. If any note is to be redeemed
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 the Issuer has deposited with the Paying
Agent
funds sufficient to pay the principal of, plus accrued and unpaid interest
and
additional interest (if any) on, the notes to be redeemed.
Mandatory
Redemption; Offers to Purchase; Open Market Purchases
The
Issuer is not required to make any mandatory redemption or sinking fund payments
with respect to the notes. However, under certain circumstances, the Issuer
may
be required to offer to purchase notes as described under the captions “—Change
of Control” and “—Certain Covenants—Asset Sales.” We may at any time and from
time to time purchase notes in the open market or otherwise.
Ranking
The
indebtedness evidenced by the notes is senior Indebtedness of the Issuer,
is
equal in right of payment to all existing and future Pari Passu Indebtedness
of
the Issuer, has the benefit of the second-priority security interest in the
Collateral described below under “—Security for the Notes” and is senior in
right of payment to all existing and future Subordinated Indebtedness of
the
Issuer. Pursuant to the Security Documents and the Intercreditor Agreement,
the security interests securing the notes is second in priority (subject
to
Permitted Liens and to exceptions described under “—Security for the Notes”) to
all security interests at any time granted to secure First Priority Lien
Obligations.
-107-
The
indebtedness evidenced by the note guarantees is senior Indebtedness of the
applicable Note Guarantor, is equal in right of payment to all existing and
future Pari Passu Indebtedness of such Note Guarantor, has the benefit of
the
second-priority security interest in the Collateral described below under
“—Security for the Notes” and is senior in right of payment to all existing and
future Subordinated Indebtedness of such Note Guarantor. Pursuant to the
Security Documents and the Intercreditor Agreement, the security interests
securing the note guarantees is second in priority (subject to Permitted
Liens,
including exceptions described under “—Security for the Notes”) to all security
interests at any time granted to secure First Priority Lien Obligations.
As
of
September 20, 2006:
(1) the
Issuer and its Subsidiaries had $720.4 million of Secured Indebtedness
outstanding (excluding $165.1 million of availability under the revolving
credit facility) constituting First Priority Lien Obligations (as defined
in
this “Description of the Notes”);
(2) the
Issuer and its Subsidiaries had $1,470.4 million of Secured Indebtedness
outstanding (excluding $165.1 million of availability under the revolving
credit facility); and
(3) the
Issuer and its Subsidiaries had $425.0 million of Subordinated Indebtedness
outstanding consisting of the Senior Subordinated Notes.
Although
the Indenture limits the Incurrence of Indebtedness by the Issuer and its
Restricted Subsidiaries and the issuance of Disqualified Stock and Preferred
Stock by the Restricted Subsidiaries, such limitation is subject to a number
of
significant qualifications and exceptions. Under certain circumstances, the
Issuer and its Subsidiaries may be able to Incur substantial amounts of
Indebtedness. Such Indebtedness may be Secured Indebtedness constituting
First
Priority Lien Obligations. See “—Certain Covenants—Limitation on Incurrence of
Indebtedness and Issuance of Disqualified Stock and Preferred Stock.”
A
significant portion of the operations of the Issuer are conducted through
its
Subsidiaries. Unless a Subsidiary is a Note Guarantor, claims of creditors
of
such Subsidiary, including trade creditors, and claims of preferred stockholders
(if any) of such Subsidiary generally will have priority with respect to
the
assets and earnings of such Subsidiary over the claims of creditors of the
Issuer, including holders of the notes. The notes, therefore, are effectively
subordinated to creditors (including trade creditors) and preferred stockholders
(if any) of Subsidiaries of the Issuer that are not Note Guarantors. The
Issuer’s Subsidiaries that are not Note Guarantors had $56.5 million of total
liabilities outstanding as of July 1, 2006.
See
“Risk
Factors—Risk Factors Related to an Investment in the Notes.”
Security
for the Notes
The
notes
and the Note Guarantees are secured by second-priority security interests
(subject to Permitted Liens) in the Collateral and the floating rate notes
and
the fixed rate notes share in the benefit of such security interest based
on the
respective amounts of the Obligations thereunder. The Collateral consists
of
substantially all of the property and assets, in each case, that are held
by the
Issuer or any of the Note Guarantors, to the extent that such assets secure
the
First Priority Lien Obligations and to the extent that a second-priority
security interest is able to be granted or perfected therein, subject to
the
exceptions described below. The initial Collateral
does not include (i) any property or assets owned by any Foreign
Subsidiaries and two of the Issuer’s U.S. Subsidiaries, (ii) any license,
contract or agreement of the Issuer or any of the Note Guarantors, if and
only
for so long as the grant of a security interest under the
-108-
Security
Documents would result in a breach or default under, or abandonment,
invalidation or unenforceability of, that license, contract or agreement,
(iii) any securities or other equity interests of any of the Issuer’s
Subsidiaries (including the Note Guarantors), (iv) any vehicle,
(v) any bank accounts, securities accounts or cash, (vi) any real property
held by the Issuer or any of the Issuer’s Subsidiaries under a lease and (vii)
certain other exceptions described in the Security Documents. Except for
securities or other equity interests of certain of our Domestic Subsidiaries
or
“first-tier” Foreign Subsidiaries, the foregoing excluded property and assets do
not secure the First Priority Lien Obligations. The security interests securing
the notes are second in priority to any and all security interests at any
time
granted to secure the First Priority Lien Obligations and are also subject
to
all other Permitted Liens. The First Priority Lien Obligations include Secured
Bank Indebtedness and related obligations, as well as certain Hedging
Obligations and certain other obligations in respect of cash management
services. The Person holding such First Priority Lien Obligations may have
rights and remedies with respect to the property subject to such Liens that,
if
exercised, could adversely affect the value of the Collateral or the ability
of
the First Lien Agent to realize or foreclose on the Collateral on behalf
of
holders of the notes.
The
Issuer and the Note Guarantors are able to incur additional indebtedness
in the
future that could share in the Collateral, including additional First Priority
Lien Obligations and additional Indebtedness that would be secured on a
second-priority basis with the notes. The amount of such First Priority Lien
Obligations and additional Indebtedness is limited by the covenants described
under “—Certain Covenants—Liens” and “—Certain Covenants—Limitation on
Incurrence of Indebtedness and Issuances of Disqualified Stock and Preferred
Stock.” Under certain circumstances, the amount of such First Priority Lien
Obligations and additional Indebtedness could be significant.
Post-Acquisition
Collateral
From
September 20, 2006, subject to certain limitations and exceptions (including
the
exclusion of any securities or other equity interests of any of the Issuer’s
Subsidiaries), if the Issuer or any Note Guarantor creates any additional
security interest upon any property or asset to secure any First Priority
Lien
Obligations (which include Obligations in respect of the Credit Agreement),
it
must concurrently grant a second priority security interest (subject to
Permitted Liens, including the first priority lien that secures obligations
in
respect of the First Priority Lien Obligations) upon such property as security
for the notes. Also, if granting a security interest in such property requires
the consent of a third party, the Issuer will use commercially reasonable
efforts to obtain such consent with respect to the second priority security
interest for the benefit of the Trustee on behalf of the holders of the Notes.
If such third party does not consent to the granting of the second priority
security interest after the use of such commercially reasonable efforts,
the
applicable entity will not be required to provide such security interest.
Security
Documents and Intercreditor Agreement
The
Issuer, the Note Guarantors and the Trustee have entered into the Security
Documents defining the terms of the security interests that secure the notes
and
the Note Guarantees. These security interests secure the payment and performance
when due of all of the Obligations of the Issuer and the Note Guarantors
under
the notes, the Indenture, the Note Guarantees and the Security Documents,
as
provided in the Security Documents.
The
Trustee, the First Lien Agent, the Issuer, the Note Guarantors and Berry
Plastics Group have entered into the Intercreditor Agreement, which may be
amended from time to time to add other parties holding Other Second-Lien
Obligations and other First Priority Lien Obligations permitted to be incurred
under the Indenture. The First Lien Agent is initially the
-109-
administrative
agent under the Credit Agreement. Pursuant to the terms of the Intercreditor
Agreement, at any time prior to the Discharge of Senior Lender Claims, the
First
Lien Agent determines the time and method by which the security interests
in the
Collateral are enforced. The Trustee is not permitted to enforce the security
interests even if an Event of Default under the Indenture has occurred and
the
notes have been accelerated except (a) in any insolvency or liquidation
proceeding, as necessary to file a proof of claim or statement of interest
with
respect to such notes or (b) as necessary to take any action in order to
create, prove, perfect, preserve or protect (but not enforce) its rights
in, and
the perfection and priority of its Lien on, the Collateral securing the second
priority Liens. See “Risk Factors—Risk Factors Related to an Investment in the
Notes—The collateral securing the notes is subject to control by creditors with
first priority liens. If there is a default, the value of the collateral
may not
be sufficient to repay both the first priority creditors and the holders
of the
notes.” After the Discharge of Senior Lender Claims, the Trustee in accordance
with the provisions of the Indenture and the Security Documents will distribute
all cash proceeds (after payment of the costs of enforcement and collateral
administration and any other amounts owed to the Trustee) of the Collateral
received by it under the Security Documents for the ratable benefit of the
holders of the notes and holders of Other Second-Lien Obligations. The proceeds
from the sale of the Collateral remaining after the satisfaction of all First
Priority Lien Obligations may not be sufficient to satisfy the obligations
owed
to the holders of the notes. By its nature some or all of the Collateral
is and
will be illiquid and may have no readily ascertainable market value.
Accordingly, the Collateral may not be able to be sold in a short period
of
time, if salable. See “Risk Factors—Risk Factors Related to an Investment in the
Notes—It may be difficult to realize the value of the collateral securing the
notes.”
In
addition, the Intercreditor Agreement provides that, prior to the Discharge
of
Senior Lender Claims, (1) the holders of First Priority Lien Obligations
and the First Lien Agent shall have the exclusive right to make determinations
regarding the release of Collateral without the consent of the holders of
the
notes, (2) the Intercreditor Agreement may be amended, without the consent
of the Trustee and the holders of the notes, to add additional secured creditors
holding Other Second-Lien Obligations so long as such Other Second-Lien
Obligations are not prohibited by the provisions of the Credit Agreement
or the
Indenture and (3) the holders of the First Priority Lien Obligations may
change, waive, modify or vary the Security Documents without the consent
of the
holders of the notes, provided that any such change, waiver or modification
does
not materially adversely affect the rights of the holders of the notes and
not the other secured creditors in a like or similar manner. Any provider
of
additional extensions of credit shall be entitled to rely on the determination
of officers that such modifications do not expressly violate the provisions
of
the Credit Agreement or the Indenture if such determination is set forth
in an
Officers’ Certificate delivered to such provider; provided, however, that such
determination will not affect whether or not the Issuer has complied with
its
undertakings in the Indenture, the Security Documents or the Intercreditor
Agreement.
In
addition, if the Issuer or any Note Guarantor is subject to any insolvency
or
liquidation proceeding, the Trustee and the holders will agree that:
| (1) |
if
the First Lien Agent shall desire to permit the use of cash collateral
or
to permit the Issuer or any Note Guarantor to obtain financing under
Section 363 or Section 364 of Title 11 of the United States Code
or any similar provision in any Bankruptcy Law (“DIP
Financing”), then
the Trustee and the holders agree not to
|
-110-
|
object
to such use of cash collateral or DIP Financing and will not request
adequate protection or any other relief in connection therewith (except
to
the extent permitted by the clause 5 below) and, to the extent the
Liens
securing the First Priority Lien Obligations are subordinated or
pari
passu with such DIP Financing, will subordinate its Liens in the
Collateral to such DIP Financing (and all Obligations relating thereto)
on
the same basis as they are subordinated to the First Priority Lien
Obligations;
|
| (2) |
they
will not object to, and will not otherwise contest any motion for
relief
from the automatic stay or from any injunction against foreclosure
or
enforcement in respect of the First Priority Lien Obligations made
by the
First Lien Agent or any holder of such obligations;
|
| (3) |
they
will not object to, and will not otherwise contest any order relating
to a
sale of assets of the Issuer or any Note Guarantor for which the
First
Lien Agent has consented that provides, to the extent the sale is
to be
free and clear of Liens, that the Liens securing the First Priority
Lien
Obligations and the notes will attach to the proceeds of the sale
on the
same basis of priority as the existing Liens in accordance with the
Intercreditor Agreement;
|
| (4) |
until
the Discharge of Senior Lender Claims, none of them will seek relief
from
the automatic stay or any other stay in any insolvency or liquidation
proceeding in respect of the Collateral, without the prior written
consent
of the First Lien Agent and the required lenders under the Credit
Agreement;
|
| (5) |
none
of them shall contest (or support any other Person contesting)
(a) any request by the First Lien Agent or the holders of First
Priority Lien Obligations for adequate protection or (b) any
objection by the First Lien Agent or the holders of First Priority
Lien
Obligations to any motion, relief, action or proceeding based on
the First
Lien Agent’s or the holders of First Priority Lien Obligations’ claiming a
lack of adequate protection. Notwithstanding the foregoing, in any
insolvency or liquidation proceeding, (i) if the holders of First
Priority Lien Obligations (or any subset thereof) are granted adequate
protection in the form of additional collateral in connection with
any DIP
Financing or use of cash collateral under Section 363 or
Section 364 of Title 11 of the United States Bankruptcy Code or any
similar law, then the Trustee (A) may seek or request adequate protection
in the form of a replacement Lien on such additional collateral,
which
Lien is subordinated to the Liens securing the First Priority Lien
Obligations and such DIP Financing (and all Obligations relating
thereto)
on the same basis as the other Liens securing the notes are so
subordinated to the Liens securing First Priority Lien Obligations
under
the Intercreditor Agreement and (B) agrees that it will not seek
or
request, and will not accept, adequate protection in any other form,
and
(ii) in the event the Trustee seeks or requests adequate protection
and such adequate protection is granted in the form of additional
collateral, then the Trustee and the noteholders agree that the holders
of
the First Priority Lien Obligations shall also be granted a senior
Lien on
such additional collateral as security for the applicable First Priority
Lien Obligations and any such DIP Financing and that any Lien on
such
additional collateral securing the notes shall be subordinated to
the
Liens on such collateral securing the First Priority Lien Obligations
and
any such DIP Financing (and all Obligations relating thereto) and
any
other Liens granted to the holders of First Priority Lien Obligations
as
adequate protection on the same basis as the other Liens securing
the
notes are
so
subordinated to such Liens securing First Priority Lien Obligations
under
the Intercreditor Agreement; and
|
| (6) |
until
the Discharge of Senior Lender Claims has occurred, the Trustee,
on behalf
of itself and each noteholder, (i) will not assert or enforce any
claim
under Section 506(c) of the United States Bankruptcy Code senior to
or on a parity with the Liens securing the First Priority Lien Obligations
for costs or expenses of preserving or disposing of any collateral,
and
(ii) will waive any claim it may have arising out of the election
by any
holder of First Priority Lien Obligations of the application of Section
1111(b)(2) of the United States Bankruptcy Code.
|
-111-
Subject
to the terms of the Security Documents, the Issuer and the Note Guarantors
have
the right to remain in possession and retain exclusive control of the Collateral
securing the notes (other than any cash, securities, obligations and Cash
Equivalents constituting part of the Collateral and deposited with the First
Lien Agent in accordance with the provisions of the Security Documents and
other
than as set forth in the Security Documents), to freely operate the Collateral
and to collect, invest and dispose of any income therefrom.
Release
of Collateral
The
Issuer and the Note Guarantors are entitled to the releases of property and
other assets included in the Collateral from the Liens securing the notes
under
any one or more of the following circumstances:
| (7) |
upon
the Discharge of Senior Lender Claims and concurrent release of all
other
Liens on such property or assets securing First Priority Lien Obligations
(including all commitments and letters of credit thereunder); provided,
however,
that if the Issuer or any Note Guarantor subsequently incurs First
Priority Lien Obligations that are secured by Liens on property or
assets
of the Issuer or any Note Guarantor of the type constituting the
Collateral and the related Liens are incurred in reliance on clause
(6)(B) of the definition of Permitted Liens, then the Issuer and its
Restricted Subsidiaries will be required to reinstitute the security
arrangements with respect to the Collateral in favor of the notes,
which,
in the case of any such subsequent First Priority Lien Obligations,
will
be second priority Liens on the Collateral securing such First Priority
Lien Obligations to the same extent provided by the Security Documents
and
on the terms and conditions of the security documents relating to
such
First Priority Lien Obligations, with the second priority Lien held
either
by the administrative agent, collateral agent or other representative
for
such First Priority Lien Obligations or by a collateral agent or
other
representative designated by the Issuer to hold the second priority
Liens
for the benefit of the holders of the notes and subject to an
intercreditor agreement that provides the administrative agent or
collateral agent substantially the same rights and powers as afforded
under the Intercreditor Agreement;
|
| (8) |
to
enable us to consummate the disposition of such property or assets
to the
extent not prohibited under the covenant described under “—Certain
Covenants—Asset Sales”;
|
| (9) |
in
the case of a Note Guarantor that is released from its Note Guarantee
with
respect to the notes, the release of the property and assets of such
Note
Guarantor; or
|
| (10) |
as
described under “—Amendments and Waivers” below.
|
If
an
Event of Default under the Indenture exists on the date of Discharge of
Senior
Lender Claims, the second priority Liens on the Collateral securing the
notes
will not be released, except to the extent the Collateral or any portion
thereof
was disposed of in order to repay the First Priority Lien Obligations secured
by
the Collateral, and thereafter the Trustee (or
-112-
another
designated representative acting at the direction of the holders of a majority
of outstanding principal amount of the notes and Other Second-Lien Obligations)
will have the right to direct the First Lien Agent to foreclose upon the
Collateral (but in such event, the Liens on the Collateral securing the
notes
will be released when such Event of Default and all other Events of Default
under the Indenture cease to exist).
The
second priority security interests in all Collateral securing the notes also
will be released upon (i) payment in full of the principal of, together
with accrued and unpaid interest (including additional interest, if any)
on, the
notes and all other Obligations under the Indenture, the Note Guarantees
and the
Security Documents that are due and payable at or prior to the time such
principal, together with accrued and unpaid interest (including additional
interest, if any), are paid (including pursuant to a satisfaction and discharge
of the Indenture as described below under “—Satisfaction and Discharge”) or
(ii) a legal defeasance or covenant defeasance under the Indenture as
described below under “—Defeasance.”
Note
Guarantees
Each
of
the Issuer’s direct and indirect Restricted Subsidiaries that were Domestic
Subsidiaries on the Issue Date, that have guaranteed Indebtedness under the
Credit Agreement, have jointly and severally, irrevocably and unconditionally,
guaranteed on a senior basis, the performance and punctual payment when due,
whether at Stated Maturity, by acceleration or otherwise, of all obligations
of
the Issuer under the Indenture and the notes, whether for payment of principal
of, premium, if any, or interest or additional interest on the notes, expenses,
indemnification or otherwise (all such obligations guaranteed by such Note
Guarantors being herein called the “Guaranteed Obligations”). The Guaranteed
Obligations of each Note Guarantor are secured by second priority security
interests (subject to Permitted Liens) in the Collateral owned by such Note
Guarantor. Such Note Guarantors have agreed to pay, in addition to the amount
stated above, any and all 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 is 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. See “Risk Factors—Risk Factors
Related to an Investment in the Notes—Because each guarantor’s liability under
its guarantees may be reduced to zero, avoided or released under certain
circumstances, you may not receive any payments from some or all of the
guarantors.” After the Issue Date, the Issuer is obliged to cause each
Restricted Subsidiary that is a Domestic Subsidiary (unless such Subsidiary
is a
Receivables Subsidiary) that Incurs or guarantees certain Indebtedness of
the
Issuer or any of its Restricted Subsidiaries or issues shares of Disqualified
Stock to execute and deliver to the Trustee a supplemental Indenture pursuant
to
which such Restricted Subsidiary will guarantee payment of the notes on the
same
unsecured senior basis. See “—Certain Covenants—Future Note Guarantors.”
Each
Note
Guarantee is a continuing guarantee and shall:
| (1) |
remain
in full force and effect until payment in full of all the Guaranteed
Obligations;
|
| (2) |
subject
to the next succeeding paragraph, be binding upon each such Note
Guarantor
and its successors; and
|
-113-
| (3) |
inure
to the benefit of and be enforceable by the Trustee, the holders
and their
successors, transferees and assigns.
|
A
Note
Guarantee of a Note Guarantor is automatically released upon:
|
(1)
|
(a)
|
the
sale, disposition or other transfer (including through merger or
consolidation) of the Capital Stock (including any sale, disposition
or
other transfer following which the applicable Note Guarantor is
no longer
a Restricted Subsidiary), of the applicable Note Guarantor if such
sale,
disposition or other transfer is made in compliance with the
Indenture,
|
|
(b)
|
the
Issuer designating such Note Guarantor to be an Unrestricted Subsidiary
in
accordance with the provisions set forth under “—Certain
Covenants—Limitation on Restricted Payments” and the definition of
“Unrestricted Subsidiary,”
|
|
(c)
|
in
the case of any Restricted Subsidiary that after September 20,
2006, is
required to guarantee the notes pursuant to the covenant described
under
“—Certain Covenants—Future Note Guarantors,” the release or discharge of
the guarantee by such Restricted Subsidiary of Indebtedness of
the Issuer
or any Restricted Subsidiary of the Issuer or such Restricted Subsidiary
or the repayment of the Indebtedness or Disqualified Stock, in
each case,
which resulted in the obligation to guarantee the notes, and
|
|
(d)
|
the
Issuer’s exercise of its legal defeasance option or covenant defeasance
option as described under “—Defeasance,” provided,
however,
that in the case of this clause (4), no floating rate notes are then
outstanding, or if the Issuer’s obligations under the Indenture are
discharged in accordance with the terms of the Indenture; and
|
|
(2)
|
in
the case of clause (1)(a) above, such Note Guarantor is released from
its guarantees, if any, of, and all pledges and security, if any,
granted
in connection with, the Credit Agreement and any other Indebtedness
of the
Issuer or any Restricted Subsidiary of the Issuer.
|
A
Note
Guarantee is also automatically released upon the applicable Subsidiary ceasing
to be a Subsidiary as a result of any foreclosure of any pledge or security
interest securing First Priority Lien Obligations, subject to, in each case,
the
application of the proceeds of such foreclosure in the manner described under
“—Security for the Notes,” or if such Subsidiary is released from its guarantees
of, and all pledges and security interests granted in connection with, the
Credit Agreement and any other Indebtedness of the Issuer or any Restricted
Subsidiary of the Issuer which results in the obligation to guarantee the
notes.
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 Issuer to repurchase 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, if any, to the date of repurchase (subject to
the
right of holders of record on the relevant record date to receive interest
due
on the relevant interest payment date), except to the extent the Issuer has
previously elected to redeem notes as described under “—Optional Redemption”:
-114-
| (1) |
the
sale, lease or transfer, in one or a series of related transactions,
of
all or substantially all the assets of the Issuer and its Subsidiaries,
taken as a whole, to a Person other than any of the Permitted Holders;
or
|
| (2) |
the
Issuer becomes aware (by way of a report or any other filing pursuant
to
Section 13(d) of the Exchange Act, proxy, vote, written notice or
otherwise) of the acquisition by any Person or group (within the
meaning
of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or
any successor provision), including any group acting for the purpose
of
acquiring, holding or disposing of securities (within the meaning
of Rule
13d-5(b)(1) under the Exchange Act), other than any of the Permitted
Holders, in a single transaction or in a related series of transactions,
by way of merger, consolidation or other business combination or
purchase
of beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act, or any successor provision), of more than 50% of the
total
voting power of the Voting Stock of the Issuer or any direct or indirect
parent of the Issuer.
|
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 Issuer 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.
|
See
“Risk
Factors—Risk Factors Related to an Investment in the Notes—We may not be able to
repurchase the notes upon a change of control.”
Within
30
days following any Change of Control, except to the extent that the Issuer
has
exercised its right to redeem the notes as described under “—Optional
Redemption,” the Issuer shall mail a notice (a “Change of Control Offer”) to
each holder with a copy to the Trustee stating:
| (1) |
that
a Change of Control has occurred and that such holder has the right
to
require the Issuer to repurchase such holder’s notes at a repurchase 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 repurchase
(subject to the right of holders of record on a record date to receive
interest on the relevant interest payment date);
|
| (2) |
the
circumstances and relevant facts and financial information regarding
such
Change of Control;
|
| (3) |
the
repurchase date (which shall be no earlier than 30 days nor later
than 60
days from the date such notice is mailed); and
|
| (4) |
the
instructions determined by the Issuer, consistent with this covenant,
that
a holder must follow in order to have its notes purchased.
|
A
Change
of Control Offer may be made in advance of a Change of Control, and conditioned
upon such Change of Control, if a definitive agreement is in place for the
Change of Control at the time of making of the Change of Control Offer.
-115-
In
addition, the Issuer 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 Issuer
and
purchases all notes validly tendered and not withdrawn under such Change
of
Control Offer.
Notes
repurchased by the Issuer pursuant to a Change of Control Offer will have
the
status of notes issued but not outstanding or will be retired and canceled
at
the option of the Issuer. notes purchased by a third party pursuant to the
preceding paragraph will have the status of notes issued and outstanding.
The
Issuer 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 this covenant, the Issuer 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.
This
Change of Control repurchase provision is a result of negotiations between
the
Issuer and the initial purchasers. The Issuer has no present intention to
engage
in a transaction involving a Change of Control, although it is possible that
the
Issuer could decide to do so in the future. Subject to the limitations discussed
below, the Issuer could, in the future, enter into certain transactions,
including acquisitions, refinancings or other 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 Issuer’s
capital structure or credit rating.
The
occurrence of events which would constitute a Change of Control would constitute
a default under the Credit Agreement. Future Bank Indebtedness of the Issuer
may
contain prohibitions on certain events which would constitute a Change of
Control or require such Bank Indebtedness to be repurchased upon a Change
of
Control. Moreover, the exercise by the holders of their right to require
the
Issuer to repurchase the Notes could cause a default under such Bank
Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Issuer. Finally, the Issuer’s ability
to pay cash to the holders upon a repurchase may be limited by the Issuer’s then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required repurchases. See “Risk
Factors—Risk Factors Related to an Investment in the Notes—We may not be able to
repurchase the notes upon a change of control.”
The
definition of Change of Control includes a phrase relating to the sale, lease
or
transfer of “all or substantially all” the assets of the Issuer and its
Subsidiaries taken as a whole. Although there is a developing body of case
law
interpreting the phrase “substantially all,” there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of
a
holder of notes to require the Issuer to repurchase such notes as a result
of a
sale, lease or transfer of less than all of the assets of the Issuer and
its
Subsidiaries taken as a whole to another Person or group may be uncertain.
The
provisions under the Indenture relating to the Issuer’s obligation to make an
offer to repurchase 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.
-116-
Certain
Covenants
Set
forth
below are summaries of certain covenants that will be contained in the
Indenture. If, on any date following the Issue Date, (i) the notes have
Investment Grade Ratings from both Rating Agencies, and the Issuer has delivered
written notice of such Investment Grade Ratings to the Trustee, and (ii) no
Default has occurred and is continuing under the Indenture then, beginning
on
that day and continuing at all times thereafter regardless of any subsequent
changes in the rating of the notes, the covenants specifically listed under
the
following captions in this “Description of the Notes” section of this prospectus
will no longer be applicable to the notes:
|
(1)
|
“—Limitation
on Incurrence of Indebtedness and Issuance of Disqualified Stock
and
Preferred Stock”;
|
(2) “—Limitation
on Restricted Payments”;
(3) “—Dividend
and Other Payment Restrictions Affecting Subsidiaries”;
(4) “—Asset
Sales”;
(5) “—Transactions
with Affiliates”;
(6) “—Future
Note Guarantors”; and
|
(7)
|
clause
(4) of the first paragraph of “—Merger, Amalgamation, Consolidation
or Sale of All or Substantially All Assets.”
|
In
addition, during any period of time that (i) the notes have Investment
Grade Ratings from both Rating Agencies, and the Issuer has delivered written
notice of such Investment Grade Ratings to the Trustee, and (ii) no Default
has occurred and is continuing under the Indenture (the occurrence of the
events
described in the foregoing clauses (i) and (ii) being collectively
referred to as a “Covenant Suspension Event”), the Issuer and its Restricted
Subsidiaries will not be subject to the covenant described under “Change of
Control” (the “Suspended Covenant”). In the event that the Issuer and its
Restricted Subsidiaries are not subject to the Suspended Covenant under the
Indenture for any period of time as a result of the foregoing, and on any
subsequent date (the “Reversion Date”) one or both of the Rating Agencies
(a) withdraw their Investment Grade Rating or downgrade the rating assigned
to the notes below an Investment Grade Rating and/or (b) the Issuer or any
of its Affiliates enters into an agreement to effect a transaction that would
result in a Change of Control and one or more of the Rating Agencies indicate
that if consummated, such transaction (alone or together with any related
recapitalization or refinancing transactions) would cause such Rating Agency
to
withdraw its Investment Grade Rating or downgrade the ratings assigned to
the
notes below an Investment Grade Rating, then the Issuer and its Restricted
Subsidiaries will thereafter again be subject to the Suspended Covenant under
the Indenture with respect to future events, including, without limitation,
a
proposed transaction described in clause (b) above.
There
can
be no assurance that the notes will ever achieve or maintain Investment Grade
Ratings.
Limitation
on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred
Stock. The
Indenture provides that:
(1) the
Issuer will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, Incur any Indebtedness (including Acquired Indebtedness)
or issue any shares of Disqualified Stock; and
-117-
|
(2)
|
the
Issuer will not permit any of its Restricted Subsidiaries (other
than a
Note Guarantor) to issue any shares of Preferred Stock;
|
provided,
however,
that
the Issuer and any Restricted Subsidiary that is a Note Guarantor or a Foreign
Subsidiary may Incur Indebtedness (including Acquired Indebtedness) or issue
shares of Disqualified Stock and any Restricted Subsidiary may issue shares
of
Preferred Stock, in each case if the Fixed Charge Coverage Ratio of the Issuer
for the most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which
such
additional Indebtedness is Incurred or such Disqualified Stock or Preferred
Stock is issued would have been at least 2.00 to 1.00 determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been Incurred, or the
Disqualified Stock or Preferred Stock had been issued, as the case may be,
and
the application of proceeds therefrom had occurred at the beginning of such
four-quarter period.
The
foregoing limitations will not apply to:
|
(a)
|
the
Incurrence by the Issuer or its Restricted Subsidiaries of Indebtedness
under the Credit Agreement and the issuance and creation of letters
of
credit and bankers’ acceptances thereunder (with letters of credit and
bankers’ acceptances being deemed to have a principal amount equal to the
face amount thereof) in the aggregate principal amount of
$875.0 million plus an aggregate additional principal amount
outstanding at any one time that does not cause the Secured Indebtedness
Leverage Ratio of the Issuer to exceed 4.00 to 1.00, determined
on a pro
forma basis (including a pro forma application of the net proceeds
therefrom);
|
|
(b)
|
the
Incurrence by the Issuer and the Note Guarantors of Indebtedness
represented by (i) the notes and the Note Guarantees and
(ii) the Senior Subordinated Notes and the related guarantees
thereof;
|
|
(c)
|
Indebtedness
existing on the Issue Date (other than Indebtedness described in
clauses
(a) and (b));
|
|
(d)
|
Indebtedness
(including Capitalized Lease Obligations) Incurred by the Issuer
or any of
its Restricted Subsidiaries, Disqualified Stock issued by the Issuer
or
any of its Restricted Subsidiaries and Preferred Stock issued by
any
Restricted Subsidiaries of the Issuer to finance (whether prior
to or
within 270 days after) the purchase, lease, construction or improvement
of
property (real or personal) or equipment (whether through the direct
purchase of assets or the Capital Stock of any Person owning such
assets
(but no other material assets));
|
|
(e)
|
Indebtedness
Incurred by the Issuer or any of its Restricted Subsidiaries constituting
reimbursement obligations with respect to letters of credit and
bank
guarantees issued in the ordinary course of business, including
without
limitation letters of credit in respect of workers’ compensation claims,
health, disability or other benefits to employees or former employees
or
their families or property, casualty or liability insurance or
self-insurance, and letters of credit in connection with the maintenance
of, or pursuant to the requirements of, environmental or other
permits or
licenses from governmental authorities, or other Indebtedness with
respect
to reimbursement type obligations regarding workers’ compensation claims;
|
-118-
|
(f)
|
Indebtedness
arising from agreements of the Issuer or a Restricted Subsidiary
providing
for indemnification, adjustment of purchase price or similar obligations,
in each case, Incurred in connection with the Acquisition or any
other
acquisition or disposition of any business, assets or a Subsidiary
of the
Issuer in accordance with the terms of the Indenture, other than
guarantees of Indebtedness Incurred by any Person acquiring all
or any
portion of such business, assets or Subsidiary for the purpose
of
financing such acquisition;
|
|
(g)
|
Indebtedness
of the Issuer to a Restricted Subsidiary; provided
that any such Indebtedness owed to a Restricted Subsidiary that
is not a
Note Guarantor is subordinated in right of payment to the obligations
of
the Issuer under the notes; provided,
further,
that any subsequent issuance or 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
Indebtedness (except to the Issuer or another Restricted Subsidiary)
shall
be deemed, in each case, to be an Incurrence of such Indebtedness;
|
|
(h)
|
shares
of Preferred Stock of a Restricted Subsidiary issued to the Issuer
or
another Restricted Subsidiary; provided
that any subsequent issuance or transfer of any Capital Stock or
any other
event which results in any Restricted Subsidiary that holds such
shares of
Preferred Stock of another Restricted Subsidiary ceasing to be
a
Restricted Subsidiary or any other subsequent transfer of any such
shares
of Preferred Stock (except to the Issuer or another Restricted
Subsidiary)
shall be deemed, in each case, to be an issuance of shares of Preferred
Stock;
|
|
(i)
|
Indebtedness
of a Restricted Subsidiary to the Issuer or another Restricted
Subsidiary;
provided
that if a Note Guarantor incurs such Indebtedness to a Restricted
Subsidiary that is not a Note Guarantor, such Indebtedness is subordinated
in right of payment to the Note Guarantee of such Note Guarantor;
provided,
further,
that any subsequent issuance or transfer of any Capital Stock or
any other
event which results in any Restricted Subsidiary holding such Indebtedness
ceasing to be a Restricted Subsidiary or any other subsequent transfer
of
any such Indebtedness (except to the Issuer or another Restricted
Subsidiary) shall be deemed, in each case, to be an Incurrence
of such
Indebtedness;
|
|
(j)
|
Hedging
Obligations that are not incurred for speculative purposes and
either
(1) for the purpose of fixing or hedging interest rate risk with
respect to any Indebtedness that is permitted by the terms of the
Indenture to be outstanding; (2) for the purpose of fixing or hedging
currency exchange rate risk with respect to any currency exchanges;
or
(3) for the purpose of fixing or hedging commodity price risk
(including resin price risk) with respect to any commodity purchases
or
sales;
|
|
(k)
|
obligations
in respect of performance, bid, appeal and surety bonds and completion
guarantees provided by the Issuer or any Restricted Subsidiary
in the
ordinary course of business;
|
|
(l)
|
Indebtedness
or Disqualified Stock of the Issuer or any Restricted Subsidiary
of the
Issuer and Preferred Stock of any Restricted Subsidiary of the
Issuer not
otherwise permitted hereunder in an aggregate principal amount,
which
when
|
-119-
aggregated
with the principal amount or
liquidation preference of all other Indebtedness, Disqualified Stock and
Preferred Stock then outstanding and Incurred pursuant to this clause (l),
does
not exceed the greater of $100.0 million and 4.5% of Total Assets at the
time of Incurrence (it being understood that any Indebtedness Incurred under
this clause (l) shall cease to be deemed Incurred or outstanding for
purposes of this clause (l) but shall be deemed Incurred for purposes of
the first paragraph of this covenant from and after the first date on which
the
Issuer, or the Restricted Subsidiary, as the case may be, could have Incurred
such Indebtedness under the first paragraph of this covenant without reliance
upon this clause (l));
|
(m)
|
any
guarantee by the Issuer or a Note Guarantor
of
Indebtedness or other obligations of the Issuer or any of its Restricted
Subsidiaries so long as the Incurrence of such Indebtedness Incurred
by
the Issuer or such Restricted Subsidiary is permitted under the
terms of
the Indenture; provided
that if such Indebtedness is by its express terms subordinated
in right of
payment to the notes or the Note Guarantee of such Restricted Subsidiary,
as applicable, any such guarantee of such Note Guarantor with respect
to
such Indebtedness shall be subordinated in right of payment to
such Note
Guarantor’s Note Guarantee with respect to the notes substantially to the
same extent as such Indebtedness is subordinated to the notes or
the Note
Guarantee of such Restricted Subsidiary, as applicable;
|
|
(n)
|
the
Incurrence by the Issuer or any of its Restricted Subsidiaries
of
Indebtedness or Disqualified Stock or Preferred Stock of a Restricted
Subsidiary of the Issuer which serves to refund, refinance or defease
any
Indebtedness Incurred or Disqualified Stock or Preferred Stock
issued as
permitted under the first paragraph of this covenant and clauses
(b), (c),
(d), (n), (o), (s) and (t) of this paragraph or any
Indebtedness, Disqualified Stock or Preferred Stock Incurred to
so refund
or refinance such Indebtedness, Disqualified Stock or Preferred
Stock,
including any Indebtedness, Disqualified Stock or Preferred Stock
Incurred
to pay premiums and fees in connection therewith (subject to the
following
proviso, “Refinancing Indebtedness”) prior to its respective maturity;
provided,
however,
that such Refinancing Indebtedness:
|
|
(1)
|
has
a Weighted Average Life to Maturity at the time such Refinancing
Indebtedness is Incurred which is not less than the remaining Weighted
Average Life to Maturity of the Indebtedness, Disqualified Stock
or
Preferred Stock being refunded or refinanced;
|
|
(2)
|
has
a Stated Maturity which is not earlier than the earlier of (x) the
Stated Maturity of the Indebtedness being refunded or refinanced
or
(y) 91 days following the maturity date of the notes;
|
|
(3)
|
to
the extent such Refinancing Indebtedness refinances (a) Indebtedness
junior to the notes or the Note Guarantee of such Restricted Subsidiary,
as applicable, such Refinancing Indebtedness is junior to the notes
or the
Note Guarantee of such Restricted Subsidiary, as applicable, or
(b) Disqualified Stock or Preferred Stock, such Refinancing
Indebtedness is Disqualified Stock or Preferred Stock;
|
|
(4)
|
is
Incurred in an aggregate amount (or if issued with original issue
discount, an aggregate issue price) that is equal to or less than
the
aggregate amount (or if issued with original issue discount, the
aggregate
accreted
value) then outstanding of the Indebtedness being refinanced plus
premium,
fees and expenses Incurred in connection with such refinancing;
|
-120-
|
(5)
|
shall
not include (x) Indebtedness of a Restricted Subsidiary of the Issuer
that is not a Note Guarantor that refinances Indebtedness of the
Issuer or
a Restricted Subsidiary that is a Note Guarantor, or (y) Indebtedness
of the Issuer or a Restricted Subsidiary that refinances Indebtedness
of
an Unrestricted Subsidiary; and
|
|
(6)
|
in
the case of any Refinancing Indebtedness Incurred to refinance
Indebtedness outstanding under clause (d) or (t), shall be deemed to
have been Incurred and to be outstanding under such clause (d) or
(t), as applicable, and not this clause (n) for purposes of
determining amounts outstanding under such clauses (d) and (t);
provided,
further,
that subclauses (1) and (2) of this clause (n) will not
apply to any refunding or refinancing of any Secured Indebtedness
constituting First Priority Lien Obligations.
|
|
(o)
|
Indebtedness,
Disqualified Stock or Preferred Stock of (x) the Issuer or any of its
Restricted Subsidiaries incurred to finance an acquisition or
(y) Persons that are acquired by the Issuer or any of its Restricted
Subsidiaries or merged with or into the Issuer or any of its Restricted
Subsidiaries in accordance with the terms of the Indenture; provided,
however,
that after giving effect to such acquisition or merger, either
|
|
(1)
|
the
Issuer would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in
the first sentence of this covenant; or
|
|
(2)
|
the
Fixed Charge Coverage Ratio of the Issuer would be greater than
immediately prior to such acquisition or merger;
|
|
(p)
|
Indebtedness
Incurred by a Receivables Subsidiary in a Qualified Receivables
Financing
that is not recourse to the Issuer or any Restricted Subsidiary
other than
a Receivables Subsidiary (except for Standard Securitization
Undertakings);
|
|
(q)
|
Indebtedness
arising from the honoring by a bank or other financial institution
of a
check, draft or similar instrument drawn against insufficient funds
in the
ordinary course of business; provided
that such Indebtedness is extinguished within five Business Days
of its
Incurrence;
|
|
(r)
|
Indebtedness
of the Issuer or any Restricted Subsidiary supported by a letter
of credit
or bank guarantee issued pursuant to the Credit Agreement, in a
principal
amount not in excess of the stated amount of such letter of credit;
|
|
(s)
|
Contribution
Indebtedness;
|
|
(t)
|
Indebtedness
of Foreign Subsidiaries; provided,
however,
that the aggregate principal amount of Indebtedness Incurred under
this
clause (t), when aggregated with the principal amount of all other
Indebtedness then outstanding and Incurred pursuant to this
clause (t), does not exceed $25.0 million at any one time
outstanding;
|
|
(u)
|
Indebtedness
of the Issuer or any Restricted Subsidiary consisting of (x) the
financing of insurance premiums or (y) take-or-pay obligations
contained in supply arrangements, in each case, in the ordinary
course of
business; and
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|
(v)
|
Indebtedness
incurred on behalf of, or representing Guarantees of Indebtedness
of,
joint ventures of the Issuer or any Restricted Subsidiary not in
excess,
at any one time outstanding, of $7.5 million.
|
For
purposes of determining compliance with this covenant, in the event that
an item
of Indebtedness, Disqualified Stock or Preferred Stock meets the criteria
of
more than one of the categories of permitted Indebtedness described in clauses
(a) through (v) above or is entitled to be Incurred pursuant to the
first paragraph of this covenant, the Issuer shall, in its sole discretion,
classify or reclassify, or later divide, classify or reclassify, such item
of
Indebtedness in any manner that complies with this covenant. Accrual of
interest, the accretion of accreted value, the payment of interest in the
form
of additional Indebtedness with the same terms, the payment of dividends
on
Preferred Stock in the form of additional shares of Preferred Stock of the
same
class, accretion of original issue discount or liquidation preference and
increases in the amount of Indebtedness outstanding solely as a result of
fluctuations in the exchange rate of currencies will not be deemed to be
an
Incurrence of Indebtedness for purposes of this covenant. Guarantees of,
or
obligations in respect of letters of credit relating to, Indebtedness which
is
otherwise included in the determination of a particular amount of Indebtedness
shall not be included in the determination of such amount of Indebtedness;
provided
that the
Incurrence of the Indebtedness represented by such guarantee or letter of
credit, as the case may be, was in compliance with this covenant.
For
purposes of determining compliance with any U.S. dollar-denominated restriction
on the Incurrence of Indebtedness, the U.S. dollar-equivalent principal amount
of Indebtedness denominated in a foreign currency shall be calculated based
on
the relevant currency exchange rate in effect on the date such Indebtedness
was
Incurred, in the case of term debt, or first committed or first Incurred
(whichever yields the lower U.S. dollar equivalent), in the case of revolving
credit debt; provided
that if
such Indebtedness is Incurred to refinance other Indebtedness denominated
in a
foreign currency, and such refinancing would cause the applicable U.S.
dollar-denominated restriction to be exceeded if calculated at the relevant
currency exchange rate in effect on the date of such refinancing, such U.S.
dollar-denominated restriction shall be deemed not to have been exceeded
so long
as the principal amount of such refinancing Indebtedness does not exceed
the
principal amount of such Indebtedness being refinanced.
Limitation
on Restricted Payments. The
Indenture provides that the Issuer will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly:
|
(1)
|
declare
or pay any dividend or make any distribution on account of the
Issuer’s or
any of its Restricted Subsidiaries’ Equity Interests, including any
payment made in connection with any merger, amalgamation or consolidation
involving the Issuer (other than (A) dividends or distributions by
the Issuer payable solely in Equity Interests (other than Disqualified
Stock) of the Issuer; or (B) dividends or distributions by a
Restricted Subsidiary so long as, in the case of any dividend or
distribution payable on or in respect of any class or series of
securities
issued by a Restricted Subsidiary other than a Wholly Owned Restricted
Subsidiary, the Issuer or a Restricted Subsidiary receives at least
its
pro rata share of such dividend or distribution in accordance with
its
Equity Interests in such class or series of securities);
|
|
(2)
|
purchase
or otherwise acquire or retire for value any Equity Interests of
the
Issuer or any direct or indirect parent of the Issuer;
|
|
(3)
|
make
any principal payment on, or redeem, repurchase, defease or otherwise
acquire or retire for value, in each case prior to any scheduled
repayment
or
|
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scheduled
maturity, any Subordinated Indebtedness of the Issuer or any of its Restricted
Subsidiaries (other than the payment, redemption, repurchase, defeasance,
acquisition or retirement of (A) Subordinated Indebtedness in anticipation
of satisfying a sinking fund obligation, principal installment or final
maturity, in each case due within one year of the date of such payment,
redemption, repurchase, defeasance, acquisition or retirement and
(B) Indebtedness permitted under clauses (g) and (i) of the
second paragraph of the covenant described under “—Limitation on Incurrence of
Indebtedness and Issuance of Disqualified Stock and Preferred Stock”); or
|
(4)
|
make
any Restricted Investment
|
(all
such
payments and other actions set forth in clauses (1) through (4) above
being collectively referred to as “Restricted Payments”), unless, at the time of
such Restricted Payment:
(a)
no
Default shall have occurred and be continuing or would occur as a consequence
thereof;
|
(b)
|
immediately
after giving effect to such transaction on a pro forma basis, the
Issuer
could Incur $1.00 of additional Indebtedness under the provisions
of the
first paragraph of the covenant described under “—Limitation on Incurrence
of Indebtedness and Issuance of Disqualified Stock and Preferred
Stock”;
and
|
|
(c)
|
such
Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by the Issuer and its Restricted Subsidiaries
after the Issue Date (including Restricted Payments permitted by
clauses
(1), (4) (only to the extent of one-half of the amounts paid pursuant
to such clause), (6) and (8) of the next succeeding paragraph,
but excluding all other Restricted Payments permitted by the next
succeeding paragraph), is less than the amount equal to the Cumulative
Credit.
|
“Cumulative
Credit” means the sum of (without duplication):
|
(1)
|
50%
of the Consolidated Net Income of the Issuer for the period (taken
as one
accounting period, the “Reference Period”) from July 1, 2006 to the
end of the Issuer’s most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment
(or, in the case such Consolidated Net Income for such period is
a
deficit, minus 100% of such deficit), plus
|
|
(2)
|
100%
of the aggregate net proceeds, including cash and the Fair Market
Value
(as determined in good faith by the Issuer) of property other than
cash,
received by the Issuer after the Issue Date from the issue or sale
of
Equity Interests of the Issuer (excluding Refunding Capital Stock
(as
defined below), Designated Preferred Stock, Excluded Contributions,
Disqualified Stock and the Cash Contribution Amount), including
Equity
Interests issued upon conversion of Indebtedness or Disqualified
Stock or
upon exercise of warrants or options (other than an issuance or
sale to a
Restricted Subsidiary of the Issuer or an employee stock ownership
plan or
trust established by the Issuer or any of its Subsidiaries), plus
|
|
(3)
|
100%
of the aggregate amount of contributions to the capital of the
Issuer
received in cash and the Fair Market Value (as determined in good
faith by
the Issuer) of property other than cash after the Issue Date (other
than
Excluded
|
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Contributions,
Refunding Capital Stock, Designated Preferred Stock, Disqualified Stock and
the
Cash Contribution Amount), plus
|
(4)
|
the
principal amount of any Indebtedness, or the liquidation preference
or
maximum fixed repurchase price, as the case may be, of any Disqualified
Stock of the Issuer or any Restricted Subsidiary thereof issued
after the
Issue Date (other than Indebtedness or Disqualified Stock issued
to a
Restricted Subsidiary) which has been converted into or exchanged
for
Equity Interests in the Issuer (other than Disqualified Stock)
or any
direct or indirect parent of the Issuer (provided in the case of
any
parent, such Indebtedness or Disqualified Stock is retired or
extinguished), plus
|
|
(5)
|
100%
of the aggregate amount received by the Issuer or any Restricted
Subsidiary in cash and the Fair Market Value (as determined in
good faith
by the Issuer) of property other than cash received by the Issuer
or any
Restricted Subsidiary from:
|
|
(A)
|
the
sale or other disposition (other than to the Issuer or a Restricted
Subsidiary of the Issuer) of Restricted Investments made by the
Issuer and
its Restricted Subsidiaries and from repurchases and redemptions
of such
Restricted Investments from the Issuer and its Restricted Subsidiaries
by
any Person (other than the Issuer or any of its Restricted Subsidiaries)
and from repayments of loans or advances which constituted Restricted
Investments (other than in each case to the extent that the Restricted
Investment was made pursuant to clause (7) or (10) of the
succeeding paragraph),
|
|
(B)
|
the
sale (other than to the Issuer or a Restricted Subsidiary of the
Issuer)
of the Capital Stock of an Unrestricted Subsidiary, or
|
|
(C)
|
a
distribution or dividend from an Unrestricted Subsidiary, plus
|
|
(6)
|
in
the event any Unrestricted Subsidiary of the Issuer has been redesignated
as a Restricted Subsidiary or has been merged, consolidated or
amalgamated
with or into, or transfers or conveys its assets to, or is liquidated
into, the Issuer or a Restricted Subsidiary, the Fair Market Value
(as
determined in good faith by the Issuer or, if such Fair Market
Value may
exceed $25.0 million, in writing by an Independent Financial Advisor)
of
the Investment of the Issuer in such Unrestricted Subsidiary at
the time
of such redesignation, combination or transfer (or of the assets
transferred or conveyed, as applicable), after taking into account
any
Indebtedness associated with the Unrestricted Subsidiary so designated
or
combined or any Indebtedness associated with the assets so transferred
or
conveyed (other than in each case to the extent that the designation
of
such Subsidiary as an Unrestricted Subsidiary was made pursuant
to clause
(7) or (10) of the succeeding paragraph or constituted a
Permitted Investment).
|
The
foregoing provisions will not prohibit:
|
(1)
|
the
payment of any dividend or distribution within 60 days after the
date of
declaration thereof, if at the date of declaration such payment
would have
complied with the provisions of the Indenture;
|
|
(2)
|
(a)
|
the
repurchase, retirement or other acquisition of any Equity Interests
(“Retired Capital Stock”) of the Issuer or any direct or indirect parent
of the Issuer or Subordinated Indebtedness of the Issuer, any direct
or
|
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indirect
parent of the Issuer or any Note Guarantor in exchange for, or out of the
proceeds of, the substantially concurrent sale of, Equity Interests of the
Issuer or any direct or indirect parent of the Issuer or contributions to
the
equity capital of the Issuer (other than any Disqualified Stock or any Equity
Interests sold to a Subsidiary of the Issuer or to an employee stock ownership
plan or any trust established by the Issuer or any of its Subsidiaries)
(collectively, including any such contributions, “Refunding Capital Stock”);
and
|
(b)
|
the
declaration and payment of accrued dividends on the Retired Capital
Stock
out of the proceeds of the substantially concurrent sale (other
than to a
Subsidiary of the Issuer or to an employee stock ownership plan
or any
trust established by the Issuer or any of its Subsidiaries) of
Refunding
Capital Stock;
|
|
(3)
|
the
redemption, repurchase or other acquisition or retirement of Subordinated
Indebtedness of the Issuer or any Note Guarantor made by exchange
for, or
out of the proceeds of the substantially concurrent sale of, new
Indebtedness of the Issuer or a Note Guarantor which is Incurred
in
accordance with the covenant described under “—Limitation on Incurrence of
Indebtedness and Issuance of Disqualified Stock and Preferred Stock” so
long as
|
|
(a)
|
the
principal amount of such new Indebtedness does not exceed the principal
amount of the Subordinated Indebtedness being so redeemed, repurchased,
acquired or retired for value (plus the amount of any premium required
to
be paid under the terms of the instrument governing the Subordinated
Indebtedness being so redeemed, repurchased, acquired or retired
plus any
fees incurred in connection therewith),
|
|
(b)
|
such
Indebtedness is subordinated to the notes or the related Note Guarantee,
as the case may be, at least to the same extent as such Subordinated
Indebtedness so purchased, exchanged, redeemed, repurchased, acquired
or
retired for value,
|
|
(c)
|
such
Indebtedness has a final scheduled maturity date equal to or later
than
the earlier of (x) the final scheduled maturity date of the
Subordinated Indebtedness being so redeemed, repurchased, acquired
or
retired or (y) 91 days following the maturity date of the notes, and
|
|
(d)
|
such
Indebtedness has a Weighted Average Life to Maturity at the time
Incurred
which is not less than the remaining Weighted Average Life to Maturity
of
the Subordinated Indebtedness being so redeemed, repurchased, acquired
or
retired;
|
|
(4)
|
the
repurchase, retirement or other acquisition (or dividends to any
direct or
indirect parent of the Issuer to finance any such repurchase, retirement
or other acquisition) for value of Equity Interests of the Issuer
or any
direct or indirect parent of the Issuer held by any future, present
or
former employee, director or consultant of the Issuer or any direct
or
indirect parent of the Issuer or any Subsidiary of the Issuer pursuant
to
any management equity plan or stock option plan or any other management
or
employee benefit plan or other agreement or arrangement; provided,
however,
that the aggregate amounts paid under this clause (4) do not exceed
$15.0 million in any calendar year (with unused amounts in any
calendar year being permitted to be carried over for the
two
|
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succeeding
calendar years); provided,
further,
however,
that
such amount in any calendar year may be increased by an amount not to exceed:
|
(a)
|
the
cash proceeds received by the Issuer or any of its Restricted Subsidiaries
from the sale of Equity Interests (other than Disqualified Stock)
of the
Issuer or any direct or indirect parent of the Issuer (to the extent
contributed to the Issuer) to members of management, directors
or
consultants of the Issuer and its Restricted Subsidiaries or any
direct or
indirect parent of the Issuer that occurs after the Issue Date
(provided
that the amount of such cash proceeds utilized for any such repurchase,
retirement, other acquisition or dividend will not increase the
amount
available for Restricted Payments under clause (c) of the first
paragraph under “—Limitation on Restricted Payments”); plus
|
|
(b)
|
the
cash proceeds of key man life insurance policies received by the
Issuer or
any direct or indirect parent of the Issuer (to the extent contributed
to
the Issuer) or the Issuer’s Restricted Subsidiaries after the Issue Date;
|
provided
that the
Issuer may elect to apply all or any portion of the aggregate increase
contemplated by clauses (a) and (b) above in any calendar year;
|
(5)
|
the
declaration and payment of dividends or distributions to holders
of any
class or series of Disqualified Stock of the Issuer or any of its
Restricted Subsidiaries issued or incurred in accordance with the
covenant
described under “—Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock”;
|
|
(6)
|
the
declaration and payment of dividends or distributions (a) to holders
of any class or series of Designated Preferred Stock (other than
Disqualified Stock) issued after the Issue Date and (b) to any direct
or indirect parent of the Issuer, the proceeds of which will be
used to
fund the payment of dividends to holders of any class or series
of
Designated Preferred Stock (other than Disqualified Stock) of any
direct
or indirect parent of the Issuer issued after the Issue Date; provided,
however,
that, (x) for the most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding
the date of issuance of such Designated Preferred Stock, after
giving
effect to such issuance (and the payment of dividends or distributions)
on
a pro forma basis, the Issuer would have had a Fixed Charge Coverage
Ratio
of at least 2.00 to 1.00 and (y) the aggregate amount of dividends
declared and paid pursuant to this clause (6) does not exceed the net
cash proceeds actually received by the Issuer from any such sale
of
Designated Preferred Stock (other than Disqualified Stock) issued
after
the Issue Date;
|
|
(7)
|
Investments
in Unrestricted Subsidiaries having an aggregate Fair Market Value,
taken
together with all other Investments made pursuant to this clause
(7) that are at that time outstanding, not to exceed the greater of
$25.0 million and 1.0% of Total Assets at the time of such Investment
(with the Fair Market Value of each Investment being measured at
the time
made and without giving effect to subsequent changes in value);
|
|
(8)
|
the
payment of dividends on the Issuer’s common stock (or the payment of
dividends to any direct or indirect parent of the Issuer to fund
the
payment by such direct or indirect parent of the Issuer of dividends
on
such entity’s common
|
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stock)
of
up to 6% per annum of the net proceeds received by the Issuer from any
public offering of common stock of the Issuer or any direct or indirect parent
of the Issuer;
|
(9)
|
Investments
that are made with Excluded Contributions;
|
|
(10)
|
other
Restricted Payments in an aggregate amount not to exceed the greater
of
$50.0 million and 2.0% of Total Assets at the time made;
|
|
(11)
|
the
distribution, as a dividend or otherwise, of shares of Capital
Stock of,
or Indebtedness owed to the Issuer or a Restricted Subsidiary of
the
Issuer by, Unrestricted Subsidiaries;
|
|
(12)
|
the
payment of dividends or other distributions to any direct or indirect
parent of the Issuer in amounts required for such parent to pay
federal,
state or local income taxes (as the case may be) imposed directly
on such
parent to the extent such income taxes are attributable to the
income of
the Issuer and its Restricted Subsidiaries (including, without
limitation,
by virtue of such parent being the common parent of a consolidated
or
combined tax group of which the Issuer and/or its Restricted Subsidiaries
are members);
|
|
(13)
|
the
payment of dividends, other distributions or other amounts or the
making
of loans or advances by the Issuer, if applicable:
|
|
(a)
|
in
amounts required for any direct or indirect parent of the Issuer,
if
applicable, to pay fees and expenses (including franchise or similar
taxes) required to maintain its corporate existence, customary
salary,
bonus and other benefits payable to, and indemnities provided on
behalf
of, officers and employees of any direct or indirect parent of
the Issuer,
if applicable, and general corporate overhead expenses of any direct
or
indirect parent of the Issuer, if applicable, in each case to the
extent
such fees and expenses are attributable to the ownership or operation
of
the Issuer, if applicable, and its Subsidiaries;
|
|
(b)
|
in
amounts required for any direct or indirect parent of the Issuer,
if
applicable, to pay interest and/or principal on Indebtedness the
proceeds
of which have been contributed to the Issuer or any of its Restricted
Subsidiaries and that has been guaranteed by, or is otherwise considered
Indebtedness of, the Issuer Incurred in accordance with the covenant
described under “—Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock”; and
|
|
(c)
|
in
amounts required for any direct or indirect parent of the Issuer
to pay
fees and expenses, other than to Affiliates of the Issuer, related
to any
unsuccessful equity or debt offering of such parent.
|
|
(14)
|
cash
dividends or other distributions on the Issuer’s Capital Stock used to, or
the making of loans to any direct or indirect parent of the Issuer
to,
fund the Acquisition and the payment of fees and expenses incurred
in
connection with the Acquisition or owed by the Issuer or any direct
or
indirect parent of the Issuer, as the case may be, or Restricted
Subsidiaries of the Issuer to Affiliates, in each case to the extent
permitted by the covenant described under “—Transactions with Affiliates”;
|
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|
(15)
|
repurchases
of Equity Interests deemed to occur upon exercise of stock options
or
warrants if such Equity Interests represent a portion of the exercise
price of such options or warrants;
|
|
(16)
|
purchases
of receivables pursuant to a Receivables Repurchase Obligation
in
connection with a Qualified Receivables Financing and the payment
or
distribution of Receivables Fees;
|
|
(17)
|
payments
of cash, or dividends, distributions or advances by the Issuer
or any
Restricted Subsidiary to allow the payment of cash in lieu of the
issuance
of fractional shares upon the exercise of options or warrants or
upon the
conversion or exchange of Capital Stock of any such Person;
|
|
(18)
|
the
repurchase, redemption or other acquisition or retirement for value
of any
Subordinated Indebtedness pursuant to the provisions similar to
those
described under the captions “—Change of Control” and “—Asset Sales”;
provided
that all notes tendered by holders of the notes in connection with
a
Change of Control or Asset Sale Offer, as applicable, have been
repurchased, redeemed or acquired for value; and
|
|
(19)
|
any
payments made, including any such payments made to any direct or
indirect
parent of the Issuer to enable it to make payments, in connection
with the
consummation of the Acquisition or as contemplated by the Acquisition
Documents (other than payments to any Permitted Holder or any Affiliate
thereof);
|
provided,
however,
that at
the time of, and after giving effect to, any Restricted Payment permitted
under
clauses (6), (7), (10) and (11), no Default shall have occurred and be
continuing or would occur as a consequence thereof.
As
of the
Issue Date, all of the Issuer’s Subsidiaries are Restricted Subsidiaries. The
Issuer is prohibited from permitting any Unrestricted Subsidiary to become
a
Restricted Subsidiary except pursuant to the definition of “Unrestricted
Subsidiary.” For purposes of designating any Restricted Subsidiary as an
Unrestricted Subsidiary, all outstanding Investments by the Issuer and its
Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so
designated will be deemed to be Restricted Payments in an amount determined
as
set forth in the last sentence of the definition of “Investments.” Such
designation will only be permitted if a Restricted Payment in such amount
would
be permitted at such time and if such Subsidiary otherwise meets the definition
of an Unrestricted Subsidiary.
Dividend
and Other Payment Restrictions Affecting Subsidiaries. The
Indenture provides that the Issuer will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or
suffer to exist or become effective any consensual encumbrance or consensual
restriction on the ability of any Restricted Subsidiary to:
|
(a)
|
(i) pay
dividends or make any other distributions to the Issuer or any
of its
Restricted Subsidiaries (1) on its Capital Stock; or (2) with
respect to any other interest or participation in, or measured
by, its
profits; or (ii) pay any Indebtedness owed to the Issuer or any of
its Restricted Subsidiaries;
|
|
(b)
|
make
loans or advances to the Issuer or any of its Restricted Subsidiaries;
or
|
|
(c)
|
sell,
lease or transfer any of its properties or assets to the Issuer
or any of
its Restricted Subsidiaries;
|
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except
in
each case for such encumbrances or restrictions existing under or by reason
of:
|
(1)
|
contractual
encumbrances or restrictions in effect on the Issue Date, including
pursuant to the Credit Agreement and the other Credit Agreement
Documents;
|
|
(2)
|
(i) the
Indenture, the notes, the Security Documents and the Intercreditor
Agreement and (ii) the Senior Subordinated Note Purchase Agreement
(as defined under “Description of Other Indebtedness”), the Senior
Subordinated Notes and the indenture governing the Senior Subordinated
Notes;
|
|
(3)
|
applicable
law or any applicable rule, regulation or order;
|
|
(4)
|
any
agreement or other instrument relating to Indebtedness of a Person
acquired by the Issuer or any Restricted Subsidiary which was in
existence
at the time of such acquisition (but not created in contemplation
thereof
or to provide all or any portion of the funds or credit support
utilized
to consummate such acquisition), which encumbrance or restriction
is not
applicable to any Person, or the properties or assets of any Person,
other
than the Person, or the property or assets of the Person, so acquired;
|
|
(5)
|
contracts
or agreements for the sale of assets, including any restriction
with
respect to a Restricted Subsidiary imposed pursuant to an agreement
entered into for the sale or disposition of the Capital Stock or
assets of
such Restricted Subsidiary pending the closing of such sale or
disposition;
|
|
(6)
|
Secured
Indebtedness otherwise permitted to be Incurred pursuant to the
covenants
described under “—Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock” and “—Liens” that limit the right
of the debtor to dispose of the assets securing such Indebtedness;
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(7)
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restrictions
on cash or other deposits or net worth imposed by customers under
contracts entered into in the ordinary course of business;
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(8)
|
customary
provisions in joint venture agreements and other similar agreements
entered into in the ordinary course of business;
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(9)
|
purchase
money obligations for property acquired in the ordinary course
of business
that impose restrictions of the nature discussed in clause (c) above
on the property so acquired;
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(10)
|
customary
provisions contained in leases, licenses and other similar agreements
entered into in the ordinary course of business that impose restrictions
of the type described in clause (c) above on the property subject to
such lease;
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(11)
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any
encumbrance or restriction of a Receivables Subsidiary effected
in
connection with a Qualified Receivables Financing; provided,
however,
that such restrictions apply only to such Receivables Subsidiary;
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(12)
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other
Indebtedness, Disqualified Stock or Preferred Stock of any Restricted
Subsidiary of the Issuer (i) that is a Note Guarantor that is
Incurred subsequent to the Issue Date pursuant to the covenant
described
under “—Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock” or (ii) that is Incurred by a
Foreign Subsidiary of the Issuer subsequent to the Issue Date pursuant
to
clause (d), (l) or (t) of the second paragraph of the covenant
described under “—Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock”;
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(13)
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any
Restricted Investment not prohibited by the covenant described
under
“—Limitation on Restricted Payments” and any Permitted Investment; or
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(14)
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any
encumbrances or restrictions of the type referred to in clauses
(a),
(b) and (c) above imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements
or refinancings of the contracts, instruments or obligations referred
to
in clauses (1) through (13) above; provided
that
such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are, in the
good
faith judgment of the Issuer, no more restrictive with respect
to such
dividend and other payment restrictions than those contained in
the
dividend or other payment restrictions prior to such amendment,
modification, restatement, renewal, increase, supplement, refunding,
replacement or refinancing.
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For
purposes of determining compliance with this covenant, (1) the priority of
any Preferred Stock in receiving dividends or liquidating distributions prior
to
dividends or liquidating distributions being paid on common stock shall not
be
deemed a restriction on the ability to make distributions on Capital Stock
and
(2) the subordination of loans or advances made to the Issuer or a
Restricted Subsidiary of the Issuer to other Indebtedness Incurred by the
Issuer
or any such Restricted Subsidiary shall not be deemed a restriction on the
ability to make loans or advances.
Asset
Sales. The
Indenture provides that the Issuer will not, and will not permit any of its
Restricted Subsidiaries to, cause or make an Asset Sale, unless (x) the
Issuer or any of its Restricted Subsidiaries, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value (as determined in good faith by the Issuer) of the assets sold or
otherwise disposed of, and (y) at least 75% of the consideration therefor
received by the Issuer or such Restricted Subsidiary, as the case may be,
is in
the form of Cash Equivalents; provided
that the
amount of:
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(a)
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any
liabilities (as shown on the Issuer’s or such Restricted Subsidiary’s most
recent balance sheet or in the notes thereto) of the Issuer or
any
Restricted Subsidiary of the Issuer (other than liabilities that
are by
their terms subordinated to the notes or any Note Guarantee) that
are
assumed by the transferee of any such assets,
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(b)
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any
notes or other obligations or other securities or assets received
by the
Issuer or such Restricted Subsidiary of the Issuer from such transferee
that are converted by the Issuer or such Restricted Subsidiary
of the
Issuer into cash within 180 days of the receipt thereof (to the
extent of
the cash received), and
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(c)
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any
Designated Non-cash Consideration received by the Issuer or any
of its
Restricted Subsidiaries in such Asset Sale having an aggregate
Fair Market
Value, taken together with all other Designated Non-cash Consideration
received pursuant to this clause (c) that is at that time
outstanding, not to exceed the greater of 2.0% of Total Assets
and $50.0
million at the time of the receipt of such Designated Non-cash
Consideration (with the Fair Market Value of each item of Designated
Non-cash Consideration being measured at the time received and
without
giving effect to subsequent changes in value)
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shall
be
deemed to be Cash Equivalents for the purposes of this provision.
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Within
365 days after the Issuer’s or any Restricted Subsidiary of the Issuer’s receipt
of the Net Proceeds of any Asset Sale, the Issuer or such Restricted Subsidiary
of the Issuer may apply the Net Proceeds from such Asset Sale, at its option:
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(1)
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to
repay Indebtedness constituting First Priority Lien Obligations
(and, if
the Indebtedness repaid is revolving credit Indebtedness, to
correspondingly reduce commitments with respect thereto), Indebtedness
of
a Foreign Subsidiary or Pari Passu Indebtedness (provided
that if the Issuer or any Note Guarantor shall so reduce Obligations
under
Pari Passu Indebtedness (other than any First Priority Lien Obligation),
the Issuer will equally and ratably reduce Obligations under the
notes
through open-market purchases (provided
that such purchases are at or above 100% of the principal amount
thereof)
or by making an offer (in accordance with the procedures set forth
below
for an Asset Sale Offer) to all holders to purchase at a purchase
price
equal to 100% of the principal amount thereof, plus accrued and
unpaid
interest and additional interest, if any, the pro rata principal
amount of
notes) or Indebtedness of a Restricted Subsidiary that is not a
Note
Guarantor, in each case other than Indebtedness owed to the Issuer
or an
Affiliate of the Issuer,
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(2)
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to
make an investment in any one or more businesses (provided that
if such
investment is in the form of the acquisition of Capital Stock of
a Person,
such acquisition results in such Person becoming a Restricted Subsidiary
of the Issuer), assets, or property or capital expenditures, in
each case
used or useful in a Similar Business, or
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(3)
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to
make an investment in any one or more businesses (provided that
if such
investment is in the form of the acquisition of Capital Stock of
a Person,
such acquisition results in such Person becoming a Restricted Subsidiary
of the Issuer), properties or assets that replace the properties
and
assets that are the subject of such Asset Sale.
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In
the
case of clauses (2) and (3) above, a binding commitment shall be
treated as a permitted application of the Net Proceeds from the date of such
commitment; provided
that in
the event such binding commitment is later canceled or terminated for any
reason
before such Net Proceeds are so applied, the Issuer or such Restricted
Subsidiary enters into another binding commitment within nine months of such
cancellation or termination of the prior binding commitment; provided,
further
that the
Issuer or such Restricted Subsidiary may only enter into such a commitment
under
the foregoing provision one time with respect to each Asset Sale.
Pending
the final application of any such Net Proceeds, the Issuer or such Restricted
Subsidiary of the Issuer may temporarily reduce Indebtedness under a revolving
credit facility, if any, or otherwise invest such Net Proceeds in Cash
Equivalents or Investment Grade Securities. Any Net Proceeds from any Asset
Sale
that are not applied as provided and within the time period set forth in
the
first sentence of this paragraph (it being understood that any portion of
such
Net Proceeds used to make an offer to purchase notes, as described in clause
(1) above, shall be deemed to have been invested whether or not such offer
is accepted) will be deemed to constitute “Excess Proceeds.” When the aggregate
amount of Excess Proceeds exceeds $15.0 million, the Issuer shall make an
offer
to all holders of notes (and, at the option of the Issuer, to holders of
any
Pari Passu Indebtedness) (an “Asset Sale Offer”) to purchase the maximum
principal amount of notes (and such Pari Passu Indebtedness), that is at
least
$2,000 and an integral multiple of $1,000 that may be purchased out of the
Excess Proceeds at an offer price in cash in an amount equal to 100% of the
principal amount thereof (or, in the event such Pari Passu Indebtedness was
issued with significant original issue discount, 100% of the
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accreted
value thereof), plus accrued and unpaid interest and additional interest,
if any
(or, in respect of such Pari Passu Indebtedness, such lesser price, if any,
as
may be provided for by the terms of such Pari Passu Indebtedness), to the
date
fixed for the closing of such offer, in accordance with the procedures set
forth
in the Indenture. The Issuer will commence an Asset Sale Offer with respect
to
Excess Proceeds within ten (10) Business Days after the date that Excess
Proceeds exceeds $15.0 million by mailing the notice required pursuant to
the
terms of the Indenture, with a copy to the Trustee. To the extent that the
aggregate amount of notes (and such Pari Passu Indebtedness) tendered pursuant
to an Asset Sale Offer is less than the Excess Proceeds, the Issuer may use
any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of notes (and such Pari Passu Indebtedness) surrendered
by
holders thereof exceeds the amount of Excess Proceeds, the Trustee shall
select
the notes to be purchased in the manner described below. Upon completion
of any
such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The
Issuer will comply with the requirements of Rule 14e-1 under the Exchange
Act
and any other securities laws and regulations to the extent such laws or
regulations are applicable in connection with the repurchase of the notes
pursuant to an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the Indenture,
the Issuer will comply with the applicable securities laws and regulations
and
shall not be deemed to have breached its obligations described in the Indenture
by virtue thereof.
If
more
notes (and such Pari Passu Indebtedness) are tendered pursuant to an Asset
Sale
Offer than the Issuer is required to purchase, selection of such notes for
purchase will be made by the Trustee in compliance with the requirements
of the
principal national securities exchange, if any, on which such notes are listed,
or if such notes are not so listed, on a pro rata basis, by lot or by such
other
method as the Trustee shall deem fair and appropriate (and in such manner
as
complies with applicable legal requirements); provided
that no
notes of $2,000 or less shall be purchased in part. Selection of such Pari
Passu
Indebtedness will be made pursuant to the terms of such Pari Passu Indebtedness.
Notices
of an Asset Sale Offer shall be mailed by first class mail, postage prepaid,
at
least 30 but not more than 60 days before the purchase date to each holder
of
notes at such holder’s registered address. If any note is to be purchased in
part only, any notice of purchase that relates to such note shall state the
portion of the principal amount thereof that has been or is to be purchased.
The
Credit Agreement provides that certain asset sale events with respect to
the
Issuer constitute a default under the Credit Agreement. Any future credit
agreements or similar agreements to which the Issuer becomes a party may
contain
similar restrictions and provisions. In the event that an Asset Sale occurs
at a
time when the Issuer is prohibited from purchasing notes, the Issuer could
seek
the consent of its lenders, including the lenders under the Credit Agreement,
to
purchase the notes or could attempt to refinance the borrowings that contain
such prohibition. If the Issuer does not obtain such a consent or repay such
borrowings, the Issuer will remain prohibited from purchasing notes. In such
case, the Issuer’s failure to purchase tendered notes would constitute an Event
of Default under the Indenture that would, in turn, constitute a default
under
the Issuer’s other Indebtedness.
Transactions
with Affiliates. The
Indenture provides that the Issuer will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, make any payment to,
or
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make or amend
any
transaction or series of transactions, contract, agreement, understanding,
loan,
advance or guarantee with, or for the
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benefit
of, any Affiliate of the Issuer (each of the foregoing, an “Affiliate
Transaction”) involving aggregate consideration in excess of $10.0 million,
unless:
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(a)
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such
Affiliate Transaction is on terms that are not materially less
favorable
to the Issuer or the relevant Restricted Subsidiary than those
that could
have been obtained in a comparable transaction by the Issuer or
such
Restricted Subsidiary with an unrelated Person; and
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(b)
|
with
respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $25.0
million,
the Issuer delivers to the Trustee a resolution adopted in good
faith by
the majority of the Board of Directors of the Issuer, approving
such
Affiliate Transaction and set forth in an Officers’ Certificate certifying
that such Affiliate Transaction complies with clause (a) above.
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The
foregoing provisions will not apply to the following:
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(1)
|
transactions
between or among the Issuer and/or any of its Restricted Subsidiaries
and
any merger of the Issuer and any direct parent of the Issuer; provided
that such parent shall have no material liabilities and no material
assets
other than cash, Cash Equivalents and the Capital Stock of the
Issuer and
such merger is otherwise in compliance with the terms of the Indenture
and
effected for a bona fide business purpose;
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(2)
|
Restricted
Payments permitted by the provisions of the Indenture described
above
under the covenant “—Limitation on Restricted Payments” and Permitted
Investments;
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(3)
|
(x) the
entering into of any agreement (and any amendment or modification
of any
such agreement) to pay, and the payment of, annual management,
consulting,
monitoring and advisory fees to the Sponsors in an aggregate amount
in any
fiscal year not to exceed the greater of (A) $3.0 million and
(B) 1.25% of EBITDA of the Issuer and its Restricted Subsidiaries for
the immediately preceding fiscal year, and out-of-pocket expense
reimbursement; provided,
however,
that any payment not made in any fiscal year may be carried forward
and
paid in the following two fiscal years and (y) the payment of the
present value of all amounts payable pursuant to any agreement
described
in clause 3(x) in connection with the termination of such agreement;
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(4)
|
the
payment of reasonable and customary fees and reimbursement of expenses
paid to, and indemnity provided on behalf of, officers, directors,
employees or consultants of the Issuer or any Restricted Subsidiary
or any
direct or indirect parent of the Issuer;
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(5)
|
payments
by the Issuer or any of its Restricted Subsidiaries to the Sponsors
made
for any financial advisory, financing, underwriting or placement
services
or in respect of other investment banking activities, including,
without
limitation, in connection with acquisitions or divestitures, which
payments are (x) made pursuant to certain agreements between the
Issuer and the Sponsors described in this prospectus or (y) approved
by a majority of the Board of Directors of the Issuer in good faith;
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(6)
|
transactions
in which the Issuer or any of its Restricted Subsidiaries, as the
case may
be, delivers to the Trustee a letter from an Independent Financial
Advisor
stating that such transaction is fair to the Issuer or such Restricted
Subsidiary
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from
a
financial point of view or meets the requirements of clause (a) of the
preceding paragraph;
|
(7)
|
payments
or loans (or cancellation of loans) to employees or consultants
which are
approved by a majority of the Board of Directors of the Issuer
in good
faith;
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|
(8)
|
any
agreement as in effect as of the Issue Date or any amendment thereto
(so
long as any such agreement together with all amendments thereto,
taken as
a whole, is not more disadvantageous to the holders of the notes
in any
material respect than the original agreement as in effect on the
Issue
Date) or any transaction contemplated thereby as determined in
good faith
by senior management or the Board of Directors of the Issuer;
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(9)
|
the
existence of, or the performance by the Issuer or any of its Restricted
Subsidiaries of its obligations under the terms of, Acquisition
Documents,
any stockholders agreement (including any registration rights agreement
or
purchase agreement related thereto) to which it is a party as of
the Issue
Date, and any transaction, agreement or arrangement described in
this
prospectus and, in each case, any amendment thereto or similar
transactions, agreements or arrangements which it may enter into
thereafter; provided,
however,
that the existence of, or the performance by the Issuer or any
of its
Restricted Subsidiaries of its obligations under, any future amendment
to
any such existing transaction, agreement or arrangement or under
any
similar transaction, agreement or arrangement entered into after
the Issue
Date shall only be permitted by this clause (9) to the extent that
the terms of any such existing transaction, agreement or arrangement
together with all amendments thereto, taken as a whole, or new
transaction, agreement or arrangement are not otherwise more
disadvantageous to the holders of the notes in any material respect
than
the original transaction, agreement or arrangement as in effect
on the
Issue Date;
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(10)
|
the
execution of the Acquisition and the payment of all fees and expenses
related to the Acquisition, including fees to the Sponsors;
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(11)
|
(a) transactions
with customers, clients, suppliers or purchasers or sellers of
goods or
services, or transactions otherwise relating to the purchase or
sale of
goods or services, in each case in the ordinary course of business
and
otherwise in compliance with the terms of the Indenture, which
are fair to
the Issuer and its Restricted Subsidiaries in the reasonable determination
of the Board of Directors or the senior management of the Issuer,
or are
on terms at least as favorable as might reasonably have been obtained
at
such time from an unaffiliated party or (b) transactions with joint
ventures or Unrestricted Subsidiaries entered into in the ordinary
course
of business;
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(12)
|
any
transaction effected as part of a Qualified Receivables Financing;
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(13)
|
the
issuance of Equity Interests (other than Disqualified Stock) of
the Issuer
to any Person;
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(14)
|
the
issuances of securities or other payments, awards or grants in
cash,
securities or otherwise pursuant to, or the funding of, employment
arrangements, stock option and stock ownership plans or similar
employee
benefit plans approved by the Board of Directors of the Issuer
or any
direct or indirect parent of the Issuer or of a Restricted Subsidiary
of
the Issuer, as appropriate, in good faith;
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(15)
|
the
entering into of any tax sharing agreement or arrangement and any
payments
permitted by clause (12) of the second paragraph of the covenant
described under “—Limitation on Restricted Payments”;
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(16)
|
any
contribution to the capital of the Issuer;
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(17)
|
transactions
permitted by, and complying with, the provisions of the covenant
described
under “—Merger, Amalgamation, Consolidation or Sale of All or
Substantially All Assets”;
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(18)
|
transactions
between the Issuer or any of its Restricted Subsidiaries and any
Person, a
director of which is also a director of the Issuer or any direct
or
indirect parent of the Issuer; provided,
however,
that such director abstains from voting as a director of the Issuer
or
such direct or indirect parent, as the case may be, on any matter
involving such other Person;
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(19)
|
pledges
of Equity Interests of Unrestricted Subsidiaries;
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(20)
|
any
employment agreements entered into by the Issuer or any of its
Restricted
Subsidiaries in the ordinary course of business; and
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(21)
|
intercompany
transactions undertaken in good faith (as certified by a responsible
financial or accounting officer of the Issuer in an Officers’ Certificate)
for the purpose of improving the consolidated tax efficiency of
the Issuer
and its Subsidiaries and not for the purpose of circumventing any
covenant
set forth in the Indenture.
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Liens.
The
Indenture provides that the Issuer will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, Incur or suffer
to
exist (i) any Lien on any asset or property of the Issuer or such
Restricted Subsidiary securing Indebtedness unless the notes are equally
and
ratably secured with (or on a senior basis to, in the case of obligations
subordinated in right of payment to the notes) the obligations so secured
until
such time as such obligations are no longer secured by a Lien or (ii) any
Lien securing any First Priority Lien Obligation of the Issuer or any Note
Guarantor without effectively providing that the notes or the applicable
Note
Guarantee, as the case may be, shall be granted a second priority security
interest (subject to Permitted Liens) upon the assets or property constituting
the collateral for such First Priority Lien Obligations, except as set forth
under “—Security for the Notes”; provided,
however, that
if
granting such second priority security interest requires the consent of a
third
party, the Issuer will use commercially reasonable efforts to obtain such
consent with respect to the second priority security interest for the benefit
of
the Trustee on behalf of the holders of the notes; provided,
further, however, that
if
such third party does not consent to the granting of such second priority
security interest after the use of commercially reasonable efforts, the Issuer
will not be required to provide such security interest.
Clause (i)
of the preceding paragraph will not require the Issuer or any Restricted
Subsidiary of the Issuer to secure the notes if the Lien consists of a Permitted
Lien. Any Lien which is granted to secure the notes or such Note Guarantee
under
clause (i) of the preceding paragraph (unless also granted pursuant to
clause (ii) of the preceding paragraph) shall be automatically released and
discharged at the same time as the release of the Lien that gave rise to
the
obligation to secure the notes or such Note Guarantee under such
clause (i).
Reports
and Other Information. The
Indenture provides that notwithstanding that the Issuer may not be subject
to
the reporting requirements of Section 13 or 15(d) of the Exchange Act or
otherwise report on an annual and quarterly basis on forms provided for such
annual and quarterly reporting pursuant to rules and regulations promulgated
by
the SEC, the Issuer will file
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with
the
SEC (and provide the Trustee and holders with copies thereof, without cost
to
each holder, within 15 days after it files them with the SEC),
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(1)
|
within
the time period specified in the SEC’s rules and regulations, annual
reports on Form 10-K (or any successor or comparable form) containing
the
information required to be contained therein (or required in such
successor or comparable form),
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(2)
|
within
the time period specified in the SEC’s rules and regulations, reports on
Form 10-Q (or any successor or comparable form) containing the
information
required to be contained therein (or required in such successor
or
comparable form),
|
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(3)
|
promptly
from time to time after the occurrence of an event required to
be therein
reported (and in any event within the time period specified in
the SEC’s
rules and regulations), such other reports on Form 8-K (or any
successor
or comparable form), and
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(4)
|
any
other information, documents and other reports which the Issuer
would be
required to file with the SEC if it were subject to Section 13 or
15(d) of the Exchange Act;
|
provided,
however,
that
the Issuer shall not be so obligated to file such reports with the SEC if
the
SEC does not permit such filing, in which event the Issuer will make available
such information to prospective purchasers of notes, including by posting
such
reports on the primary website of the Issuer or its subsidiaries, in addition
to
providing such information to the Trustee and the holders, in each case within
15 days after the time the Issuer would be required to file such
information with the SEC if it were subject to Section 13 or 15(d) of the
Exchange Act.
In
the
event that:
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(a)
|
the
rules and regulations of the SEC permit the Issuer and any direct
or
indirect parent of the Issuer to report at such parent entity’s level on a
consolidated basis; and
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(b)
|
such
parent entity of the Issuer is not engaged in any business in any
material
respect other than incidental to its ownership, directly or indirectly,
of
the capital stock of the Issuer,
|
such
consolidated reporting at such parent entity’s level in a manner consistent with
that described in this covenant for the Issuer will satisfy this covenant.
In
addition, the Issuer has agreed that, for so long as any notes remain
outstanding during any period when it is not subject to Section 13 or 15(d)
of the Exchange Act, or otherwise permitted to furnish the SEC with certain
information pursuant to Rule 12g3-2(b) of the Exchange Act, it will furnish
to
the holders of the notes and to prospective investors, upon their request,
the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Notwithstanding
the foregoing, the Issuer will be deemed to have furnished such reports referred
to above to the Trustee and the holders if the Issuer has filed such reports
with the SEC via the EDGAR filing system and such reports are publicly
available. In addition, such requirements shall be deemed satisfied prior
to the
commencement of the exchange offer covered by this prospectus by the filing
with
the SEC of the exchange offer registration statement and/or shelf registration
statement in accordance with the provisions of such Registration Rights
Agreement, and any amendments thereto, and such registration
statement
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and/or
amendments thereto are filed at times that otherwise satisfy the time
requirements set forth in the first paragraph of the description of this
covenant.
In
the
event that any direct or indirect parent of the Issuer is or becomes a Note
Guarantor of the notes, the Indenture will permit the Issuer to satisfy its
obligations in this covenant with respect to financial information relating
to
the Issuer by furnishing financial information relating to such direct or
indirect parent; provided
that the
same is accompanied by consolidating information that explains in reasonable
detail the differences between the information relating to such direct or
indirect parent and any of its Subsidiaries other than the Issuer and its
Subsidiaries, on the one hand, and the information relating to the Issuer,
the
Note Guarantors and the other Subsidiaries of the Issuer on a standalone
basis,
on the other hand.
Future
Note Guarantors. The
Indenture provides that the Issuer will cause each Restricted Subsidiary
that is
a Domestic Subsidiary (unless such Subsidiary is a Receivables Subsidiary)
that:
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(a)
|
guarantees
any Indebtedness of the Issuer or any of its Restricted Subsidiaries;
or
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(b)
|
incurs
any Indebtedness or issues any shares of Disqualified Stock permitted
to
be Incurred or issued pursuant to clauses (a) or (l) of the
second paragraph of the covenant described under “—Limitation on
Incurrence of Indebtedness and Issuance of Disqualified Stock and
Preferred Stock” or not permitted to be Incurred by such
covenant,
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to
execute and deliver to the Trustee a supplemental indenture pursuant to which
such Subsidiary will guarantee payment of the notes. Each Note Guarantee
will be
limited to an amount not to exceed the maximum amount that can be guaranteed
by
that Restricted Subsidiary without rendering the Note Guarantee, as it relates
to such Restricted Subsidiary, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.
Each
Note
Guarantee shall be released in accordance with the provisions of the Indenture
described under “—Note Guarantees.”
Amendment
of Security Documents. The
Issuer shall not amend, modify or supplement, or permit or consent to any
amendment, modification or supplement of, the Security Documents in any way
that
would be adverse to the holders of the notes in any material respect, except
as
described above under “—Security for the Notes” or as permitted under
“—Amendments and Waivers.”
After-Acquired
Property. The
Indenture will provide that upon the acquisition by any Issuer or any Note
Guarantor of any First Priority After-Acquired Property, the Issuer or such
Note
Guarantor shall execute and deliver such mortgages, deeds of trust, security
instruments, financing statements and certificates and opinions of counsel
as
shall be reasonably necessary to vest in the Trustee a perfected security
interest, subject only to Permitted Liens, in such First Priority After-Acquired
Property and to have such First Priority After-Acquired Property (but subject
to
certain limitations, if applicable, including as described under “—Security for
the Notes”) added to the Collateral, and thereupon all provisions of the
Indenture relating to the Collateral shall be deemed to relate to such First
Priority After-Acquired Property to the same extent and with the same force
and
effect; provided,
however, that
if
granting such second priority security interest in such First Priority
After-Acquired Property requires the consent of a third party, the Issuer
will
use commercially reasonable efforts to obtain such consent with respect to
the
second priority interest for the benefit of the Trustee on behalf of the
holders
of
-137-
the
notes; provided
further, however,
that if
such third party does not consent to the granting of such second priority
security interest after the use of such commercially reasonable efforts,
the
Issuer or such Note Guarantor, as the case may be, will not be required to
provide such security interest.
Merger,
Amalgamation, Consolidation or Sale of All or Substantially All Assets
The
Indenture provides that the Issuer may not, directly or indirectly, consolidate,
amalgamate or merge with or into or wind up or convert into (whether or not
the
Issuer is the surviving Person), or sell, assign, transfer, lease, convey
or
otherwise dispose of all or substantially all of its properties or assets
in one
or more related transactions, to any Person unless:
|
(1)
|
the
Issuer is the surviving person or the Person formed by or surviving
any
such consolidation, amalgamation, merger, winding up or conversion
(if
other than the Issuer) or to which such sale, assignment, transfer,
lease,
conveyance or other disposition will have been made is a corporation,
partnership or limited liability company organized or existing
under the
laws of the United States, any state thereof, the District of Columbia,
or
any territory thereof (the Issuer or such Person, as the case may
be,
being herein called the “Successor Company”); provided
that in the case where the surviving Person is not a corporation,
a
co-obligor of the notes is a corporation;
|
|
(2)
|
the
Successor Company (if other than the Issuer) expressly assumes
all the
obligations of the Issuer under the Indenture, the notes and the
Security
Documents pursuant to supplemental indentures or other documents
or
instruments in form reasonably satisfactory to the Trustee;
|
|
(3)
|
immediately
after giving effect to such transaction (and treating any Indebtedness
which becomes an obligation of the Successor Company or any of
its
Restricted Subsidiaries 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;
|
|
(4)
|
immediately
after giving pro forma effect to such transaction, as if such transaction
had occurred at the beginning of the applicable four-quarter period
(and
treating any Indebtedness which becomes an obligation of the Successor
Company or any of its Restricted Subsidiaries as a result of such
transaction as having been Incurred by the Successor Company or
such
Restricted Subsidiary at the time of such transaction), either
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|
(a)
|
the
Successor Company would be permitted to Incur at least $1.00 of
additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in
the first sentence of the covenant described under “—Certain
Covenants—Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock”; or
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|
(b)
|
the
Fixed Charge Coverage Ratio for the Successor Company and its Restricted
Subsidiaries would be greater than such ratio for the Issuer and
its
Restricted Subsidiaries immediately prior to such transaction;
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|
(5)
|
each
Note Guarantor, unless it is the other party to the transactions
described
above, shall have by supplemental indenture confirmed that its
Note
Guarantee shall apply to such Person’s obligations under the Indenture and
the notes; and
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-138-
|
(6)
|
the
Issuer 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 indentures (if any) comply with
the
Indenture.
|
The
Successor Company (if other than the Issuer) will succeed to, and be substituted
for, the Issuer under the Indenture, the notes and the Security Documents,
and
in such event the Issuer will automatically be released and discharged from
its
obligations under the Indenture, the notes and the Security Documents.
Notwithstanding the foregoing clauses (3) and (4), (a) any Restricted
Subsidiary may merge, consolidate or amalgamate with or transfer all or part
of
its properties and assets to the Issuer or to another Restricted Subsidiary,
and
(b) the Issuer may merge, consolidate or amalgamate with an Affiliate
incorporated solely for the purpose of reincorporating the Issuer in another
state of the United States, the District of Columbia or any territory of
the
United States or may convert into a limited liability company, so long as
the
amount of Indebtedness of the Issuer and its Restricted Subsidiaries is not
increased thereby. This “—Merger, Amalgamation, Consolidation or Sale of All or
Substantially All Assets” will not apply to a sale, assignment, transfer,
conveyance or other disposition of assets between or among the Issuer and
its
Restricted Subsidiaries.
The
Indenture further provides that, subject to certain provisions in the Indenture
governing release of a Note Guarantee upon the sale or disposition of a
Restricted Subsidiary of the Issuer that is a Note Guarantor, no Note Guarantor
will, and the Issuer will not permit any Note Guarantor to, consolidate,
amalgamate or merge with or into or wind up into (whether or not such Note
Guarantor is the surviving Person), or sell, assign, transfer, lease, convey
or
otherwise dispose of all or substantially all of its properties or assets
in one
or more related transactions to, any Person (other than any such sale,
assignment, transfer, lease, conveyance or disposition in connection with
the
Acquisition) unless:
|
(1)
|
either
(a) such Note Guarantor is the surviving Person or the Person formed
by or surviving any such consolidation, amalgamation or merger
(if other
than such Note Guarantor) or to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made is a
corporation, partnership or limited liability company organized
or
existing under the laws of the United States, any state thereof,
the
District of Columbia, or any territory thereof (such Note Guarantor
or
such Person, as the case may be, being herein called the “Successor Note
Guarantor”) and the Successor Note Guarantor (if other than such Note
Guarantor) expressly assumes all the obligations of such Note Guarantor
under the Indenture, such Note Guarantors’ Note Guarantee and the Security
Documents pursuant to a supplemental indenture or other documents
or
instruments in form reasonably satisfactory to the Trustee, or
(b) such sale or disposition or consolidation, amalgamation or merger
is not in violation of the covenant described above under the caption
“—Certain Covenants—Asset Sales”; and
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|
(2)
|
the
Successor Note Guarantor (if other than such Note Guarantor) shall
have
delivered or caused to be delivered to the Trustee an Officers’
Certificate and an Opinion of Counsel, each stating that such
consolidation, amalgamation, merger or transfer and such supplemental
indenture (if any) comply with the Indenture.
|
Subject
to certain limitations described in the Indenture, the Successor Note Guarantor
(if other than such Note Guarantor) will succeed to, and be substituted for,
such Note Guarantor under the Indenture, such Note Guarantor’s Note Guarantee
and the Security Documents, and such Note Guarantor will automatically be
released and discharged from its obligations under the Indenture, such Note
Guarantor’s Note Guarantee and the Security Documents.
-139-
Notwithstanding
the foregoing, (1) a Note Guarantor may merge, amalgamate or consolidate
with an Affiliate incorporated solely for the purpose of reincorporating
such
Note Guarantor in another state of the United States, the District of Columbia
or any territory of the United States so long as the amount of Indebtedness
of
the Note Guarantor is not increased thereby and (2) a Note Guarantor may
merge, amalgamate or consolidate with another Note Guarantor or the Issuer.
In
addition, notwithstanding the foregoing, any Note Guarantor may consolidate,
amalgamate or merge with or into or wind up into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets (collectively, a “Transfer”) to (x) the Issuer or any Note
Guarantor or (y) any Restricted Subsidiary of the Issuer that is not a Note
Guarantor; provided
that at
the time of each such Transfer pursuant to clause (y) the aggregate amount
of all such Transfers since the Issue Date shall not exceed 5.0% of the
consolidated assets of the Issuer and the Note Guarantors as shown on the
most
recent available balance sheet of the Issuer and the Restricted Subsidiaries
after giving effect to each such Transfer and including all Transfers occurring
from and after the Issue Date (excluding Transfers in connection with the
Acquisition).
Upon
consummation of the Acquisition, the Issuer executed and delivered to the
Trustee a supplemental indenture of the type referred to in the first clause
(2) under this heading “—Merger, Amalgamation, Consolidation or Sale of All
or Substantially All Assets,” pursuant to which the Issuer is the Successor
Company and has succeeded to, and been substituted for, and may exercise
every
right and power of, Merger Sub under the Indenture.
Defaults
An
Event
of Default is defined in the Indenture as:
|
(1)
|
a
default in any payment of interest (including any additional interest)
on
any note of such series when due, continued for 30 days,
|
|
(2)
|
a
default in the payment of principal or premium, if any, of any
note of
such series when due at its Stated Maturity, upon optional redemption,
upon required repurchase, upon declaration or otherwise,
|
|
(3)
|
the
failure by the Issuer or any of Restricted Subsidiaries to comply
with the
covenant described under “—Merger, Amalgamation, Consolidation or Sale of
All or Substantially All Assets” above,
|
|
(4)
|
the
failure by the Issuer or any of Restricted Subsidiaries to comply
for 60
days after notice with its other agreements contained in the notes
of such
series or the Indenture,
|
|
(5)
|
the
failure by the Issuer or any Significant Subsidiary to pay any
Indebtedness (other than Indebtedness owing to the Issuer or a
Restricted
Subsidiary) within any applicable grace period after final maturity
or the
acceleration of any such Indebtedness by the holders thereof because
of a
default, in each case, if the total amount of such Indebtedness
unpaid or
accelerated exceeds $25.0 million or its foreign currency equivalent
(the
“cross-acceleration provision”),
|
|
(6)
|
certain
events of bankruptcy, insolvency or reorganization of the Issuer
or a
Significant Subsidiary (the “bankruptcy provisions”),
|
|
(7)
|
failure
by the Issuer or any Significant Subsidiary to pay final judgments
aggregating in excess of $25.0 million or its foreign currency
equivalent
(net of
|
-140-
any
amounts which are covered by enforceable insurance policies issued by solvent
carriers), which judgments are not discharged, waived or stayed for a period
of
60 days (the “judgment default provision”),
|
(8)
|
any
Note Guarantee of a Significant Subsidiary with respect to such
series of
notes ceases to be in full force and effect (except as contemplated
by the
terms thereof) or any Note Guarantor denies or disaffirms its obligations
under the Indenture or any Note Guarantee with respect to such
series of
Notes and such Default continues for 10 days,
|
|
(9)
|
unless
all of the Collateral has been released from the second priority
Liens in
accordance with the provisions of the Security Documents with respect
to
such series of notes, the Issuer shall assert or any Note Guarantor
shall
assert, in any pleading in any court of competent jurisdiction,
that any
such security interest is invalid or unenforceable and, in the
case of any
such Person that is a Subsidiary of the Issuer, the Issuer fails
to cause
such Subsidiary to rescind such assertions within 30 days after
the Issuer
has actual knowledge of such assertions, or
|
|
(10)
|
the
failure by the Issuer or any Note Guarantor to comply for 60 days
after
notice with its other agreements contained in the Security Documents
except for a failure that would not be material to the holders
of the
notes of such series and would not materially affect the value
of the
Collateral taken as a whole (together with the defaults described
in
clauses (8) and (9) the “security default provisions”).
|
The
foregoing will constitute Events of Default whatever the reason for any such
Event of Default and whether it is voluntary or involuntary or is effected
by
operation of law or pursuant to any judgment, decree or order of any court
or
any order, rule or regulation of any administrative or governmental body.
However,
a default under clauses (4) or (10) will not constitute an Event of
Default until the Trustee or the holders of 25% in principal amount of
outstanding notes of such series notify the Issuer of the default and the
Issuer
does not cure such default within the time specified in clause (4) or
(10) hereof after receipt of such notice.
If
an
Event of Default (other than a Default relating to certain events of bankruptcy,
insolvency or reorganization of the Issuer) occurs with respect to a series
of
notes and is continuing, the Trustee or the holders of at least 25% in principal
amount of outstanding notes of such series by notice to the Issuer may declare
the principal of, premium, if any, and accrued but unpaid interest on all
the
Senior Subordinated Notes of such series to be due and payable; provided,
however,
that so
long as any Bank Indebtedness remains outstanding, no such acceleration shall
be
effective until the earlier of (1) five Business Days after the giving of
written notice to the Issuer and the Representative under the Credit Agreement
and (2) the day on which any Bank Indebtedness is accelerated. 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 Issuer occurs, the principal of, premium, if any, 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
outstanding notes may rescind any such acceleration with respect to the notes
and its consequences.
In
the
event of any Event of Default specified in clause (5) of the first
paragraph above, such Event of Default and all consequences thereof (excluding,
however, any resulting payment default) will be annulled, waived and rescinded,
automatically and without any action by the
-141-
Trustee
or the holders of the notes, if within 20 days after such Event of Default
arose
the Issuer deliver an Officers’ Certificate to the Trustee stating that
(x) the Indebtedness or guarantee that is the basis for such Event of
Default has been discharged or (y) the holders thereof have rescinded or
waived the acceleration, notice or action (as the case may be) giving rise
to
such Event of Default or (z) the default that is the basis for such Event
of Default has been cured, it being understood that in no event shall an
acceleration of the principal amount of the notes as described above be
annulled, waived or rescinded upon the happening of any such events.
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 of
the
applicable series have requested the Trustee 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
of the
applicable series 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
outstanding notes are 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.
The
Indenture provides that if a Default occurs and is continuing and is actually
known to the Trustee, the Trustee must mail to each holder of notes notice
of
the Default within the earlier of 90 days after it occurs or 30 days after
it is
actually 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, 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 noteholders. In addition, the Issuer is
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 Issuer also is required to deliver
to the Trustee, within 30 days after the occurrence thereof, written notice
of
any event which would constitute certain Defaults, their status and what
action
the Issuer is taking or proposes to take in respect thereof.
-142-
Amendments
and Waivers
Subject
to certain exceptions, the Indenture and the Security Documents may be amended
with respect to each series of notes with the consent of the holders of a
majority in principal amount of the notes of such series 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 of
such
series 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 on any note,
|
|
(3)
|
reduce
the principal of or change 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 such note,
|
|
(6)
|
expressly
subordinate the notes or any Note Guarantee to any other Indebtedness
of
the Issuer or any Note Guarantor;
|
|
(7)
|
impair
the right of any holder to receive payment of principal of, premium,
if
any, and interest on such holder’s notes on or after the due dates
therefor 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,
|
|
(9)
|
modify
any Note Guarantee in any manner adverse to the holders, or
|
|
(10)
|
make
any change in the provisions in the Intercreditor Agreement or
the
Indenture dealing with the application of proceeds of Collateral
that
would adversely affect the holders of the notes.
|
Without
the consent of the holders of at least two-thirds in aggregate principal
amount
of the notes of a series then outstanding, no amendment or waiver may release
all or substantially all of the Collateral from the Lien of the Indenture
and
the Security Documents with respect to the notes of such series.
Without
the consent of any holder, the Issuer and Trustee may amend the Indenture,
any
Security Document or the Intercreditor Agreement to cure any ambiguity,
omission, defect or inconsistency, to provide for the assumption by a Successor
Company of the obligations of the Issuer under the Indenture and the notes,
to
provide for the assumption by a Successor Guarantor of the obligations of
a Note
Guarantor under the Indenture and its Note Guarantee, to provide for
uncertificated notes in addition to or in place of certificated notes
(provided
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 add a Note
Guarantee with respect to the notes, to secure the notes, to add additional
assets as Collateral, to release Collateral from the Lien pursuant to the
Indenture, the Security Documents and the Intercreditor Agreement when permitted
or required by the Indenture or the Security Documents, to modify the Security
Documents and/or the Intercreditor Agreement to secure additional extensions
of
credit and add additional secured creditors holding Other Second-Lien
Obligations so long as such Other Second-Lien Obligations are not prohibited
by
the provisions of the Credit Agreement or the Indenture, to add to the covenants
of the Issuer
-143-
for
the
benefit of the holders or to surrender any right or power conferred upon
the
Issuer, to make any change that does not adversely affect the rights of any
holder, to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the TIA to effect any provision of the
Indenture or to make certain changes to the Indenture to provide for the
issuance of additional fixed rate notes or floating rate notes. In addition,
the
Intercreditor Agreement will provide that subject to certain exceptions,
any
amendment, waiver or consent to any of the collateral documents with respect
to
First Priority Lien Obligations will apply automatically to the comparable
Security Documents with respect to the Notes.
The
consent of the noteholders is not necessary under the Indenture to approve
the
particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After
an
amendment under the Indenture becomes effective, the Issuer is required to
mail
to the respective noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all noteholders entitled to receive
such notice, or any defect therein, will not impair or affect the validity
of
the amendment.
No
Personal Liability of Directors, Officers, Employees, Managers and Stockholders
No
director, officer, employee, manager, incorporator or holder of any Equity
Interests in the Issuer or any direct or indirect parent corporation, as
such,
will have any liability for any obligations of the Issuer under the notes,
the
Indenture, or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of notes by accepting a note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. The waiver may not be effective
to
waive liabilities under the federal securities laws.
Transfer
and Exchange
A
noteholder may transfer or exchange notes in accordance with the Indenture.
Upon
any transfer or exchange, the registrar and the Trustee may require a
noteholder, among other things, to furnish appropriate endorsements and transfer
documents and the Issuer may require a noteholder to pay any taxes required
by
law or permitted by the Indenture. The Issuer is not required to transfer
or
exchange any note selected for redemption or to transfer or exchange any
note
for a period of 15 days prior to a selection of notes to be redeemed. The
notes
will be issued in registered form and the registered holder of a note will
be
treated as the owner of such note for all purposes.
Satisfaction
and Discharge
The
Indenture will be discharged and will cease to be of further effect (except
as
to surviving rights of registration or transfer or exchange of notes, as
expressly provided for in the Indenture) as to all outstanding notes when:
|
(1)
|
either
(a) all the notes theretofore authenticated and delivered (except
lost, stolen or destroyed notes which have been replaced or paid
and notes
for whose payment money has theretofore been deposited in trust
or
segregated and held in trust by the Issuer and thereafter repaid
to the
Issuer or discharged from such trust) have been delivered to the
Trustee
for cancellation or (b) all of the notes (i) have become due and
payable, (ii) will become due and payable at
their
|
-144-
stated
maturity within one year (or, in the case of floating rate notes, within
the
remaining term of the then current Interest Period) or (iii) if redeemable
at the option of the Issuer, are to be called for redemption within one year
(or, in the case of floating rate notes, within the remaining term of the
then
current Interest Period) under arrangements satisfactory to the Trustee for
the
giving of notice of redemption by the Trustee in the name, and at the expense,
of the Issuer, and the Issuer has irrevocably deposited or caused to be
deposited with the Trustee funds in an amount sufficient to pay and discharge
the entire Indebtedness on the notes not theretofore delivered to the Trustee
for cancellation, for principal of, premium, if any, and interest on the
notes
to the date of deposit together with irrevocable instructions from the Issuer
directing the Trustee to apply such funds to the payment thereof at maturity
or
redemption, as the case may be;
|
(2)
|
the
Issuer and/or the Note Guarantors have paid all other sums payable
under
the Indenture; and
|
|
(3)
|
the
Issuer has delivered to the Trustee an Officers’ Certificate and an
Opinion of Counsel stating that all conditions precedent under
the
Indenture relating to the satisfaction and discharge of the Indenture
have
been complied with.
|
Defeasance
The
Issuer at any time may terminate all its obligations under the notes and
the
Indenture with respect to the holders of the fixed rate notes (“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. The Issuer at any time
may
terminate its obligations under the covenants described under “—Certain
Covenants” for the benefit of the holders of the fixed rate notes, the operation
of the cross acceleration provision, the bankruptcy provisions with respect
to
Significant Subsidiaries, the judgment default provision and the security
default provisions described under “—Defaults” (but only to the extent that
those provisions relate to the Defaults with respect to the fixed rate notes)
and the undertakings and covenants contained under “—Change of Control” and
“—Merger, Amalgamation, Consolidation or Sale of All or Substantially All
Assets” (“covenant defeasance”) for the benefit of the holders of the fixed rate
notes. If the Issuer 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 and the Security Documents
so
long as no floating rate notes are then outstanding.
The
Issuer may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If the Issuer exercises its legal
defeasance option, payment of the notes may not be accelerated because of
an
Event of Default with respect thereto. If the Issuer exercises its covenant
defeasance option, payment of the notes may not be accelerated because of
an
Event of Default specified in clause (3), (4), (5), (6), (7) (with respect
only to Significant Subsidiaries), (8), (9) or (10) under “—Defaults”
or because of the failure of the Issuer to comply with the first clause
(4) under “—Merger, Amalgamation, Consolidation or Sale of All or
Substantially All Assets.”
In
order
to exercise its defeasance option, the Issuer must irrevocably deposit in
trust
(the “defeasance trust”) with the Trustee money or U.S. Government Obligations
for the payment of principal, premium (if any) and interest on the fixed
rate
notes to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivery
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to
the
Trustee of an Opinion of Counsel to the effect that holders of the fixed
rate
notes 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 amount 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 change in applicable Federal income tax
law).
Concerning
the Trustee
Wells
Fargo Bank, N.A. is the Trustee under the Indenture and has been appointed
by
the Issuer as Registrar and a Paying Agent with regard to the notes.
Governing
Law
The
Indenture provides that it and the notes will be governed by, and construed
in
accordance with, the laws of the State of New York.
Registration
Rights; Additional Interest
The
following description is a summary of the material provisions of the
Registration Rights Agreement. It does not restate that agreement in its
entirety. We urge you to read the proposed form of Registration Rights Agreement
in its entirety because it, and not this description, defines your registration
rights as holders of the notes.
The
Issuer, the Note Guarantors and the initial purchasers entered into the
Registration Rights Agreement on September 20, 2006. Pursuant to the
Registration Rights Agreement, the Issuer and the Note Guarantors agreed
to use
their commercially reasonable efforts to file with the SEC and cause to become
effective a registration statement, on the appropriate form under the Securities
Act, relating to the exchange notes. Upon the effectiveness of the exchange
offer registration statement, the Issuer and the Note Guarantors will offer
to
the holders of the outstanding notes who are able to make certain
representations the opportunity to exchange their outstanding notes for the
exchange notes.
If,
with
respect to either or both of the fixed rate notes or the floating rate notes,
as
the case may be:
|
(1)
|
the
Issuer and the Note Guarantors are not permitted to consummate
the
exchange offer because the exchange offer is not permitted by applicable
law or SEC policy; or
|
|
(2)
|
any
holder of fixed rate notes or the floating rate notes, as the case
may be,
notifies us prior to the 20th day following consummation of the
exchange
offer that:
|
|
(a)
|
it
is prohibited by law or SEC policy from participating in the exchange
offer; or
|
|
(b)
|
that
it may not resell the exchange notes acquired by it in the exchange
offer
to the public without delivering a prospectus (other than by reason
of
such holder’s status as our affiliate) and the prospectus contained in the
exchange offer registration statement is not appropriate or available
for
such resales; or
|
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|
(c)
|
that
it is a broker-dealer and owns fixed rate notes or the floating
rate
notes, as the case may be, acquired directly from us or our affiliate,
|
the
Issuer and the Note Guarantors will, with respect to either or both of the
fixed
rate notes or the floating rate notes, as the case may be, file with the
SEC a
shelf registration statement to cover resales of the notes by the holders
thereof who satisfy certain conditions relating to the provision of information
in connection with the shelf registration statement.
The
Issuer and the Note Guarantors will use their commercially reasonable efforts
to
cause the applicable registration statement to be declared effective as promptly
as possible by the SEC.
The
Registration Rights Agreement provides that:
|
(1)
|
the
Issuer and the Note Guarantors will use their commercially reasonable
efforts to have the exchange offer registration statement declared
effective by the SEC on or prior to 365 days after the Issue Date;
|
|
(2)
|
unless
the exchange offer would not be permitted by applicable law or
SEC policy,
the Issuer and the Note Guarantors will
|
|
(a)
|
commence
the exchange offer; and
|
|
(b)
|
issue
exchange notes in exchange for all outstanding notes tendered prior
thereto in the exchange offer; and
|
|
(3)
|
if
obligated to file the shelf registration statement, the Issuer
and the
note guarantors will file the shelf registration statement with
the SEC on
or prior to 180 days after such filing obligation arises and will
use
their commercially reasonable efforts to cause the Shelf Registration
to
be declared effective by the SEC on or prior to 365 days after
such
obligation arises.
|
If:
|
(1)
|
any
of such registration statements is not declared effective by the
SEC on or
prior to the date specified for such effectiveness (the “Effectiveness
Target Date”); or
|
|
(2)
|
the
Issuer and the Note Guarantors fail to consummate the exchange
offer
within 30 business days of the Effectiveness Target Date with respect
to
the exchange offer registration statement; or
|
|
(3)
|
the
shelf registration statement or the exchange offer registration
statement
is declared effective but thereafter ceases to be effective or
usable,
subject to certain exceptions, in connection with resales or exchanges
of
outstanding notes during the periods specified in the Registration
Rights
Agreement (each such event referred to in clauses (1) through
(3) above, a “Registration Default”),
|
then
the
Issuer and the Note Guarantors will pay additional interest to each holder
of
the affected series of outstanding notes, with respect to the first 90-day
period immediately following the occurrence of the first Registration Default,
in an amount equal to 0.25% per annum of the principal amount of
outstanding notes held by such holder.
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The
amount of the additional interest will increase by an additional 0.25% per
annum of the principal amount of such outstanding notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured,
up to
a maximum amount of additional interest for
all
Registration Defaults of 1.0% per annum of the principal amount of such
outstanding notes.
All
references in the Indenture, in any context, to any interest payable on or
with
respect to the outstanding notes shall be deemed to include any additional
interest payable pursuant to the Registration Rights Agreement.
All
accrued additional interest will be paid by the Issuer and the Guarantors
on
each interest payment date to the Global Note holder (as defined below) by
wire
transfer of immediately available funds or by federal funds check and to
holders
of certificated notes by wire transfer to the accounts specified by them
or by
mailing checks to their registered addresses if no such accounts have been
specified.
Following
the cure of all Registration Defaults, the accrual of additional interest
will
cease.
Holders
of outstanding notes will be required to make certain representations to
the
Issuer (as described in the Registration Rights Agreement) in order to
participate in the exchange offer and will be required to deliver certain
information to be used in connection with the shelf registration statement
within the time periods set forth in the Registration Rights Agreement in
order
to have their outstanding notes included in the shelf registration statement
and
benefit from the provisions regarding additional interest set forth above.
By
acquiring outstanding notes, a holder will be deemed to have agreed to indemnify
the Issuer and the Note Guarantors against certain losses arising out of
information furnished by such holder in writing for inclusion in any shelf
registration statement. Holders of outstanding notes will also be required
to
suspend their use of the prospectus included in the shelf registration statement
under certain circumstances upon receipt of written notice to that effect
from
the Issuer.
Certain
Definitions
“Acquired
Indebtedness” means, with respect to any specified Person:
|
(1)
|
Indebtedness
of any other Person existing at the time such other Person is merged,
consolidated or amalgamated with or into or became a Restricted
Subsidiary
of such specified Person, and
|
|
(2)
|
Indebtedness
secured by a Lien encumbering any asset acquired by such specified
Person.
|
“Acquisition”
means the acquisition by Affiliates of the Sponsors of substantially all
of the
outstanding shares of capital stock of the Issuer, pursuant to the Merger
Agreement.
“Acquisition
Documents” means the Merger Agreement and any other document entered into in
connection therewith, in each case as amended, supplemented or modified from
time to time prior to the Issue Date or thereafter (so long as any amendment,
supplement or modification after the Issue Date, together with all other
amendments, supplements and modifications after the Issue Date, taken as
a
whole, is not more disadvantageous to the holders of the Notes in any material
respect than the Acquisition Documents as in effect on the Issue Date).
“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 purposes of this definition, “control” (including,
with correlative meanings, the terms “controlling,” “controlled by” and “under
common control with”), as used with respect to any Person, means the possession,
directly or indirectly, of the power to direct or cause the
direction
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of
the
management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise.
“Applicable
Premium” means, with respect to any Fixed Rate Note on any applicable redemption
date, the greater of:
|
(1)
|
1%
of the then outstanding principal amount of the Fixed Rate Note;
and
|
|
(2)
|
the
excess of:
|
|
(a)
|
the
present value at such redemption date of (i) the redemption price of
the Fixed Rate Note, at September 15, 2010 (such redemption price
being set forth in the applicable table appearing above under “—Optional
Redemption”) plus (ii) all required interest payments due on the
Fixed Rate Note through September 15, 2010 (excluding accrued but
unpaid interest), computed using a discount rate equal to the Treasury
Rate as of such redemption date plus 50 basis points; over
|
|
(b)
|
the
then outstanding principal amount of the Fixed Rate Note.
|
“Asset
Sale” means:
|
(1)
|
the
sale, conveyance, transfer or other disposition (whether in a single
transaction or a series of related transactions) of property or
assets
(including by way of a Sale/ Leaseback Transaction) outside the
ordinary
course of business of the Issuer or any Restricted Subsidiary of
the
Issuer (each referred to in this definition as a “disposition”) or
|
|
(2)
|
the
issuance or sale of Equity Interests (other than directors’ qualifying
shares and shares issued to foreign nationals or other third parties
to
the extent required by applicable law) of any Restricted Subsidiary
(other
than to the Issuer or another Restricted Subsidiary of the Issuer)
(whether in a single transaction or a series of related transactions),
|
in
each
case other than:
|
(a)
|
a
disposition of Cash Equivalents or Investment Grade Securities
or obsolete
or worn out property or equipment in the ordinary course of business;
|
|
(b)
|
the
disposition of all or substantially all of the assets of the Issuer
in a
manner permitted pursuant to the provisions described above under
“—Merger, Amalgamation, Consolidation or Sale of All or Substantially
All
Assets” or any disposition that constitutes a Change of Control;
|
|
(c)
|
any
Restricted Payment or Permitted Investment that is permitted to
be made,
and is made, under the covenant described above under “—Certain
Covenants—Limitation on Restricted Payments”;
|
|
(d)
|
any
disposition of assets or issuance or sale of Equity Interests of
any
Restricted Subsidiary, which assets or Equity Interests so disposed
or
issued have an aggregate Fair Market Value of less than $7.5 million;
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(e)
|
any
disposition of property or assets, or the issuance of securities,
by a
Restricted Subsidiary of the Issuer to the Issuer or by the Issuer
or a
Restricted Subsidiary of the Issuer to a Restricted Subsidiary
of the
Issuer;
|
|
(f)
|
any
exchange of assets (including a combination of assets and Cash
Equivalents) for assets related to a Similar Business of comparable
or
greater market value or usefulness to the business of the Issuer
and its
Restricted Subsidiaries as a whole, as determined in good faith
by the
Issuer;
|
|
(g)
|
foreclosure
on assets of the Issuer or any of its Restricted Subsidiaries;
|
|
(h)
|
any
sale of Equity Interests in, or Indebtedness or other securities
of, an
Unrestricted Subsidiary;
|
|
(i)
|
the
lease, assignment or sublease of any real or personal property
in the
ordinary course of business;
|
|
(j)
|
any
sale of inventory or other assets in the ordinary course of business;
|
|
(k)
|
any
grant in the ordinary course of business of any license of patents,
trademarks, know-how or any other intellectual property;
|
|
(l)
|
a
transfer of accounts receivable and related assets of the type
specified
in the definition of “Receivables Financing” (or a fractional undivided
interest therein) by a Receivables Subsidiary in a Qualified Receivables
Financing; and
|
|
(m)
|
the
sale of any property in a Sale/Leaseback Transaction within six
months of
the acquisition of such property.
|
“Bank
Indebtedness” means any and all amounts payable under or in respect of the
Credit Agreement and the other Credit Agreement Documents as amended, restated,
supplemented, waived, replaced, restructured, repaid, refunded, refinanced
or
otherwise modified from time to time (including after termination of the
Credit
Agreement), 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 Issuer whether or not a claim for post-filing
interest is allowed in such proceedings), fees, charges, expenses, reimbursement
obligations, guarantees and all other amounts payable thereunder or in respect
thereof.
“Board
of
Directors” means, as to any Person, the board of directors or managers, as
applicable, of such Person (or, if such Person is a partnership, the board
of
directors or other governing body of the general partner of such Person)
or any
duly authorized committee thereof.
“Business
Day” means a day other than a Saturday, Sunday or other day on which banking
institutions are authorized or required by law to close in New York City.
“Calculation
Agent” means a financial institution appointed by the Issuer to calculate the
interest rate payable on the Floating Rate Notes in respect of each Interest
Period, which shall initially be the Trustee.
“Capital
Stock” means:
|
(1)
|
in
the case of a corporation, corporate stock or shares;
|
|
(2)
|
in
the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
|
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|
(3)
|
in
the case of a partnership or limited liability company, partnership
or
membership interests (whether general or limited); and
|
|
(4)
|
any
other interest or participation that confers on a Person the right
to
receive a share of the profits and losses of, or distributions
of assets
of, the issuing Person.
|
“Capitalized
Lease Obligation” means, at the time any determination thereof is to be made,
the amount of the liability in respect of a capital lease that would at such
time be required to
be
capitalized and reflected as a liability on a balance sheet (excluding the
footnotes thereto) in accordance with GAAP.
“Cash
Contribution Amount”
means
the aggregate amount of cash contributions made to the capital of the Issuer
described in the definition of “Contribution Indebtedness.”
“Cash
Equivalents”
means:
|
(1)
|
U.S.
dollars, pounds sterling, euros, the national currency of any member
state
in the European Union or, in the case of any Foreign Subsidiary
that is a
Restricted Subsidiary, such local currencies held by it from time
to time
in the ordinary course of business;
|
|
(2)
|
securities
issued or directly and fully guaranteed or insured by the U.S.
government
or any country that is a member of the European Union or any agency
or
instrumentality thereof in each case maturing not more than two
years from
the date of acquisition;
|
|
(3)
|
certificates
of deposit, time deposits and eurodollar time deposits with maturities
of
one year or less from the date of acquisition, bankers’ acceptances, in
each case with maturities not exceeding one year and overnight
bank
deposits, in each case with any commercial bank having capital
and surplus
in excess of $250.0 million and whose long-term debt is rated “A” or the
equivalent thereof by Moody’s or S&P (or reasonably equivalent ratings
of another internationally recognized ratings agency);
|
|
(4)
|
repurchase
obligations 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;
|
|
(5)
|
commercial
paper issued by a corporation (other than an Affiliate of the Issuer)
rated at least “A-1” or the equivalent thereof by Moody’s or S&P (or
reasonably equivalent ratings of another internationally recognized
ratings agency) and in each case maturing within one year after
the date
of acquisition;
|
|
(6)
|
readily
marketable direct obligations issued by any state of the United
States of
America or any political subdivision thereof having one of the
two highest
rating categories obtainable from either Moody’s or S&P (or reasonably
equivalent ratings of another internationally recognized ratings
agency)
in each case with maturities not exceeding two years from the date
of
acquisition;
|
|
(7)
|
Indebtedness
issued by Persons (other than the Sponsors or any of their Affiliates)
with a rating of “A” or higher from S&P or “A-2” or higher from
Moody’s in each case with maturities not exceeding two years from the
date
of acquisition; and
|
|
(8)
|
investment
funds investing at least 95% of their assets in securities of the
types
described in clauses (1) through (7) above.
|
“Code”
means
the Internal Revenue Code of 1986, as amended.
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“Collateral”
means
all property subject or purported to be subject, from time to time, to a
Lien
under any Security Documents.
“Collateral
Agent”
means
the Trustee in its capacity as “Collateral Agent” under the Indenture and under
the Security Documents and any successor thereto in such capacity.
“Consolidated
Interest Expense”
means,
with respect to any Person for any period, the sum, without duplication,
of:
|
(1)
|
consolidated
interest expense of such Person and its Restricted Subsidiaries
for such
period, to the extent such expense was deducted in computing Consolidated
Net Income (including amortization of original issue discount,
the
interest component of Capitalized Lease Obligations, and net payments
and
receipts (if any) pursuant to interest rate Hedging Obligations
and
excluding amortization of deferred financing fees and expensing
of any
bridge or other financing fees); plus
|
|
(2)
|
consolidated
capitalized interest of such Person and its Restricted Subsidiaries
for
such period, whether paid or accrued; plus
|
|
(3)
|
commissions,
discounts, yield and other fees and charges Incurred in connection
with
any Receivables Financing which are payable to Persons other than
the
Issuer and its Restricted Subsidiaries; minus
|
|
(4)
|
interest
income for such period.
|
“Consolidated
Net Income”
means,
with respect to any Person for any period, the aggregate of the Net Income
of
such Person and its Restricted Subsidiaries for such period, on a consolidated
basis; provided,
however,
that:
|
(1)
|
any
net after-tax extraordinary, nonrecurring or unusual gains or losses
or
income, expenses or charges (less all fees and expenses relating
thereto),
including, without limitation, any severance expenses, any expenses
related to any reconstruction, recommissioning or reconfiguration
of fixed
assets for alternate uses and fees, expenses or charges relating
to new
product lines, plant shutdown costs, acquisition integration costs,
expenses or charges related to any Equity Offering, Permitted Investment,
acquisition or Indebtedness permitted to be Incurred by the Indenture
(in
each case, whether or not successful), including any such fees,
expenses,
charges or change in control payments made under the Acquisition
Documents
or otherwise related to the Transactions, in each case, shall be
excluded;
|
|
(2)
|
any
increase in amortization or depreciation or any one-time non-cash
charges
or increases or reductions in Net Income, in each case resulting
from
purchase accounting in connection with the Transactions or any
acquisition
that is consummated after the Issue Date shall be excluded;
|
|
(3)
|
the
Net Income for such period shall not include the cumulative effect
of a
change in accounting principles during such period;
|
|
(4)
|
any
net after-tax income or loss from discontinued operations and any
net
after-tax gains or losses on disposal of discontinued operations
shall be
excluded;
|
|
(5)
|
any
net after-tax gains or losses (less all fees and expenses or charges
relating thereto) attributable to business dispositions or asset
dispositions other than in the ordinary course of business (as
determined
in good faith by the Board of Directors of the Issuer) shall be
excluded;
|
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|
(6)
|
any
net after-tax gains or losses (less all fees and expenses or charges
relating thereto) attributable to the early extinguishment of indebtedness
shall be excluded;
|
|
(7)
|
the
Net Income for such period of any Person that is not a Subsidiary
of such
Person, or is an Unrestricted Subsidiary, or that is accounted
for by the
equity method of accounting, shall be included only to the extent
of the
amount of dividends or distributions or other payments paid in
cash (or to
the extent converted into cash) to the referent Person or a Restricted
Subsidiary thereof in respect of such period;
|
|
(8)
|
solely
for the purpose of determining the amount available for Restricted
Payments under clause (1) of the definition of Cumulative Credit
contained in “—Certain Covenants—Limitation on Restricted Payments,” the
Net Income for such period of any Restricted Subsidiary (other
than any
Note Guarantor) shall be excluded to the extent that the declaration
or
payment of dividends or similar distributions by such Restricted
Subsidiary of its Net Income is not at the date of determination
permitted
without any prior governmental approval (which has not been obtained)
or,
directly or indirectly, by the operation of the terms of its charter
or
any agreement, instrument, judgment, decree, order, statute, rule
or
governmental regulation applicable to that Restricted Subsidiary
or its
stockholders, unless such restrictions with respect to the payment
of
dividends or similar distributions have been legally waived; provided
that the Consolidated Net Income of such Person shall be increased
by the
amount of dividends or other distributions or other payments actually
paid
in cash (or converted into cash) by any such Restricted Subsidiary
to such
Person, to the extent not already included therein;
|
|
(9)
|
an
amount equal to the amount of Tax Distributions actually made to
any
parent of such Person in respect of such period in accordance with
clause
(12) of the second paragraph under “—Certain Covenants—Limitation on
Restricted Payments” shall be included as though such amounts had been
paid as income taxes directly by such Person for such period;
|
|
(10)
|
any
non-cash impairment charges resulting from the application of Statement
of
Financial Accounting Standards (“SFAS”)
Nos. 142 and 144 and the amortization of intangibles arising pursuant
to
SFAS No. 141 shall be excluded;
|
|
(11)
|
any
non-cash expense realized or resulting from stock option plans,
employee
benefit plans or post-employment benefit plans, grants of stock
appreciation or similar rights, stock options or other rights to
officers,
directors and employees of such Person or any of its Restricted
Subsidiaries shall be excluded;
|
|
(12)
|
any
(a) severance or relocation costs or expenses, (b) one-time
non-cash compensation charges, (c) the costs and expenses after the
Issue Date related to employment of terminated employees, (d) costs
or expenses realized in connection with, resulting from or in anticipation
of the Transactions or (e) costs or expenses realized in connection
with or resulting from stock appreciation or similar rights, stock
options
or other rights existing on the Issue Date of officers, directors
and
employees, in each case of such Person or any of its Restricted
Subsidiaries, shall be excluded;
|
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|
(13)
|
accruals
and reserves that are established within 12 months after the Issue
Date
and that are so required to be established in accordance with GAAP
shall
be excluded;
|
|
(14)
|
solely
for purposes of calculating EBITDA, (a) the Net Income of any Person
and its Restricted Subsidiaries shall be calculated without deducting
the
income attributable
to, or adding the losses attributable to, the minority equity interests
of
third parties in any non-wholly-owned Restricted Subsidiary except
to the
extent of dividends declared or paid in respect of such period
or any
prior period on the shares of Capital Stock of such Restricted
Subsidiary
held by such third parties and (b) any ordinary course dividend,
distribution or other payment paid in cash and received from any
Person in
excess of amounts included in clause (7) above shall be included;
|
|
(15)
|
(a)
(i) the non-cash portion of “straight-line” rent expense shall be excluded
and (ii) the cash portion of “straight-line” rent expense which
exceeds the amount expensed in respect of such rent expense shall
be
included and (b) non-cash gains, losses, income and expenses
resulting from fair value accounting required by Statement of Financial
Accounting Standards No. 133 shall be excluded;
|
|
(16)
|
unrealized
gains and losses relating to hedging transactions and mark-to-market
of
Indebtedness denominated in foreign currencies resulting from the
applications of Financial Accounting Standard 52 shall be excluded;
and
|
|
(17)
|
solely
for the purpose of calculating Restricted Payments, the difference,
if
positive, of the Consolidated Taxes of the Issuer calculated in
accordance
with GAAP and the actual Consolidated Taxes paid in cash by the
Issuer
during any Reference Period shall be included.
|
Notwithstanding
the foregoing, for the purpose of the covenant described under “—Certain
Covenants—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 of the Issuer or a Restricted
Subsidiary of the Issuer to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clauses (4) and (5) of the definition of Cumulative Credit
contained therein.
“Consolidated
Non-cash Charges”
means,
with respect to any Person for any period, the aggregate depreciation,
amortization and other non-cash expenses of such Person and its Restricted
Subsidiaries reducing Consolidated Net Income of such Person for such period
on
a consolidated basis and otherwise determined in accordance with GAAP, but
excluding any such charge which consists of or requires an accrual of, or
cash
reserve for, anticipated cash charges for any future period.
“Consolidated
Taxes”
means
provision for taxes based on income, profits or capital, including, without
limitation, state, franchise and similar taxes and any Tax Distributions
taken
into account in calculating Consolidated Net Income.
“Contingent
Obligations”
means,
with respect to any Person, any obligation of such Person guaranteeing any
leases, dividends or other obligations that do not constitute Indebtedness
(“primary
obligations”)
of any
other Person (the “primary
obligor”)
in any
manner, whether directly or indirectly, including, without limitation, any
obligation of such Person, whether or not contingent:
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|
(1)
|
to
purchase any such primary obligation or any property constituting
direct
or indirect security therefor,
|
|
(2)
|
to
advance or supply funds:
|
|
(a)
|
for
the purchase or payment of any such primary obligation; or
|
|
(b)
|
to
maintain working capital or equity capital of the primary obligor
or
otherwise to maintain the net worth or solvency of the primary
obligor; or
|
|
(3)
|
to
purchase property, securities or services primarily for the purpose
of
assuring the owner of any such primary obligation of the ability
of the
primary obligor to make payment of such primary obligation against
loss in
respect thereof.
|
“Contribution
Indebtedness”
means
Indebtedness of the Issuer or any Note Guarantor in an aggregate principal
amount not greater than twice the aggregate amount of cash contributions
(other
than Excluded Contributions) made to the capital of the Issuer or such Note
Guarantor after the Issue Date; provided
that:
|
(1)
|
such
cash contributions have not been used to make a Restricted Payment,
|
|
(2)
|
if
the aggregate principal amount of such Contribution Indebtedness
is
greater than the aggregate amount of such cash contributions to
the
capital of the Issuer or such Note Guarantor, as the case may be,
the
amount in excess shall be Indebtedness (other than Secured Indebtedness)
with a Stated Maturity later than the Stated Maturity of the Notes,
and
|
|
(3)
|
such
Contribution Indebtedness (a) is Incurred within 180 days after the
making of such cash contributions and (b) is so designated as
Contribution Indebtedness pursuant to an Officers’ Certificate on the
Incurrence date thereof.
|
“Credit
Agreement”
means
(i) the credit agreement entered into in connection with, and on or prior
to, the consummation of the Acquisition, as amended, restated, supplemented,
waived, replaced (whether or not upon termination, and whether with the original
lenders or otherwise), restructured, repaid, refunded, refinanced or otherwise
modified from time to time, including any agreement or indenture extending
the
maturity thereof, refinancing, replacing or otherwise restructuring all or
any
portion of the Indebtedness under such agreement or agreements or indenture
or
indentures or any successor or replacement agreement or agreements or indenture
or indentures or increasing the amount loaned or issued thereunder or altering
the maturity thereof, among the Issuer, the guarantors named therein, the
financial institutions named therein, and Credit Suisse, as Administrative
Agent, and (ii) whether or not the credit agreement referred to in clause
(i) remains outstanding, if designated by the Issuer to be included in the
definition of “Credit Agreement,” one or more (A) debt facilities or
commercial paper facilities, providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to lenders
or
to special purpose entities formed to borrow from lenders against such
receivables) or letters of credit, (B) debt securities, indentures or other
forms of debt financing (including convertible or exchangeable debt instruments
or bank guarantees or bankers’ acceptances), or (C) instruments or
agreements evidencing any other Indebtedness, in each case, with the same
or
different borrowers or issuers and, in each case, as amended, supplemented,
modified, extended, restructured, renewed, refinanced, restated, replaced
or
refunded in whole or in part from time to time.
“Credit
Agreement Documents”
means
the collective reference to the Credit Agreement, any notes issued pursuant
thereto and the guarantees thereof, and the collateral documents relating
thereto, as amended, supplemented, restated, renewed, refunded, replaced,
restructured, repaid, refinanced or otherwise modified from time to time.
-155-
“Default”
means
any event which is, or after notice or passage of time or both would be,
an
Event of Default.
“Designated
Non-cash Consideration”
means
the Fair Market Value of non-cash consideration received by the Issuer or
one of
its Restricted Subsidiaries in connection with an Asset Sale that is so
designated as Designated Non-cash Consideration pursuant to an Officers’
Certificate,
setting forth the basis of such valuation, less the amount of Cash Equivalents
received in connection with a subsequent sale of such Designated Non-cash
Consideration.
“Designated
Preferred Stock”
means
Preferred Stock of the Issuer or any direct or indirect parent of the Issuer
(other than Disqualified Stock), that is issued for cash (other than to the
Issuer or any of its Subsidiaries or an employee stock ownership plan or
trust
established by the Issuer or any of its Subsidiaries) and is so designated
as
Designated Preferred Stock, pursuant to an Officers’ Certificate, on the
issuance date thereof.
“Determination
Date”
with
respect to an Interest Period will be the second London Banking Day preceding
the first day of such Interest Period.
“Discharge
of Senior Lender Claims”
shall
mean, except to the extent otherwise provided in the Intercreditor Agreement,
payment in full in cash (except for contingent indemnities and cost and
reimbursement obligations to the extent no claim has been made) of (a) all
Obligations in respect of all outstanding First Priority Lien Obligations
and,
with respect to letters of credit or letter of credit guaranties outstanding
thereunder, delivery of cash collateral or backstop letters of credit in
respect
thereof in compliance with the Credit Agreement, in each case after or
concurrently with the termination of all commitments to extend credit thereunder
and (b) any other First Priority Lien Obligations that are due and payable
or
otherwise accrued and owing at or prior to the time such principal and interest
are paid; provided that the Discharge of Senior Lender Claims shall not be
deemed to have occurred if such payments are made with the proceeds of other
First Priority Lien Obligations that constitute an exchange or replacement
for
or a refinancing of such Obligations or First Priority Lien Obligations.
In the
event the First Priority Lien Obligations are modified and the Obligations
are
paid over time or otherwise modified pursuant to Section 1129 of the Bankruptcy
Code, the First Priority Lien Obligations shall be deemed to be discharged
when
the final payment is made, in cash, in respect of such indebtedness and any
obligations pursuant to such new indebtedness shall have been satisfied.
“Disqualified
Stock”
means,
with respect to any Person, any Capital Stock of such Person which, by its
terms
(or by the terms of any security into which it is convertible or for which
it is
redeemable or exchangeable), or upon the happening of any event:
|
(1)
|
matures
or is mandatorily redeemable, pursuant to a sinking fund obligation
or
otherwise (other than as a result of a change of control or asset
sale;
provided
that the relevant asset sale or change of control provisions, taken
as a
whole, are no more favorable in any material respect to holders
of such
Capital Stock than the asset sale and change of control provisions
applicable to the Notes and any purchase requirement triggered
thereby may
not become operative until compliance with the asset sale and change
of
control provisions applicable to the Notes (including the purchase
of any
Notes tendered pursuant thereto)),
|
|
(2)
|
is
convertible or exchangeable for Indebtedness or Disqualified Stock
of such
Person, or
|
|
(3)
|
is
redeemable at the option of the holder thereof, in whole or in
part,
|
in
each
case prior to 91 days after the maturity date of the Notes; provided,
however,
that
only the portion of Capital Stock which so matures or is mandatorily redeemable,
is so convertible or exchangeable or is so redeemable at the option of the
holder thereof prior to such date shall be deemed to be Disqualified Stock;
provided,
further,
however,
that if
such Capital Stock is issued to any employee or to any plan for the benefit
of
employees of the Issuer or its Subsidiaries or by any such plan to such
employees, such Capital Stock shall not constitute Disqualified Stock solely
because it may be required to be repurchased by the Issuer in order to satisfy
applicable statutory or regulatory obligations or as a result of such employee’s
termination, death or
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disability;
provided,
further,
that
any class of Capital Stock of such Person that by its terms authorizes such
Person to satisfy its obligations thereunder by delivery of Capital Stock
that
is not Disqualified Stock shall not be deemed to be Disqualified Stock.
“Domestic
Subsidiary”
means
a
Restricted Subsidiary that is not a Foreign Subsidiary.
“EBITDA”
means,
with respect to any Person for any period, the Consolidated Net Income of
such
Person for such period plus, without duplication, to the extent the same
was
deducted in calculating Consolidated Net Income:
|
(1)
|
Consolidated
Taxes; plus
|
|
(2)
|
Consolidated
Interest Expense; plus
|
|
(3)
|
Consolidated
Non-cash Charges; plus
|
|
(4)
|
business
optimization expenses and other restructuring charges or expenses
(which,
for the avoidance of doubt, shall include, without limitation,
the effect
of inventory optimization programs, plant closures, retention,
systems
establishment costs and excess pension charges); provided
that with respect to each business optimization expense or other
restructuring charge, the Issuer shall have delivered to the Trustee
an
Officers’ Certificate specifying and quantifying such expense or charge
and stating that such expense or charge is a business optimization
expense
or other restructuring charge, as the case may be; plus
|
|
(5)
|
the
amount of management, monitoring, consulting and advisory fees
and related
expenses paid to the Sponsors (or any accruals relating to such
fees and
related expenses) during such period pursuant to the terms of the
agreements between the Sponsors and the Issuer and its Subsidiaries
as
described with particularity in this prospectus and as in effect
on the
Issue Date;
|
less,
without duplication,
|
(6)
|
non-cash
items increasing Consolidated Net Income for such period (excluding
the
recognition of deferred revenue or any items which represent the
reversal
of any accrual of, or cash reserve for, anticipated cash charges
in any
prior period and any items for which cash was received in a prior
period).
|
“Equity
Interests”
means
Capital Stock and all warrants, options or other rights to acquire Capital
Stock
(but excluding any debt security that is convertible into, or exchangeable
for,
Capital Stock).
“Equity
Offering”
means
any public or private sale after the Issue Date of common stock or Preferred
Stock of the Issuer or any direct or indirect parent of the Issuer, as
applicable (other than Disqualified Stock), other than:
|
(1)
|
public
offerings with respect to the Issuer’s or such direct or indirect parent’s
common stock registered on Form S-8; and
|
|
(2)
|
any
such public or private sale that constitutes an Excluded Contribution.
|
-157-
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
of the SEC promulgated thereunder.
“Excluded
Contributions”
means
the Cash Equivalents or other assets (valued at their Fair Market Value as
determined in good faith by senior management or the Board of Directors of
the
Issuer) received by the Issuer after the Issue Date from:
(1) contributions
to its common equity capital, and
|
(2)
|
the
sale (other than to a Subsidiary of the Issuer or to any Subsidiary
management equity plan or stock option plan or any other management
or
employee benefit plan or agreement) of Capital Stock (other than
Disqualified Stock and Designated Preferred Stock) of the Issuer,
|
in
each
case designated as Excluded Contributions pursuant to an Officers’ Certificate
executed by an Officer of the Issuer on or promptly after the date such capital
contributions are made or the date such Capital Stock is sold, as the case
may
be.
“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.
“First
Lien Agent”
has
the
meaning given to such term in the Intercreditor Agreement.
“First
Priority After-Acquired Property”
means
any property (other than the initial collateral) of the Issuer or any Note
Guarantor that secures any Secured Bank Indebtedness.
“First
Priority Lien Obligations”
means
(i) all Secured Bank Indebtedness, (ii) all other Obligations (not
constituting Indebtedness) of the Issuer and its Restricted Subsidiaries
under
the agreements governing Secured Bank Indebtedness and (iii) all other
Obligations of the Issuer or any of its Restricted Subsidiaries in respect
of
Hedging Obligations or Obligations in respect of cash management services
in
each case owing to a Person that is a holder of Indebtedness described in
clause
(i) or Obligations described in clause (ii) or an Affiliate of such
holder at the time of entry into such Hedging Obligations or Obligations
in
respect of cash management services.
“Fixed
Charge Coverage Ratio”
means,
with respect to any Person for any period, the ratio of EBITDA of such Person
for such period to the Fixed Charges of such Person for such period. In the
event that the Issuer or any of its Restricted Subsidiaries Incurs, repays,
repurchases or redeems any Indebtedness (other than in the case of revolving
credit borrowings or revolving advances under any Qualified Receivables
Financing, in which case interest expense shall be computed based upon the
average daily balance of such Indebtedness during the applicable period)
or
issues, repurchases or redeems Disqualified Stock or Preferred Stock subsequent
to the commencement of the period for which the Fixed Charge Coverage Ratio
is
being calculated but prior to the event for which the calculation of the
Fixed
Charge Coverage Ratio is made (the “Calculation
Date”),
then
the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to
such Incurrence, repayment, repurchase or redemption of Indebtedness, or
such
issuance, repurchase or redemption of Disqualified Stock or Preferred Stock,
as
if the same had occurred at the beginning of the applicable four-quarter
period.
For
purposes of making the computation referred to above, Investments, acquisitions,
dispositions, mergers, consolidations and discontinued operations (as determined
in accordance with GAAP), in each case with respect to an operating unit
of a
business, and any operational changes that the Issuer or any of its Restricted
Subsidiaries has determined to make and/or made after the Issue Date and
during
the four-quarter reference period or subsequent to such reference period
and on
or prior to or simultaneously with the Calculation Date (each, for purposes
of
this definition, a “pro
forma event”)
shall
be calculated on a pro forma basis assuming that all such Investments,
acquisitions, dispositions, mergers, consolidations (including the
Transactions), discontinued operations and operational changes (and the change
of any associated fixed charge obligations and the change in EBITDA
resulting
-158-
therefrom)
had occurred on the first day of the four-quarter reference period. If since
the
beginning of such period any Person that subsequently became a Restricted
Subsidiary or was merged with or into the Issuer or any Restricted Subsidiary
since the beginning of such period shall have made any Investment, acquisition,
disposition, merger, consolidation, discontinued operation or operational
change, in each case with respect to an operating unit of a business, that
would
have required adjustment pursuant to this definition, then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect thereto for such
period as if such Investment, acquisition, disposition, discontinued operation,
merger, consolidation or operational change had occurred at the beginning
of the
applicable four-quarter period.
For
purposes of this definition, whenever pro forma effect is to be given to
any pro
forma event, the pro forma calculations shall be made in good faith by a
responsible financial or accounting officer of the Issuer. Any such pro forma
calculation may include adjustments appropriate, in the reasonable good faith
determination of the Issuer as set forth in an Officers’ Certificate, to reflect
(1) operating expense reductions and other operating improvements or
synergies reasonably expected to result from the applicable pro forma event
(including, to the extent applicable, from the Transactions), and (2) all
adjustments of the nature used in connection with the calculation of “Adjusted
EBITDA” as set forth in footnote 4 to the “Summary Historical and Unaudited
Pro Forma Financial Data” under “Prospectus Summary” in this prospectus to the
extent such adjustments, without duplication, continue to be applicable to
such
four-quarter period.
If
any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest on such Indebtedness shall be calculated as if the rate
in
effect on the Calculation Date had been the applicable rate for the entire
period (taking into account any Hedging Obligations applicable to such
Indebtedness if such Hedging Obligation has a remaining term in excess of
12
months). Interest on a Capitalized Lease Obligation shall be deemed to accrue
at
an interest rate reasonably determined by a responsible financial or accounting
officer of the Issuer to be the rate of interest implicit in such Capitalized
Lease Obligation in accordance with GAAP. For purposes of making the computation
referred to above, interest on any Indebtedness under a revolving credit
facility computed on a pro forma basis shall be computed based upon the average
daily balance of such Indebtedness during the applicable period. Interest
on
Indebtedness that may optionally be determined at an interest rate based
upon a
factor of a prime or similar rate, a eurocurrency interbank offered rate,
or
other rate, shall be deemed to have been based upon the rate actually chosen,
or, if none, then based upon such optional rate chosen as the Issuer may
designate.
“Fixed
Charges”
means,
with respect to any Person for any period, the sum, without duplication,
of:
|
(1)
|
Consolidated
Interest Expense of such Person for such period, and
|
|
(2)
|
all
cash dividend payments (excluding items eliminated in consolidation)
on
any series of Preferred Stock or Disqualified Stock of such Person
and its
Restricted Subsidiaries.
|
“Foreign
Subsidiary”
means
a
Restricted Subsidiary not organized or existing under the laws of the United
States of America or any state or territory thereof or the District of Columbia
and any direct or indirect subsidiary of such Restricted Subsidiary.
-159-
“GAAP”
means
generally accepted accounting principles in the United States set forth in
the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements
of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved
by a significant segment of the accounting profession, which are in effect
on
the Issue Date. For the purposes of the Indenture, the term “consolidated” with
respect to any Person shall mean such Person consolidated with its Restricted
Subsidiaries, and shall not include any Unrestricted Subsidiary, but the
interest of such Person in an Unrestricted Subsidiary will be accounted for
as
an Investment.
“guarantee”
means
a
guarantee (other than by endorsement of negotiable instruments for collection
in
the ordinary course of business), direct or indirect, in any manner (including,
without limitation, letters of credit and reimbursement agreements in respect
thereof), of all or any part of any Indebtedness or other obligations.
“Hedging
Obligations”
means,
with respect to any Person, the obligations of such Person under:
|
(1)
|
currency
exchange, interest rate or commodity swap agreements, currency
exchange,
interest rate or commodity cap agreements and currency exchange,
interest
rate or commodity collar agreements; and
|
|
(2)
|
other
agreements or arrangements designed to protect such Person against
fluctuations in currency exchange, interest rates or commodity
prices.
|
“holder”
or
“noteholder”
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 Subsidiary (whether by merger, amalgamation, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Person at
the
time it becomes a Subsidiary.
“Indebtedness”
means,
with respect to any Person:
|
(1)
|
the
principal and premium (if any) of any indebtedness of such Person,
whether
or not contingent, (a) in respect of borrowed money,
(b) evidenced by bonds, notes, debentures or similar instruments or
letters of credit or bankers’ acceptances (or, without duplication,
reimbursement agreements in respect thereof), (c) representing the
deferred and unpaid purchase price of any property, except any
such
balance that constitutes a trade payable or similar obligation
to a trade
creditor due within six months from the date on which it is Incurred,
in
each case Incurred in the ordinary course of business, which purchase
price is due more than six months after the date of placing the
property
in service or taking delivery and title thereto, (d) in respect of
Capitalized Lease Obligations, or (e) representing any Hedging
Obligations, if and to the extent that any of the foregoing indebtedness
(other than letters of credit and Hedging Obligations) would appear
as a
liability on a balance sheet (excluding the footnotes thereto)
of such
Person prepared in accordance with GAAP;
|
|
(2)
|
to
the extent not otherwise included, any obligation of such Person
to be
liable for, or to pay, as obligor, guarantor or otherwise, on the
Indebtedness of another Person (other than by endorsement of negotiable
instruments for collection in the ordinary course of business);
|
-160-
|
(3)
|
to
the extent not otherwise included, Indebtedness of another Person
secured
by a Lien on any asset owned by such Person (whether or not such
Indebtedness is assumed by such Person); provided,
however,
that the amount of such Indebtedness will 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 Person; and
|
|
(4)
|
to
the extent not otherwise included, with respect to the Issuer and
its
Restricted Subsidiaries, the amount then outstanding (i.e.,
advanced, and received by, and available for use by, the Issuer
or any of
its Restricted Subsidiaries) under any Receivables Financing (as
set forth
in the books and records of the Issuer or any Restricted Subsidiary
and
confirmed by the agent, trustee or other representative of the
institution
or group providing such Receivables Financing);
|
provided,
however,
that
notwithstanding the foregoing, Indebtedness shall be deemed not to include
(1) Contingent Obligations incurred in the ordinary course of business and
not in respect of borrowed money; (2) deferred or prepaid revenues;
(3) purchase price holdbacks in respect of a portion of the purchase price
of an asset to satisfy warranty or other unperformed obligations of the
respective seller; (4) Obligations under or in respect of Qualified
Receivables Financing or (5) obligations under the Acquisition Documents.
Notwithstanding
anything in the Indenture to the contrary, Indebtedness shall not include,
and
shall be calculated without giving effect to, the effects of Statement of
Financial Accounting Standards No. 133 and related interpretations to the
extent
such effects would otherwise increase or decrease an amount of Indebtedness
for
any purpose under the Indenture as a result of accounting for any embedded
derivatives created by the terms of such Indebtedness; and any such amounts
that
would have constituted Indebtedness under the Indenture but for the application
of this sentence shall not be deemed an Incurrence of Indebtedness under
the
Indenture.
“Independent
Financial Advisor”
means
an accounting, appraisal or investment banking firm or consultant, in each
case
of nationally recognized standing, that is, in the good faith determination
of
the Issuer, qualified to perform the task for which it has been engaged.
“Intercreditor
Agreement”
means
the intercreditor agreement among Credit Suisse, as agent under the Credit
Agreement Documents, the Trustee, the Issuer, Berry Plastics Group, Inc.
and
each Note Guarantor, as it may be amended from time to time in accordance
with
the Indenture.
“Interest
Period”
means
the period commencing on and including an interest payment date and ending
on
and including the day immediately preceding the next succeeding interest
payment
date, with the exception that the first Interest Period shall commence on
and
include the Issue Date and end on and include December 14, 2006.
“Investment
Grade Rating”
means
a
rating equal to or higher than Baa3 (or the equivalent) by Moody’s and BBB- (or
the equivalent) by S&P, or an equivalent rating by any other Rating Agency.
“Investment
Grade Securities”
means:
|
(1)
|
securities
issued or directly and fully guaranteed or insured by the U.S.
government
or any agency or instrumentality thereof (other than Cash Equivalents),
|
|
(2)
|
securities
that have a rating equal to or higher than Baa3 (or equivalent)
by Moody’s
or BBB- (or equivalent) by S&P, or an equivalent rating by any other
Rating Agency, but excluding any debt securities or loans or advances
between and among the Issuer and its Subsidiaries,
|
-161-
|
(3)
|
investments
in any fund that invests exclusively in investments of the type
described
in clauses (1) and (2) which fund may also hold immaterial
amounts of cash pending investment and/or distribution, and
|
|
(4)
|
corresponding
instruments in countries other than the United States customarily
utilized
for high quality investments and in each case with maturities not
exceeding two years from the date of acquisition.
|
“Investments”
means, with respect to any Person, all investments by such Person in other
Persons (including Affiliates) in the form of loans (including guarantees),
advances or capital contributions (excluding accounts receivable, trade credit
and advances to customers and commission, travel and similar advances to
officers, employees and consultants made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities issued by any other Person and investments
that
are required by GAAP to be classified on the balance sheet of the Issuer
in the
same manner as the other investments included in this definition to the extent
such transactions involve the transfer of cash or other property. For purposes
of the definition of “Unrestricted Subsidiary” and the covenant described under
“—Certain Covenants—Limitation on Restricted Payments”:
|
(1)
|
“Investments”
shall include the portion (proportionate to the Issuer’s equity interest
in such Subsidiary) of the Fair Market Value of the net assets
of a
Subsidiary of the Issuer 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 Issuer shall be deemed to continue to have a permanent “Investment” in
an Unrestricted Subsidiary equal to an amount (if positive) equal
to:
|
|
(a)
|
the
Issuer’s “Investment” in such Subsidiary at the time of such redesignation
less
|
|
(b)
|
the
portion (proportionate to the Issuer’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, in each
case as
determined in good faith by the Board of Directors of the Issuer.
|
“Issue
Date”
means
the date on which the Notes are originally issued.
“LIBOR,”
with
respect to an Interest Period, will be the rate (expressed as a percentage
per
annum) for deposits in U.S. dollars for a three-month period beginning on
the
second London Banking Day after the Determination Date that appears on Telerate
Page 3750 as of 11:00 a.m., London time, on the Determination Date. If Telerate
Page 3750 does not include such a rate or is unavailable on a Determination
Date, the Calculation Agent will request the principal London office of each
of
four major banks in the London interbank market, as selected by the Calculation
Agent, to provide such bank’s offered quotation (expressed as a percentage per
annum), as of approximately 11:00 a.m., London time, on such Determination
Date,
to prime banks in the London interbank market for deposits in a Representative
Amount in U.S. dollars for a three-month period beginning on the second London
Banking Day after the Determination Date. If at least two such offered
quotations are so provided, the rate for the Interest Period will be the
arithmetic mean of such quotations. If fewer than two such quotations are
so
provided, the Calculation Agent will request each of three major banks in
New
York City, as selected by the Calculation Agent, to provide such bank’s rate
(expressed as a percentage per annum), as
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of
approximately 11:00 a.m., New York City time, on such Determination Date,
for
loans in a Representative Amount in U.S. dollars to leading European banks
for a
three-month period beginning on the second London Banking Day after the
Determination Date. If at least two such rates are so provided, the rate
for the
Interest Period will be the arithmetic mean of such rates. If fewer than
two
such rates are so provided, then the rate for the Interest Period will be
the
rate in effect with respect to the immediately preceding Interest Period.
“Lien”
means,
with respect to any asset, any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset, whether or not filed,
recorded or otherwise perfected under applicable law (including any conditional
sale or other title retention agreement, any lease in the nature thereof,
any
option or other agreement to sell or give a security interest in and any
filing
of or agreement to give any financing statement under the Uniform Commercial
Code (or equivalent statutes) of any jurisdiction); provided
that in
no event shall an operating lease be deemed to constitute a Lien.
“London
Banking Day”
is
any
day on which dealings in U.S. dollars are transacted or, with respect to
any
future date, are expected to be transacted in the London interbank market.
“Management
Group”
means
the group consisting of the directors, executive officers and other management
personnel of the Issuer or any direct or indirect parent of the Issuer, as
the
case may be, on the Issue Date together with (1) any new directors whose
election by such boards of directors or whose nomination for election by
the
shareholders of the Issuer or any direct or indirect parent of the Issuer,
as
applicable, was approved by a vote of a majority of the directors of the
Issuer
or any direct or indirect parent of the Issuer, as applicable, then still
in
office who were either directors on the Issue Date or whose election or
nomination was previously so approved and (2) executive officers and other
management personnel of the Issuer or any direct or indirect parent of the
Issuer, as applicable, hired at a time when the directors on the Issue Date
together with the directors so approved constituted a majority of the directors
of the Issuer or any direct or indirect parent of the Issuer, as applicable.
“Merger
Agreement”
means
the agreement and plan of merger, dated as of June 28, 2006, by and among
Holdings, Merger Sub and Berry Plastics Group, as amended, supplemented or
modified from time to time prior to the Issue Date or thereafter (so long
as any
amendment, supplement or modification after the Issue Date, together with
all
other amendments, supplements and modifications after the Issue Date, taken
as a
whole, is not more disadvantageous to the holders of the Notes in any material
respect than the Merger Agreement as in effect on the Issue Date).
“Moody’s”
means
Moody’s Investors Service, Inc. or any successor to the rating agency business
thereof.
“Net
Income”
means,
with respect to any Person, the net income (loss) of such Person, determined
in
accordance with GAAP and before any reduction in respect of Preferred Stock
dividends.
“Net
Proceeds”
means
the aggregate cash proceeds received by the Issuer or any of its Restricted
Subsidiaries in respect of any Asset Sale (including, without limitation,
any
cash received in respect of or upon the sale or other disposition of any
Designated Non-cash Consideration received in any Asset Sale and any cash
payments received by way of deferred payment of principal pursuant to a note
or
installment receivable or otherwise, but only as and when received, but
excluding the assumption by the acquiring person of Indebtedness relating
to the
disposed assets or other consideration received in any other non-cash form),
net
of the direct costs relating to such Asset Sale and the sale or disposition
of
such Designated Non-cash Consideration (including, without limitation, legal,
accounting and investment banking fees, and
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brokerage
and sales commissions), and any relocation expenses Incurred as a result
thereof, taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing arrangements
related
thereto), amounts required to be applied to the repayment of principal, premium
(if any) and interest on Indebtedness required (other than pursuant to the
second paragraph of the covenant described under “—Certain Covenants—Asset
Sales”) to be paid as a result of such transaction, and any deduction of
appropriate amounts to be provided by the Issuer as a reserve in accordance
with
GAAP against any liabilities associated with the asset disposed of in such
transaction and retained by the Issuer after such sale or other disposition
thereof, including, without limitation, pension and other post-employment
benefit liabilities and liabilities related to environmental matters or against
any indemnification obligations associated with such transaction.
“Note
Guarantee”
means
any guarantee of the obligations of the Issuer under the Indenture and the
Notes
by any Person in accordance with the provisions of the Indenture.
“Note
Guarantor”
means
any Person that Incurs a Note Guarantee; provided
that
upon the release or discharge of such Person from its Note Guarantee in
accordance with the Indenture, such Person ceases to be a Note Guarantor.
“Obligations”
means
any principal, interest, penalties, fees, indemnifications, reimbursements
(including, without limitation, reimbursement obligations with respect to
letters of credit and bankers’ acceptances), damages and other liabilities
payable under the documentation governing any Indebtedness; provided
that
Obligations with respect to the Notes shall not include fees or indemnifications
in favor of the Trustee and other third parties other than the holders of
the
Notes.
“Officer”
means
the Chairman of the Board, Chief Executive Officer, Chief Financial Officer,
President, any Executive Vice President, Senior Vice President or Vice
President, the Treasurer or the Secretary of the Issuer.
“Officers’
Certificate”
means
a
certificate signed on behalf of the Issuer by two Officers of the Issuer,
one of
whom must be the principal executive officer, the principal financial officer,
the treasurer or the principal accounting officer of the Issuer that meets
the
requirements set forth in the Indenture.
“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 Issuer or the Trustee.
“Other
Second-Lien Obligations”
means
other Indebtedness of the Issuer and its Restricted Subsidiaries that is
equally
and ratably secured with the Notes and is designated by the Issuer as an
Other
Second-Lien Obligation.
“Pari
Passu Indebtedness”
means:
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(1)
|
with
respect to the Issuer, the Notes and any Indebtedness which ranks
pari
passu in right of payment to the Notes; and
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|
(2)
|
with
respect to any Note Guarantor, its Note Guarantee and any Indebtedness
which ranks pari passu in right of payment to such Note Guarantor’s Note
Guarantee.
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“Paying
Agent”
means
an office or agency maintained by the Issuer where the notes may be presented
for payment.
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“Permitted
Holders”
means,
at any time, each of (i) the Sponsors and (ii) the Management Group.
Any Person or group whose acquisition of beneficial ownership constitutes
a
Change of Control in respect of which a Change of Control Offer is made in
accordance
with the requirements of the Indenture will thereafter, together with its
Affiliates, constitute an additional Permitted Holder.
“Permitted
Investments”
means:
|
(1)
|
any
Investment in the Issuer or any Restricted Subsidiary;
|
|
(2)
|
any
Investment in Cash Equivalents or Investment Grade Securities;
|
|
(3)
|
any
Investment by the Issuer or any Restricted Subsidiary of the Issuer
in a
Person if as a result of such Investment (a) such Person becomes a
Restricted Subsidiary of the Issuer, or (b) such Person, in one
transaction or a series of related transactions, is merged, consolidated
or amalgamated with or into, or transfers or conveys all or substantially
all of its assets to, or is liquidated into, the Issuer or a Restricted
Subsidiary of the Issuer;
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|
(4)
|
any
Investment in securities or other assets not constituting Cash
Equivalents
and received in connection with an Asset Sale made pursuant to
the
provisions of “—Certain Covenants—Asset Sales” or any other disposition of
assets not constituting an Asset Sale;
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(5)
|
any
Investment existing on, or made pursuant to binding commitments
existing
on, the Issue Date;
|
|
(6)
|
advances
to employees, taken together with all other advances made pursuant
to this
clause (6), not to exceed $15.0 million at any one time
outstanding;
|
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(7)
|
any
Investment acquired by the Issuer or any of its Restricted Subsidiaries
(a) in exchange for any other Investment or accounts receivable held
by the Issuer or any such Restricted Subsidiary in connection with
or as a
result of a bankruptcy, workout, reorganization or recapitalization
of the
issuer of such other Investment or accounts receivable, or (b) as a
result of a foreclosure by the Issuer or any of its Restricted
Subsidiaries with respect to any secured Investment or other transfer
of
title with respect to any secured Investment in default;
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(8)
|
Hedging
Obligations permitted under clause (j) of the second paragraph of the
covenant described under “—Certain Covenants—Limitation on Incurrence of
Indebtedness and Issuance of Disqualified Stock and Preferred Stock”;
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|
(9)
|
any
Investment by the Issuer or any of its Restricted Subsidiaries
in a
Similar Business having an aggregate Fair Market Value, taken together
with all other Investments made pursuant to this clause (9) that are
at that time outstanding, not to exceed the greater of (x) $100.0
million and (y) 4.5% of Total Assets at the time of such Investment
(with the Fair Market Value of each Investment being measured at
the time
made and without giving effect to subsequent changes in value);
provided,
however,
that if any Investment pursuant to this clause (9) is made in any
Person that is not a Restricted Subsidiary of the Issuer at the
date of
the making of such Investment and such Person becomes a Restricted
Subsidiary of the Issuer after such date, such Investment shall
thereafter
be deemed to have been made pursuant to clause (1) above and shall
cease to have been made pursuant to this clause (9) for so long as
such Person continues to be a Restricted Subsidiary;
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(10)
|
additional
Investments by the Issuer or any of its Restricted Subsidiaries
having an
aggregate Fair Market Value, taken together with all other Investments
made pursuant to this clause (10) that are at that time outstanding,
not to exceed the greater of (x) $100.0 million and (y) 4.5% of
Total Assets at the time of such Investment
(with the Fair Market Value of each Investment being measured at
the time
made and without giving effect to subsequent changes in value);
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(11)
|
loans
and advances to officers, directors and employees for business-related
travel expenses, moving expenses and other similar expenses, in
each case
Incurred in the ordinary course of business;
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(12)
|
Investments
the payment for which consists of Equity Interests of the Issuer
(other
than Disqualified Stock) or any direct or indirect parent of the
Issuer,
as applicable; provided,
however,
that such Equity Interests will not increase the amount available
for
Restricted Payments under clause (3) of the definition of Cumulative
Credit contained in “—Certain Covenants—Limitation on Restricted
Payments”;
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|
(13)
|
any
transaction to the extent it constitutes an Investment that is
permitted
by and made in accordance with the provisions of the second paragraph
of
the covenant described under “—Certain Covenants—Transactions with
Affiliates” (except transactions described in clauses (2), (6),
(7) and (11)(b) of such paragraph);
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(14)
|
Investments
consisting of the licensing or contribution of intellectual property
pursuant to joint marketing arrangements with other Persons;
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(15)
|
guarantees
issued in accordance with the covenants described under “—Certain
Covenants—Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock” and “—Certain Covenants—Future
Note Guarantors”;
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|
(16)
|
Investments
consisting of or to finance purchases and acquisitions of inventory,
supplies, materials, services or equipment or purchases of contract
rights
or licenses or leases of intellectual property, in each case in
the
ordinary course of business;
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(17)
|
any
Investment in a Receivables Subsidiary or any Investment by a Receivables
Subsidiary in any other Person in connection with a Qualified Receivables
Financing, including Investments of funds held in accounts permitted
or
required by the arrangements governing such Qualified Receivables
Financing or any related Indebtedness; provided,
however,
that any Investment in a Receivables Subsidiary is in the form
of a
Purchase Money Note, contribution of additional receivables or
an equity
interest;
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|
(18)
|
additional
Investments in joint ventures of the Issuer or any of its Restricted
Subsidiaries existing on the Issue Date not to exceed at any one
time in
the aggregate outstanding, $15.0 million; and
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|
(19)
|
Investments
of a Restricted Subsidiary of the Issuer acquired after the Issue
Date or
of an entity merged into, amalgamated with, or consolidated with
the
Issuer or a Restricted Subsidiary of the Issuer in a transaction
that is
not prohibited by the covenant described under “—Merger, Amalgamation,
Consolidation or Sale of All or Substantially All Assets” after the Issue
Date to the extent that such Investments were not made in contemplation
of
such acquisition, merger, amalgamation or consolidation and were
in
existence on the date of such acquisition, merger, amalgamation
or
consolidation.
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“Permitted
Liens”
means,
with respect to any Person:
|
(1)
|
pledges
or deposits by such Person under workmen’s compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in
connection
with bids, tenders, contracts (other than for the payment of Indebtedness)
or leases to which such Person is a party, or deposits to secure
public or
statutory obligations of such Person or deposits of cash or U.S.
government bonds to secure surety or appeal bonds to which such
Person is
a party, or deposits as security for contested taxes or import
duties or
for the payment of rent, in each case Incurred in the ordinary
course of
business;
|
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(2)
|
Liens
imposed by law, such as carriers’, warehousemen’s and mechanics’ Liens, in
each case for sums not yet due or being contested in good faith
by
appropriate proceedings or other Liens arising out of judgments
or awards
against such Person with respect to which such Person shall then
be
proceeding with an appeal or other proceedings for review;
|
|
(3)
|
Liens
for taxes, assessments or other governmental charges not yet due
or
payable or subject to penalties for nonpayment or which are being
contested in good faith by appropriate proceedings;
|
|
(4)
|
Liens
in favor of issuers of performance and surety bonds or bid bonds
or with
respect to other regulatory requirements or letters of credit issued
pursuant to the request of and for the account of such Person in
the
ordinary course of its business;
|
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(5)
|
minor
survey exceptions, minor encumbrances, easements or reservations
of, or
rights of others for, licenses, rights-of-way, sewers, electric
lines,
telegraph and telephone lines and other similar purposes, or zoning
or
other restrictions as to the use of real properties or Liens incidental
to
the conduct of the business of such Person or to the ownership
of its
properties which were not Incurred in connection with Indebtedness
and
which do not in the aggregate materially adversely affect the value
of
said properties or materially impair their use in the operation
of the
business of such Person;
|
|
(6)
|
(A) Liens
on assets of a Restricted Subsidiary that is not a Note Guarantor
securing
Indebtedness of such Restricted Subsidiary permitted to be Incurred
pursuant to the covenant described under “—Certain Covenants—Limitation on
Incurrence of Indebtedness and Issuance of Disqualified Stock and
Preferred Stock”, (B) Liens securing an aggregate principal amount of
First Priority Lien Obligations not to exceed the greater of (x) the
aggregate amount of Indebtedness permitted to be incurred pursuant
to
clause (a) of the second paragraph of the covenant described under
“—Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance
of Disqualified Stock and Preferred Stock” and (y) the maximum
principal amount of Indebtedness that, as of the date such Indebtedness
was Incurred, and after giving effect to the Incurrence of such
Indebtedness and the application of proceeds therefrom on such
date, would
not cause the Secured Indebtedness Leverage Ratio of the Issuer
to exceed
4.00 to 1.00 and (C) Liens securing Indebtedness permitted to be
Incurred pursuant to clause (d), (l) or (t) of the second
paragraph of the covenant described under “—Certain Covenants—Limitation
on Incurrence of Indebtedness and Issuance of Disqualified Stock
and
Preferred Stock” (provided
that in the case of clause (t), such Lien does not extend to the
property
or assets of any Subsidiary of the Issuer other than a Foreign
Subsidiary);
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|
(7)
|
Liens
existing on the Issue Date;
|
|
(8)
|
Liens
on assets, property or shares of stock of a Person at the time
such Person
becomes a Subsidiary; provided,
however,
that such Liens are not created or Incurred in connection with,
or in
contemplation of, such other Person becoming such a Subsidiary;
provided,
further,
however,
that such Liens may not extend to any other property owned by the
Issuer
or any Restricted Subsidiary of the Issuer;
|
|
(9)
|
Liens
on assets or property at the time the Issuer or a Restricted Subsidiary
of
the Issuer acquired the assets or property, including any acquisition
by
means of a merger, amalgamation or consolidation with or into the
Issuer
or any Restricted Subsidiary of the Issuer; provided,
however,
that such Liens are not created or Incurred in connection with,
or in
contemplation of, such acquisition; provided,
further,
however,
that the Liens may not extend to any other property owned by the
Issuer or
any Restricted Subsidiary of the Issuer;
|
|
(10)
|
Liens
securing Indebtedness or other obligations of a Restricted Subsidiary
owing to the Issuer or another Restricted Subsidiary of the Issuer
permitted to be Incurred in accordance with the covenant described
under
“—Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance
of Disqualified Stock and Preferred Stock”;
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|
(11)
|
Liens
securing Hedging Obligations not incurred in violation of the Indenture;
provided
that with respect to Hedging Obligations relating to Indebtedness,
such
Lien extends only to the property securing such Indebtedness;
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|
(12)
|
Liens
on specific items of inventory or other goods and proceeds of any
Person
securing such Person’s obligations in respect of bankers’ acceptances
issued or created for the account of such Person to facilitate
the
purchase, shipment or storage of such inventory or other goods;
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(13)
|
leases
and subleases of real property which do not materially interfere
with the
ordinary conduct of the business of the Issuer or any of its Restricted
Subsidiaries;
|
|
(14)
|
Liens
arising from Uniform Commercial Code financing statement filings
regarding
operating leases entered into by the Issuer and its Restricted
Subsidiaries in the ordinary course of business;
|
|
(15)
|
Liens
in favor of the Issuer or any Note Guarantor;
|
|
(16)
|
Liens
on accounts receivable and related assets of the type specified
in the
definition of “Receivables Financing” Incurred in connection with a
Qualified Receivables Financing;
|
|
(17)
|
deposits
made in the ordinary course of business to secure liability to
insurance
carriers;
|
|
(18)
|
Liens
on the Equity Interests of Unrestricted Subsidiaries;
|
|
(19)
|
grants
of software and other technology licenses in the ordinary course
of
business;
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|
(20)
|
Liens
to secure any refinancing, refunding, extension, renewal or replacement
(or successive refinancings, refundings, extensions, renewals or
replacements) as a whole, or in part, of any Indebtedness secured
by any
Lien referred to in the foregoing clauses (6)(B), (7), (8), (9),
(10),
(11) and (15); provided,
however,
that (x) such new Lien shall be limited to all or part of the same
property that secured the
original Lien (plus improvements on such property), and (y) the
Indebtedness secured by such Lien at such time is not increased
to any
amount greater than the sum of (A) the outstanding principal amount
or, if greater, committed amount of the Indebtedness described
under
clauses (6)(B), (7), (8), (9), (10), (11) and (15) at the time
the original Lien became a Permitted Lien under the Indenture,
and
(B) an amount necessary to pay any fees and expenses, including
premiums, related to such refinancing, refunding, extension, renewal
or
replacement; provided
further, however, that
in the case of any Liens to secure any refinancing, refunding,
extension
or renewal of Indebtedness secured by a Lien referred to in clause
(6)(B),
the principal amount of any Indebtedness Incurred for such refinancing,
refunding, extension or renewal shall be deemed secured by a Lien
under
clause (6)(B) and not this clause (20) for purposes of
determining the principal amount of Indebtedness outstanding under
clause
(6)(B), for purposes of clause (1) under “—Security for the Notes
—Release of Collateral” and for purposes of the definition of Secured Bank
Indebtedness;
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(21)
|
Liens
on equipment of the Issuer or any Restricted Subsidiary granted
in the
ordinary course of business to the Issuer’s or such Restricted
Subsidiary’s client at which such equipment is located;
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(22)
|
judgment
and attachment Liens not giving rise to an Event of Default and
notices of
lis pendens and associated rights related to litigation being contested
in
good faith by appropriate proceedings and for which adequate reserves
have
been made;
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(23)
|
Liens
arising out of conditional sale, title retention, consignment or
similar
arrangements for the sale of goods entered into in the ordinary
course of
business;
|
|
(24)
|
Liens
incurred to secure cash management services in the ordinary course
of
business; and
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(25)
|
other
Liens securing obligations incurred in the ordinary course of business
which obligations do not exceed $20.0 million at any one time
outstanding.
|
“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”
means
any Equity Interest with preferential right of payment of dividends or upon
liquidation, dissolution, or winding up.
“Purchase
Money Note”
means
a
promissory note of a Receivables Subsidiary evidencing a line of credit,
which
may be irrevocable, from the Issuer or any Subsidiary of the Issuer to a
Receivables Subsidiary in connection with a Qualified Receivables Financing,
which note is intended to finance that portion of the purchase price that
is not
paid by cash or a contribution of equity.
“Qualified
Receivables Financing”
means
any Receivables Financing of a Receivables Subsidiary that meets the following
conditions:
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|
(1)
|
the
Board of Directors of the Issuer shall have determined in good
faith that
such Qualified Receivables Financing (including financing terms,
covenants, termination events and other provisions) is in the aggregate
economically fair and reasonable to the Issuer and the Receivables
Subsidiary;
|
|
(2)
|
all
sales of accounts receivable and related assets to the Receivables
Subsidiary are made at Fair Market Value (as determined in good
faith by
the Issuer); and
|
|
(3)
|
the
financing terms, covenants, termination events and other provisions
thereof shall be market terms (as determined in good faith by the
Issuer)
and may include Standard Securitization Undertakings.
|
The
grant
of a security interest in any accounts receivable of the Issuer or any of
its
Restricted Subsidiaries (other than a Receivables Subsidiary) to secure Bank
Indebtedness, Indebtedness in respect of the Notes or any Refinancing
Indebtedness with respect to the Notes shall not be deemed a Qualified
Receivables Financing.
“Rating
Agency”
means
(1) each of Moody’s and S&P and (2) if Moody’s or S&P ceases
to rate the Notes for reasons outside of the Issuer’s control, a “nationally
recognized statistical rating organization” within the meaning of
Rule 15cs-1(c)(2)(vi)(F) under the Exchange Act selected by the Issuer or
any direct or indirect parent of the Issuer as a replacement agency for Moody’s
or S&P, as the case may be.
“Receivables
Fees”
means
distributions or payments made directly or by means of discounts with respect
to
any participation interests issued or sold in connection with, and all other
fees paid to a Person that is not a Restricted Subsidiary in connection with,
any Receivables Financing.
“Receivables
Financing”
means
any transaction or series of transactions that may be entered into by the
Issuer
or any of its Subsidiaries pursuant to which the Issuer or any of its
Subsidiaries may sell, convey or otherwise transfer to (a) a Receivables
Subsidiary (in the case of a transfer by the Issuer or any of its Subsidiaries);
and (b) any other Person (in the case of a transfer by a Receivables
Subsidiary), or may grant a security interest in, any accounts receivable
(whether now existing or arising in the future) of the Issuer or any of its
Subsidiaries, and any assets related thereto including, without limitation,
all
collateral securing such accounts receivable, all contracts and all guarantees
or other obligations in respect of such accounts receivable, proceeds of
such
accounts receivable and other assets which are customarily transferred or
in
respect of which security interests are customarily granted in connection
with
asset securitization transactions involving accounts receivable and any Hedging
Obligations entered into by the Issuer or any such Subsidiary in connection
with
such accounts receivable.
“Receivables
Repurchase Obligation”
means
any obligation of a seller of receivables in a Qualified Receivables Financing
to repurchase receivables arising as a result of a breach of a representation,
warranty or covenant or otherwise, including as a result of a receivable
or
portion thereof becoming subject to any asserted defense, dispute, off-set
or
counterclaim of any kind as a result of any action taken by, any failure
to take
action by or any other event relating to the seller.
“Receivables
Subsidiary”
means
a
Wholly Owned Restricted Subsidiary of the Issuer (or another Person formed
for
the purposes of engaging in Qualified Receivables Financing with the Issuer
in
which the Issuer or any Subsidiary of the Issuer makes an Investment and
to
which the Issuer or any Subsidiary of the Issuer transfers accounts receivable
and related assets) which engages in no activities other than in connection
with
the financing of accounts receivable of the Issuer and its Subsidiaries,
all
proceeds thereof and all rights (contractual or other), collateral and other
assets relating thereto, and any business or activities incidental or related
to
such business, and which is designated by the Board of Directors of the Issuer
(as provided below) as a Receivables Subsidiary and:
-170-
| (a) |
(a)no
portion of the Indebtedness or any other obligations (contingent
or
otherwise) of which (i) is guaranteed by the Issuer or any other
Subsidiary of
the Issuer (excluding guarantees of obligations (other than the principal
of and interest on, Indebtedness) pursuant to Standard Securitization
Undertakings), (ii) is recourse to or obligates the Issuer or any
other Subsidiary of the Issuer in any way other than pursuant to
Standard
Securitization Undertakings, or (iii) subjects any property or asset
of the Issuer or any other Subsidiary of the Issuer, directly or
indirectly, contingently or otherwise, to the satisfaction thereof,
other
than pursuant to Standard Securitization Undertakings;
|
| (b) |
with
which neither the Issuer nor any other Subsidiary of the Issuer has
any
material contract, agreement, arrangement or understanding other
than on
terms which the Issuer reasonably believes to be no less favorable
to the
Issuer or such Subsidiary than those that might be obtained at the
time
from Persons that are not Affiliates of the Issuer; and
|
| (c) |
to
which neither the Issuer nor any other Subsidiary of the Issuer has
any
obligation to maintain or preserve such entity’s financial condition or
cause such entity to achieve certain levels of operating results.
|
Any
such
designation by the Board of Directors of the Issuer shall be evidenced to
the
Trustee by filing with the Trustee a certified copy of the resolution of
the
Board of Directors of the Issuer giving effect to such designation and an
Officers’ Certificate certifying that such designation complied with the
foregoing conditions.
“Registrar”
means
an office or agency maintained by the Issuer where the notes may be presented
for registration of transfer or for exchange.
“Representative”
means
the trustee, agent or representative (if any) for an issue of Indebtedness;
provided
that if,
and for so long as, such Indebtedness lacks such a Representative, then the
Representative for such Indebtedness shall at all times constitute the holder
or
holders of a majority in outstanding principal amount of obligations under
such
Indebtedness.
“Representative
Amount”
means
a
principal amount of not less than $1,000,000 for a single transaction in
the
relevant market at the relevant time.
“Restricted
Investment”
means
an Investment other than a Permitted Investment.
“Restricted
Subsidiary”
means,
with respect to any Person, any Subsidiary of such Person other than an
Unrestricted Subsidiary of such Person. Unless otherwise indicated in this
“Description of the Notes,” all references to Restricted Subsidiaries shall mean
Restricted Subsidiaries of the Issuer.
“Sale/Leaseback
Transaction”
means
an arrangement relating to property now owned or hereafter acquired by the
Issuer or a Restricted Subsidiary whereby the Issuer or a Restricted Subsidiary
transfers such property to a Person and the Issuer or such Restricted Subsidiary
leases it from such Person, other than leases between the Issuer and a
Restricted Subsidiary of the Issuer or between Restricted Subsidiaries of
the
Issuer.
-171-
“S&P”
means
Standard & Poor’s Ratings Group or any successor to the rating agency
business thereof.
“SEC”
means
the Securities and Exchange Commission.
“Secured
Bank Indebtedness”
means
any Bank Indebtedness that is secured by a Permitted Lien incurred or deemed
incurred pursuant to clause (6)(B) of the definition of Permitted Lien.
“Secured
Indebtedness”
means
any Indebtedness secured by a Lien.
“Secured
Indebtedness Leverage Ratio”
means,
with respect to any Person, at any date the ratio of (i) Secured
Indebtedness of such Person and its Restricted Subsidiaries as of such date
of
calculation (determined on a consolidated basis in accordance with GAAP)
that
constitutes First Priority Lien Obligations to (ii) EBITDA of such Person
for the four full fiscal quarters for which internal financial statements
are
available immediately preceding such date on which such additional Indebtedness
is Incurred. In the event that the Issuer or any of its Restricted Subsidiaries
Incurs, repays, repurchases or redeems any Indebtedness subsequent to the
commencement of the period for which the Secured Indebtedness Leverage Ratio
is
being calculated but prior to the event for which the calculation of the
Secured
Indebtedness Leverage Ratio is made (the “Secured
Leverage Calculation Date”),
then
the Secured Indebtedness Leverage Ratio shall be calculated giving pro forma
effect to such Incurrence, repayment, repurchase or redemption of Indebtedness
as if the same had occurred at the beginning of the applicable four-quarter
period; provided
that
the
Issuer may elect pursuant to an Officers’ Certificate delivered to the Trustee
to treat all or any portion of the commitment under any Indebtedness as being
Incurred at such time, in which case any subsequent Incurrence of Indebtedness
under such commitment shall not be deemed, for purposes of this calculation,
to
be an Incurrence at such subsequent time.
For
purposes of making the computation referred to above, Investments, acquisitions,
dispositions, mergers, consolidations and discontinued operations (as determined
in accordance with GAAP), in each case with respect to an operating unit
of a
business, and any operational changes that the Issuer or any of its Restricted
Subsidiaries has determined to make and/or made after the Issue Date and
during
the four-quarter reference period or subsequent to such reference period
and on
or prior to or simultaneously with the Secured Leverage Calculation Date
(each,
for purposes of this definition, a “pro
forma event”)
shall
be calculated on a pro forma basis assuming that all such Investments,
acquisitions, dispositions, mergers, consolidations (including the
Transactions), discontinued operations and other operational changes (and
the
change of any associated Indebtedness and the change in EBITDA resulting
therefrom) had occurred on the first day of the four-quarter reference period.
If since the beginning of such period any Person that subsequently became
a
Restricted Subsidiary or was merged with or into the Issuer or any Restricted
Subsidiary since the beginning of such period shall have made any Investment,
acquisition, disposition, merger, consolidation, discontinued operation or
operational change, in each case with respect to an operating unit of a
business, that would have required adjustment pursuant to this definition,
then
the Secured Indebtedness Leverage Ratio shall be calculated giving pro forma
effect thereto for such period as if such Investment, acquisition, disposition,
discontinued operation, merger, consolidation or operational change had occurred
at the beginning of the applicable four-quarter period.
For
purposes of this definition, whenever pro forma effect is to be given to
any pro
forma event, the pro forma calculations shall be made in good faith by a
responsible financial or accounting officer of the Issuer. Any such pro forma
calculation may include adjustments appropriate, in the reasonable good faith
determination of the Issuer as set forth in an Officers’ Certificate, to reflect
(1) operating expense reductions and other operating improvements or
synergies reasonably expected to result from the applicable pro forma event
(including, to the extent applicable, from the Transactions) and (2) all
adjustments of the nature used in connection with the calculation of “Adjusted
EBITDA” as set forth in footnote 4 to the “Summary
-172-
Historical
and Unaudited Pro Forma Financial Data” under “Prospectus Summary” in this
prospectus to the extent such adjustments, without duplication, continue
to be
applicable to such four-quarter period.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations of
the SEC
promulgated thereunder.
“Security
Documents”
means
the security agreements, pledge agreements, collateral assignments and related
agreements, as amended, supplemented, restated, renewed, refunded, replaced,
restructured, repaid, refinanced or otherwise modified from time to time,
creating the security interests in the Collateral as contemplated by the
Indenture.
“Senior
Subordinated Notes”
means
the 11% Senior Subordinated Notes due 2016 of the Issuer to be issued on
the
Issue Date to affiliates of The Goldman Sachs Group, Inc.
“Significant
Subsidiary”
means
any Restricted Subsidiary that would be a “Significant Subsidiary” of the Issuer
within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC.
“Similar
Business”
means
a
business, the majority of whose revenues are derived from the activities
of the
Issuer and its Subsidiaries as of the Issue Date or any business or activity
that is reasonably similar or complementary thereto or a reasonable extension,
development or expansion thereof or ancillary thereto.
“Sponsors”
means
(i) Apollo Management, L.P., Graham Partners, Inc. and any of their
respective Affiliates (collectively, the “Apollo
Sponsors”)
and
(ii) any Person that forms a group (within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any
successor provision) with any Apollo Sponsors; provided
that any
Apollo Sponsor (x) owns a majority of the voting power and (y) controls a
majority of the Board of Directors of the Issuer.
“Standard
Securitization Undertakings”
means
representations, warranties, covenants, indemnities and guarantees of
performance entered into by the Issuer or any Subsidiary of the Issuer which
the
Issuer has determined in good faith to be customary in a Receivables Financing
including, without limitation, those relating to the servicing of the assets
of
a Receivables Subsidiary, it being understood that any Receivables Repurchase
Obligation shall be deemed to be a Standard Securitization Undertaking.
“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 beyond the control of
the
issuer unless such contingency has occurred).
“Subordinated
Indebtedness”
means
(a) with respect to the Issuer, any Indebtedness of the Issuer which is by
its terms subordinated in right of payment to the Notes, and (b) with
respect to any Note Guarantor, any Indebtedness of such Note Guarantor which
is
by its terms subordinated in right of payment to its Note Guarantee.
“Subsidiary”
means,
with respect to any Person, (1) any corporation, association or other
business entity (other than a partnership, joint venture or limited liability
company) of which more than 50% of the total voting power of shares of Capital
Stock entitled (without regard to the occurrence of any contingency) to vote
in
the election of directors, managers or trustees thereof is at the time of
determination owned or controlled, directly or indirectly, by such Person
or one
or more of the other Subsidiaries of that Person or a combination thereof,
and
(2) any partnership, joint venture or limited liability company of which
(x) more than 50% of the capital
-173-
accounts,
distribution rights, total equity and voting interests or general and limited
partnership interests, as applicable, are owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person or a combination thereof, whether in the form of membership, general,
special or limited partnership interests or otherwise, and (y) such Person
or any Subsidiary of such Person is a controlling general partner or otherwise
controls such entity.
“Tax
Distributions”
means
any distributions described in clause (12) of the covenant entitled
“—Certain Covenants—Limitation on Restricted Payments.”
“TIA”
means
the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect
on the date of the Indenture.
“Total
Assets”
means
the total consolidated assets of the Issuer and its Restricted Subsidiaries,
as
shown on the most recent balance sheet of the Issuer.
“Transactions”
means
the Acquisition and the transactions related thereto, the offering of the
Notes, the issuance and sale of the Senior Subordinated Notes on the Issue
Date
and borrowings made pursuant to the Credit Agreement on the Issue Date.
“Treasury
Rate”
means,
with respect to the Fixed Rate Notes, as of the applicable redemption date,
the
yield to maturity as of such redemption date of United States Treasury
securities with a constant maturity (as compiled and published in the most
recent Federal Reserve Statistical Release H.15 (519) that has become
publicly available at least two business days prior to such redemption date
(or,
if such Statistical Release is no longer published, any publicly available
source of similar market data)) most nearly equal to the period from such
redemption date to September 15, 2010; provided,
however,
that if
the period from such redemption date to September 15, 2010 is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year will be used.
“Trust
Officer”
means:
|
(1)
|
any
officer within the corporate trust department of the Trustee, including
any vice president, assistant vice president, assistant secretary,
assistant treasurer, trust officer or any other officer of the
Trustee who
customarily performs functions similar to those performed by the
Persons
who at the time shall be such officers, respectively, or to whom
any
corporate trust matter is referred because of such person’s knowledge of
and familiarity with the particular subject, and
|
|
(2)
|
who
shall have direct responsibility for the administration of the
Indenture.
|
“Trustee”
means
the party named as such in the Indenture until a successor replaces it and,
thereafter, means the successor.
“Unrestricted
Subsidiary”
means:
|
(1)
|
any
Subsidiary of the Issuer that at the time of determination shall
be
designated an Unrestricted Subsidiary by the Board of Directors
of such
Person in the manner provided below; and
|
|
(2)
|
any
Subsidiary of an Unrestricted Subsidiary.
|
-174-
The
Board
of Directors of the Issuer may designate any Subsidiary of the Issuer (including
any newly acquired or newly formed Subsidiary of the Issuer) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries
owns
any Equity Interests or Indebtedness of, or owns or holds any Lien on any
property of, the Issuer or any other Subsidiary of the Issuer that is not
a
Subsidiary of the Subsidiary to be so designated; provided,
however,
that
the Subsidiary to be so designated and its Subsidiaries do not at the time
of
designation have and do not thereafter Incur any Indebtedness pursuant to
which
the lender has recourse to any of the assets of the Issuer or any of its
Restricted Subsidiaries; provided,
further,
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 described under
“—Certain Covenants—Limitation on Restricted Payments.”
|
The
Board
of Directors of the Issuer may designate any Unrestricted Subsidiary to be
a
Restricted Subsidiary; provided,
however,
that
immediately after giving effect to such designation:
| (x) |
(1) the
Issuer could Incur $1.00 of additional Indebtedness pursuant to the
Fixed
Charge Coverage Ratio test described under “—Certain Covenants—Limitation
on Incurrence of Indebtedness and Issuance of Disqualified Stock
and
Preferred Stock,” or (2) the Fixed Charge Coverage Ratio for the
Issuer and its Restricted Subsidiaries would be greater than such
ratio
for the Issuer and its Restricted Subsidiaries immediately prior
to such
designation, in each case on a pro forma basis taking into account
such
designation, and
|
| (y) |
no
Event of Default shall have occurred and be continuing.
|
Any
such
designation by the Board of Directors of the Issuer shall be evidenced to
the
Trustee by promptly filing with the Trustee a copy of the resolution of the
Board of Directors of the Issuer giving effect to such designation and an
Officers’ Certificate certifying that such designation complied with the
foregoing provisions.
“U.S.
Government
Obligations”
means
securities that are:
|
(1)
|
direct
obligations of the United States of America for the timely payment
of
which its full faith and credit is pledged, or
|
|
(2)
|
obligations
of a Person controlled or supervised by and acting as an agency
or
instrumentality of the United States of America, the timely payment
of
which is unconditionally guaranteed as a full faith and credit
obligation
by the United States of America,
|
which,
in
each case, are not callable or redeemable at the option of the issuer thereof,
and shall also include a depository receipt issued by a bank (as defined
in
Section 3(a)(2) of the Securities Act) as custodian with respect to any
such U.S. Government Obligations or a specific payment of principal of or
interest on any such U.S. Government Obligations held by such custodian for
the
account of the holder of such depository receipt; provided
that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt
from
any amount received by the custodian in respect of the U.S. Government
Obligations or the specific payment of principal of or interest on the U.S.
Government Obligations evidenced by such depository receipt.
-175-
“Voting
Stock”
of
any
Person as of any date means the Capital Stock of such Person that is at the
time
entitled to vote in the election of the Board of Directors of such
Person.
“Weighted
Average Life to Maturity”
means,
when applied to any Indebtedness or Disqualified Stock, as the case may be,
at
any date, the quotient obtained by dividing (1) the sum of the products of
the number of years from the date of determination to the date of each
successive scheduled principal payment of such Indebtedness or redemption
or
similar payment with respect to such Disqualified Stock multiplied by the
amount
of such payment, by (2) the sum of all such payments.
“Wholly
Owned Restricted Subsidiary”
is
any
Wholly Owned Subsidiary that is a Restricted Subsidiary.
“Wholly
Owned Subsidiary”
of
any
Person means a Subsidiary of such Person 100% of the outstanding Capital
Stock
or other ownership interests of which (other than directors’ qualifying shares
or shares required to be held by Foreign Subsidiaries) shall at the time
be
owned by such Person or by one or more Wholly Owned Subsidiaries of such
Person.
-176-
The
following is a summary of the material U.S. federal income tax consequences
relating to the exchange of the outstanding notes for exchange notes in the
exchange offer, but does not purport to be a complete analysis of all the
potential tax considerations relating thereto. This summary is based upon
the
Internal Revenue Code of 1986, as amended, Treasury Regulations, Internal
Revenue Service (“IRS”) rulings and pronouncements, and judicial decisions now
in effect, all of which are subject to change at any time by legislative,
administrative, or judicial action, possibly with retroactive effect. We
have
not sought and will not seek any rulings from the IRS with respect to the
statements made and the conclusions reached in the following summary, and
accordingly, there can be no assurance that the IRS will not successfully
challenge the tax consequences described below. This summary only applies
to you
if you exchange your outstanding notes for exchange notes in the exchange
offer.
This summary also does not discuss the effect of any state, local, foreign
or
other tax laws or any U.S. federal estate, gift or alternative minimum tax
considerations. In addition, this summary does not describe every aspect
of U.S.
federal income taxation that may be relevant to you in light of your particular
circumstances or if you are subject to special tax rules, including, without
limitation, if you are:
| · |
a
bank;
|
| · |
a
financial institution;
|
| · |
a
broker or dealer in securities or
currencies;
|
| · |
a
trader in securities that elects to use a mark-to-market method of
accounting for securities holdings;
|
| · |
an
insurance company;
|
| · |
a
person whose functional currency is not the U.S.
dollar;
|
| · |
a
tax-exempt organization;
|
| · |
an
investor in a pass-through entity holding the
notes;
|
| · |
an
S-corporation, a partnership or other entity treated as a partnership
for
tax purposes;
|
| · |
a
U.S. expatriate;
|
| · |
a
person holding notes as a part of a hedging, conversion or other
risk-reduction transaction or a straddle for tax purposes;
or
|
| · |
a
foreign person or entity.
|
YOU
ARE
URGED TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE APPLICATION OF THE
UNITED
STATES FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION AS WELL AS ANY
TAX
CONSEQUENCES ARISING UNDER THE U.S. FEDERAL ESTATE, GIFT OR ALTERNATIVE MINIMUM
TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
The
exchange of the outstanding notes for the exchange notes in the exchange
offer
should not constitute a taxable exchange for U.S. federal income tax
purposes, because
the exchange notes should not be considered to differ materially in kind
or
extent from the
-177-
outstanding
notes. As a result, for U.S. federal income tax purposes (1) you should not
recognize any income, gain or loss as a result of exchanging the outstanding
notes for the exchange notes; (2) the holding period of the exchange notes
should include the holding period of the outstanding notes exchanged therefor;
and (3) the adjusted tax basis of the exchange notes should be the same as
the adjusted tax basis of the outstanding notes exchanged
therefor immediately before such exchange.
-178-
PLAN
OF DISTRIBUTION
Each
broker-dealer that receives exchange notes for its own account in the exchange
offer must acknowledge that it will deliver a prospectus in connection
with any
resale of the 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
the outstanding notes were acquired as a result of market-making activities
or
other trading activities. We have agreed that, for a period ending 180
days from
the date on which this registration statement is declared effective, we
will
make this prospectus, as amended or supplemented, available to any broker-dealer
for use in connection with any resale. In addition, until April 10, 2007,
all dealers effecting transactions in the exchange notes may be required
to
deliver a prospectus.
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 in 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 these methods of resale.
These
resales may be made at market prices prevailing at the time of resale,
at prices
related to these prevailing market prices or negotiated prices. Any resale
may
be made directly to purchasers or to or through brokers or dealers who
may
receive compensation in the form of commissions or concessions from any
broker-dealer and/or the purchasers of any of the 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 the exchange notes may be deemed to be an underwriter within
the
meaning of the Securities Act, and any profit on the resale of exchange
notes
and any commission or concessions received by those persons may be deemed
to be
underwriting compensation under the Securities Act. Any such broker-dealer
must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, including the
delivery
of a prospectus that contains information with respect to any selling holder
required by the Securities Act in connection with any resale of the exchange
notes. By delivering a prospectus, however, a broker-dealer will not be
deemed
to admit that it is an underwriter within the meaning of the Securities
Act.
Furthermore,
any broker-dealer that acquired any of its outstanding notes directly from
us:
| · |
may
not rely on the applicable interpretation of the staff of the SEC’s
position contained
in Exxon Capital Holdings Corp., SEC no-action letter (April 13,
1988),
Morgan, Stanley & Co. Inc., SEC no-action letter (June 5, 1991) and
Shearman & Sterling, SEC no-action letter (July 2, 1993);
and
|
| · |
must
comply with the registration and prospectus delivery requirements
of the
Securities Act in connection with any resale of the exchange
notes.
|
We
have
agreed to pay all expenses incident to the performance of our obligations
in
relation to the exchange offer (including the expenses of one counsel for
the
holder of the outstanding notes) other than commissions or concessions
of any
brokers or dealers. We will indemnify the holders of the exchange notes,
including any broker-dealers,
against various liabilities, including liabilities under the Securities
Act.
-179-
LEGAL
MATTERS
The
validity of the exchange notes and guarantees offered hereby will be passed
upon
for us by Wachtell, Lipton, Rosen & Katz in respect of the laws of the
States of Delaware and New York.
The
consolidated financial statements of Holdings as of December 31, 2005 and
January 1, 2005, and the related consolidated statements of income,
shareholders’ equity, and cash flows for each of the years ended
December 31, 2005, January 1, 2005 and December 27, 2003
appearing in this prospectus have been audited by Ernst & Young LLP,
independent registered public accounting firm, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
The
indenture governing the notes requires us to file annual and quarterly
reports
and other information with the Securities and Exchange Commission. You
may read
and copy any reports, statements and other information we file at the
Commission’s public reference room in Washington, D.C. You may request copies of
the documents, upon payment of a duplicating fee, by writing the Public
Reference Section of the SEC. Please call 1-800-SEC-0330 for further information
on the public reference rooms. Our filings will also be available to the
public
from commercial document retrieval services and at the website maintained
by the
SEC at http://www.sec.gov.
Unless
stated below, our reports and other information that we have filed, or may
in the future file, with the SEC are not incorporated by reference into
and do
not constitute part of this prospectus.
The
SEC
allows us to “incorporate by reference” information into this prospectus. This
means that we can disclose important information by referring to another
document filed separately with the SEC. Any information incorporated
by
reference is considered to be part of this prospectus. This prospectus
and the
information that we later file with the SEC may update and supersede
the
information incorporated by reference. Similarly, the information that
Berry
Plastics Holding Corporation later files with the SEC may update and
supersede
the information in this prospectus.
We
incorporate by reference into this prospectus the quarterly reports of
Berry
Plastics Holding Corporation which were filed with the SEC under the
Exchange
Act on Form 10-Q on November 14, 2006.
Any
person, including any beneficial owner, to whom this prospectus is delivered
may
request copies of this prospectus and the Form 10-Q incorporated by reference
in
this prospectus or other information concerning us, without charge, by
written
or telephonic request directed to us at Berry Plastics Holding Corporation,101
Oakley Street, Evansville, Indiana 47710, Telephone: (812) 424-2904 or
from the
SEC through the SEC’s website at the address provided above. Documents
incorporated by reference are available without charge, excluding any
exhibits
to those documents unless the exhibit is specifically incorporated by
reference
into those documents.
-180-
To
obtain
timely delivery of any of our filings, agreements or other documents,
you must
make your request to us no later than February 1, 2007. In the event
that we
extend the exchange offer, you must submit your request at least five
business
days before the expiration date of the exchange offer, as extended. We
may
extend the exchange offer in our sole discretion. See “Exchange Offer” for more
detailed information.
-181-
BPC
HOLDING CORPORATION
|
Page
|
|
|
Unaudited
Consolidated Financial Statements
|
|
|
Consolidated
Balance Sheets at July 1, 2006 and December 31,
2005
|
F-2
|
|
Consolidated
Statements of Income for the 13 weeks ended July 1, 2006 and
July 2, 2005 and the 26 weeks ended July 1, 2006 and
July 2, 2005
|
F-4
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for the 26 weeks ended
July 1, 2006
|
F-5
|
|
Consolidated
Statements of Cash Flows for the 26 weeks ended July 1, 2006 and
July 2, 2005
|
F-6
|
|
Notes
to Unaudited Consolidated Financial Statements
|
F-7
|
|
Audited
Consolidated Financial Statements
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-17
|
|
Consolidated
Balance Sheets at December 31, 2005 and January 1,
2005
|
F-18
|
|
Consolidated
Statements of Income for the periods ended December 31,
2005, January 1, 2005 and December 27, 2003
|
F-20
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for the periods ended
December 31, 2005, January 1, 2005 and December 27,
2003
|
F-21
|
|
Consolidated
Statements of Cash Flows for the periods ended December 31,
2005, January 1, 2005 and December 27, 2003
|
F-22
|
|
Notes
to Audited Consolidated Financial Statements
|
F-23
|
F-1
BPC
Holding Corporation
Consolidated
Balance Sheets
(in
thousands of dollars, except share information)
|
|
July 1,
2006
|
December 31,
2005
|
|||||
|
|
(Unaudited)
|
|
|||||
|
Assets
|
|
|
|||||
|
Current
assets:
|
|
|
|||||
|
Cash
and cash equivalents
|
$
|
35,251
|
$
|
24,756
|
|||
|
Accounts
receivable (less allowance for doubtful accounts of $6,376
at July 1,
2006 and $5,766 at December 31, 2005)
|
166,924
|
140,443
|
|||||
|
Inventories:
|
|
|
|||||
|
Finished
goods
|
113,560
|
101,632
|
|||||
|
Raw
materials and supplies
|
49,794
|
50,716
|
|||||
|
|
163,354
|
152,348
|
|||||
|
Deferred
income taxes
|
8,623
|
22,905
|
|||||
|
Prepaid
expenses and other current assets
|
29,245
|
39,037
|
|||||
|
Total
current assets
|
403,397
|
379,489
|
|||||
|
Property
and equipment:
|
|
|
|||||
|
Land
|
12,345
|
12,292
|
|||||
|
Buildings
and improvements
|
95,139
|
92,810
|
|||||
|
Equipment
and construction in progress
|
551,547
|
497,364
|
|||||
|
|
659,031
|
602,466
|
|||||
|
Less
accumulated depreciation
|
222,561
|
179,022
|
|||||
|
|
436,470
|
423,444
|
|||||
|
Intangible
assets:
|
|
|
|||||
|
Deferred
financing fees, net
|
16,783
|
18,333
|
|||||
|
Customer
relationships, net
|
248,662
|
255,981
|
|||||
|
Goodwill
|
495,693
|
495,258
|
|||||
|
Trademarks,
net
|
45,131
|
47,065
|
|||||
|
Other
intangibles, net
|
27,150
|
28,260
|
|||||
|
|
833,419
|
844,897
|
|||||
|
Total
assets
|
$
|
1,673,286
|
$
|
1,647,830
|
|||
|
|
|
|
|||||
See
notes
to consolidated financial statements.
F-2
BPC
Holding Corporation
Consolidated
Balance Sheets (continued)
(in
thousands of dollars, except share information)
|
|
July 1,
2006
|
December 31,
2005
|
|||||
|
|
(Unaudited)
|
|
|||||
|
Liabilities
and stockholders’ equity
|
|
|
|||||
|
Current
liabilities:
|
|
|
|||||
|
Accounts
payable
|
$
|
97,310
|
$
|
64,970
|
|||
|
Accrued
interest
|
17,046
|
20,165
|
|||||
|
Employee
compensation, payroll and other taxes
|
44,472
|
43,915
|
|||||
|
Accrued
expenses and other current liabilities
|
30,332
|
34,730
|
|||||
|
Current
portion of long-term debt
|
14,419
|
13,928
|
|||||
|
Total
current liabilities
|
203,579
|
177,708
|
|||||
|
Long-term
debt, less current portion
|
1,121,401
|
1,146,692
|
|||||
|
Deferred
income taxes
|
94,466
|
94,934
|
|||||
|
Other
long-term liabilities
|
26,171
|
25,108
|
|||||
|
Total
liabilities
|
1,445,617
|
1,444,442
|
|||||
|
Stockholders’
equity:
|
|||||||
|
Preferred
Stock; $.01 par value: 500,000 shares authorized; 0 shares
issued and
outstanding at July 1, 2006 and December 31,
2005
|
—
|
—
|
|||||
|
Common
Stock; $.01 par value: 5,000,000 shares authorized; 3,398,807
shares
issued and 3,374,351 shares outstanding at July 1, 2006; and
3,398,807 shares issued and 3,374,348 shares outstanding at
December 31, 2005
|
34
|
34
|
|||||
|
Additional
paid-in capital
|
348,715
|
346,943
|
|||||
|
Adjustment
of the carryover basis of continuing stockholders
|
(196,603
|
)
|
(196,603
|
)
|
|||
|
Notes
receivable—common stock
|
(11,389
|
)
|
(14,273
|
)
|
|||
|
Treasury
stock: 23,196 and 24,459 shares of common stock at July 1, 2006 and
December 31, 2005, respectively
|
(3,525
|
)
|
(3,547
|
)
|
|||
|
Retained
earnings
|
76,881
|
58,969
|
|||||
|
Accumulated
other comprehensive income
|
13,556
|
11,865
|
|||||
|
Total
stockholders’ equity
|
227,669
|
203,388
|
|||||
|
Total
liabilities and stockholders’ equity
|
$
|
1,673,286
|
$
|
1,647,830
|
|||
|
|
|
||||||
See
notes
to consolidated financial statements.
F-3
BPC
Holding Corporation
Consolidated
Statements of Income
(in
thousands of dollars)
|
|
Thirteen
Weeks
Ended
|
Twenty-six
Weeks
Ended
|
|||||||||||
|
|
July 1,
2006
|
July 2,
2005
|
July 1,
2006
|
July 2,
2005
|
|||||||||
|
|
(Unaudited)
|
(Unaudited)
|
|||||||||||
|
Net
sales
|
$
|
375,114
|
$
|
282,871
|
$
|
731,078
|
$
|
508,181
|
|||||
|
Cost
of goods sold
|
299,320
|
233,477
|
583,941
|
417,493
|
|||||||||
|
|
|
|
|
|
|||||||||
|
Gross
profit
|
75,794
|
49,394
|
147,137
|
90,688
|
|||||||||
|
Operating
expenses:
|
|
|
|
|
|||||||||
|
Selling
|
9,723
|
7,593
|
20,143
|
14,895
|
|||||||||
|
General
and administrative
|
16,991
|
9,546
|
31,794
|
18,425
|
|||||||||
|
Research
and development
|
1,899
|
1,428
|
3,875
|
2,456
|
|||||||||
|
Amortization
of intangibles
|
5,325
|
1,985
|
10,689
|
3,758
|
|||||||||
|
Other
expenses
|
2,724
|
389
|
3,781
|
693
|
|||||||||
|
Operating
income
|
39,132
|
28,453
|
76,855
|
50,461
|
|||||||||
|
Other
expenses (income):
|
|||||||||||||
|
Unrealized
loss (gain) on investment in Southern Packaging
|
(515
|
)
|
937
|
(299
|
)
|
1,569
|
|||||||
|
|
|
|
|
|
|||||||||
|
Income
before interest and taxes
|
39,647
|
27,516
|
77,154
|
48,892
|
|||||||||
|
Interest:
|
|
|
|
|
|||||||||
|
Expense
|
22,721
|
16,513
|
45,123
|
30,535
|
|||||||||
|
Loss
on extinguished debt
|
—
|
7,045
|
—
|
7,045
|
|||||||||
|
Income
|
(218
|
)
|
(208
|
)
|
(612
|
)
|
(412
|
)
|
|||||
|
Income
before income taxes
|
17,144
|
4,166
|
32,643
|
11,724
|
|||||||||
|
Income
taxes
|
7,412
|
2,415
|
14,731
|
6,174
|
|||||||||
|
Net
income
|
$
|
9,732
|
$
|
1,751
|
$
|
17,912
|
$
|
5,550
|
|||||
|
|
|
|
|
|
|||||||||
See
notes
to consolidated financial statements.
F-4
BPC
Holding Corporation
Consolidated
Statements of Changes in Stockholders’ Equity
(Unaudited)
(in
thousands of dollars)
|
|
Common
Stock
|
Additional
Paid-In
Capital
|
Adjustment
of
the
carryover
basis
of
continuing
stockholders
|
Notes
receivable—
common
stock
|
Treasury
Stock
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income
(Losses)
|
Total
|
|
Balance
at
December 31,
2005
|
$
34
|
$
346,943
|
$
(196,603)
|
$
(14,273)
|
$ (3,547)
|
$
58,969
|
$
11,865
|
$
203,388
|
|
Collection
on
notes
receivable
|
—
|
—
|
—
|
3,234
|
—
|
—
|
—
|
3,234
|
|
Purchase
of
treasury
stock
|
—
|
(204)
|
—
|
—
|
(827)
|
—
|
—
|
(1,031)
|
|
Sale
of
treasury
stock
|
—
|
—
|
—
|
—
|
849
|
—
|
—
|
849
|
|
Interest
on
notes
receivable
|
—
|
—
|
—
|
(350)
|
—
|
—
|
—
|
(350)
|
|
Stock-based
compensation
|
—
|
1,976
|
—
|
—
|
—
|
—
|
—
|
1,976
|
|
Translation
gains
|
—
|
—
|
—
|
—
|
—
|
—
|
1,758
|
1,758
|
|
Other
compre-
hensive
losses
|
—
|
—
|
—
|
—
|
—
|
—
|
(67)
|
(67)
|
|
Net
income
|
—
|
—
|
—
|
—
|
—
|
17,912
|
—
|
17,912
|
|
Balance
at
July 1,
2006
|
$
34
|
$
348,715
|
$
(196,603)
|
$
(11,389)
|
$
(3,525)
|
$
76,881
|
$
13,556
|
$
227,669
|
|
|
|
|
|
|
|
|
|
|
See
notes
to consolidated financial statements.
F-5
BPC
Holding Corporation
Consolidated
Statements of Cash Flows
(in
thousands of dollars)
|
|
Twenty-six
Weeks Ended
|
||||||
|
|
July 1,
2006
|
July 2,
2005
|
|||||
|
|
(Unaudited)
|
(Unaudited)
|
|||||
|
Operating
activities:
|
|
|
|||||
|
Net
income
|
$
|
17,912
|
$
|
5,550
|
|||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|||||
|
Depreciation
|
43,307
|
30,391
|
|||||
|
Non-cash
interest expense
|
954
|
982
|
|||||
|
Write
off of deferred financing fees
|
—
|
7,045
|
|||||
|
Amortization
of intangibles
|
10,689
|
3,758
|
|||||
|
Non-cash
compensation
|
1,976
|
—
|
|||||
|
Unrealized
(gain) loss on investment in Southern Packaging
|
(299
|
)
|
1,569
|
||||
|
Deferred
income taxes
|
13,833
|
5,641
|
|||||
|
Changes
in operating assets and liabilities:
|
|
|
|||||
|
Accounts
receivable, net
|
(26,077
|
)
|
(21,910
|
)
|
|||
|
Inventories
|
(10,783
|
)
|
8,697
|
||||
|
Prepaid
expenses and other assets
|
9,452
|
4,007
|
|||||
|
Accrued
interest
|
(3,118
|
)
|
1,759
|
||||
|
Payables
and accrued expenses
|
29,296
|
3,896
|
|||||
|
Net
cash provided by operating activities
|
87,142
|
51,385
|
|||||
|
Investing
activities:
|
|
|
|||||
|
Additions
to property and equipment
|
(52,217
|
)
|
(32,303
|
)
|
|||
|
Proceeds
from disposal of property and equipment
|
23
|
1,710
|
|||||
|
Acquisitions
of businesses
|
—
|
(468,106
|
)
|
||||
|
Net
cash used for investing activities
|
(52,194
|
)
|
(498,699
|
)
|
|||
|
Financing
activities:
|
|
|
|||||
|
Proceeds
from long-term borrowings
|
—
|
466,457
|
|||||
|
Payments
on long-term borrowings
|
(27,624
|
)
|
(13,900
|
)
|
|||
|
Proceeds
from notes receivable
|
3,234
|
—
|
|||||
|
Purchase
of treasury stock
|
(1,031
|
)
|
—
|
||||
|
Sale
of treasury stock
|
849
|
134
|
|||||
|
Net
cash provided by (used for) financing activities
|
(24,572
|
)
|
452,691
|
||||
|
Effect
of exchange rate changes on cash
|
119
|
12
|
|||||
|
Net
increase in cash and cash equivalents
|
10,495
|
5,389
|
|||||
|
Cash
and cash equivalents at beginning of period
|
24,756
|
264
|
|||||
|
Cash
and cash equivalents at end of period
|
$
|
35,251
|
$
|
5,653
|
|||
|
|
|
|
|||||
See
notes
to consolidated financial statements.
F-6
BPC
Holding Corporation
Notes
to Consolidated Financial Statements
(In
thousands of dollars, except as otherwise noted)
(Unaudited)
1.
Basis of Presentation
The
accompanying unaudited consolidated financial statements of BPC Holding
Corporation (the “Company”) have been prepared in accordance with accounting
principles generally accepted in the United States (“GAAP”) for interim
financial information and with the instructions for Form 10-Q and Article
10 of
Regulation S-X. Accordingly, they do not include all of the information
and
footnotes required by 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. The accompanying financial
statements include the results of the Company and its wholly-owned subsidiary,
Berry Plastics Corporation (“Berry”), and Berry’s wholly-owned subsidiaries.
Certain amounts in the prior year financial statements have been reclassified
to
conform to the current year presentation.
2.
Recent Development
On
June 28, 2006, the Company and affiliates of Apollo Management, L.P.
(“Apollo”) and Graham Partners, Inc. (“Graham Partners” and, together with
Apollo, the “Sponsors”) signed a definitive agreement for the Sponsors to
acquire the Company for an enterprise value of $2.25 billion in aggregate
consideration (subject to adjustments in accordance with the definitive
agreement) (the “Acquisition”). The Acquisition was consummated on September 20,
2006. As a result of the Acquisition, the Company is a wholly-owned subsidiary
of Berry Plastics Group, Inc., the majority shareholder of which is
Apollo.
3.
Recent Acquisitions
On
April 11, 2005, a subsidiary of Berry, Berry Plastics de México, S. de R.L.
de C.V., acquired all of the injection molding closure assets of Euromex
Plastics, S.A. de C.V. (“Euromex”), an injection molding manufacturer located in
Toluca, Mexico (“the Mexico Acquisition”), for aggregate consideration of
approximately $8.2 million. The purchase price was allocated to fixed assets
($4.1 million), inventory ($1.6 million), goodwill ($0.7 million), and
other
intangibles ($1.8 million). The purchase was financed through borrowings
under
the Company’s existing revolving credit facility and cash on hand. The
operations from the Mexico Acquisition are included in our results of operations
since the acquisition date.
On
June 3, 2005, Berry acquired Kerr Group, Inc. (“Kerr”) for aggregate
consideration of approximately $454.8 million (the “Kerr Acquisition”),
including direct costs associated with the acquisition. The operations
from the
Kerr Acquisition are included in our results of operations since the acquisition
date. The purchase price was financed through additional term loan borrowings
under an amendment to our existing senior secured credit facility and cash
on
hand. The following table summarizes the allocation of purchase price and
the
estimated fair values of the assets acquired and liabilities assumed at
the date
of the acquisition.
F-7
|
Current
assets
|
$
|
85,417
|
||
|
Property
and equipment
|
145,688
|
|||
|
Goodwill
|
134,003
|
|||
|
Customer
relationships
|
182,094
|
|||
|
Trademarks
|
16,140
|
|||
|
Other
intangibles
|
22,291
|
|||
|
Total
assets
|
585,633
|
|||
|
Current
liabilities
|
56,862
|
|||
|
Long-term
liabilities
|
73,942
|
|||
|
Total
liabilities
|
130,804
|
|||
|
Net
assets acquired
|
$
|
454,829
|
||
In
accordance with the criteria stated in Emerging Issues Task Force (“EITF”) Issue
No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business
Combination” (“EITF 95-3”), the Company established opening balance sheet
reserves related to plant shutdown and severance costs. The opening balances
and
current year activity is presented in the following table.
|
|
Established
at
Opening
Balance
Sheet
|
|
||
|
January 1,
2006
|
Payments
|
July 1,
2006
|
||
|
EITF
95-3 reserves
|
$
2,700
|
$ 2,221
|
$
(588)
|
$
1,633
|
The
pro
forma financial results presented below are unaudited and assume that the
Kerr
Acquisition occurred at the beginning of the respective period. Pro forma
results have not been adjusted to reflect the Mexico Acquisition as they
do not
differ materially from the pro forma results presented below. Pro forma
net
sales and net income were $352,963 and $5,503, respectively, for the thirteen
weeks ended July 2, 2005. Pro forma net sales and net income were $676,496
and $7,227, respectively, for the twenty-six weeks ended July 2, 2005. The
financial results for the thirteen and twenty-six weeks ended July 1, 2006
have not been adjusted as the acquired businesses were owned by Berry for
the
entire period. The information presented is for informational purposes
only and
is not necessarily indicative of the operating results that would have
occurred
had the Kerr Acquisition been consummated at the beginning of the respective
period, nor are they necessarily indicative of future operating results.
Further, the information reflects only pro forma adjustments for additional
amortization,
additional
interest expense, elimination of Berry’s write off of deferred financing fees,
and elimination of Kerr’s closing expenses, net of the applicable income tax
effects.
F-8
4.
Long-Term Debt
Long
term
consists of the following:
|
|
July 1,
2006
|
December 31,
2005
|
|||||
|
Outstanding
Notes
|
$
|
335,000
|
$
|
335,000
|
|||
|
Debt
premium on existing 10 3/4%
Notes, net
|
7,111
|
7,699
|
|||||
|
Existing
term loans
|
767,050
|
791,025
|
|||||
|
Capital
leases
|
26,659
|
26,896
|
|||||
|
|
1,135,820
|
1,160,620
|
|||||
|
Less
current portion of long-term debt
|
14,419
|
13,928
|
|||||
|
|
$
|
1,121,401
|
$
|
1,146,692
|
|||
The
current portion of long-term debt consists of $7.9 million of quarterly
installments on the existing term loans and $6.5 million of principal payments
related to capital lease obligations.
On
July 22, 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 (as heretofore amended
and
restated, the “Existing Credit Facility”). The Existing Credit Facility provides
(1) a $795.0 million term loan and (2) a $150.0 million revolving
credit facility. The Existing Credit Facility permits the Company to borrow
up
to an additional $150.0 million of incremental senior term indebtedness
from
lenders willing to provide such loans subject to certain restrictions.
The
maturity date of the term loan is December 2, 2011, and the maturity date
of the revolving credit facility is March 31, 2010. The indebtedness under
the Existing Credit Facility is guaranteed by Holding and all of its domestic
subsidiaries. The obligations of Berry under the Existing Credit Facility
and
the guarantees thereof are secured by substantially all of the assets of
such
entities. At July 1, 2006, there were no borrowings outstanding on this
revolving credit facility. The revolving credit facility allows up to $35.0
million of letters of credit to be issued instead of borrowings under the
revolving credit facility. At July 1, 2006 and December 31, 2005, the
Company had $14.7 million in letters of credit outstanding under the revolving
credit facility.
The
Existing 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 Existing Credit Facility also contains borrowing conditions
and customary events of default, including nonpayment of principal or interest,
violation of covenants, inaccuracy of representations and warranties,
cross-defaults to other indebtedness, bankruptcy and other insolvency events
(other than in the case of certain foreign subsidiaries). The Company was
in
compliance with all the financial and operating covenants at July 1, 2006.
The term loan amortizes quarterly as follows: $1,987,500 each quarter which
began on September 30, 2005 and ends September 30, 2010 and
$188,315,625 each quarter beginning December 31, 2010 and ending
September 30, 2011. In June 2005, the Company made a voluntary
prepayment of $20.0 million on the Company’s senior term loan.
F-9
Borrowings
under the Existing Credit Facility bear interest, at the Company’s option, at
either (i) a base rate (equal to the greater of the prime rate and the
federal funds rate plus 0.5%) plus the applicable margin (the “Base Rate Loans”)
or (ii) an adjusted eurodollar LIBOR (adjusted for reserves) plus the
applicable margin (the “Eurodollar Rate Loans”). With respect to the term loan,
the “applicable margin” is (i) with respect to Base Rate Loans,
1.00% per annum and (ii) with respect to Eurodollar Rate Loans,
2.00% per annum. In addition, the applicable margins with respect to the
term loan can be further reduced by an additional .25% per annum subject to
the Company meeting a leverage ratio target, which was met based on the
results
through July 1, 2006. 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
(2.50% based on results through July 1, 2006). 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 and
expires on July 15, 2006. In June 2005, Berry entered into three separate
interest rate swap transactions to protect $300.0 million of the outstanding
variable rate term loan debt from future interest rate volatility. The
agreements were effective June 3, 2005 and expire on June 3, 2008. The
agreements swap three month variable LIBOR contracts for a fixed rate three
year
rate of 3.897%. All of the Company’s interest rate hedge transactions are
accounted for under the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”
(SFAS No. 133”). At July 1, 2006, the Company had unused borrowing capacity
under the New Credit Facility’s revolving line of credit of $135.3 million.
Although the $135.3 million was available at July 1, 2006, the covenants
under our New Credit Facility may limit our ability to make such borrowings
in
the future.
5.
Stock-Based Compensation
The
Company previously applied the intrinsic value method prescribed in Accounting
Principles Board Opinion 25, “Accounting for Stock Issued to Employees.” In
December 2004, the FASB issued SFAS No. 123R (Revised 2004,) Share-Based
Payment
(“SFAS 123R”), which requires that the compensation cost relating to share-based
payment transactions be recognized in financial statements based on alternative
fair value models. The share-based compensation cost will be measured based
on
the fair value of the equity or liability instruments issued. The Company
adopted SFAS 123R on January 1, 2006 using the modified prospective method
and recorded $2.0 million in the twenty-six week period ended July 1, 2006
of
non-cash charges for stock compensation related to amortization of the
fair
value of unvested stock options. Under this method, the Company will recognize
compensation cost, on a prospective basis, for the portion of outstanding
awards
for which the requisite service has not yet been rendered as of January 1,
2006. In addition, the Company will recognize compensation cost on any
new
grants based upon the grant date fair value of those awards calculated
under
SFAS 123 for pro forma disclosure purposes. Accordingly, we have not restated
prior period amounts. The following table illustrates the pro forma effect
on
net income for periods prior to adoption of SFAS 123R as if we had applied
the
fair value recognition provisions of SFAS 123 during such periods.
F-10
|
|
Thirteen Weeks
Ended
July 2,
2005
|
Twenty-six Weeks
Ended
July 2,
2005
|
|||||
|
Reported
net income
|
$
|
1,751
|
$
|
5,550
|
|||
|
Total
stock-based employee compensation expense determined under fair
value
based method, for all awards, net of tax
|
(571
|
)
|
(1,143
|
)
|
|||
|
Pro
forma net income
|
$
|
1,180
|
$
|
4,407
|
|||
6.
Comprehensive Income
Comprehensive
income is comprised of net income, other comprehensive income (losses),
and
gains or losses resulting from currency translations of foreign investments.
Other comprehensive income (losses) includes unrealized gains or losses
on
derivative financial instruments and minimum pension liability adjustments.
The
details of comprehensive income (losses) are as follows:
|
|
Thirteen
Weeks
Ended
|
Twenty-six
Weeks
Ended
|
|||||||||||
|
|
July 1,
2006
|
July 2,
2005
|
July 1,
2006
|
July 2,
2005
|
|||||||||
|
Net
income
|
$
|
9,732
|
$
|
1,751
|
$
|
17,912
|
$
|
5,550
|
|||||
|
Other
comprehensive income (losses)
|
675
|
(3,468
|
)
|
(67
|
)
|
(3,488
|
)
|
||||||
|
Currency
translation income (losses)
|
1,422
|
(1,819
|
)
|
1,758
|
(2,904
|
)
|
|||||||
|
Comprehensive
income (losses)
|
$
|
11,829
|
$
|
(3,536
|
)
|
$
|
19,603
|
$
|
(842
|
)
|
|||
7.
Income Taxes
A
reconciliation of income tax expense, computed at the federal statutory
rate, to
income tax expense, as provided for in the financial statements, is as
follows:
|
|
Thirteen
Weeks
Ended
|
Twenty-six
Weeks
Ended
|
|||||||||||
|
|
July 1,
2006
|
July 2,
2005
|
July 1,
2006
|
July 2,
2005
|
|||||||||
|
Income
tax expense computed at statutory rate
|
$
|
6,000
|
$
|
1,458
|
$
|
11,425
|
$
|
4,103
|
|||||
|
State
income tax expense, net of federal taxes
|
815
|
258
|
1,551
|
727
|
|||||||||
|
Expenses
not deductible for income tax purposes
|
189
|
120
|
359
|
241
|
|||||||||
|
Change
in valuation allowance
|
810
|
666
|
1,618
|
1,205
|
|||||||||
|
Other
|
(402
|
)
|
(87
|
)
|
(222
|
)
|
(102
|
)
|
|||||
|
Income
tax expense
|
$
|
7,412
|
$
|
2,415
|
$
|
14,731
|
$
|
6,174
|
|||||
F-11
8.
Employee Retirement Plans
In
connection with the Kerr Acquisition, the Company acquired two defined
benefit
pension plans which cover substantially all former employees and former
union
employees at Kerr’s former Lancaster facility. The Company also acquired a
retiree health plan from Kerr, which covers certain healthcare and life
insurance benefits for certain retired employees and their spouses. The
Company
also maintains a defined benefit pension plan covering the Poly-Seal employees
under a collective bargaining agreement. The Company’s defined benefit and
retiree health benefit plans have a minimum pension liability of $19.9
million
at July 1, 2006 and December 31, 2005, which are recorded as other
liabilities in the consolidated balance sheets. Net pension and retiree
health
benefit expense included the following components:
|
|
Thirteen
Weeks
Ended
|
Twenty-six
Weeks
Ended
|
|||||||||||
|
|
July 1,
2006
|
July 2,
2005
|
July 1,
2006
|
July 2,
2005
|
|||||||||
|
Components
of net period benefit cost:
|
|
|
|
|
|||||||||
|
Defined
Benefit Pension Plans
|
|
|
|
|
|||||||||
|
Service
cost
|
$
|
64
|
$
|
70
|
$
|
128
|
$
|
140
|
|||||
|
Interest
cost
|
562
|
317
|
1,124
|
417
|
|||||||||
|
Expected
return on plan assets
|
(634
|
)
|
(284
|
)
|
(1,268
|
)
|
(394
|
)
|
|||||
|
Amortization
of prior service cost
|
23
|
28
|
46
|
56
|
|||||||||
|
Recognized
actuarial loss
|
4
|
2
|
8
|
4
|
|||||||||
|
Net
periodic benefit cost
|
$
|
19
|
$
|
133
|
$
|
38
|
$
|
223
|
|||||
|
Retiree
Health Benefit Plan
|
|
|
|
|
|||||||||
|
Service
cost
|
$
|
4
|
$
|
2
|
$
|
8
|
$
|
2
|
|||||
|
Interest
cost
|
97
|
50
|
194
|
50
|
|||||||||
|
Recognized
actuarial loss
|
(23
|
)
|
—
|
(46
|
)
|
—
|
|||||||
|
Net
periodic benefit cost
|
$
|
78
|
$
|
52
|
$
|
156
|
$
|
52
|
|||||
The
Company expects to contribute approximately $2.2 million during fiscal
2006, of
which $0.1 million and $0.2 million was made in the thirteen weeks and
twenty-six weeks ended July 1, 2006, respectively, to the defined benefit
pension plans and the retiree health benefit plan.
9.
Contingencies
The
Company is party to various legal proceedings involving routine claims
which are
incidental to the business. Although the 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 the Company’s
financial condition or results of operations.
10.
Operating Segments
In
connection with the Kerr Acquisition, Berry reorganized its operations
into two
reportable segments: open top and closed top. The realignment occurred
in an
effort to integrate the operations of Kerr, better service the Company’s
customers, and provide a more
F-12
efficient
organization. Prior periods have been restated to be aligned with the new
reporting structure in order to provide comparable results. The Company
evaluates performance and allocates resources to segments based on operating
income before depreciation and amortization of intangibles adjusted to
exclude
(1) uncompleted acquisition expense, (2) acquisition integration
expense, (3) plant shutdown expense, and (4) non-cash compensation
(collectively, “Adjusted EBITDA”). The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies.
|
|
Thirteen
Weeks Ended
|
Twenty-six
Weeks Ended
|
|||||||||||
|
|
July 1,
2006
|
July 2,
2005
|
July 1,
2006
|
July 2,
2005
|
|||||||||
|
Net
sales:
|
|
|
|
|
|||||||||
|
Open
Top
|
$
|
222,835
|
$
|
204,470
|
$
|
429,066
|
$
|
388,378
|
|||||
|
Closed
Top
|
152,279
|
78,401
|
302,012
|
119,803
|
|||||||||
|
Total
net sales
|
375,114
|
282,871
|
731,078
|
508,181
|
|||||||||
|
Adjusted
EBITDA:
|
|
|
|
|
|||||||||
|
Open
Top
|
40,951
|
34,156
|
79,999
|
64,986
|
|||||||||
|
Closed
Top
|
29,446
|
13,769
|
56,617
|
21,020
|
|||||||||
|
Total
Adjusted EBITDA
|
70,397
|
47,925
|
136,616
|
86,006
|
|||||||||
|
Total
assets:
|
|
|
|
|
|||||||||
|
Open
Top
|
885,252
|
800,096
|
885,252
|
800,096
|
|||||||||
|
Closed
Top
|
788,034
|
753,545
|
788,034
|
753,545
|
|||||||||
|
Total
assets
|
1,673,286
|
1,553,641
|
1,673,286
|
1,553,641
|
|||||||||
|
Reconciliation
of Adjusted EBITDA to net income:
|
|
|
|
|
|||||||||
|
Adjusted
EBITDA for reportable segments
|
$
|
70,397
|
$
|
47,925
|
$
|
136,616
|
$
|
86,006
|
|||||
|
Net
interest expense
|
(22,503
|
)
|
(23,350
|
)
|
(44,511
|
)
|
(37,168
|
)
|
|||||
|
Depreciation
|
(22,222
|
)
|
(16,395
|
)
|
(43,307
|
)
|
(30,391
|
)
|
|||||
|
Amortization
|
(5,325
|
)
|
(1,985
|
)
|
(10,689
|
)
|
(3,758
|
)
|
|||||
|
Income
taxes
|
(7,412
|
)
|
(2,415
|
)
|
(14,731
|
)
|
(6,174
|
)
|
|||||
|
Unrealized
gain (loss) on investment in Southern Packaging
|
515
|
(937
|
)
|
299
|
(1,569
|
)
|
|||||||
|
Acquisition
integration expense
|
(2,730
|
)
|
(1,092
|
)
|
(3,789
|
)
|
(1,396
|
)
|
|||||
|
Non-cash
compensation
|
(988
|
)
|
—
|
(1,976
|
)
|
—
|
|||||||
|
Net
income
|
$
|
9,732
|
$
|
1,751
|
$
|
17,912
|
$
|
5,550
|
|||||
11.
Condensed Consolidating Financial Information
Holding
conducts its business through its wholly owned subsidiary, Berry. Holding
and
all of Berry’s domestic subsidiaries fully, jointly, severally, and
unconditionally guarantee on a senior subordinated basis the $335.0 million
aggregate principal amount of 10 3/4%
Berry
Plastics Corporation’s Senior Subordinated Notes due 2012. Each of Berry’s
subsidiaries is 100% owned, directly or indirectly, by Berry. 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 July 1, 2006 and
December 31, 2005 and for the thirteen and twenty-six week periods ended
July 1, 2006 and July 2, 2005. The equity method has been used with
respect to investments in subsidiaries.
F-13
|
|
July 1,
2006
|
||||||||||||||||||
|
|
BPC Holding
Corporation
(Parent)
|
Berry Plastics
Corporation
(Issuer)
|
Combined
Guarantor
Subsidiaries
|
Combined
Non-guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
|
|||||||||||||
|
ConsolidatingBalance
Sheet
|
|
|
|
|
|
|
|||||||||||||
|
Current
assets
|
$
|
—
|
$
|
134,178
|
$
|
244,146
|
$
|
25,073
|
$
|
—
|
$
|
403,397
|
|||||||
|
Net
property and equipment
|
—
|
92,996
|
322,238
|
21,236
|
—
|
436,470
|
|||||||||||||
|
Other
noncurrent assets
|
227,669
|
1,308,083
|
693,392
|
13,669
|
(1,409,394
|
)
|
833,419
|
||||||||||||
|
Total
assets
|
$
|
227,669
|
$
|
1,535,257
|
$
|
1,259,776
|
$
|
59,978
|
$
|
(1,409,394
|
)
|
$
|
1,673,286
|
||||||
|
Current
liabilities
|
$
|
—
|
$
|
97,241
|
$
|
96,614
|
$
|
9,724
|
$
|
—
|
$
|
203,579
|
|||||||
|
Noncurrent
liabilities
|
—
|
1,210,347
|
1,349,490
|
46,806
|
(1,364,605
|
)
|
1,242,038
|
||||||||||||
|
Equity
(deficit)
|
227,669
|
227,669
|
(186,328
|
)
|
3,448
|
(44,789
|
)
|
227,669
|
|||||||||||
|
Total
liabilities and equity (deficit)
|
$
|
227,669
|
$
|
1,535,257
|
$
|
1,259,776
|
$
|
59,978
|
$
|
(1,409,394
|
)
|
$
|
1,673,286
|
||||||
|
|
December 31,
2005
|
||||||||||||||||||
|
|
BPC
Holding
Corporation
(Parent)
|
Berry
Plastics
Corporation
(Issuer)
|
Combined
Guarantor
Subsidiaries
|
Combined
Non-guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
|
|||||||||||||
|
Consolidating
Balance Sheet
|
|
|
|
|
|
|
|||||||||||||
|
Current
assets
|
$
|
—
|
$
|
132,192
|
$
|
224,471
|
$
|
22,826
|
$
|
—
|
$
|
379,489
|
|||||||
|
Net
property and equipment
|
—
|
91,831
|
311,649
|
19,964
|
—
|
423,444
|
|||||||||||||
|
Other
noncurrent assets
|
203,388
|
1,292,315
|
703,500
|
13,214
|
(1,367,520
|
)
|
844,897
|
||||||||||||
|
Total
assets
|
$
|
203,388
|
$
|
1,516,338
|
$
|
1,239,620
|
$
|
56,004
|
$
|
(1,367,520
|
)
|
$
|
1,647,830
|
||||||
|
Current
liabilities
|
$
|
—
|
$
|
81,349
|
$
|
87,269
|
$
|
9,090
|
$
|
—
|
$
|
177,708
|
|||||||
|
Noncurrent
liabilities
|
—
|
1,231,601
|
1,333,925
|
40,783
|
(1,339,575
|
)
|
1,266,734
|
||||||||||||
|
Equity
(deficit)
|
203,388
|
203,388
|
(181,574
|
)
|
6,131
|
(27,945
|
)
|
203,388
|
|||||||||||
|
Total
liabilities and equity (deficit)
|
$
|
203,388
|
$
|
1,516,338
|
$
|
1,239,620
|
$
|
56,004
|
$
|
(1,367,520
|
)
|
$
|
1,647,830
|
||||||
|
|
Thirteen
Weeks Ended July 1, 2006
|
||||||||||||||||||
|
|
BPC Holding
Corporation
(Parent)
|
Berry Plastics
Corporation
(Issuer)
|
Combined
Guarantor
Subsidiaries
|
Combined
Non-guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
|
|||||||||||||
|
Consolidating
Statement of Operations
|
|
|
|
|
|
|
|||||||||||||
|
Net
sales
|
$
|
—
|
$
|
86,928
|
$
|
279,706
|
$
|
8,480
|
$
|
—
|
$
|
375,114
|
|||||||
|
Cost
of goods sold
|
—
|
64,320
|
226,213
|
8,787
|
—
|
299,320
|
|||||||||||||
|
Gross
profit
|
—
|
22,608
|
53,493
|
(307
|
)
|
—
|
75,794
|
||||||||||||
|
Operating
expenses
|
988
|
10,387
|
24,339
|
948
|
—
|
36,662
|
|||||||||||||
|
Operating
income (loss)
|
(988
|
)
|
12,221
|
29,154
|
(1,255
|
)
|
—
|
39,132
|
|||||||||||
|
Other
income
|
—
|
—
|
—
|
(515
|
)
|
—
|
(515
|
)
|
|||||||||||
|
Interest
expense (income), net
|
(159
|
)
|
(10,214
|
)
|
31,983
|
893
|
—
|
22,503
|
|||||||||||
|
Income
taxes
|
14
|
7,206
|
66
|
126
|
—
|
7,412
|
|||||||||||||
|
Equity
in net (income) loss from subsidiary
|
(10,575
|
)
|
4,654
|
1,759
|
—
|
4,162
|
—
|
||||||||||||
|
Net
income (loss)
|
$
|
9,732
|
$
|
10,575
|
$
|
(4,654
|
)
|
$
|
(1,759
|
)
|
$
|
(4,162
|
)
|
$
|
9,732
|
||||
F-14
|
|
Thirteen
Weeks Ended July 2, 2005
|
||||||||||||||||||
|
|
BPC
Holding
Corporation
(Parent)
|
Berry
Plastics
Corporation
(Issuer)
|
Combined
Guarantor
Subsidiaries
|
Combined
Non-guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
|
|||||||||||||
|
Consolidating
Statement of Operations
|
|
|
|
|
|
|
|||||||||||||
|
Net
sales
|
$
|
—
|
$
|
79,937
|
$
|
195,520
|
$
|
7,414
|
$
|
—
|
$
|
282,871
|
|||||||
|
Cost
of goods sold
|
—
|
59,815
|
166,359
|
7,303
|
—
|
233,477
|
|||||||||||||
|
Gross
profit
|
—
|
20,122
|
29,161
|
111
|
—
|
49,394
|
|||||||||||||
|
Operating
expenses
|
—
|
7,773
|
12,230
|
938
|
—
|
20,941
|
|||||||||||||
|
Operating
income (loss)
|
—
|
12,349
|
16,931
|
(827
|
)
|
—
|
28,453
|
||||||||||||
|
Other
expenses
|
—
|
—
|
—
|
937
|
—
|
937
|
|||||||||||||
|
Interest
expense (income), net
|
(197
|
)
|
1,517
|
21,723
|
307
|
—
|
23,350
|
||||||||||||
|
Income
taxes
|
14
|
2,278
|
50
|
73
|
—
|
2,415
|
|||||||||||||
|
Equity
in net (income) loss from subsidiary
|
(1,568
|
)
|
6,986
|
2,144
|
—
|
(7,562
|
)
|
—
|
|||||||||||
|
Net
income (loss)
|
$
|
1,751
|
$
|
1,568
|
$
|
(6,986
|
)
|
$
|
(2,144
|
)
|
$
|
7,562
|
$
|
1,751
|
|||||
|
|
Twenty-six
Weeks Ended July 1, 2006
|
||||||||||||||||||
|
|
BPC Holding
Corporation
(Parent)
|
Berry Plastics
Corporation
(Issuer)
|
Combined
Guarantor
Subsidiaries
|
Combined
Non-guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
|
|||||||||||||
|
Consolidating
Statement of Operations
|
|
|
|
|
|
|
|||||||||||||
|
Net
sales
|
$
|
—
|
$
|
157,488
|
$
|
557,036
|
$
|
16,554
|
$
|
—
|
$
|
731,078
|
|||||||
|
Cost
of goods sold
|
—
|
115,458
|
451,175
|
17,308
|
—
|
583,941
|
|||||||||||||
|
Gross
profit
|
—
|
42,030
|
105,861
|
(754
|
)
|
—
|
147,137
|
||||||||||||
|
Operating
expenses
|
1,976
|
19,258
|
46,755
|
2,293
|
—
|
70,282
|
|||||||||||||
|
Operating
income (loss)
|
(1,976
|
)
|
22,772
|
59,106
|
(3,047
|
)
|
—
|
76,855
|
|||||||||||
|
Other
income
|
—
|
—
|
—
|
(299
|
)
|
—
|
(299
|
)
|
|||||||||||
|
Interest
expense (income), net
|
(349
|
)
|
(20,268
|
)
|
63,576
|
1,552
|
—
|
44,511
|
|||||||||||
|
Income
taxes
|
21
|
14,276
|
293
|
141
|
—
|
14,731
|
|||||||||||||
|
Equity
in net (income) loss from subsidiary
|
(19,560
|
)
|
9,204
|
4,441
|
—
|
5,915
|
—
|
||||||||||||
|
Net
income (loss)
|
$
|
17,912
|
$
|
19,560
|
$
|
(9,204
|
)
|
$
|
(4,441
|
)
|
$
|
(5,915
|
)
|
$
|
17,912
|
||||
|
Consolidating
Statement of Cash Flows
|
|
|
|
|
|
|
|||||||||||||
|
Net
income (loss)
|
$
|
17,912
|
$
|
19,560
|
$
|
(9,204
|
)
|
$
|
(4,441
|
)
|
$
|
(5,915
|
)
|
$
|
17,912
|
||||
|
Non-cash
expenses
|
1,976
|
22,642
|
43,496
|
2,346
|
—
|
70,460
|
|||||||||||||
|
Equity
in net (income) loss from subsidiary
|
(19,560
|
)
|
9,204
|
4,441
|
—
|
5,915
|
—
|
||||||||||||
|
Changes
in working capital
|
(350
|
)
|
8,203
|
(9,806
|
)
|
723
|
—
|
(1,230
|
)
|
||||||||||
|
Net
cash provided by (used for operating activities
|
(22
|
)
|
59,609
|
28,927
|
(1,372
|
)
|
—
|
87,142
|
|||||||||||
|
Net
cash used for investing activities
|
—
|
(5,115
|
)
|
(44,234
|
)
|
(2,845
|
)
|
—
|
(52,194
|
)
|
|||||||||
|
Net
cash provided by (used for) financing activities
|
22
|
(45,048
|
)
|
15,288
|
5,166
|
—
|
(24,572
|
)
|
|||||||||||
|
Effect
of exchange rate changes on cash
|
—
|
—
|
—
|
119
|
—
|
119
|
|||||||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
—
|
9,446
|
(19
|
)
|
1,068
|
—
|
10,495
|
||||||||||||
|
Cash
and cash equivalents at beginning of period
|
—
|
22,814
|
313
|
1,629
|
—
|
24,756
|
|||||||||||||
|
Cash
and cash equivalents at end of period
|
$
|
—
|
$
|
32,260
|
$
|
294
|
$
|
2,697
|
$
|
—
|
$
|
35,251
|
|||||||
F-15
|
|
Twenty-six
Weeks Ended July 2, 2005
|
||||||||||||||||||
|
|
BPC Holding
Corporation
(Parent)
|
Berry Plastics
Corporation
(Issuer)
|
Combined
Guarantor
Subsidiaries
|
Combined
Non-guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
|
|||||||||||||
|
Consolidating
Statement of Operations
|
|
|
|
|
|
|
|||||||||||||
|
Net
sales
|
$
|
—
|
$
|
140,959
|
$
|
353,523
|
$
|
13,699
|
$
|
—
|
$
|
508,181
|
|||||||
|
Cost
of goods sold
|
—
|
104,532
|
299,193
|
13,768
|
—
|
417,493
|
|||||||||||||
|
Gross
profit
|
—
|
36,427
|
54,330
|
(69
|
)
|
—
|
90,688
|
||||||||||||
|
Operating
expenses
|
—
|
15,113
|
23,392
|
1,722
|
—
|
40,227
|
|||||||||||||
|
Operating
income (loss)
|
—
|
21,314
|
30,938
|
(1,791
|
)
|
—
|
50,461
|
||||||||||||
|
Other
expenses
|
—
|
—
|
—
|
1,569
|
—
|
1,569
|
|||||||||||||
|
Interest
expense (income), net
|
(397
|
)
|
(3,157
|
)
|
40,229
|
493
|
—
|
37,168
|
|||||||||||
|
Income
taxes
|
21
|
6,001
|
56
|
96
|
—
|
6,174
|
|||||||||||||
|
Equity
in net (income) loss from subsidiary
|
(5,174
|
)
|
13,296
|
3,949
|
—
|
(12,071
|
)
|
—
|
|||||||||||
|
Net
income (loss)
|
$
|
5,550
|
$
|
5,174
|
$
|
(13,296
|
)
|
$
|
(3,949
|
)
|
$
|
12,071
|
$
|
5,550
|
|||||
|
|
|
|
|
|
|
|
|||||||||||||
|
Consolidating
Statement of Cash Flows
|
|
|
|
|
|
|
|||||||||||||
|
Net
income (loss)
|
$
|
5,550
|
$
|
5,174
|
$
|
(13,296
|
)
|
$
|
(3,949
|
)
|
$
|
12,071
|
$
|
5,550
|
|||||
|
Non-cash
expenses
|
—
|
21,375
|
24,487
|
3,524
|
—
|
49,386
|
|||||||||||||
|
Equity
in net (income) loss from subsidiary
|
(5,174
|
)
|
13,296
|
3,949
|
—
|
(12,071
|
)
|
—
|
|||||||||||
|
Changes
in working capital
|
(396
|
)
|
(19,736
|
)
|
20,315
|
(3,734
|
)
|
—
|
(3,551
|
)
|
|||||||||
|
Net
cash provided by (used for) operating activities
|
(20
|
)
|
20,109
|
35,455
|
(4,159
|
)
|
—
|
51,385
|
|||||||||||
|
Net
cash used for investing activities
|
—
|
(473,294
|
)
|
(11,678
|
)
|
(13,727
|
)
|
—
|
(498,699
|
)
|
|||||||||
|
Net
cash provided by (used for) financing activities
|
20
|
453,149
|
(18,821
|
)
|
18,343
|
—
|
452,691
|
||||||||||||
|
Effect
of exchange rate changes on cash
|
—
|
—
|
—
|
12
|
—
|
12
|
|||||||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
—
|
(36
|
)
|
4,956
|
469
|
—
|
5,389
|
||||||||||||
|
Cash
and cash equivalents at beginning of period
|
—
|
85
|
42
|
137
|
—
|
264
|
|||||||||||||
|
Cash
and cash equivalents at end of period
|
$
|
—
|
$
|
49
|
$
|
4,998
|
$
|
606
|
$
|
—
|
$
|
5,653
|
|||||||
F-16
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Stockholders and Board of Directors
BPC
Holding Corporation
We
have
audited the accompanying consolidated balance sheets of BPC Holding Corporation
as of December 31, 2005 and January 1, 2005, and the related
consolidated statements of income, stockholders’ equity, and cash flows for each
of the years ended December 31, 2005, January 1, 2005 and
December 27, 2003. 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 the standards of the Public Company
Accounting Oversight Board (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. We were not engaged to perform
an
audit of the Company’s internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as
a basis
for designing audit procedures that are appropriate in the circumstances,
but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and
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 consolidated financial position of BPC Holding
Corporation at December 31, 2005 and January 1, 2005, and the
consolidated results of its operations and its cash flows for each of the
years
ended December 31, 2005, January 1, 2005 and December 27,
2003, in conformity with U.S. generally accepted accounting principles.
/s/
ERNST & YOUNG LLP
Indianapolis,
Indiana
February 17,
2006
F-17
BPC
Holding Corporation
Consolidated
Balance Sheets
(In
thousands of dollars, except per share information)
|
|
December 31,
2005
|
January 1,
2005
|
|||||
|
Assets
|
|
|
|||||
|
Current
assets:
|
|
|
|||||
|
Cash
and cash equivalents
|
$
|
24,756
|
$
|
264
|
|||
|
Accounts
receivable (less allowance for doubtful accounts of $5,766 at
December 31, 2005 and $3,207 at January 1, 2005)
|
140,443
|
83,162
|
|||||
|
Inventories:
|
|
|
|||||
|
Finished
goods
|
101,632
|
70,371
|
|||||
|
Raw
materials and supplies
|
50,716
|
38,663
|
|||||
|
|
152,348
|
109,034
|
|||||
|
Deferred
income taxes
|
22,905
|
—
|
|||||
|
Prepaid
expenses and other current assets
|
39,037
|
27,339
|
|||||
|
Total
current assets
|
379,489
|
219,799
|
|||||
|
Property
and equipment:
|
|
|
|||||
|
Land
|
12,292
|
10,016
|
|||||
|
Buildings
and improvements
|
92,810
|
64,758
|
|||||
|
Equipment
and construction in progress
|
497,364
|
317,784
|
|||||
|
|
602,466
|
392,558
|
|||||
|
Less
accumulated depreciation
|
179,022
|
110,586
|
|||||
|
|
423,444
|
281,972
|
|||||
|
Intangible
assets:
|
|
|
|||||
|
Deferred
financing fees, net
|
18,333
|
19,883
|
|||||
|
Customer
relationships, net
|
255,981
|
84,959
|
|||||
|
Goodwill
|
495,258
|
358,883
|
|||||
|
Trademarks,
net
|
47,065
|
33,448
|
|||||
|
Other
intangibles, net
|
28,260
|
6,106
|
|||||
|
|
844,897
|
503,279
|
|||||
|
Other
|
—
|
94
|
|||||
|
Total
assets
|
$
|
1,647,830
|
$
|
1,005,144
|
|||
|
Liabilities
and stockholders’ equity
|
|
|
|||||
|
Current
liabilities:
|
|
|
|||||
|
Accounts
payable
|
$
|
64,970
|
$
|
55,671
|
|||
|
Accrued
interest
|
20,165
|
18,816
|
|||||
|
Employee
compensation, payroll and other taxes
|
43,915
|
28,190
|
|||||
|
Accrued
expenses and other current liabilities
|
34,730
|
16,693
|
|||||
|
Current
portion of long-term debt
|
13,928
|
10,335
|
|||||
|
Total
current liabilities
|
177,708
|
129,705
|
|||||
|
Long-term
debt, less current portion
|
1,146,692
|
687,223
|
|||||
|
Deferred
income taxes
|
94,934
|
1,030
|
|||||
|
Other
long-term liabilities
|
25,108
|
3,295
|
|||||
|
Total
liabilities
|
1,444,442
|
821,253
|
|||||
F-18
|
Stockholders’
equity:
|
|
|
|||||
|
Preferred
stock; $;01 par value: 500,000 shares authorized; 0 shares issued
and
outstanding at December 31, 2005 and January 1,
2005
|
—
|
—
|
|||||
|
Common
stock; $.01 par value: 5,000,000 shares authorized; 3,398,807
shares
issued and 3,374,348 shares outstanding at December 31, 2005; and
3,398,807 shares issued and 3,377,923 shares outstanding at
January 1, 2005
|
34
|
34
|
|||||
|
Additional
paid-in capital
|
346,943
|
345,001
|
|||||
|
Adjustment
of the carryover basis of continuing stockholders
|
(196,603
|
)
|
(196,603
|
)
|
|||
|
Notes
receivable—common stock
|
(14,273
|
)
|
(14,856
|
)
|
|||
|
Treasury
stock: 24,459 shares and 20,502 shares of common stock at
December 31, 2005 and January 1, 2005,
respectively
|
(3,547
|
)
|
(2,049
|
)
|
|||
|
Retained
earnings
|
58,969
|
39,178
|
|||||
|
Accumulated
other comprehensive income
|
11,865
|
13,186
|
|||||
|
Total
stockholders’ equity
|
203,388
|
183,891
|
|||||
|
Total
liabilities and stockholders’ equity
|
$
|
1,647,830
|
$
|
1,005,144
|
|||
See
notes
to consolidated financial statements.
F-19
BPC
Holding Corporation
Consolidated
Statements of Income
(in
thousands of dollars)
|
|
Year
Ended
|
|||||||||
|
|
December 31,
2005
|
January 1,
2005
|
December 27,
2003
|
|||||||
|
Net
sales
|
$
|
1,169,704
|
$
|
814,213
|
$
|
551,876
|
||||
|
Cost
of goods sold
|
943,370
|
639,329
|
420,750
|
|||||||
|
Gross
profit
|
226,334
|
174,884
|
131,126
|
|||||||
|
Operating
expenses:
|
|
|
|
|||||||
|
Selling
|
34,145
|
26,361
|
23,883
|
|||||||
|
General
and administrative
|
49,477
|
38,518
|
25,699
|
|||||||
|
Research
and development
|
6,131
|
3,825
|
3,459
|
|||||||
|
Amortization
of intangibles
|
15,574
|
6,513
|
3,326
|
|||||||
|
Other
expenses
|
5,218
|
5,791
|
3,569
|
|||||||
|
Operating
income
|
115,789
|
93,876
|
71,190
|
|||||||
|
Other
expense (income)
|
|
|
|
|||||||
|
Gain
on disposal of property and equipment
|
—
|
—
|
(7
|
)
|
||||||
|
Unrealized
loss on investment in Southern Packaging
|
1,354
|
—
|
—
|
|||||||
|
Income
before interest and taxes
|
114,435
|
93,876
|
71,197
|
|||||||
|
Interest:
|
|
|
|
|||||||
|
Expense
|
74,445
|
54,076
|
46,251
|
|||||||
|
Loss
on extinguished debt
|
7,045
|
—
|
250
|
|||||||
|
Income
|
(1,171
|
)
|
(891
|
)
|
(838
|
)
|
||||
|
Income
before income taxes
|
34,116
|
40,691
|
25,534
|
|||||||
|
Income
taxes
|
14,325
|
17,740
|
12,486
|
|||||||
|
Net
income
|
$
|
19,791
|
$
|
22,951
|
$
|
13,048
|
||||
See
notes
to consolidated financial statements.
F-20
BPC
Holding Corporation
Consolidated
Statements of Changes in Stockholders’ Equity
(in
thousands of dollars)
|
|
Common
Stock
|
Additional
Paid-In
Capital
|
Adjustment of
the
carryover
basis
of
continuing
stockholders
|
Notes
receivable—
common
stock
|
Treasury
Stock
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income
|
Total
|
Comprehensive
Income
|
|||||||||||||||||||
|
Balance
at
December 28,
2002
|
$
|
28
|
$
|
281,816
|
$
|
(196,603
|
)
|
$
|
(14,399
|
)
|
$
|
—
|
$
|
3,179
|
$
|
1,142
|
$
|
75,163
|
$
|
4,321
|
||||||||
|
Issuance
of
common
stock
|
6
|
62,547
|
—
|
—
|
—
|
—
|
—
|
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
|
34
|
344,363
|
(196,603
|
)
|
(14,157
|
)
|
(1,972
|
)
|
16,227
|
4,699
|
152,591
|
16,605
|
||||||||||||||||
|
Issuance
of
common
stock
|
—
|
53
|
—
|
—
|
—
|
—
|
—
|
53
|
—
|
|||||||||||||||||||
|
Collection
on
notes
receivable
|
—
|
—
|
—
|
73
|
—
|
—
|
—
|
73
|
—
|
|||||||||||||||||||
|
Purchase
of
treasury
stock
|
—
|
—
|
—
|
—
|
(192
|
)
|
—
|
—
|
(192
|
)
|
—
|
|||||||||||||||||
|
Sale
of
treasury
stock
|
—
|
—
|
—
|
—
|
115
|
—
|
—
|
115
|
—
|
|||||||||||||||||||
|
Interest
on
notes
receivable
|
—
|
—
|
—
|
(772
|
)
|
—
|
—
|
—
|
(772
|
)
|
—
|
|||||||||||||||||
|
Stock-based
compensation
|
—
|
585
|
—
|
—
|
—
|
—
|
—
|
585
|
|
|||||||||||||||||||
|
Translation
gain
|
—
|
—
|
—
|
—
|
—
|
—
|
2,743
|
2,743
|
2,743
|
|||||||||||||||||||
|
Other
comprehensive
gains
|
—
|
—
|
—
|
—
|
—
|
—
|
5,744
|
5,744
|
5,744
|
|||||||||||||||||||
|
Net
income
|
—
|
—
|
—
|
—
|
—
|
22,951
|
—
|
22,951
|
22,951
|
|||||||||||||||||||
|
Balance
at
January 1,
2005
|
34
|
345,001
|
(196,603
|
)
|
(14,856
|
)
|
(2,049
|
)
|
39,178
|
13,186
|
183,891
|
31,438
|
||||||||||||||||
|
Collection
on
notes
receivable
|
—
|
—
|
—
|
1,361
|
—
|
—
|
—
|
1,361
|
—
|
|||||||||||||||||||
|
Purchase
of
treasury
stock
|
—
|
(15
|
)
|
—
|
—
|
(5,498
|
)
|
—
|
—
|
(5,513
|
)
|
—
|
||||||||||||||||
|
Sale
of
treasury
stock
|
—
|
(195
|
)
|
—
|
—
|
4,000
|
—
|
—
|
3,805
|
—
|
||||||||||||||||||
|
Interest
on
notes
receivable
|
—
|
—
|
—
|
(778
|
)
|
—
|
—
|
—
|
(778
|
)
|
—
|
|||||||||||||||||
|
Stock-based
compensation
|
—
|
2,152
|
—
|
—
|
—
|
—
|
—
|
2,152
|
—
|
|||||||||||||||||||
|
Translation
losses
|
—
|
—
|
—
|
—
|
—
|
—
|
(3,225
|
)
|
(3,225
|
)
|
(3,225
|
)
|
||||||||||||||||
|
Other
comprehensive
gains
|
—
|
—
|
—
|
—
|
—
|
—
|
1,904
|
1,904
|
1,904
|
|||||||||||||||||||
|
Net
income
|
—
|
—
|
—
|
—
|
—
|
19,791
|
—
|
19,791
|
19,791
|
|||||||||||||||||||
|
Balance
at
December 31,
2005
|
$
|
34
|
$
|
346,943
|
$
|
(196,603
|
)
|
$
|
(14,273
|
)
|
$
|
(3,547
|
)
|
$
|
58,969
|
$
|
11,865
|
$
|
203,388
|
$
|
18,470
|
|||||||
See
notes
to consolidated financial statements.
F-21
BPC
Holding Corporation
Consolidated
Statements of Cash Flows
(in
thousands of dollars)
|
|
Year
Ended
|
|||||||||
|
|
December 31,
2005
|
January 1,
2005
|
December 27,
2003
|
|||||||
|
Operating
activities
|
|
|
|
|||||||
|
Net
income
|
$
|
19,791
|
$
|
22,951
|
$
|
13,048
|
||||
|
Adjustments
to reconcile net income to net cash
provided
by operating activities:
|
|
|
|
|||||||
|
Depreciation
|
73,146
|
54,303
|
40,752
|
|||||||
|
Non-cash
interest expense
|
1,945
|
1,862
|
2,318
|
|||||||
|
Write
off of deferred financing fees
|
7,045
|
—
|
—
|
|||||||
|
Amortization
of intangibles
|
15,574
|
6,513
|
3,326
|
|||||||
|
Non-cash
compensation
|
2,152
|
585
|
—
|
|||||||
|
Unrealized
loss on investment in Southern Packaging
|
1,354
|
—
|
—
|
|||||||
|
Gain
on sale of property and equipment
|
—
|
—
|
(7
|
)
|
||||||
|
Deferred
income taxes
|
12,769
|
16,772
|
11,791
|
|||||||
|
Changes
in operating assets and liabilities:
|
|
|
|
|||||||
|
Accounts
receivable, net
|
(13,004
|
)
|
(7,216
|
)
|
(598
|
)
|
||||
|
Inventories
|
(8,720
|
)
|
(27,200
|
)
|
5,600
|
|||||
|
Prepaid
expenses and other assets
|
309
|
(7,022
|
)
|
(2.550
|
)
|
|||||
|
Accrued
interest
|
1,349
|
683
|
3,894
|
|||||||
|
Payables
and accrued expenses
|
(12,164
|
)
|
13,002
|
2,199
|
||||||
|
Net
cash provided by operating activities
|
101,546
|
75,233
|
79,773
|
|||||||
|
Investing
activities
|
|
|
|
|||||||
|
Additions
to property and equipment
|
(57,829
|
)
|
(52,624
|
)
|
(29,949
|
)
|
||||
|
Proceeds
from disposal of property and equipment
|
2,223
|
2,986
|
7
|
|||||||
|
Proceeds
from working capital settlement on business acquisition
|
—
|
7,397
|
—
|
|||||||
|
Investment
in Southern Packaging
|
—
|
(3,236
|
)
|
—
|
||||||
|
Acquisitions
of businesses
|
(464,392
|
)
|
—
|
(235,710
|
)
|
|||||
|
Net
cash used for investing activities
|
(519,998
|
)
|
(45,477
|
)
|
(265,652
|
)
|
||||
|
Financing
activities
|
|
|
|
|||||||
|
Proceeds
from long-term borrowings
|
465,052
|
880
|
149,944
|
|||||||
|
Payments
on long-term borrowings
|
(12,882
|
)
|
(55,996
|
)
|
(10,111
|
)
|
||||
|
Issuance
of common stock
|
—
|
53
|
62,553
|
|||||||
|
Purchase
of treasury stock
|
(5,513
|
)
|
(192
|
)
|
(973
|
)
|
||||
|
Proceeds
from notes receivable
|
1,361
|
73
|
—
|
|||||||
|
Sale
of treasury stock
|
3,805
|
115
|
—
|
|||||||
|
Debt
financing costs
|
(8,637
|
)
|
(641
|
)
|
(4,592
|
)
|
||||
|
Net
cash provided by (used for) financing activities
|
443,186
|
(55,708
|
)
|
196,821
|
||||||
|
Effect
of exchange rate changes on cash
|
(242
|
)
|
24
|
(363
|
)
|
|||||
|
Net
increase (decrease) in cash and cash equivalents
|
24,492
|
(25,928
|
)
|
10,579
|
||||||
|
Cash
and cash equivalents at beginning of year
|
264
|
26,192
|
15,613
|
|||||||
|
Cash
and cash equivalents at end of year
|
$
|
24,756
|
$
|
264
|
$
|
26,192
|
||||
See
notes
to consolidated financial statements.
F-22
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, 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; Phoenix, Arizona;
Ahoskie, North Carolina; Bowling Green, Kentucky; Sarasota, Florida; Jackson,
Tennessee; Anaheim, California; Cranbury, New Jersey; Easthampton,
Massachusetts; Oxnard, California; and Toluca, Mexico.
Holding’s
fiscal year is a 52/53 week period ending generally on the Saturday closest
to
December 31. All references herein to “2005”, “2004,” and “2003,” relate to
the fiscal years ended December 31, 2005, January 1, 2005, and
December 27, 2003, respectively.
Note
2. Summary of Significant Accounting Policies
Consolidation
and Business
The
consolidated financial statements include the accounts of Holding and its
subsidiaries, all of which are wholly owned. Intercompany accounts and
transactions have been eliminated in consolidation. Holding, through its
wholly
owned subsidiaries, operates in two primary segments: open top and closed
top.
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 $385.0 million and $283.0 million in 2005 and
2004, respectively. Dow Chemical Corporation was the largest supplier of
the
Company’s total resin material requirements, representing approximately 29% and
32% of such resin requirements in 2005 and 2004, respectively. The Company
also
uses other suppliers such as Basell, Nova, Total, Lyondell, Chevron, Exxon,
Mobil, Sunoco, and Huntsman to meet its resin requirements.
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.
F-23
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. Additionally, the allowance for doubtful
accounts includes a reserve for cash discounts that are offered to some
customers for prompt payment. The following table summarizes the activity
by
period for the allowance for doubtful accounts, excluding the activity
related
to cash discounts due to its volume.
|
|
Year
Ended
|
|||||||||
|
|
December 31, 2005
|
January 1, 2005
|
December 27, 2003
|
|||||||
|
Balance
at beginning of period
|
$
|
3,207
|
$
|
2,717
|
$
|
1,990
|
||||
|
Charged
to costs and expenses
|
592
|
323
|
150
|
|||||||
|
Charged
to other accounts(1)
|
1,851
|
—
|
545
|
|||||||
|
Deductions
and currency translation(2)
|
116
|
167
|
32
|
|||||||
|
Balance
at end of period
|
$
|
5,766
|
$
|
3,207
|
$
|
2,717
|
||||
(1) Primarily
relates to purchase of accounts receivable and related allowance through
acquisitions.
(2) Uncollectible
accounts written off, net of recoveries, and currency translation on foreign
operations.
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. Leasehold improvements are depreciated over the
shorter
of the useful life of the improvement and the lease life. 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
goodwill acquired represents 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 Merger. These costs are reviewed annually for impairment pursuant
to
Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other
Intangible Assets.
Trademarks
that are expected to remain in use, which are indefinite lived intangible
assets, are reviewed for impairment annually pursuant to SFAS No. 142,
and those
trademarks that are expected to be phased out are being amortized using
the
straight-line method over the estimated life of five years.
F-24
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 interest rate hedge instruments to manage a portion of its
interest
rate exposures. In 2004, the Company also entered into resin forward contracts,
which became effective in 2005, to manage certain resin price exposures.
These
instruments are entered into to manage market risk exposures and are not
used
for trading purposes.
Derivatives
used for hedging purposes must be designated as, and effective as, a hedge
of
the identified risk exposure at the designation of the contract. Accordingly,
changes in the market value of the derivative contract must be highly correlated
with changes in the market value of the underlying hedged item at inception
of
the hedge and over the life of the hedge contract. Any derivative instrument
terminated, designated but no longer effective as a hedge, or initially
not
effective as a hedge would be recorded at market value and the related
gains and
losses would be recognized in earnings. Derivatives not designated as hedges
are
adjusted to fair value through the consolidated statement of income. Management
routinely reviews the effectiveness of the use of derivative instruments.
Gains
and
losses from hedges of anticipated transactions are classified in the statement
of income consistent with the accounting treatment of the items being hedged.
The Company has recognized the interest rate hedge instruments and resin
forward
contracts at 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 income 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 in
stockholders’ equity. Foreign currency transaction gains and losses are included
in net income.
F-25
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
SFAS
No.
123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148,
“Accounting for Stock-Based Compensation—Transition and Disclosure,” established
accounting and disclosure requirements using a fair-value-based method
of
accounting for stock-based employee compensation plans. As provided for
under
SFAS 123, the Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion 25, “Accounting
for Stock Issued to Employees.” Compensation cost for stock options, if any, is
measured as the excess of the fair value of the Company’s stock at the date of
grant over the amount an employee must pay to acquire the stock. The fair
value
for options granted by Holding have been estimated at the date of grant
using a
Black Scholes option pricing model with the following weighted average
assumptions:
|
|
Year
Ended
|
|||||||||
|
|
December 31, 2005
|
January 1, 2005
|
December 27, 2003
|
|||||||
|
Risk-free
interest rate
|
4.5
|
%
|
3.1
|
%
|
3.0
|
%
|
||||
|
Dividend
yield
|
0.0
|
%
|
0.0
|
%
|
0.0
|
%
|
||||
|
Volatility
factor
|
.25
|
.25
|
.25
|
|||||||
|
Expected
option life
|
5.0
years
|
5.0
years
|
5.0
years
|
|||||||
For
purposes of the pro forma disclosures, the estimated fair value of the
stock
options are amortized to expense over the related vesting period. Because
compensation expense is recognized over the vesting period, the initial
impact
on pro forma net income may not be representative of compensation expense
in
future years, when the effect of amortization of multiple awards would
be
reflected in the Consolidated Statement of Income. The following is a
reconciliation of reported net income to net income as if the Company used
the
fair value method of accounting for stock-based compensation.
|
|
Year
Ended
|
|||||||||
|
|
December 31, 2005
|
January 1, 2005
|
December 27, 2003
|
|||||||
|
Reported
net income
|
$
|
19,791
|
$
|
22,951
|
$
|
13,048
|
||||
|
Stock-based
employee compensation expense included in reported income, net
of
tax
|
1,291
|
351
|
—
|
|||||||
|
Total
stock-based employee compensation expense determined under fair
value
based method, for all awards, net of tax
|
(2,508
|
)
|
(2,294
|
)
|
(2,044
|
)
|
||||
|
Pro
forma net income
|
$
|
18,574
|
$
|
21,008
|
$
|
11,004
|
||||
F-26
Income
Taxes
The
Company accounts for income taxes under the asset and liability approach,
which
requires the recognition of deferred tax assets and liabilities for the
expected
future tax consequence of events that have been recognized in the Company’s
financial statements or income tax returns. Income taxes are recognized
during
the year in which the underlying transactions are reflected in the Consolidated
Statements of Income. 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. If the Company
determines that a deferred tax asset arising from temporary differences
is not
likely to be utilized, the Company will establish a valuation allowance
against
that asset to record it at its expected realizable value.
Comprehensive
Income
Comprehensive
income is comprised of net income and other comprehensive income. Other
comprehensive income 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.
Pension
Pension
benefit costs include assumptions for the discount rate, retirement age,
and
expected return on plan assets. Retiree medical plan costs include assumptions
for the discount rate, retirement age, and health-care-cost trend rates.
Periodically, the Company evaluates the discount rate and the expected
return on
plan assets in its defined benefit pension and retiree health benefit plans.
In
evaluating these assumptions, the Company considers many factors, including
an
evaluation of the discount rates, expected return on plan assets and the
health-care-cost trend rates of other companies; historical assumptions
compared
with actual results; an analysis of current market conditions and asset
allocations; and the views of advisers.
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.
F-27
Impact
of Recently Issued Accounting Standards
In
November 2004, the FASB issued Statement of Financial Accounting Standards
No.
151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 (“SFAS 151”). SFAS
151 requires the exclusion of certain costs from inventories and the allocation
of fixed production overheads to inventories to be based on normal capacity
of
the production facilities. The provisions of SFAS 151 are effective for
costs
incurred during fiscal years beginning after June 15, 2005. Earlier
adoption is permitted for inventory costs incurred during fiscal years
beginning
after the issuance date of SFAS 151. The Company does not expect the adoption
of
this
new
standard to have a material effect on the Company’s financial position or
results of operations.
In
December 2004, the FASB issued Statement of Financial Accounting Standards
No.
123R (Revised 2004,) Share-Based Payment (“SFAS No. 123R”), which requires that
the compensation cost relating to share-based payment transactions be recognized
in financial statements based on alternative fair value models. The share-based
compensation cost will be measured based on the fair value of the equity
or
liability instruments issued. The Company currently discloses pro forma
compensation expense quarterly and annually by calculating the stock option
grants’ fair value using the Black-Scholes model and disclosing the impact on
net income in a Note to the Consolidated Financial Statements. Upon adoption,
pro forma disclosure will no longer be an alternative. For nonpublic companies,
as defined, the effective date of SFAS No. 123R is the beginning of the
first
annual reporting period that begins after December 15, 2005, although early
adoption is allowed. The Company will adopt SFAS No. 123R in the first
quarter
of 2006. Based upon outstanding options as of December 31, 2005, after-tax
expense, as calculated using the Black-Scholes model would be approximately
$2.3
million in 2006.
In
2005,
the FASB issued FASB Interpretation No. 47, Accounting for Conditional
Asset
Retirement Obligations, an interpretation of FASB Statement No. 143, Asset
Retirement Obligations (“FIN 47”). FIN 47 provides clarification of the term
“conditional asset retirement obligation” as used in SFAS 143, defined as a
legal obligation to perform an asset retirement activity in which the timing
or
method of settlement are conditional on a future event that may or may
not be
within the control of the Company. Under this standard, a company must
record a
liability for a conditional asset retirement obligation if the fair value
of the
obligation can be reasonably estimated. FIN 47 became effective for the
Company’s year ended December 31, 2005. The adoption of FIN 47 did not have
a material effect on our financial position or results of operations.
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 Holding, pursuant to
an agreement and plan of merger, dated as of May 25, 2002. At the effective
time of the Merger, (i) each share of common stock of Holding 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 Holding. 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%.
F-28
The
Merger has been accounted for under the purchase method of accounting,
and
accordingly, the purchase price was allocated to the identifiable assets
and
liabilities based on estimated fair values at the acquisition date. The
Company
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.
Note
4. Recent Acquisitions, Investment, and Disposal
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 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.
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.
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 of $3.2 million related to plant shutdown, severance and unfavorable
lease arrangement costs. The balance of these reserves at January 1, 2005
was $1.3 million and was reduced to $0.4 million at December 31, 2005 as a
result of $0.5 million of payments in fiscal 2005 and a reduction in the
estimate of $0.4 million in fiscal 2005.
On
November 1, 2004, the Company entered into a series of agreements with
Southern Packaging Group Ltd. (“Southern Packaging”), and its principal
shareholder, Mr. Pan Shun Ming, to jointly expand participation in the
plastic
packaging business in China and the surrounding region. In connection therewith,
Berry acquired a 10% stake in Southern Packaging, which has been recorded
as an
other current asset as a trading security at its fair market value of $1.8
million and $3.2 million as of December 31, 2005 and January, 1, 2005,
respectively, representing an unrealized loss of $1.4 million as of
December 31, 2005 and consistent with the cost basis at January 1,
2005.
F-29
Berry
Plastics U.K. Limited, a foreign subsidiary of Berry, sold the manufacturing
equipment, inventory, and accounts receivable of its U.K. milk cap business
to
Portola Packaging U.K. Limited. The transaction valued at approximately
$4.0
million closed in April 2004.
The
U.K. milk cap business represented less than $3.0 million of annual consolidated
net sales.
On
April 11, 2005, a subsidiary of Berry, Berry Plastics de México, S. de R.L.
de C.V., acquired all of the injection molding closure assets from Euromex,
an
injection molding manufacturer located in Toluca, Mexico, for aggregate
consideration of approximately $8.2 million. The purchase price was allocated
to
fixed assets ($4.1 million), inventory ($1.6 million), goodwill ($0.7 million),
and other intangibles ($1.8 million). The allocation of purchase price
is
preliminary and subject to change based on actual expenses and adjustments
of
estimates. The purchase was financed through borrowings under the Company’s
revolving line of credit and cash on hand. The operations from the Mexico
Acquisition are included in Berry’s operations since the acquisition date.
On
June 3, 2005, Berry acquired Kerr Group, Inc. (“Kerr”) for aggregate
consideration of approximately $455.8 million, including direct costs associated
with the acquisition. The operations from the Kerr Acquisition are included
in
our operations since the acquisition date. The purchase price was financed
through additional term loan borrowings under an amendment to our existing
senior secured credit facility and cash on hand. In accordance with EITF
95-3,
we established opening balance sheet reserves of $2.7 million related to
plant
shutdown and severance costs, of which payments totaling $0.5 million were
made
in 2005. The following table summarizes the allocation of purchase price
and the
estimated fair values of the assets acquired and liabilities assumed at
the date
of the acquisition. The allocation is preliminary and subject to change
based on
actual expenses and adjustments to estimated receivables and reserves.
|
|
June 3, 2005
|
|||
|
Current
assets
|
$
|
85,088
|
||
|
Property
and equipment
|
145,690
|
|||
|
Goodwill
|
134,280
|
|||
|
Customer
relationships
|
182,094
|
|||
|
Trademarks
|
16,140
|
|||
|
Other
intangibles
|
22,291
|
|||
|
Total
assets
|
585,583
|
|||
|
Current
liabilities
|
55,802
|
|||
|
Long-term
liabilities
|
73,942
|
|||
|
Total
liabilities
|
129,744
|
|||
|
Net
assets acquired
|
$
|
455,839
|
||
The
pro
forma financial results presented below are unaudited and assume that the
Landis
Acquisition and Kerr Acquisition occurred at the beginning of the respective
period. Pro forma results have not been adjusted to reflect the CCL Acquisition,
APM Acquisition, or Mexico Acquisition 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 Kerr Acquisition been consummated
at
the beginning of the respective period, nor are they necessarily indicative
of
future operating results. Further, the information reflects only pro forma
adjustments for additional interest expense, elimination of Berry’s write off of
deferred financing fees, and elimination of Kerr’s closing expenses, net of the
applicable income tax effects.
F-30
|
|
Year
Ended
|
|||||||||
|
|
December 31, 2005
|
January 1, 2005
|
December 27, 2003
|
|||||||
|
Pro
forma net sales
|
$
|
1,338,019
|
$
|
1,189,059
|
$
|
1,094,920
|
||||
|
Pro
forma net income (loss)
|
21,468
|
16,448
|
(4,267
|
)
|
||||||
Note
5. Intangible Assets and Deferred Costs
Intangible
assets and deferred costs consist of the following:
|
|
December 31, 2005
|
January 1, 2005
|
|||||
|
Deferred
financing fees
|
$
|
24,402
|
$
|
26,681
|
|||
|
Customer
relationships
|
275,614
|
93,641
|
|||||
|
Goodwill
|
495,258
|
358,883
|
|||||
|
Trademarks
|
49,588
|
33,448
|
|||||
|
Technology-based
|
27,206
|
5,115
|
|||||
|
Covenants
not to compete and other
|
4,613
|
2,622
|
|||||
|
Accumulated
amortization
|
(31,784
|
)
|
(17,111
|
)
|
|||
|
|
$
|
844,897
|
$
|
503,279
|
|||
The
increase in the intangible assets is primarily the result of intangible
assets
acquired in connection with the Kerr Acquisition. Also, as a result of
the
Second Amendment to the Second Amended and Restated Credit Facility, the
Company
expensed $7.0 million of unamortized deferred financing costs. The remaining
changes in intangible assets are primarily the result of the amortization
of
definite lived intangibles.
Future
amortization expense for definite lived intangibles at December 31, 2005
for the next five fiscal years is approximately $23.1 million, $23.0 million,
$22.8 million, $22.6 million, and $20.2 million for fiscal 2006, 2007,
2008,
2009, and 2010, respectively.
Note
6. Long-Term Debt
Long-term
debt consists of the following:
|
|
December 31, 2005
|
January 1, 2005
|
|||||
|
Berry
10 3/4%
Senior Subordinated Notes
|
$
|
335,000
|
$
|
335,000
|
|||
|
Debt
premium on 10 3/4%
Notes, net
|
7,699
|
8,876
|
|||||
|
Term
loans
|
791,025
|
330,780
|
|||||
|
Revolving
lines of credit
|
—
|
480
|
|||||
|
Nevada
Industrial Revenue Bonds
|
—
|
1,500
|
|||||
|
Capital
leases
|
26,896
|
20,922
|
|||||
|
|
1,160,620
|
697,558
|
|||||
|
Less
current portion of long-term debt
|
13,928
|
10,335
|
|||||
|
|
$
|
1,146,692
|
$
|
687,223
|
|||
F-31
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 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 Company’s foreign
subsidiaries.
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. 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.
New
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”). On August 9, 2004, the Amended and Restated
Credit Facility was amended and restated (the “Second Amended and Restated
Credit Facility”). On January 1, 2005, a First Amendment to the Second
Amended and Restated Credit Facility was entered into to permit Fifth Third
Bank
to assume the role of Administrative Agent and for Goldman Sachs Credit
Partners, L.P. to resign as Administrative Agent. On June 3, 2005, the
Company entered into a Second Amendment to the Second Amended and Restated
Credit Agreement with Deutsche Bank Trust Company Americas assuming the
role of
Administrative Agent. As a result of the Second Amendment to the Second
Amended
and Restated Credit Agreement, the Company expensed $7.0 million of unamortized
deferred financing and increased our term loan borrowings by $465.1 million
in
connection with the financing of the Kerr Acquisition. On October 26, 2005,
the Company entered into a Third Amendment to the Second Amended and Restated
Credit Agreement (the “New Credit Facility”) that reduced the applicable margin
on the term loan.
The
New
Credit Facility provides (1) a $795.0 million term loan and (2) a
$150.0 million revolving credit facility. The proceeds from the new term
loan
were used to repay the outstanding balance of the term loans from the Second
Amendment to the Second Amended and Restated Credit Facility and fund the
Kerr
Acquisition. The New Credit Facility permits the
F-32
Company
to borrow up to an additional $150.0 million of incremental senior term
indebtedness from lenders willing to provide such loans subject to certain
restrictions. The terms of the additional indebtedness will be determined
by the
market conditions at the time of borrowing. The maturity date of the term
loan
is December 2, 2011, and the maturity date of the revolving credit facility
is March 31, 2010. The indebtedness under the New Credit Facility is
guaranteed by Holding and all of its domestic subsidiaries. The obligations
of
Berry Plastics under the New Credit Facility and the guarantees thereof
are
secured by substantially all of the assets of such entities. At
December 31, 2005 and January 1, 2005, there were no borrowings
outstanding on the revolving credit facility. The revolving credit facility
allows up to $35.0 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. At December 31, 2005 and January 1, 2005, the Company
had $14.7 million and $8.5 million, respectively, in letters of credit
outstanding under the revolving credit facility.
The
New
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 New Credit Facility also contains borrowing conditions
and
customary events of default, including nonpayment of principal or interest,
violation of covenants, inaccuracy of representations and warranties,
cross-defaults to other indebtedness, bankruptcy and other insolvency events
(other than in the case of certain foreign subsidiaries). The Company was
in
compliance with all the financial and operating covenants at December 31,
2005. The term loan amortizes quarterly as follows: $1,987,500 each quarter
which began September 30, 2005 and ends September 30, 2010 and
$188,315,625 each quarter beginning December 31, 2010 and ending
September 30, 2011.
Borrowings
under the New Credit Facility bear interest, at the Company’s option, at either
(i) a base rate (equal to the greater of the prime rate and the federal
funds rate plus 0.5%) plus the applicable margin (the “Base Rate Loans”) or
(ii) an adjusted eurodollar LIBOR (adjusted for reserves) plus the
applicable margin (the “Eurodollar Rate Loans”). With respect to the term loan,
the “applicable margin” is (i) with respect to Base Rate Loans,
1.25% per annum and (ii) with respect to Eurodollar Rate Loans,
2.00% per annum (6.45% at December 31, 2005 and 4.22% at
January 1, 2005). In addition, the applicable margins with respect to the
term loan can be further reduced by an additional .25% per annum subject to
the Company meeting a leverage ratio target, which was met based on the
results
through December 31, 2005. 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 31, 2005). 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 and
expires on July 15, 2006. In June 2005, Berry entered into three separate
interest rate swap transactions to protect $300.0 million of the outstanding
variable rate term loan debt from future interest rate volatility. The
agreements were effective June 3, 2005 and expire on June 3, 2008. The
agreements swap three month variable LIBOR contracts for a fixed rate three
year
rate of 3.897%. At December 31, 2005 and January 1, 2005,
shareholders’ equity has been increased (reduced) by $3,548 and ($4),
respectively, to adjust the interest rate collar and swap agreements to
fair
market value. At December 31, 2005, the Company had unused borrowing
capacity under the New Credit Facility’s revolving line of credit of $135.3
million.
F-33
Future
maturities of long-term debt at December 31, 2005 are as follows:
|
2006
|
$13,928
|
|
2007
|
12,216
|
|
2008
|
14,193
|
|
2009
|
10,384
|
|
2010
|
194,369
|
|
Thereafter
|
907,831
|
|
|
$1,152,921
|
Interest
paid was $71,151, $53,393, and $40,040, for 2005, 2004, and 2003, respectively.
Interest capitalized was $1,230, $1,120, and $860, for 2005, 2004, and
2003,
respectively.
Note
7. Lease and Other Commitments
Certain
property and equipment are leased using capital and operating leases. In
2005
and 2004, Berry Plastics entered into various capital lease obligations
with no
immediate cash flow effect resulting in capitalized property and equipment
of
$11,482 and $2,101, respectively. Total capitalized lease property consists
of a
building and manufacturing equipment with a cost of $39,113 and $35,148
and
related accumulated amortization of $11,132 and $14,353 at December 31,
2005 and January 1, 2005, respectively. Capital lease amortization is
included in depreciation expense. Total rental expense from operating leases
was
approximately $23,210, $14,879, and $11,216 for 2005, 2004, and 2003,
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 31, 2005
|
||||||
|
|
Capital Leases
|
Operating Leases
|
|||||
|
2006
|
$
|
6,925
|
$
|
25,015
|
|||
|
2007
|
4,842
|
21,628
|
|||||
|
2008
|
4,901
|
19,169
|
|||||
|
2009
|
5,658
|
17,305
|
|||||
|
2010
|
693
|
15,852
|
|||||
|
Thereafter
|
8,029
|
88,835
|
|||||
|
|
$
|
31,048
|
$
|
187,804
|
|||
|
Less:
amount representing interest
|
(4,152
|
)
|
|
||||
|
Present
value of net minimum lease payments
|
$
|
26,896
|
|
||||
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 its financial
position or results of operations.
F-34
The
Company has various purchase commitments for raw materials, supplies and
property and equipment incidental to the ordinary conduct of business.
At
December 31, 2005, the
Company had committed approximately $52.7 million for resin on order that
had
not yet been received and $8.8 million to complete capital projects.
Note
8. Income Taxes
For
financial reporting purposes, income (loss) before income taxes, by tax
jurisdiction, is comprised of the following:
|
|
Year
Ended
|
|||||||||
|
|
December 31, 2005
|
January 1, 2005
|
December 27, 2003
|
|||||||
|
Domestic
|
$
|
43,519
|
$
|
44,841
|
$
|
29,556
|
||||
|
Foreign
|
(9,403
|
)
|
(4,150
|
)
|
(4,022
|
)
|
||||
|
|
$
|
34,116
|
$
|
40,691
|
$
|
25,534
|
||||
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 31, 2005
|
January 1, 2005
|
|||||
|
Deferred
tax assets:
|
|
|
|||||
|
Allowance
for doubtful accounts
|
$
|
1,877
|
$
|
804
|
|||
|
Inventory
|
1,918
|
1,409
|
|||||
|
Compensation
and benefit accruals
|
17,114
|
4,032
|
|||||
|
Insurance
reserves
|
1,557
|
363
|
|||||
|
Net
operating loss carryforwards
|
32,843
|
29,318
|
|||||
|
Alternative
minimum tax (AMT) credit carryforwards
|
6,398
|
3,821
|
|||||
|
Other
|
96
|
—
|
|||||
|
Total
deferred tax assets
|
61,803
|
39,747
|
|||||
|
Valuation
allowance
|
(6,741
|
)
|
(6,184
|
)
|
|||
|
Deferred
tax assets, net of valuation allowance
|
55,062
|
33,563
|
|||||
|
Deferred
tax liabilities:
|
|
|
|||||
|
Intangibles
|
88,837
|
14,793
|
|||||
|
Property
and equipment
|
35,888
|
19,418
|
|||||
|
Other
|
2,366
|
382
|
|||||
|
Total
deferred tax liabilities
|
127,091
|
34,593
|
|||||
|
Net
deferred tax liability
|
$
|
(72,029
|
)
|
$
|
(1,030
|
)
|
|
F-35
Income
tax expense consists of the following:
|
|
Year
Ended
|
|||||||||
|
|
December 31, 2005
|
January 1, 2005
|
December 27, 2003
|
|||||||
|
Current:
|
|
|
|
|||||||
|
Federal
|
$
|
735
|
$
|
363
|
$
|
402
|
||||
|
Foreign
|
189
|
133
|
61
|
|||||||
|
State
|
632
|
472
|
232
|
|||||||
|
Total
current
|
1,556
|
968
|
695
|
|||||||
|
Deferred:
|
|
|
|
|||||||
|
Federal
|
11,779
|
13,543
|
8,608
|
|||||||
|
Foreign
|
—
|
(173
|
)
|
—
|
||||||
|
State
|
990
|
3,402
|
3,183
|
|||||||
|
Total
deferred
|
12,769
|
16,772
|
11,791
|
|||||||
|
Income
tax expense
|
$
|
14,325
|
$
|
17,740
|
$
|
12,486
|
||||
Holding
has unused operating loss carryforwards of approximately $65.9 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 and Kerr Acquisition, the
unused
operating loss carryforward is subject to an annual limitation. The Company
is
in the process of finalizing the computation to determine the limitation
due to
the Kerr Acquisition and have preliminarily estimated the aggregate limit
as a
result of the Merger and Kerr Acquisition to be approximately $29.6 million
per
year.
Income
taxes paid during 2005, 2004, and 2003 approximated $1,152, $764, and $484,
respectively.
A
reconciliation of income tax expense, computed at the federal statutory
rate, to
income tax expense, as provided for in the financial statements, is as
follows:
|
|
Year
Ended
|
|||||||||
|
|
December 31,
2005
|
January 1,
2005
|
December 27,
2003
|
|||||||
|
Income
tax expense computed at statutory rate
|
$
|
11,941
|
$
|
14,244
|
$
|
8,721
|
||||
|
State
income tax expense, net of federal taxes
|
1,622
|
2,518
|
2,220
|
|||||||
|
Expenses
not deductible for income tax purposes
|
375
|
394
|
160
|
|||||||
|
Change
in valuation allowance
|
557
|
1,288
|
1,285
|
|||||||
|
Other
|
(170
|
)
|
(704
|
)
|
100
|
|||||
|
Income
tax expense
|
$
|
14,325
|
$
|
17,740
|
$
|
12,486
|
||||
Note
9. Employee Retirement Plans
In
connection with the Kerr Acquisition, the Company acquired two defined
benefit
pension plans which cover substantially all former employees and former
union
employees at Kerr’s former Lancaster facility. The Company also acquired a
retiree health plan from Kerr, which covers certain healthcare and life
insurance benefits for certain retired employees and their spouses. The
two
defined benefit plans of Kerr and the retiree health plan are all inactive
plans
and are included in the beginning of year totals in the table below for
the year
ended December 31, 2005 as a result of the Kerr Acquisition on June 3,
2005. The Company also maintains a defined benefit pension plan covering
the
Poly-Seal employees under a collective bargaining agreement. The Company
uses
December 31 as a measurement date for the retirement plans.
F-36
|
|
Defined
Benefit
Pension
Plans
|
Retiree
Health
Plan
|
||||||||
|
|
Year
Ended
|
|||||||||
|
|
December 31,
2005
|
January 1,
2005
|
December 31,
2005
|
|||||||
|
Change
in benefit obligation:
|
|
|
|
|||||||
|
Benefit
obligation at beginning of year
|
$
|
44,026
|
$
|
5,639
|
$
|
9,338
|
||||
|
Service
cost
|
257
|
269
|
11
|
|||||||
|
Interest
cost
|
1,457
|
352
|
268
|
|||||||
|
Actuarial
loss (gain)
|
(1,186
|
)
|
42
|
(1,589
|
)
|
|||||
|
Benefits
paid
|
(2,269
|
)
|
(198
|
)
|
(364
|
)
|
||||
|
Benefit
obligation at end of year
|
42,285
|
6,104
|
7,664
|
|||||||
|
Change
in plan assets:
|
|
|
|
|||||||
|
Fair
value of plan assets at beginning of year
|
33,558
|
4,775
|
—
|
|||||||
|
Actual
return on plan assets
|
1,898
|
190
|
—
|
|||||||
|
Employer
contribution
|
494
|
415
|
364
|
|||||||
|
Benefits
paid
|
(2,269
|
)
|
(198
|
)
|
(364
|
)
|
||||
|
Fair
value of plan assets at end of year
|
33,681
|
5,182
|
—
|
|||||||
|
Funded
status
|
(8,604
|
)
|
(922
|
)
|
(7,664
|
)
|
||||
|
Unrecognized
net actuarial loss (gain)
|
(645
|
)
|
765
|
(1,589
|
)
|
|||||
|
Unrecognized
prior service cost
|
597
|
686
|
—
|
|||||||
|
Net
amount recognized
|
$
|
(8,652
|
)
|
$
|
529
|
$
|
(9,253
|
)
|
||
|
|
Defined
Benefit
Pension
Plans
|
Retiree
Health
Plan
|
||||||||
|
|
Year
Ended
|
|||||||||
|
|
December 31,
2005
|
January 1,
2005
|
December 31,
2005
|
|||||||
|
Amounts
recognized in the consolidation balance sheet consisted
of:
|
|
|
|
|||||||
|
Prepaid
pension
|
$
|
413
|
$
|
529
|
$
|
—
|
||||
|
Accrued
benefit liability
|
(10,624
|
)
|
(1,456
|
)
|
(9,253
|
)
|
||||
|
Intangible
assets
|
597
|
685
|
—
|
|||||||
|
Accumulated
other comprehensive losses before income taxes
|
962
|
771
|
—
|
|||||||
|
Net
amount recognized
|
$
|
(8,652
|
)
|
$
|
529
|
$
|
(9,253
|
)
|
||
|
|
Defined
Benefit
Pension
Plans
|
Retiree
Health
Plan
|
||||||||
|
|
Year
Ended
|
|||||||||
|
|
December 31,
2005
|
January 1,
2005
|
December 31,
2005
|
|||||||
|
|
|
(Percents)
|
|
|||||||
|
Weighted
average assumptions
|
|
|
|
|||||||
|
Discount
rate for benefit obligation
|
5.5
|
6.3
|
5.5
|
|||||||
|
Discount
rate for net benefit cost
|
5.3
|
6.3
|
5.0
|
|||||||
|
Expected
return on plan assets for net benefit costs
|
8.0
|
8.0
|
—
|
|||||||
F-37
In
evaluating the expected return on plan assets, the Company considered its
historical assumptions compared with actual results, an analysis of current
market conditions, asset allocations, and the views of advisers.
Health-care-cost trend rates were assumed to increase at an annual rate
of 9.0
percent in 2006 trending down to 4.5 percent in 2011 and thereafter.
The
following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid as follows:
|
|
Defined
Benefit
Pension Plans
|
Retiree
Health Plan
|
|||||
|
2006
|
$
|
3,482
|
$
|
1,277
|
|||
|
2007
|
3,412
|
1,173
|
|||||
|
2008
|
3,353
|
1,005
|
|||||
|
2009
|
3,311
|
819
|
|||||
|
2010
|
3,247
|
684
|
|||||
|
2011-2015
|
16,253
|
2,485
|
|||||
In
2006,
the Company expects to contribute approximately $2.2 million to its retirement
plans to satisfy minimum funding requirements for the year.
Net
pension and retiree health benefit expense included the following components:
|
|
Year
Ended
|
|||||||||
|
|
December 31,
2005
|
January 1,
2005
|
December 27,
2003
|
|||||||
|
Components
of net period benefit cost:
|
|
|
|
|||||||
|
Defined
Benefit Pension Plans
|
|
|
|
|||||||
|
Service
cost
|
$
|
257
|
$
|
269
|
$
|
223
|
||||
|
Interest
cost
|
1,457
|
352
|
320
|
|||||||
|
Expected
return on plan assets
|
(1,692
|
)
|
(399
|
)
|
(345
|
)
|
||||
|
Amortization
of prior service cost
|
91
|
94
|
83
|
|||||||
|
Recognized
actuarial loss
|
60
|
36
|
12
|
|||||||
|
Net
periodic benefit cost
|
$
|
173
|
$
|
352
|
$
|
293
|
||||
|
Retiree
Health Benefit Plan
|
|
|
|
|||||||
|
Service
cost
|
$
|
11
|
$
|
—
|
$
|
—
|
||||
|
Interest
cost
|
268
|
—
|
—
|
|||||||
|
Net
periodic benefit cost
|
$
|
279
|
$
|
—
|
$
|
—
|
||||
Our
defined benefit pension plan asset allocations are as follows:
|
|
Year
Ended
|
||||||
|
|
December 31, 2005
|
January 1, 2005
|
|||||
|
Asset
Category
|
|
|
|||||
|
Equity
securities and equity-like instruments
|
51
|
%
|
60
|
%
|
|||
|
Debt
securities
|
47
|
34
|
|||||
|
Other
|
2
|
6
|
|||||
|
Total
|
100
|
%
|
100
|
%
|
|||
The
Company’s retirement plan assets are invested with the objective of providing
the plans the ability to fund current and future benefit payment requirements
while minimizing annual Company contributions. The plans’ asset allocation
strategy reflects a long-term growth
F-38
strategy
with approximately 51% allocated to growth investments and 47% allocated
to
fixed income investments. The Company re-addresses the allocation of its
investments on an annual basis.
Berry
Plastics also sponsors two defined contribution 401(k) retirement plans
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 these plans were approximately
$2,801, $2,020, and $1,408 for 2005, 2004, and 2003, respectively.
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 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 Holding.
Notes
Receivable from Management
In
connection with the Merger, certain senior employees of Holding acquired
shares
of Holding Common Stock pursuant to an employee stock purchase program.
Such
employees paid for these shares with any combination of (i) shares of
Holding common stock that they held prior to the Merger; (ii) their cash
transaction bonus, if any; and (iii) a promissory note. In addition,
Holding adopted an employee stock purchase program pursuant to which a
number of
employees had the opportunity to invest in Holding on a leveraged basis.
Employees participating in this program were permitted to finance two-thirds
of
their purchases of shares of 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 31, 2005 and January 1, 2005, the Company had $14,273 and
$14,856, 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
Holding
maintains the BPC Holding Corporation 1996 Stock Option Plan (“1996 Option
Plan”), as amended, pursuant to which nonqualified options to purchase 126,700
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
F-39
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.
Holding
has adopted an employee stock option plan (“2002 Option Plan”), as amended,
pursuant to which options to acquire up to 603,248 shares of Holding’s common
stock may be granted to its employees, directors and consultants. Options
granted under the 2002 Option Plan 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 have a ten-year term, subject to earlier
expiration upon the termination of the option holder’s employment and other
events. Some options granted under the plan become vested and exercisable
over a
five-year period based on continued service with Holding. Other options
become
vested and exercisable based on the achievement by Holding of certain financial
targets, or if such targets are not achieved, based on continued service
with
Holding. Upon a change in control of Holding, the vesting schedule with
respect
to certain options 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 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:
|
|
December 31,
2005
|
January 1,
2005
|
December 27,
2003
|
||||||
|
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Price
|
Number
Of
Shares
|
|
Weighted
Average
Exercise
Price
|
Number
Of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Options
outstanding,
beginning
of
period
|
$590,156
|
|
$102
|
$530,662
|
|
$94
|
$545,684
|
|
$86
|
|
Options
granted
|
96,051
|
|
145
|
65,465
|
|
120
|
38,713
|
|
100
|
|
Options
exercised
|
(31,652)
|
|
105
|
(1,640)
|
|
53
|
(9,757)
|
|
57
|
|
Options
forfeited
|
(29,346)
|
|
117
|
(4,331)
|
|
93
|
(43,978)
|
|
101
|
|
Options
outstanding,
end
of
period
|
625,209
|
|
113
|
590,156
|
|
102
|
530,662
|
|
94
|
|
Option
price range
at
end of price
|
|
$32-$163
|
|
|
$32-$142
|
|
|
$32-$124
|
|
|
Options
exercisable
at end
of
period
|
|
365,265
|
|
|
291,879
|
|
|
203,326
|
|
|
Options
available
for
grant at period
end
|
|
4,216
|
|
|
43,489
|
|
|
22,588
|
|
|
Weighted
average
fair
value of
options
granted
during
period
|
|
$45
|
|
|
$34
|
|
|
$28
|
|
F-40
The
following table summarizes information about the options outstanding at
December 31, 2005:
|
Range
of
Exercise
Prices
|
Number
Outstanding
At
December 31,
2005
|
Weighted
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
at
December 31,
2005
|
|
$32
- $72
|
126,700
|
7 years
|
$49
|
118,586
|
|
$100
|
209,297
|
7
years
|
$100
|
111,722
|
|
$120
|
45,526
|
8
years
|
$120
|
18,210
|
|
$145
|
92,946
|
9
years
|
$145
|
11,233
|
|
$163
|
150,740
|
7
years
|
$163
|
105,514
|
|
|
625,209
|
|
|
365,265
|
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 with
Goldman,
Sachs & Co., have the right to designate seven 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. 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
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
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 $0.5 million.
Goldman
Sachs Credit Partners, L.P., an affiliate of Goldman Sachs, acted as the
administrative agent, joint lead arranger and joint bookrunner for the
Second
Amended and Restated Credit Facility without separate compensation. JP
Morgan
Chase Bank, an affiliate of J.P. Morgan, acted as the joint lead arranger
and
joint bookrunner for the Second Amended and Restated Credit Facility for
consideration of approximately $0.4 million. In addition, the Company entered
into four resin forward contracts in the fourth quarter of 2004 ranging
from
6.0 million to 33.6 million annual pounds of resin with J.
Aron & Company, a division of Goldman, Sachs & Co., and enters
into foreign currency transactions through its normal course of business
with
Goldman, Sachs & Co. In June 2005, Berry entered into two separate
interest rate swap transactions for $100.0 million each with an affiliate
of
Goldman Sachs and an affiliate
F-41
of
J.P.
Morgan to protect a portion of the outstanding variable rate term loan
debt from
future interest rate volatility.
In
connection with the Kerr Acquisition, the Company paid $2.7 million to
entities
affiliated with Goldman, Sachs & Co. and $1.3 million to entities
affiliated with J.P. Morgan Chase & Co., for advisory and other
services. Goldman Sachs and J.P. Morgan Chase Bank, an affiliate of J.P.
Morgan,
acted as co-syndication agents, joint lead arrangers, and joint bookrunners
for
the Second Amendment to the Second Amended and Restated Credit Facility
for
consideration of $2.7 million and $2.4 million, respectively. Goldman Sachs
Credit Partners, L.P., an affiliate of Goldman Sachs, acted as the
co-syndication agent, joint lead arranger and joint bookrunner for the
Third
Amendment to the Second Amended and Restated Credit Facility without separate
compensation. JP Morgan Chase Bank, an affiliate of J.P. Morgan, acted
as the
co-syndication agent, joint lead arranger, and joint bookrunner for the
Third
Amendment to the Second Amended and Restated Credit Facility for consideration
of $0.5 million. Also, affiliates of Goldman Sachs & Co. and J.P.
Morgan invest in a portion of the Company’s credit facilities in its normal
course of business.
Note
12. Financial Instruments
Holding’s
and the Company’s financial instruments generally consist of cash and cash
equivalents, the investment in Southern Packaging, interest rate hedge
contracts, resin hedge contracts, and long-term debt. The carrying amounts
of
Holding’s and the Company’s financial instruments approximate fair value at
December 31, 2005 except for the 2002 Notes and Add-on Notes for which the
fair value exceeded the carrying value by $25.1 million.
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. In June 2005, Berry entered into three separate
interest rate swap transactions to protect $300.0 million of the outstanding
variable rate term loan debt from future interest rate volatility. The
collar
and interest rate swaps are accounted for as fair value hedges and the
gains and
losses arising from the instruments are recorded concurrently with gains
and
losses arising from the underlying transactions.
The
Company consumes plastic resin during the normal course of production.
The
fluctuations in the cost of plastic resin can vary the costs of production.
As
part of its risk management strategy, the Company entered into resin forward
hedging transactions constituting approximately 15% of its estimated 2005
resin
needs and 10% of its 2006 estimated resin needs based on 2004 volumes prior
to
the Kerr Acquisition. These contracts obligate the Company to make or receive
a
monthly payment equal to the difference in the unit cost of resin per the
contract and an industry index times the contracted pounds of plastic resin.
Such contracts are designated as hedges of a portion of the Company’s forecasted
purchases through 2006 and are effective in hedging the Company’s exposure to
changes in resin prices during this period. The contracts qualify as cash
flow
hedges under SFAS No. 133 and accordingly are marked to market with unrealized
gains and losses deferred through other comprehensive income and recognized
in
earnings when realized as an adjustment to cost of goods sold. The fair
values
of these contracts at December 31, 2005 and January 1, 2005 was an
unrealized gain, after taxes, of $3.7 million and $5.2 million, respectively.
Note
13. Accumulated Other Comprehensive Income
The
accumulated balances related to each component of the other comprehensive
income
consist of the following:
|
|
December 31,
2005
|
January 1,
2005
|
|||||
|
Currency
translation
|
$
|
5,214
|
$
|
8,479
|
|||
|
Minimum
pension liability adjustment
|
(577
|
)
|
(462
|
)
|
|||
|
Unrealized
loss on interest rate collar
|
—
|
(4
|
)
|
||||
|
Unrealized
gain on interest rate hedges
|
3,548
|
—
|
|||||
|
Unrealized
gain on resin hedge contracts
|
3,680
|
5,173
|
|||||
|
|
$
|
11,865
|
$
|
13,186
|
|||
F-42
Note
14. Operating Segments
In
connection with the Kerr Acquisition, Berry reorganized its operations
into two
reportable segments: open top and closed top. The realignment occurred
in an
effort to integrate the operations of Kerr, better service the Company’s
customers, and provide a more efficient organization. Prior periods have
been
restated to be aligned with the new reporting structure in order to provide
comparable results. The Company evaluates performance and allocates resources
to
segments based on operating income before depreciation and amortization
of
intangibles adjusted to exclude (1) uncompleted acquisition expense,
(2) acquisition integration expense, (3) plant shutdown expense, and
(4) non-cash compensation. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies.
|
|
Year
Ended
|
|||||||||
|
|
December 31,
2005
|
January 1,
2005
|
December 27,
2003
|
|||||||
|
Net
sales:
|
|
|
|
|||||||
|
Closed
Top
|
$
|
394,027
|
$
|
154,956
|
$
|
147,297
|
||||
|
Open
Top
|
775,677
|
659,257
|
404,579
|
|||||||
|
Total
net sales
|
1,169,704
|
814,213
|
551,876
|
|||||||
|
Adjusted
EBITDA:
|
|
|
|
|||||||
|
Closed
Top
|
71,154
|
29,880
|
30,228
|
|||||||
|
Open
Top
|
141,432
|
131,188
|
88,609
|
|||||||
|
Total
adjusted EBITDA
|
212,586
|
161,068
|
118,837
|
|||||||
|
Total
assets:
|
|
|
|
|||||||
|
Closed
Top
|
789,275
|
215,552
|
237,848
|
|||||||
|
Open
Top
|
858,555
|
789,592
|
777,958
|
|||||||
|
Total
assets
|
1,647,830
|
1,005,144
|
1,015,806
|
|||||||
|
Goodwill,
net:
|
|
|
|
|||||||
|
Closed
Top
|
210,614
|
78,375
|
85,756
|
|||||||
|
Open
Top
|
284,644
|
280,508
|
291,013
|
|||||||
|
Total
goodwill, net
|
495,258
|
358,883
|
376,769
|
|||||||
|
Reconciliation
of Adjusted EBITDA to net income:
|
|
|
|
|||||||
|
Adjusted
EBITDA for reportable segments
|
$
|
212,586
|
$
|
161,068
|
$
|
118,837
|
||||
|
Net
interest expense
|
(73,274
|
)
|
(53,185
|
)
|
(45,413
|
)
|
||||
|
Depreciation
|
(73,146
|
)
|
(54,303
|
)
|
(40,752
|
)
|
||||
|
Amortization
|
(15,574
|
)
|
(6,513
|
)
|
(3,326
|
)
|
||||
|
Income
Taxes
|
(14,325
|
)
|
(17,740
|
)
|
(12,486
|
)
|
||||
|
Gain
on disposal of property and equipment
|
—
|
—
|
7
|
|||||||
|
Loss
on investment in Southern Packaging
|
(1,354
|
)
|
—
|
—
|
||||||
|
Loss
on extinguished debt
|
(7,045
|
)
|
—
|
(250
|
)
|
|||||
|
Uncompleted
acquisition expense
|
—
|
—
|
(1,041
|
)
|
||||||
|
Acquisition
integration expense
|
(5,925
|
)
|
(3,969
|
)
|
(1,424
|
)
|
||||
|
Plant
shutdown expense
|
—
|
(1,822
|
)
|
(1,104
|
)
|
|||||
|
Non-cash
compensation
|
(2,152
|
)
|
(585
|
)
|
—
|
|||||
|
Net
income
|
$
|
19,791
|
$
|
22,951
|
$
|
13,048
|
||||
F-43
Note
15. Condensed Consolidating Financial Information
Holding
conducts its business through its wholly owned subsidiary, Berry. Holding
and
all of Berry’s domestic subsidiaries fully, jointly, severally, and
unconditionally guarantee on a senior subordinated basis the 2002 Notes
and
Add-on Notes issued by Berry. Berry and all of Berry’s subsidiaries are 100%
directly or indirectly 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 31, 2005 and January 1, 2005 and for the
fiscal years ended December 31, 2005, January 1, 2005, and
December 27, 2003. The equity method has been used with respect to
investments in subsidiaries.
|
|
December 31,
2005
|
||||||||||||||||||
|
|
BPC Holding
Corporation
(Parent)
|
Berry
Plastics
Corporation
(Issuer)
|
Combined
Guarantor
Subsidiaries
|
Combined
Non-guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
|
|||||||||||||
|
Current
assets
|
$
|
—
|
$
|
132,192
|
$
|
224,471
|
$
|
22,826
|
$
|
—
|
$
|
379,489
|
|||||||
|
Net
property and
equipment
|
—
|
91,831
|
311,649
|
19,964
|
—
|
423,444
|
|||||||||||||
|
Other
non-current
assets
|
203,388
|
1,292,315
|
703,500
|
13,214
|
(1,367,520
|
)
|
844,897
|
||||||||||||
|
Total
assets
|
$
|
203,388
|
$
|
1,516,338
|
$
|
1,239,620
|
$
|
56,004
|
$
|
(1,367,520
|
)
|
$
|
1,647,830
|
||||||
|
Current
liabilities
|
$
|
—
|
$
|
81,349
|
$
|
87,269
|
$
|
9,090
|
$
|
—
|
$
|
177,708
|
|||||||
|
Noncurrent
liabilities
|
—
|
1,231,601
|
1,333,925
|
40,783
|
(1,339,575
|
)
|
1,266,734
|
||||||||||||
|
Equity
(deficit)
|
203,388
|
203,388
|
(181,574
|
)
|
6,131
|
(27,945
|
)
|
203,388
|
|||||||||||
|
Total
liabilities and
equity
(deficit)
|
$
|
203,388
|
$
|
1,516,338
|
$
|
1,239,620
|
$
|
56,004
|
$
|
(1,367,520
|
)
|
$
|
1,647,830
|
||||||
F-44
|
|
January 1,
2005
|
||||||||||||||||||
|
Balance
Sheets
|
BPC
Holding
Corporation
(Parent)
|
Berry
Plastics
Corporation
(Issuer)
|
Combined
Guarantor
Subsidiaries
|
Combined
Non-guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
|
|||||||||||||
|
Current
assets
|
$
|
—
|
$
|
68,449
|
$
|
139,338
|
$
|
12,012
|
$
|
—
|
$
|
219,799
|
|||||||
|
Net
property and
equipment
|
—
|
76,555
|
188,841
|
16,576
|
—
|
281,972
|
|||||||||||||
|
Other
non-current assets
|
183,891
|
770,971
|
363,091
|
12,328
|
(826,908
|
)
|
503,373
|
||||||||||||
|
Total
assets
|
$
|
183,891
|
$
|
915,975
|
$
|
691,270
|
$
|
40,916
|
$
|
(826,908
|
)
|
$
|
1,005,144
|
||||||
|
Current
liabilities
|
$
|
—
|
$
|
81,053
|
$
|
42,004
|
$
|
6,648
|
$
|
—
|
$
|
129,705
|
|||||||
|
Noncurrent
liabilities
|
—
|
651,031
|
747,720
|
27,258
|
(734,461
|
)
|
691,548
|
||||||||||||
|
Equity
(deficit)
|
183,891
|
183,891
|
(98,454
|
)
|
7,010
|
(92,447
|
)
|
183,891
|
|||||||||||
|
Total
liabilities and equity (deficit)
|
$
|
183,891
|
$
|
915,975
|
$
|
691,270
|
$
|
40,916
|
$
|
(826,908
|
)
|
$
|
1,005,144
|
||||||
|
|
Year
Ended December 31, 2005
|
||||||||||||||||||
|
|
BPC
Holding
Corporation
(Parent)
|
Berry
Plastics
Corporation
(Issuer)
|
Combined
Guarantor
Subsidiaries
|
Combined
Non-guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
|
|||||||||||||
|
Consolidating
Statements of Income
|
|
|
|
|
|
|
|||||||||||||
|
Net
sales
|
$
|
—
|
$
|
283,261
|
$
|
859,192
|
$
|
27,251
|
$
|
—
|
$
|
1,169,704
|
|||||||
|
Cost
of goods sold
|
—
|
202,631
|
712,325
|
28,414
|
—
|
943,370
|
|||||||||||||
|
Gross
profit
|
—
|
80,630
|
146,867
|
(1,163
|
)
|
—
|
226,334
|
||||||||||||
|
Operating
expenses
|
(55,315
|
)
|
41,578
|
119,540
|
4,742
|
—
|
110,545
|
||||||||||||
|
Operating
income (loss)
|
55,315
|
39,052
|
27,327
|
(5,905
|
)
|
—
|
115,789
|
||||||||||||
|
Other
expense
|
—
|
—
|
—
|
1,354
|
—
|
1,354
|
|||||||||||||
|
Interest
expense (income), net
|
(778
|
)
|
(26,219
|
)
|
98,127
|
2,144
|
—
|
73,274
|
|||||||||||
|
Loss
on extinguished debt
|
—
|
7,045
|
—
|
—
|
—
|
7,045
|
|||||||||||||
|
Income
taxes
|
35
|
13,835
|
266
|
189
|
—
|
14,325
|
|||||||||||||
|
Equity
in net (income) loss from subsidiary
|
36,267
|
80,658
|
9,592
|
—
|
(126,517
|
)
|
—
|
||||||||||||
|
Net
income (loss)
|
$
|
19,791
|
$
|
(36,267
|
)
|
$
|
(80,658
|
)
|
$
|
(9,592
|
)
|
$
|
126,517
|
$
|
19,791
|
||||
F-45
|
Consolidating
Statements of Cash Flows
|
|
|
|
|
|
|
|||||||||||||
|
Net
income (loss)
|
$
|
19,791
|
$
|
(36,267
|
)
|
$
|
(80,658
|
)
|
$
|
(9,592
|
)
|
$
|
126,517
|
$
|
19,791
|
||||
|
Non-cash
expenses
|
2,152
|
36,861
|
69,302
|
5,670
|
—
|
113,985
|
|||||||||||||
|
Equity
in net (income) loss from subsidiary
|
36,267
|
80,658
|
9,592
|
—
|
(126,517
|
)
|
—
|
||||||||||||
|
Changes
in working capital
|
(776
|
)
|
(17,902
|
)
|
(10,141
|
)
|
(3,411
|
)
|
—
|
(32,230
|
)
|
||||||||
|
Net
cash provided by (used for) operating activities
|
57,434
|
63,350
|
(11,905
|
)
|
(7,333
|
)
|
—
|
101,546
|
|||||||||||
|
Net
cash used for investing activities
|
—
|
(478,962
|
)
|
(24,219
|
)
|
(16,817
|
)
|
—
|
(519,998
|
)
|
|||||||||
|
Net
cash provided by (used for) financing activities
|
(57,434
|
)
|
438,341
|
36,395
|
25,884
|
—
|
443,186
|
||||||||||||
|
Effect
on exchange rate changes on cash
|
—
|
—
|
—
|
(242
|
)
|
—
|
(242
|
)
|
|||||||||||
|
Net
increase in cash and cash equivalents
|
—
|
22,729
|
271
|
1,492
|
—
|
24,492
|
|||||||||||||
|
Cash
and cash equivalents at beginning of year
|
—
|
85
|
42
|
137
|
—
|
264
|
|||||||||||||
|
Cash
and cash equivalents at end of year
|
$
|
—
|
$
|
22,814
|
$
|
313
|
$
|
1,629
|
$
|
—
|
$
|
24,756
|
|||||||
|
|
Year
Ended January 1, 2005
|
||||||||||||||||||
|
|
BPC
Holding
Corporation
(Parent)
|
Berry
Plastics
Corporation
(Issuer)
|
Combined
Guarantor
Subsidiaries
|
Combined
Non-guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
|
|||||||||||||
|
Consolidating
Statements of Income
|
|
|
|
|
|
|
|||||||||||||
|
Net
sales
|
$
|
—
|
$
|
236,448
|
$
|
554,107
|
$
|
23,658
|
$
|
—
|
$
|
814,213
|
|||||||
|
Cost
of goods sold
|
—
|
166,248
|
449,760
|
23,321
|
—
|
639,329
|
|||||||||||||
|
Gross
profit
|
—
|
70,200
|
104,347
|
337
|
—
|
174,884
|
|||||||||||||
|
Operating
expenses
|
(39,306
|
)
|
37,072
|
79,493
|
3,749
|
—
|
81,008
|
||||||||||||
|
Operating
income (loss)
|
39,306
|
33,128
|
24,854
|
(3,412
|
)
|
—
|
93,876
|
||||||||||||
|
Interest
expense (income), net
|
(772
|
)
|
(15,007
|
)
|
68,226
|
738
|
—
|
53,185
|
|||||||||||
|
Income
taxes (benefit)
|
42
|
17,458
|
281
|
(41
|
)
|
—
|
17,740
|
||||||||||||
|
Equity
in net (income) loss from subsidiary
|
17,085
|
47,762
|
4,109
|
—
|
(68,956
|
)
|
—
|
||||||||||||
|
Net
income (loss)
|
$
|
22,951
|
$
|
(17,085
|
)
|
$
|
(47,762
|
)
|
$
|
(4,109
|
)
|
$
|
68,956
|
$
|
22,951
|
||||
F-46
|
Consolidating
Statements of Cash Flows
|
|
|
|
|
|
|
|||||||||||||
|
Net
income (loss)
|
$
|
22,951
|
$
|
(17,085
|
)
|
$
|
(47,762
|
)
|
$
|
(4,109
|
)
|
$
|
68,956
|
$
|
22,951
|
||||
|
Non-cash
expenses
|
585
|
33,596
|
42,565
|
3,485
|
—
|
80,231
|
|||||||||||||
|
Equity
in net (income) loss from subsidiary
|
17,085
|
47,762
|
4,109
|
—
|
(68,956
|
)
|
—
|
||||||||||||
|
Changes
in working capital
|
(775
|
)
|
10,520
|
(36,689
|
)
|
(1,005
|
)
|
—
|
(27,949
|
)
|
|||||||||
|
Net
cash provided by (used for) operating activities
|
39,846
|
74,793
|
(37,777
|
)
|
(1,629
|
)
|
—
|
75,233
|
|||||||||||
|
Net
cash provided by (used for) investing activities
|
—
|
(21,125
|
)
|
(26,426
|
)
|
2,074
|
—
|
(45,477
|
)
|
||||||||||
|
Net
cash provided by (used for) financing activities
|
(39,846
|
)
|
(77,869
|
)
|
62,575
|
(568
|
)
|
—
|
(55,708
|
)
|
|||||||||
|
Effect
on exchange rate changes on cash
|
—
|
—
|
—
|
24
|
—
|
24
|
|||||||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
—
|
(24,201
|
)
|
(1,628
|
)
|
(99
|
)
|
—
|
(25,928
|
)
|
|||||||||
|
Cash
and cash equivalents at beginning of year
|
—
|
24,286
|
1,670
|
236
|
—
|
26,192
|
|||||||||||||
|
Cash
and cash equivalents at end of year
|
$
|
—
|
$
|
85
|
$
|
42
|
$
|
137
|
$
|
—
|
$
|
264
|
|||||||
F-47
|
|
Year
Ended December 27, 2003
|
||||||||||||||||||
|
|
BPC
Holding
Corporation
(Parent)
|
Berry
Plastics
Corporation
(Issuer)
|
Combined
Guarantor
Subsidiaries
|
Combined
Non-guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
|
|||||||||||||
|
Consolidating
Statements of Income
|
|
|
|
|
|
|
|||||||||||||
|
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
income
|
—
|
—
|
(7
|
)
|
—
|
—
|
(7
|
)
|
|||||||||||
|
Interest
expense, net
|
(763
|
)
|
(592
|
)
|
45,326
|
1,442
|
—
|
45,413
|
|||||||||||
|
Loss
on extinguished debt
|
—
|
250
|
—
|
—
|
—
|
250
|
|||||||||||||
|
Income
taxes
|
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
|
||||
|
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 (used for) 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-48
Note
16. Quarterly Financial Data (Unaudited)
The
following table contains selected unaudited quarterly financial data for
fiscal
years 2005 and 2004.
|
|
2005
|
2004
|
|||||||||||||||||||||||
|
|
First
|
Second
|
Third
|
Fourth
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||||||
|
Net
sales
|
$
|
225,310
|
$
|
282,871
|
$
|
342,305
|
$
|
319,218
|
$
|
191,726
|
$
|
211,041
|
$
|
204,803
|
$
|
206,643
|
|||||||||
|
Cost
of sales
|
184,016
|
233,477
|
273,129
|
252,748
|
148,615
|
164,565
|
160,824
|
165,325
|
|||||||||||||||||
|
Gross
profit
|
$
|
41,294
|
$
|
49,394
|
$
|
69,176
|
$
|
66,470
|
$
|
43,111
|
$
|
46,476
|
$
|
43,979
|
$
|
41,318
|
|||||||||
|
Net
income
|
$
|
3,799
|
$
|
1,751
|
$
|
9,085
|
$
|
5,156
|
$
|
4,822
|
$
|
7,391
|
$
|
6,641
|
$
|
4,097
|
|||||||||
Note
17. Subsequent Event (Unaudited)
On
June
28, 2006 Berry announced that the private equity firms Apollo Management,
L.P.
and Graham Partners had signed a definitive agreement to acquire Holdings
from
Goldman Sachs
Capital Partners and JPMorgan Partners for an enterprise value of $2.25
billion
in aggregate consideration. The transaction closed September 20, 2006.
Following
the transaction, Apollo owns the majority of the Company's common stock.
The
transaction was primarily funded through equity contributions of approximately
$484 million and the issuance of $750 million of second priority senior
notes,
$675 million of term B loans, and $425 million of senior subordinated notes.
Adjustments related to this transaction are not reflected in these financial
statements.
F-49
Berry
Plastics Holding Corporation
OFFER
TO EXCHANGE
87/8%
Second Priority Senior Secured Fixed Rate Notes due 2014 and Second Priority
Senior Secured Floating Rate Notes due 2014 registered under the Securities
Act
For
A
Like Principal Amount of Second Priority Senior Secured Fixed and Floating
Rate
Notes
($750,000,000
Aggregate Principal Amount)
Prospectus
Dated January
10, 2007