AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 4, 2005
REGISTRATION NO. 333-115086
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE
AMENDMENT
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
BERRY PLASTICS CORPORATION
GUARANTORS LISTED ON SCHEDULE A HERETO
(Exact name of Registrants as Specified in their Charters)
DELAWARE 3089 35-1813706
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
101 OAKLEY STREET
EVANSVILLE, INDIANA 47710
(812) 424-2904
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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JAMES M. KRATOCHVIL
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER,
TREASURER AND SECRETARY
BERRY PLASTICS CORPORATION
101 OAKLEY STREET
EVANSVILLE, INDIANA 47710
(812) 424-2904
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
---------------------
COPY TO:
STUART H. GELFOND, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
(212) 859-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED OFFER: As soon as practicable
after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE REGISTRATION FEE
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10 3/4% Senior Subordinated Notes due
2012.................................... $335,000,000 100% $335,000,000 $--(3)
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Guarantees of 10 3/4% Senior Subordinated
Notes due 2012.......................... $335,000,000 (2) (2) (2)
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act.
(2) No separate filing fee is required pursuant to Rule 457(n) under the
Securities Act.
(3) No filing fee is required pursuant to Rule 457(q) under the Securities Act.
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Pursuant to Rule 429 of the Securities Act of 1933, the prospectus in this
registration statement is a combined prospectus and relates to this registration
statement (No. 333-115086 originally filed on March 5, 2004) and our
registration statement no. 333-97849 originally filed on August 8, 2002. This
registration statement will constitute post-effective amendment no. 1 to our
registration statement No. 333-115086 and post-effective amendment no. 5 to our
registration statement no. 333-97849. The post-effective amendment will become
effective concurrently with the effectiveness of this registration statement in
accordance with Section 8(c) of the Securities Act of 1933.
---------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE
A FURTHER AMENDMENT WHICH SHALL SPECIFICALLY STATE THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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SCHEDULE A
GUARANTORS
BPC HOLDING CORPORATION
BERRY IOWA CORPORATION
PACKERWARE CORPORATION
KNIGHT PLASTICS, INC.
BERRY STERLING CORPORATION
BERRY PLASTICS DESIGN CORPORATION
POLY-SEAL CORPORATION
VENTURE PACKAGING, INC.
VENTURE PACKAGING MIDWEST, INC.
BERRY PLASTICS TECHNICAL SERVICES, INC.
CPI HOLDING CORPORATION
CARDINAL PACKAGING, INC.
AEROCON, INC.
BERRY PLASTICS ACQUISITION CORPORATION III
PESCOR, INC.
BERRY PLASTICS ACQUISITION CORPORATION V
BERRY PLASTICS ACQUISITION CORPORATION VI
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 XIV, LLC
BERRY PLASTICS ACQUISITION CORPORATION XV, LLC
LANDIS PLASTICS, INC.
Prospectus
[BERRY PLASTICS CORPORATION LOGO]
Berry Plastics Corporation
$335,000,000
10 3/4% Senior Subordinated Notes due 2012
Interest payable January 15 and July 15
The 10 3/4% Senior Subordinated Notes due 2012 offered hereby, which we refer to
as the "notes," relate to an aggregate of $335,000,000 that we issued in two
transactions. In September 2002, we issued $250,000,000 of the notes in exchange
for an equal amount of our 10 3/4% Senior Subordinated Notes due 2012, which we
originally issued on July 22, 2002. In April 2004, we issued $85,000,000 of the
notes in exchange for an equal amount of our 10 3/4% Senior Subordinated Notes
due 2012, which we originally issued on November 20, 2003.
The notes mature on July 15, 2012.
We may redeem the notes, in whole or in part, at any time beginning on July 15,
2007. In addition, before July 15, 2005, we may redeem up to 35% of the notes
with the net cash proceeds of certain equity offerings. The redemption prices
are described on page 64. If we sell certain of our assets or experience
specific kinds of changes of control, we must offer to purchase the notes.
The notes are guaranteed by BPC Holding Corporation, and all of our existing and
future domestic subsidiaries, except as provided herein. The notes are not
guaranteed by our foreign subsidiaries: Berry Plastics Acquisition Corporation
II, NIM Holdings Limited, Berry Plastics U.K. Limited, Norwich Acquisition
Limited, Berry Plastics Asia Pte. Ltd., Capsol Berry Plastics S.p.a. or Ociesse
S.r.l. The notes will not be guaranteed by any foreign subsidiaries in the
future unless any such foreign subsidiary guarantees any senior indebtedness of
ours or any of our subsidiaries (other than that of another foreign subsidiary).
The notes are subordinated in right of payment to all obligations of our
non-guarantors subsidiaries. The notes are also subordinated in right of payment
to all existing and future senior indebtedness, rank equally in right of payment
with any existing and future senior subordinated indebtedness and are senior in
right of payment to all future subordinated obligations. The notes are also
effectively subordinated to all of our secured indebtedness and our
subsidiaries' to the extent of the value of the assets securing such
indebtedness.
We do not intend to apply for listing of the notes on any securities exchange or
automated quotation system.
Certain private equity funds managed by affiliates of Goldman, Sachs & Co. and
J.P. Morgan Securities Inc. own a substantial majority of the equity of BPC
Holding Corporation, our parent company.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN RISKS THAT
YOU SHOULD CONSIDER IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
This prospectus has been prepared for and will be used by J.P. Morgan Securities
Inc. and Goldman, Sachs & Co. in connection with offers and sales of the notes
in market-making transactions. These transactions may occur in the open market
or may be privately negotiated at prices related to prevailing market prices at
the time of sale. J.P. Morgan Securities Inc. and Goldman, Sachs & Co. may act
as principal or agent in these transactions. We will not receive any proceeds of
such sales.
JPMORGAN GOLDMAN, SACHS & CO.
, 2005
TABLE OF CONTENTS
PAGE
Prospectus summary.................... 1
Risk factors.......................... 7
Use of proceeds....................... 18
Capitalization........................ 19
Selected consolidated financial
data................................ 20
Management's discussion and analysis
of financial condition and results
of operations....................... 22
Business.............................. 34
Management............................ 43
Principal stockholders................ 52
Certain relationships and related
transactions........................ 55
PAGE
Description of other indebtedness..... 59
Description of notes.................. 62
Certain material United States federal
tax considerations.................. 113
ERISA considerations.................. 120
Plan of distribution.................. 122
Legal matters......................... 123
Independent registered public
accounting firm..................... 123
Where you can find more information... 123
Index to Financial Statements......... F-1
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Berry Plastics Corporation is a Delaware corporation. Our principal executive
offices are located at 101 Oakley Street, Evansville, Indiana 47710, and our
telephone number at that address is 812-424-2904.
In this prospectus, unless the context otherwise requires, "BPC Holding" or
"Holding" refers to BPC Holding Corporation, "we," "our" or "us" refers to BPC
Holding Corporation together with its consolidated subsidiaries, and references
to "Berry Plastics" or "the Company" refer to Berry Plastics Corporation, a
wholly owned subsidiary of BPC Holding and the issuer of the notes and "initial
purchasers" refers to the firms listed on the cover of this prospectus. Unless
otherwise indicated, references in this prospectus to our fiscal years are to
the 52/53 week period ending generally on the Saturday closest to December 31.
Unless the context requires otherwise, all references in this prospectus to
"2004," "2003," "2002," "2001" and "2000" or to such periods as our fiscal
years, relate to our fiscal years ended January 1, 2005, December 27, 2003,
December 28, 2002, December 29, 2001 and December 30, 2000, respectively. For
2002, the results under Holding's prior ownership have been combined with
results subsequent to the merger of GS Berry Acquisition Corp. with and into BPC
Holding on July 22, 2002, which is referred to in this prospectus as "the
Merger."
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i
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH AN OFFER TO SELL OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
ii
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements," within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), with respect to our financial
condition, results of operations and business and our expectations or beliefs
concerning future events. Such statements include, in particular, statements
about our plans, strategies and prospects under the headings "Summary,"
"Management's discussion and analysis of financial condition and results of
operations" and "Business." You can identify certain forward-looking statements
by our use of forward-looking terminology such as, but not limited to,
"believes," "expects," "anticipates," "estimates," "intends," "plans,"
"targets," "likely," "will," "would," "could" and similar expressions identify
forward-looking statements.
All forward-looking statements involve risks and uncertainties. Many risks and
uncertainties are inherent in our industry and markets. Others are more specific
to our operations. The occurrence of the events described and the achievement of
the expected results depend on many events, some or all of which are not
predictable or within our control. Actual results may differ materially from the
forward-looking statements contained in this prospectus.
Factors that could cause actual results to differ materially from those
expressed or implied by the forward-looking statements include:
- changes in prices and availability of resin and other raw materials and
our ability to pass on changes in raw material prices on a timely basis;
- catastrophic loss of our key manufacturing facility;
- risks related to our acquisition strategy and integration of acquired
businesses;
- risks associated with our substantial indebtedness and debt service;
- performance of our business and future operating results;
- risks of competition, including foreign competition, in our existing
and future markets;
- general business and economic conditions, particularly an economic
downturn;
- increases in the cost of compliance with laws and regulations,
including environmental laws and regulations; and
- the other risks described under the heading "Risk factors" beginning on
page 7.
All future written and verbal forward-looking statements attributable to us or
any person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained in or referred to in this section. We undertake
no obligation, and specifically decline any obligation, to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this prospectus might not
occur.
iii
MARKET DATA
The data included in this prospectus regarding markets, product categories and
ranking, including, but not limited to, the size of certain markets and product
categories and our position and the positions of our competitors within these
markets and product categories, are based on our estimates and definitions,
which have been derived from management's knowledge and experience in the areas
in which the relevant businesses operate, and information obtained from
customers, distributors, suppliers, trade and business organizations and other
contacts in the areas in which the relevant businesses operate. We have also
cited information compiled by Plastics News, an industry publication. Unless
otherwise specified, market share and product category data relate to the
injection-molding segment of the plastics packaging industry. Although we
believe that these sources are generally reliable, we have not independently
verified data from these sources or obtained third party verification of this
data. In addition, data within our industry is intended to provide general
guidance but is inherently imprecise. References herein to our being a leader in
a product segment or product category refer to our having a leading position
based on sales in 2004 of injected-molded plastic products in such segment or
product category, unless the context otherwise requires.
The plastics packaging industry consists of rigid and non-rigid plastic
products. There are three primary manufacturing processes used in the rigid
plastics packaging segment of the plastics packaging industry: injection-molding
and thermoforming, which we use, and blow molding, which we currently do not
use. Each of these processes may be interchangeable depending on the product and
the cost. Blow molding is used to produce most plastic drinking bottles, which
constitutes approximately three-fourths of the United States plastic container
demand by weight.
iv
PROSPECTUS SUMMARY
This summary highlights material information contained elsewhere in this
prospectus. This summary of material information contained elsewhere in this
prospectus is not complete and does not contain all of the information that may
be important to you. We urge you to read this entire prospectus carefully,
including the "Risk factors" section and our consolidated financial statements
and related notes included elsewhere in this prospectus.
BERRY PLASTICS CORPORATION
We are one of the world's leading manufacturers and suppliers of a diverse mix
of rigid plastics packaging products focusing on the open-top container,
closure, aerosol overcap, drink cup and housewares markets. We sell a broad
product line to over 12,000 customers. We concentrate on manufacturing higher
quality, value-added products sold to image-conscious marketers of institutional
and consumer products. We believe that our large operating scale, low-cost
manufacturing capabilities, purchasing leverage, proprietary thermoforming
technology and extensive collection of over 1,000 active proprietary molds
provide us with a competitive advantage in the marketplace. We have been able to
leverage our broad product offering, value-added manufacturing capabilities and
long-standing customer relationships into leading positions across a number of
products. Our top 10 customers represented approximately 35% of our fiscal 2004
net sales with no customer accounting for more than 8% of our fiscal 2004 net
sales. The average length of our relationship with these customers was over 20
years. Our products are primarily sold to customers in industries that exhibit
relatively stable demand characteristics and are considered less sensitive to
overall economic conditions, such as pharmaceuticals, food, dairy and health and
beauty. Additionally, we operate 16 high-volume manufacturing facilities and
have extensive distribution capabilities.
We organize our business into four operating divisions: containers, closures,
consumer products, and international. The following table displays our net sales
by division for each of the past five fiscal years.
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(DOLLARS IN MILLIONS) 2000 2001 2002 2003 2004
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Containers...................................... $231.2 $234.5 $250.4 $288.5 $518.3
Closures........................................ 97.1 110.1 113.3 125.3 127.5
Consumer products............................... 64.7 94.8 110.0 116.1 130.4
International................................... 15.1 22.3 20.6 22.0 38.0
------------------------------------------
Total net sales............................ $408.1 $461.7 $494.3 $551.9 $814.2
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In 2004, we created the international segment as a separate operating and
reporting segment to increase sales and improve service to international
customers utilizing existing resources. The international segment includes our
foreign facilities and business from domestic facilities that is shipped or
billed to foreign locations. The 2003 and prior results for the foreign
facilities have been reclassified to the international segment; however,
business from domestic facilities that were shipped or billed to foreign
locations cannot be separately identified for 2003 and prior. Accordingly, the
amounts disclosed under the new reporting structure are not comparable between
2004 and previous years. Additional financial information about our business
segments is provided in Note 14 of the "Notes to Consolidated Financial
Statements," which are included elsewhere in this prospectus.
1
HISTORY
Imperial Plastics was established in 1967 in Evansville, Indiana. Berry
Plastics, Inc. ("Old Berry") was formed in 1983 to purchase substantially all of
the assets of Imperial Plastics. In 1988, Old Berry acquired Gilbert Plastics of
New Brunswick, New Jersey, a leading manufacturer of aerosol overcaps, and
subsequently relocated Gilbert Plastics' production to Old Berry's Evansville,
Indiana facility. In 1990, the Company and Holding, the holder of 100% of the
outstanding capital stock of the Company, were formed to purchase the assets of
Old Berry.
We have continued to grow both organically and through acquisition by acquiring
companies that we believed would improve our financial performance in the
long-term, expand our product lines, or in some cases, provide us with a new or
complementary product line. In 1992, we acquired the assets of the Mammoth
Containers division of Genpak Corporation. In 1995, we acquired substantially
all of the assets of Sterling Products, Inc., a producer of injection-molded
plastic drink cups and lids, and Tri-Plas, Inc., a manufacturer of
injection-molded containers. In 1997, we acquired (1) certain assets of
Container Industries, Inc., a manufacturer and marketer of injection-molded
industrial and pry-off containers, (2) PackerWare Corporation ("PackerWare"), a
manufacturer and marketer of plastic containers, drink cups, housewares, and
lawn and garden products, (3) substantially all of the assets of Virginia Design
Packaging Corp., a manufacturer and marketer of injection-molded containers used
primarily for food packaging, and (4) Venture Packaging, Inc., a manufacturer
and marketer of injection-molded containers used in the food, dairy and various
other markets. In 1998, we acquired all of the capital stock of Norwich
Injection Moulders Limited (now known as Berry Plastics UK Limited) and
substantially all of the assets of the Knight Engineering and Plastics Division
of Courtaulds Packaging Inc., a manufacturer of aerosol overcaps. In 1999, we
acquired all of the outstanding capital stock of CPI Holding Corporation, the
parent company of Cardinal Packaging, Inc., a manufacturer and marketer of
open-top containers. In 2000, we acquired all of the outstanding capital stock
of (1) Poly-Seal Corporation ("Poly-Seal"), a manufacturer and marketer of
closures and (2) Capsol S.p.a. ("Capsol") and the whole quota capital of a
related company, Ociesse S.r.l. Capsol is a manufacturer and marketer of aerosol
overcaps and closures. In 2001, we acquired all of the outstanding capital stock
of Pescor Plastics, Inc. ("Pescor"), a manufacturer and marketer of drink cups,
and in 2002, we acquired the Alcoa Flexible Packaging injection molding assets
from Mount Vernon Plastics Corporation ("Mount Vernon"). In 2003, we acquired
(1) the 400 series continuous threaded injection molded closure assets from CCL
Plastic Packaging ("CCL"), (2) the injection molded overcap lid assets from APM
Inc., and (3) all of the outstanding capital stock of Landis Plastics, Inc. (the
"Landis Acquisition"), a manufacturer and marketer of open-top containers.
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,
(1) each share of common stock of Holding issued and outstanding immediately
prior to the effective time of the Merger was converted into the right to
receive cash pursuant to the terms of the merger agreement, and (2) 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. Additionally, in connection with the Merger, we retired all of
Holding's senior secured notes and Berry Plastics' senior subordinated notes,
repaid all amounts owed under our credit facilities, redeemed all of the
2
outstanding preferred stock of Holding, entered into a new credit facility and
completed an offering of new senior subordinated notes of Berry Plastics.
Immediately following the Merger, private equity funds affiliated with Goldman,
Sachs & Co. owned approximately 63% of the outstanding common stock of Holding,
private equity funds affiliated with J.P. Morgan Chase & Co. owned approximately
29% and members of our management owned the remaining 8%.
RECENT DEVELOPMENTS
SOUTHERN PACKAGING
In November 2004, we 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 for $3.2 million as a result of Southern Packaging's
successful listing on the Singapore Stock Exchange.
3
THE NOTES
The following is a brief summary of the terms of the notes. For a more complete
description of the terms of the notes, see "Description of notes" in this
prospectus.
ISSUER..................Berry Plastics Corporation, a Delaware corporation.
SECURITIES OFFERED......$335,000,000 in aggregate principal amount of 10 3/4%
senior subordinated notes due 2012.
MATURITY DATE...........July 15, 2012.
INTEREST PAYMENT
DATES...................January 15 and July 15.
GUARANTORS..............The notes are fully and unconditionally guaranteed by
BPC Holding Corporation, our parent company, and each of
our current and future domestic subsidiaries. These
guarantees can be released upon the circumstances
described under "Description of notes--Certain
covenants--Future note guarantors and release of note
guarantees." If we cannot make payments on the notes
when they are due, the note guarantors are obligated to
make them instead.
RANKING.................The notes are unsecured and:
- are subordinated in right of payment to all existing
and future senior debt;
- rank equally in right of payment with any existing and
future senior subordinated debt;
- rank senior in right of payment to all future
subordinated debt;
- are effectively subordinated to our secured debt to
the extent of the value of the assets securing such
debt;
- are effectively subordinated to all liabilities and
preferred stock of our subsidiaries that do not
guarantee the notes; and
- any debt that could be incurred under the indenture
may be deemed senior debt.
Similarly, the guarantees of the notes by BPC Holding
and our guarantor subsidiaries are unsecured and:
- are subordinated in right of payment to all of the
applicable note guarantor's existing and future senior
debt;
- rank equally in right of payment with any of the
applicable note guarantors' existing and future senior
subordinated debt;
- rank senior in right of payment to all of the
applicable note guarantors' future subordinated debt;
- are effectively subordinated to all secured debt of
such note guarantor to the extent of the value of the
assets securing such debt; and
4
- are effectively subordinated to the obligations of any
subsidiary of a note guarantor if that subsidiary is not
a note guarantor.
As of January 1, 2005:
- we had total indebtedness of approximately $697.6
million, excluding $8.5 million in letters of credit
under our revolving credit facility and, subject to
certain conditions to borrowing, $91.5 million available
for future borrowings under our revolving credit
facility; however the covenants under our second amended
and restated credit facility (the "Second Amended and
Restated Credit Facility") may limit our ability to make
such borrowings;
- we did not have any senior subordinated debt (other
than the notes and the existing notes);
- we did not have any subordinated debt; and
- our subsidiaries that are not guarantors of the notes
had $9.7 million of liabilities including trade
payables, but excluding liabilities owed to us.
As of April 1, 2005, we could incur approximately $93.1
million in additional senior debt under our Second
Amended and Restated Credit Facility, subject to
conditions to borrowing; however, the covenants under
our Second Amended and Restated Credit Facility may
limit our ability to make such borrowings.
OPTIONAL REDEMPTION.....We may redeem the notes, in whole or in part, at any
time beginning on July 15, 2007 at the redemption prices
listed under "Description of notes--Optional
redemption." In addition, before July 15, 2005, we may
redeem up to 35% of the notes with the net cash proceeds
from certain equity offerings at the price listed under
"Description of notes--Optional redemption."
CHANGE OF CONTROL.......Upon the occurrence of a change of control, unless we
have exercised our right to redeem all of the notes as
described above, you will have the right to require us
to purchase all or a portion of your notes at a purchase
price in cash equal to 101% of the principal amount plus
accrued and unpaid interest to the date of purchase. The
occurrence of a change of control will also result in an
event of default under our Second Amended and Restated
Credit Facility, which would allow the lenders under
that facility to accelerate their debt. Such
acceleration will be considered an event of default
under the notes. See "Description of notes--Change of
control."
BASIC COVENANTS.........The indenture governing the notes contains covenants
that impose significant restrictions on our business.
The restrictions these covenants place on us and our
restricted subsidiaries include limitations on our
ability and the ability of our restricted subsidiaries
to:
- incur indebtedness;
5
- pay dividends or make distributions in respect of our
capital stock or to make certain other restricted
payments or investments;
- sell assets, including capital stock of restricted
subsidiaries;
- agree to payment restrictions affecting our restricted
subsidiaries;
- consolidate, merge, sell or otherwise dispose of all
or substantially all of our assets;
- enter into transactions with our affiliates; and
- designate our subsidiaries as unrestricted
subsidiaries.
These covenants are subject to important exceptions and
qualifications, which are described under "Description
of notes--Certain covenants."
RISK FACTORS
You should carefully consider all the information in this prospectus before
deciding whether to invest in the notes. Our business is subject to significant
risks. We may not be able to arrange for sources of resin in the event of an
industry-wide general shortage of resins used by us, or a shortage or
discontinuation of certain types of resins. Any such shortage may negatively
impact our competitive position versus other companies that are able to better
or more cheaply source resin. Additionally, increases in the cost of resin may
significantly impact our financial condition to the extent we are not able to
pass through any such cost increase. Our Evansville, Indiana facility produces
approximately one-fourth of our products. A catastrophic loss of all or a part
of the facility could have a material adverse effect on us. In addition, we face
intense competition in the sale of our products. Competition could result in our
products losing market share or our having to reduce our prices, either of which
would have a material adverse effect on our business and results of operations
and financial condition. We have substantial debt, and we may incur substantial
additional debt in the future under the terms of our indebtedness. As of January
1, 2005, we had total indebtedness of approximately $697.6 million, excluding
$8.5 million in letters of credit under our revolving credit facility and,
subject to certain conditions to borrowing, $91.5 million available for future
borrowings under our revolving credit facility. In particular, we urge you to
consider carefully the factors set forth under "Risk factors" beginning on page
7 of this prospectus.
6
RISK FACTORS
You should read and consider carefully each of the following factors, as well as
the other information contained in this prospectus before deciding whether to
invest in the notes. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties not presently known to us
or that we currently believe to be immaterial may also adversely affect our
business.
RISKS RELATED TO THE NOTES
WE HAVE SUBSTANTIAL DEBT AND WE MAY INCUR SUBSTANTIALLY MORE DEBT, WHICH COULD
AFFECT OUR ABILITY TO MEET OUR DEBT OBLIGATIONS AND MAY OTHERWISE RESTRICT OUR
ACTIVITIES.
We have substantial debt and we may incur substantial additional debt in the
future. As of January 1, 2005, we had total indebtedness of approximately $697.6
million, excluding $8.5 million in letters of credit under our revolving credit
facility and, subject to certain conditions to borrowing, $91.5 million
available for future borrowings under our revolving credit facility. As of April
1, 2005, we could incur approximately $93.1 million in additional senior debt
under our Second Amended and Restated Credit Facility, subject to conditions to
borrowing; however, the covenants under our Second Amended and Restated Credit
Facility may limit our ability to make such borrowings. We are also permitted by
the terms of the notes and our other debt instruments to incur substantial
additional indebtedness, subject to the restrictions therein. See "Description
of notes--Certain covenants" and "Description of other indebtedness--The Second
Amended and Restated Credit Facility." Any debt that could be incurred under the
indenture may be deemed senior debt.
Our substantial debt could have important consequences to you. For example, it
could:
- require us to dedicate a substantial portion of our cash flow to
payments on our indebtedness, which would reduce the amount of cash flow
available to fund working capital, capital expenditures, product
development and other corporate requirements;
- increase our vulnerability to general adverse economic and industry
conditions, including changes in raw material costs;
- limit our ability to respond to business opportunities;
- limit our ability to borrow additional funds, which may be necessary;
and
- subject us to financial and other restrictive covenants, which, if we
fail to comply with these covenants and our failure is not waived or
cured, could result in an event of default under our debt.
TO SERVICE OUR DEBT, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR ABILITY
TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on our debt, and to fund planned capital
expenditures and research and development efforts will depend on our ability to
generate cash in the future. This, to an extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors, including
those described in this "Risk factors" section, that are beyond our control. We
cannot assure you that our business will generate sufficient cash flow from
operations or that future borrowings will be available to us under our new
senior secured credit facilities in an amount sufficient to enable us to pay our
debt, or to fund our other
7
liquidity needs. We may need to refinance all or a portion of our indebtedness,
on or before maturity. We cannot assure you that we will be able to refinance
any of our debt, including our new senior secured credit facilities, on
commercially reasonable terms or at all.
THE AGREEMENTS GOVERNING THE NOTES AND OUR OTHER DEBT IMPOSE RESTRICTIONS ON OUR
BUSINESS.
The Indenture and the Second Amended and Restated Credit Facility contain a
number of covenants imposing significant restrictions on our business. These
restrictions may affect our ability to operate our business and may limit our
ability to take advantage of potential business opportunities as they arise. The
restrictions these covenants place on us and our restricted subsidiaries include
limitations on our ability and the ability of our restricted subsidiaries to:
- incur indebtedness or issue preferred shares;
- pay dividends or make distributions in respect of our capital stock or
to make certain other restricted payments;
- create liens;
- agree to payment restrictions affecting our restricted subsidiaries;
- make acquisitions;
- consolidate, merge, sell or lease all or substantially all of our
assets;
- enter into transactions with our affiliates; and
- designate our subsidiaries as unrestricted subsidiaries.
Our Second Amended and Restated Credit Facility also requires us to meet a
number of financial ratios. For a discussion of these financial ratios, see
"Description of other indebtedness--The Second Amended and Restated Credit
Facility". The breach of any of these covenants or restrictions could result in
a default under the Indenture or our Second Amended and Restated Credit
Facility. An event of default under our debt agreements would permit some of our
lenders to declare all amounts borrowed from them to be immediately due and
payable. If we were unable to repay debt to our lenders, these lenders could
proceed against the collateral securing that debt.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS JUNIOR TO OUR EXISTING AND FUTURE
SENIOR INDEBTEDNESS. FURTHER, THE GUARANTEES OF THE NOTES ARE JUNIOR TO ALL OF
OUR GUARANTORS' EXISTING AND FUTURE SENIOR INDEBTEDNESS.
The notes and the guarantees rank behind all of our and our guarantors' existing
and future senior indebtedness. All of our and their future indebtedness will be
deemed senior indebtedness, unless it expressly provides that it ranks equal
with, or is subordinated in right of payment to, the notes and the guarantees.
The notes offered by this prospectus rank equal to the existing notes. As of
January 1, 2005, the amount of debt issued by us that is senior, or effectively
senior, to the notes and the note guarantees was $353.7 million (which amount
excludes $8.5 million of letters of credit and the remaining availability of
$91.5 million under our revolving credit facility). As a result, upon any
distribution to our creditors or the creditors of the guarantors in a
bankruptcy, liquidation or reorganization or similar proceeding relating to us
or the guarantors or our or their property, the holders of our senior debt and
senior debt
8
of the guarantors will be entitled to be paid in full before any payment may be
made with respect to the notes or the guarantees.
In addition, all payments on the notes and the guarantees will be blocked in the
event of a payment default on senior debt and may be blocked for up to 179 of
360 consecutive days in the event of specified non-payment defaults on senior
debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the guarantors, holders of the notes will
participate with trade creditors and all other holders of our and the
guarantors' senior subordinated indebtedness in the assets remaining after we
and the guarantors have paid all of our and their senior debt. The indenture
governing the notes requires that amounts otherwise payable to holders of the
notes in a bankruptcy or similar proceeding be paid first to holders of any
remaining senior indebtedness. In any of these cases, if our assets are
insufficient to pay all of our creditors, the holders of the notes will receive
a proportional payment only if the holders of our senior indebtedness are paid
in full. In any of these cases, we and the guarantors may not have sufficient
funds to pay all of our creditors and holders of notes may receive less,
ratably, than the holders of our senior debt. See "Description of
notes--Ranking."
THE NOTES ARE NOT SECURED BY ANY OF OUR ASSETS. HOWEVER, OUR SECOND AMENDED AND
RESTATED CREDIT FACILITY IS SECURED AND, THEREFORE, OUR BANK LENDERS HAVE A
PRIOR CLAIM ON SUBSTANTIALLY ALL OF OUR ASSETS.
The notes are not secured by any of our assets. However, our Second Amended and
Restated Credit Facility is secured by (1) a pledge of 100% of the stock of our
existing and future domestic subsidiaries and 65% of the stock of our existing
and future first-tier foreign subsidiaries, and (2) substantially all of our
assets. If we become insolvent or are liquidated, or if payment under any of the
instruments governing our secured debt is accelerated, the lenders under these
instruments will be entitled to exercise the remedies available to a secured
lender under applicable law and pursuant to instruments governing such debt.
Accordingly, the lenders under our Second Amended and Restated Credit Facility
have a prior claim on our and our guarantor subsidiaries' assets. In that event,
because the notes are not secured by any of our assets, it is possible that our
remaining assets might be insufficient to satisfy your claims in full. At
January 1, 2005, the outstanding balance was $330.8 million, and we had
remaining availability of $91.5 million under that facility.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES COULD BE ADVERSELY AFFECTED IF ANY
OF OUR NON-GUARANTOR SUBSIDIARIES DECLARE BANKRUPTCY, LIQUIDATE, OR REORGANIZE;
THE NOTES WILL BE STRUCTURALLY SUBORDINATED TO THE OBLIGATIONS OF OUR
NON-GUARANTOR SUBSIDIARIES.
Some but not all of our subsidiaries guarantee the notes. Our foreign
subsidiaries are not guarantors on the notes, and will become so in the future
only if they guarantee other debt of Berry Plastics or Berry Plastics'
non-foreign subsidiaries. Furthermore, the guarantee of the notes may be
released under the circumstances described under "Description of notes--Certain
covenants--Future note guarantors and release of note guarantees." Our
obligations under the notes are structurally subordinated to the obligations of
our non-guarantor subsidiaries. In the event of a bankruptcy, liquidation or
reorganization of any of our non-guarantor subsidiaries, holders of their
indebtedness and their trade creditors will generally be entitled to payment of
their claims from the assets of those subsidiaries before any assets are made
available for distribution to us. As of January 1, 2005, our non-guarantor
subsidiaries held 4% of our
9
consolidated assets. These non-guarantor subsidiaries accounted for 3% of our
net sales for fiscal year 2004.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTE HOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, a guarantee could be voided, or claims in respect of a guarantee
could be subordinated to all other debts of that guarantor under specific
circumstances, including circumstances where the guarantor, at the time it
incurred the indebtedness evidenced by its guarantee:
- received less than reasonably equivalent value or fair consideration
for the incurrence of such guarantee and was insolvent or rendered
insolvent by reason of such incurrence;
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could be
voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws will
vary depending upon the law applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater
than the fair saleable value of all of its assets;
- the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history and
other factors, we believe that each guarantor of the notes, at the time of its
guarantee of the notes, was not insolvent, did not have unreasonably small
capital for the business in which it is engaged and had not incurred debts
beyond its ability to pay such debts as they mature. However, a court may apply
a different standard in making these determinations or may not agree with our
conclusions in this regard.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
OF CONTROL OFFER REQUIRED BY THE INDENTURE.
Upon the occurrence of specific kinds of change of control events, we will be
required to offer to repurchase all then-outstanding notes at 101% of the
principal amount thereof plus accrued and unpaid interest and additional
interest, if any, to the date of repurchase. However, it is possible that we
will not have sufficient funds at the time of the change of control to make the
required repurchase of notes or that restrictions in our Second Amended and
Restated Credit Facility will not allow such repurchases. In addition, various
important corporate events,
10
such as leveraged recapitalizations that would increase the level of our
indebtedness, would not constitute a "Change of Control" under the indenture.
The occurrence of a change of control will also result in an event of default
under our Second Amended and Restated Credit Facility, which would allow the
lenders under that facility to accelerate their debt. Such acceleration will be
considered an event of default under the notes. See "Description of
notes--Change of control."
WE HAVE EXPERIENCED CONSOLIDATED NET LOSSES.
Our net losses were $23.1 million for fiscal 2000, $2.1 million for fiscal 2001
and $32.6 million for fiscal 2002. Consolidated earnings have been insufficient
to cover fixed charges by $20.5 million for fiscal 2000, by $0.8 million for
fiscal 2001 and by $3.1 million for fiscal 2002. See "Management's discussion
and analysis of financial condition and results of operations."
THE NOTES HAVE NO PRIOR PUBLIC MARKET, AND A PUBLIC MARKET FOR THE NOTES MAY NOT
DEVELOP OR BE SUSTAINED.
Although they are not obligated to do so, Goldman, Sachs & Co. and J.P. Morgan
Securities Inc. have advised us that they presently intend to make a market in
the notes as permitted by applicable law. Goldman, Sachs & Co. and J.P. Morgan
Securities Inc. are not obligated, however, to make a market in the notes and
any such market-making may be discontinued at any time at the sole discretion of
Goldman, Sachs & Co. and J.P. Morgan Securities Inc. No assurance can be given
as to the liquidity of any trading market for the notes, or the ability of the
holders of the notes to sell their notes or the price at which such holders may
be able to sell their notes. An active market for the notes may not develop or
be sustained. If an active public market does not develop or continue, the
market price and liquidity of the notes may be adversely affected.
Historically, the market for non-investment grade debt has been volatile in
terms of price. It is possible that the market for the notes will be volatile.
This volatility in price may affect your ability to resell your notes or the
timing of their sale.
Notwithstanding the registration of the notes, holders who are "affiliates" (as
defined under Rule 405 of the Securities Act) of us may publicly offer for sale
or resale the notes only in compliance with the provisions of Rule 144 under the
Securities Act.
Because we are an affiliate of Goldman, Sachs & Co. and J.P. Morgan Securities
Inc., Goldman, Sachs & Co. and J.P. Morgan Securities Inc. are required to
deliver a current "market-maker" prospectus and otherwise comply with the
registration requirements of the Securities Act in connection with any secondary
market sale of the notes, which may affect their ability to continue
market-making activities. We have agreed to make a "market-maker" prospectus
generally available to Goldman, Sachs & Co. and J.P. Morgan Securities Inc. to
permit them to engage in market-making transactions. However, our registration
rights agreement with them also provides that we may, for valid business
reasons, allow the market-maker prospectus to cease to be effective and usable
for a period of time set forth in the registration rights agreement or as
otherwise acceptable to the market-makers. Valid business reasons include,
without limitation, a potential acquisition, divestiture of assets or other
material corporate transaction. As a result, the liquidity of the secondary
market for the notes may be materially adversely affected by the unavailability
of a current "market-maker" prospectus.
11
RISKS RELATED TO OUR BUSINESS
WE DO NOT HAVE GUARANTEED SUPPLY OR FIXED-PRICE CONTRACTS WITH PLASTIC RESIN
SUPPLIERS.
We source plastic resin primarily from major industry suppliers such as Dow,
Basell, Nova, Total (formerly Atofina), Equistar, Sunoco, BP Amoco and
ExxonMobil. We have long-standing relationships with these suppliers but have
not entered into a firm supply contract with any of our resin vendors. We may
not be able to arrange for other sources of resin in the event of an
industry-wide general shortage of resins used by us, or a shortage or
discontinuation of certain types of grades of resin purchased from one or more
of our suppliers. Any such shortage may negatively impact our competitive
position versus companies that are able to better or more cheaply source resin.
Additionally, we may be subject to significant increases in prices that may
materially impact our financial condition. Over the past several years, we have
at times experienced rapidly increasing resin prices primarily due to the
increased cost of oil and natural gas. Due to the extent and rapid nature of
these increases, we cannot reasonably estimate the extent to which we will be
able to successfully recover these cost increases in the short-term. If rapidly
increasing resin prices occur, our revenue and/or profitability may be
materially and adversely affected, both in the short-term as we attempt to pass
through changes in the costs of resin to customers under current agreements and
in the longer term as we negotiate new agreements or if our customers seek
product substitution.
IF MARKET CONDITIONS DO NOT PERMIT US TO PASS ON THE COST OF PLASTIC RESINS TO
OUR CUSTOMERS ON A TIMELY BASIS, OR AT ALL, OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS COULD SUFFER MATERIALLY.
To produce our products we use large quantities of plastic resins, which in
fiscal 2004 cost us approximately $283.0 million, or 44% of our total cost of
goods sold. Plastic resins are subject to cyclical price fluctuations, including
those arising from supply shortages and changes in the prices of natural gas,
crude oil and other petrochemical intermediates from which resins are produced.
The instability in the world markets for oil and natural gas could materially
adversely affect the prices and general availability of raw materials quickly.
Based on information from Plastics News, an industry publication, prices of high
density polyethylene ("HDPE") and polypropylene ("PP") on January 1, 2005 were
$0.655 per pound and $0.64 per pound, respectively, reflecting increases of
$0.20 per pound, or 44%, and $0.23 per pound, or 56%, over the respective prices
from December 27, 2003. Historically, we have generally been able to pass on a
significant portion of the increases in resin prices to our customers over a
period of time, but even in such cases there have been negative short-term
impacts to our financial performance. Certain of our customers (currently fewer
than 10% of our net sales) purchase our products pursuant to fixed-price
arrangements in respect of which we have at times and may continue to enter into
hedging or similar arrangements. In the future, we may not be able to pass on
substantially all of the increases in resin prices to our customers on a timely
basis, if at all, which may have a material adverse effect on our competitive
position and financial performance.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AND OUR CUSTOMERS MAY NOT CONTINUE TO
PURCHASE OUR PRODUCTS.
We face intense competition in the sale of our products. We compete with
multiple companies in each of our product lines, including divisions or
subsidiaries of larger companies and foreign competitors with lower cost
structures. We compete on the basis of a number of considerations, including
price, service, quality, product characteristics and the ability to supply
products
12
to customers in a timely manner. Our products also compete with metal and glass,
paper and other packaging materials as well as plastic packaging materials made
through different manufacturing processes. Many of our product lines also
compete with plastic products in other lines and segments. 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. We may not be able to compete successfully with respect to any of the
foregoing factors. Competition could result in our products losing market share
or our having to reduce our prices, either of which would have a material
adverse effect on our business and results of operations and financial
condition. In addition, since we 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.
IN THE EVENT OF A CATASTROPHIC LOSS OF OUR KEY MANUFACTURING FACILITY, OUR
BUSINESS WOULD BE ADVERSELY AFFECTED.
Our primary manufacturing facility is in Evansville, Indiana, where we produce
approximately one-fourth of our products. Also, our primary computer software
system resides on a computer that is located in the Evansville facility. While
we maintain insurance covering the facility, including business interruption
insurance, a catastrophic loss of the use of all or a portion of the facility
due to accident, labor issues, weather conditions, other natural disaster or
otherwise, whether short or long-term, could have a material adverse effect on
us.
OUR ACQUISITION STRATEGY MAY BE UNSUCCESSFUL.
As part of our growth strategy, we plan to pursue the acquisition of other
companies, assets and product lines that either complement or expand our
existing business. We cannot assure you that we will be able to consummate any
such transactions at all or that any future acquisitions will be able to be
consummated at acceptable prices and terms. We continually evaluate potential
acquisition opportunities in the ordinary course of business, including those
that could be material in size and scope. Acquisitions involve a number of
special risks and factors, including:
- the focus of management's attention to the assimilation of the acquired
companies and their employees and on the management of expanding
operations;
- the incorporation of acquired products into our product line;
- the increasing demands on our operational systems;
- adverse effects on our reported operating results; and
- the loss of key employees and the difficulty of presenting a unified
corporate image.
We may be unable to make appropriate acquisitions because of competition for the
specific acquisition. In pursuing acquisitions, we compete against other plastic
product manufacturers, some of which are larger than we are and have greater
financial and other resources than we have. We compete for potential
acquisitions based on a number of factors, including price, terms and
conditions, size and ability to offer cash, stock or other forms of
consideration. Increased competition for acquisition candidates could result in
fewer acquisition opportunities for us and higher acquisition prices. As a
company without public equity, we may not be able to offer attractive equity to
potential sellers. Additionally, our acquisition strategy may result in
13
significant increases in our outstanding indebtedness and debt service
requirements. In addition, the negotiation of potential acquisitions may require
members of management to divert their time and resources away from our
operations.
We may become responsible for unexpected liabilities that we failed or were
unable to discover in the course of performing due diligence in connection with
the Landis Acquisition and any future acquisitions. We have required the selling
stockholders of Landis to indemnify us against certain undisclosed liabilities.
However, we cannot assure you that the indemnification, even if obtained, 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.
THE INTEGRATION OF ACQUIRED BUSINESSES MAY RESULT IN SUBSTANTIAL COSTS, DELAYS
OR OTHER PROBLEMS.
We may not be able to successfully integrate future acquisitions without
substantial costs, delays or other problems. We will have to continue to expend
substantial managerial, operating, financial and other resources to integrate
our businesses. The costs of such integration could have a material adverse
effect on our operating results and financial condition. Such costs include
non-recurring acquisition costs including accounting and legal fees, investment
banking fees, recognition of transaction-related obligations, plant closing and
similar costs and various other acquisition-related costs. In addition, although
we conduct what we believe to be a prudent level of investigation regarding the
businesses we purchase, in light of the circumstances of each transaction, an
unavoidable level of risk remains regarding the actual condition of these
businesses. Until we actually assume operating control of such business assets
and their operations, we may not be able to ascertain the actual value or
understand the potential liabilities of the acquired entities and their
operations. Once we acquire a business, we are faced with risks, including:
- the possibility that it will be difficult to integrate the operations
into our other operations;
- the possibility that we have acquired substantial undisclosed
liabilities;
- the risks of entering markets or offering services for which we have no
prior experience; and
- the possibility we may be unable to recruit additional managers with
the necessary skills to supplement the incumbent management of the
acquired business.
We may not be successful in overcoming these risks.
An acquisition may be significantly larger than any of our previous
acquisitions. The significant expansion of our business and operations resulting
from the acquisition may strain our administrative, operational and financial
resources. The integration may require substantial time, effort, attention, and
dedication of management resources and may distract our management in
unpredictable ways from our existing business. The integration process could
create a number of adverse consequences for us, including the possible
unexpected loss of key employees, customers or suppliers, a possible loss of
sales or an increase in operating or other costs. The foregoing could have a
material adverse effect on our business, financial condition and results of
operations. We may not be able to manage the combined operations and assets
effectively or realize all or any of the anticipated benefits of the
acquisition.
14
WE RELY ON UNPATENTED PROPRIETARY KNOW-HOW AND TRADE SECRETS.
In addition to relying on patent and trademark rights, we rely on unpatented
proprietary know-how and trade secrets, and employ various methods, including
confidentiality agreements with employees and consultants, to protect our
know-how and trade secrets. However, these methods and our patents and
trademarks may not afford complete protection and there can be no assurance that
others will not independently develop the know-how and trade secrets or develop
better production methods than us. Further, we may not be able to deter current
and former employees, contractors and other parties from breaching
confidentiality agreements and misappropriating proprietary information and it
is possible that third parties may copy or otherwise obtain and use our
information and proprietary technology without authorization or otherwise
infringe on our intellectual property rights. Additionally, we have licensed,
and may license in the future, patents, trademarks, trade secrets, and similar
proprietary rights to and from third parties. While we attempt to ensure that
our intellectual property and similar proprietary rights are protected and that
the third party rights we need are licensed to us when entering into business
relationships, third parties may take actions that could materially and
adversely affect our rights or the value of our intellectual property, similar
proprietary rights or reputation. Furthermore, no assurance can be given that
claims or litigation asserting infringement of intellectual property rights will
not be initiated by third parties seeking damages, the payment of royalties or
licensing fees and/or an injunction against the sale of our products or that we
would prevail in any litigation or be successful in preventing such judgment.
See "Business--Legal proceedings." In the future, we may also rely on litigation
to enforce our intellectual property rights and contractual rights, and, if not
successful, we may not be able to protect the value of our intellectual
property. Any litigation could be protracted and costly and could have a
material adverse effect on our business and results of operations regardless of
its outcome. Although we believe that our intellectual property rights are
sufficient to allow us to conduct our business without incurring liability to
third parties, our products may infringe on the intellectual property rights of
third parties and our intellectual property rights may not have the value we
believe them to have.
A SIGNIFICANT AMOUNT OF OUR NET WORTH REPRESENTS GOODWILL AND OTHER INTANGIBLES,
AND A WRITE-OFF COULD RESULT IN LOWER REPORTED NET INCOME AND A REDUCTION OF OUR
NET WORTH.
As of January 1, 2005, the net value of our goodwill and other intangibles was
approximately $503.3 million. In July 2001, the Financial Accounting Standards
Board issued Statements of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets." Under the new standard, we are no longer required or
permitted to amortize goodwill reflected on our balance sheet. We are, however,
required to evaluate goodwill reflected on our balance sheet when circumstances
indicate a potential impairment, or at least annually, under the new impairment
testing guidelines outlined in the standard. Future changes in the cost of
capital, expected cash flows, or other factors may cause our goodwill to be
impaired, resulting in a noncash charge against results of operations to
write-off goodwill for the amount of impairment. If a significant write-off is
required, the charge would have a material adverse effect on our reported
results of operations and net worth in the period of any such write-off.
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
15
establish standards for the treatment, storage and disposal of solid and
hazardous wastes. While we have not been required historically to make
significant capital expenditures in order to comply with applicable
environmental laws and regulations, we cannot predict with any certainty our
future capital expenditure requirements because of continually changing
compliance standards and environmental technology. Furthermore, violations or
contaminated sites that we do not know about (including contamination caused by
prior owners and operators of such sites) could result in additional compliance
or remediation costs or other liabilities. We have limited insurance coverage
for environmental liabilities and we do not anticipate increasing such coverage
in the future. We may also assume significant environmental liabilities in
acquisitions. In addition, federal, state and local governments could enact laws
or regulations concerning environmental matters that increase the cost of
producing, or otherwise adversely affect the demand for, plastic products.
Legislation that would prohibit, tax or restrict the sale or use of certain
types of plastic and other containers, and would require diversion of solid
wastes such as packaging materials from disposal in landfills, has been or may
be introduced in the U.S. Congress, in state legislatures and other legislative
bodies. While container legislation has been adopted in a few jurisdictions,
similar legislation has been defeated in public referenda in several states,
local elections and many state and local legislative sessions. Although we
believe that the laws promulgated to date have not had a material adverse effect
on us, there can be no assurance that future legislation or regulation would not
have a material adverse effect on us. Furthermore, a decline in consumer
preference for plastic products due to environmental considerations could have a
negative effect on our business.
The Food and Drug Administration ("FDA"), regulates the material content of
direct-contact food containers and packages we manufacture pursuant to the
Federal Food, Drug and Cosmetic Act. Furthermore, some of our products are
regulated by the Consumer Product Safety Commission ("CPSC"), pursuant to
various federal laws, including the Consumer Product Safety Act. Both the FDA
and the CPSC can require the manufacturer of defective products to repurchase or
recall these products and may also impose fines or penalties on the
manufacturer. Similar laws exist in some states, cities and other countries in
which we sell products. In addition, laws exist in certain states restricting
the sale of packaging with certain levels of heavy metals and imposing fines and
penalties for noncompliance. Although we use FDA-approved resins and pigments in
containers that directly contact food products and we believe our products are
in material compliance with all applicable requirements, we remain subject to
the risk that our products could be found to be not in compliance with these and
other requirements. A recall of any of our products or any fines and penalties
imposed in connection with non-compliance could have a materially adverse effect
on us. See "Business--Environmental matters and government regulation."
OUR OPERATIONS OUTSIDE OF THE UNITED STATES ARE SUBJECT TO ADDITIONAL CURRENCY
EXCHANGE, POLITICAL, INVESTMENT AND OTHER RISKS.
We currently operate two facilities outside the United States which combined
accounted for approximately 3% of our 2004 net sales. This amount may change in
the future. As such we are subject to the risks associated with selling and
operating in foreign countries, including devaluations and fluctuations in
foreign currencies, unstable political conditions, imposition of limitations on
conversion of foreign currencies into U.S. dollars and remittance of dividends
and payments by foreign subsidiaries. The imposition of taxes and imposition or
increase of investment and other restrictions, tariffs or quotas may also have a
negative effect on our
16
business and profitability. Our sales outside the United States from our
domestic plants, which represented approximately 2% of our 2004 net sales, are
subject to similar risks.
WE ARE CONTROLLED BY AFFILIATES OF GOLDMAN, SACHS & CO. AND J.P. MORGAN
SECURITIES INC., AND THEIR INTERESTS AS EQUITY HOLDERS MAY CONFLICT WITH YOUR
INTERESTS AS A HOLDER OF THE NOTES.
As a result of the Merger, certain private equity funds affiliated with Goldman,
Sachs & Co. and J.P. Morgan Securities Inc. own a substantial majority of our
common stock. The interests of Goldman, Sachs & Co. and J.P. Morgan Securities
Inc. and their respective affiliates may not in all cases be aligned with your
interests as a holder of the notes. Goldman, Sachs & Co. and J.P. Morgan
Securities Inc. and their respective affiliates control the power to elect our
directors, to appoint members of management and to approve all actions requiring
the approval of the holders of our common stock, including adopting amendments
to our certificate of incorporation and approving mergers, certain acquisitions
or sales of all or substantially all of our assets. For example, Goldman, Sachs
& Co. and J.P. Morgan Securities Inc. and their respective affiliates could
pursue acquisitions, divestitures or other transactions that, in their judgment,
could enhance their equity investment, even though such transactions might
involve significant risks to the holders of the notes.
17
USE OF PROCEEDS
This prospectus is delivered in connection with the sale of notes by Goldman,
Sachs & Co. or J.P. Morgan Securities Inc. in market-making transactions. We
will not receive any of the proceeds from such transaction.
18
CAPITALIZATION
The following table sets forth our capitalization as of January 1, 2005. This
table should be read in conjunction with "Use of proceeds" and our consolidated
financial statements and related notes included elsewhere in this prospectus.
--------------------------------------------------------------------------
AS OF
(UNAUDITED) JANUARY 1,
(DOLLARS IN THOUSANDS) 2005
--------------------------------------------------------------------------
Long-term debt (including current portion thereof):
Second Amended and Restated Credit Facility
Revolving credit facility(1)............................. $ -
Term loans(2)............................................ 330,780
Notes, including premium.................................... 343,876
Capital leases.............................................. 20,922
Nevada industrial revenue bonds and other................... 1,980
---------
Total debt............................................ 697,558
Stockholders' equity:
Preferred stock.......................................... -
Common stock............................................. 34
Additional paid-in capital............................... 345,001
Adjustment of the carryover basis of continuing
stockholders........................................... (196,603)
Notes receivable--common stock........................... (14,856)
Treasury stock........................................... (2,049)
Retained earnings........................................ 39,178
Accumulated other comprehensive income................... 13,186
---------
Total stockholders' equity............................ 183,891
---------
Total capitalization........................................ $ 881,449
--------------------------------------------------------------------------
(1) As of January 1, 2005, we had unused borrowing capacity under the revolving
credit facility of $91.5 million, with $8.5 million in letters of credit
outstanding thereunder.
(2) Between January 1, 2005 and the date of this prospectus, we made scheduled
principal payments of $0.8 million on our term loans, $1.5 million on our Nevada
industrial revenue bonds, and scheduled payments on capital leases, as well as
amortization of the premium on the Notes.
19
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected consolidated historical financial
data for each of the fiscal years 2000, 2001, 2002, 2003 and 2004 which have
been derived from our consolidated financial statements which have been audited
by Ernst & Young LLP, independent auditors included elsewhere in this
prospectus. All references herein to "2004," "2003," "2002," "2001," and "2000,"
relate to the fiscal years ended January 1, 2005, December 27, 2003, December
28, 2002, December 29, 2001 and December 30, 2000, respectively. For analysis
purposes, the results under Holding's prior ownership ("Predecessor") have been
combined with results subsequent to the Merger on July 22, 2002. Our historical
consolidated financial information may not be comparable to or indicative of our
future performance. The following data should be read in conjunction with our
consolidated financial statements and related notes, "Management's discussion
and analysis of financial condition and results of operations" and other
financial information included elsewhere in this prospectus. 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."
--------------------------------------------------------------------------------------------------------------------------
BPC HOLDING CORPORATION
-----------------------------------------------------------------
FISCAL
-----------------------------------------------------------------
COMBINED
COMPANY &
PREDECESSOR PREDECESSOR PREDECESSOR COMPANY COMPANY
----------- ----------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS) 2000 2001 2002 2003 2004
--------------------------------------------------------------------------------------------------------------------------
Statement of operations data:
Net sales............................................ $ 408,088 $ 461,659 $494,303 $ 551,876 $ 814,213
Cost of goods sold................................... 312,119 338,000 371,273 420,750 639,329
-----------------------------------------------------------------
Gross profit......................................... 95,969 123,659 123,030 131,126 174,884
Operating expenses
Selling............................................ 21,630 21,996 22,209 23,883 26,361
General and administrative......................... 24,408 28,535 23,414 25,699 38,518
Research and development........................... 2,606 1,948 2,888 3,459 3,825
Amortization of intangibles........................ 10,579 12,802 2,408 3,326 6,513
Other expenses..................................... 6,639 4,911 5,561 3,569 5,791
Merger expenses.................................... - - 20,987 - -
-----------------------------------------------------------------
Total operating expenses(1)........................ 65,862 70,192 77,467 59,936 81,008
-----------------------------------------------------------------
Operating income..................................... 30,107 53,467 45,563 71,190 93,876
Other expense (income)(2)............................ 877 473 299 (7) -
Loss on extinguished debt(3)......................... 1,022 - 25,328 250 -
Interest expense, net(4)............................. 51,457 54,355 49,254 45,413 53,185
-----------------------------------------------------------------
Income (loss) before income taxes.................... (23,249) (1,361) (29,318) 25,534 40,691
Income taxes (benefit)............................... (142) 734 3,298 12,486 17,740
-----------------------------------------------------------------
Net income (loss).................................... (23,107) (2,095) (32,616) 13,048 22,951
Preferred stock dividends............................ 6,665 9,790 6,468 - -
Amortization of preferred stock discount............. 768 1,024 574 - -
-----------------------------------------------------------------
Net income (loss) attributable to common
stockholders....................................... $ (30,530) $ (12,909) $(39,658) $ 13,048 $ 22,951
Other financial data:
Depreciation and amortization(5)................... $ 42,148 $ 50,907 $ 41,965 $ 44,078 $ 60,816
Capital expenditures............................... 31,530 32,834 28,683 29,949 52,624
Ratio of earnings to fixed charges(6).............. - - - 1.5x 1.7x
Balance sheet data (at end of period):
Working capital.................................... $ 20,470 $ 19,327 $ 64,201 $ 87,571 $ 90,094
Fixed assets....................................... 179,804 203,217 193,132 282,977 281,972
Total assets....................................... 413,122 446,876 760,576 1,015,806 1,005,144
Total debt......................................... 468,806 485,881 609,943 751,605 697,558
Stockholders' equity (deficit)..................... (137,997) (139,601) 75,163 152,591 183,891
--------------------------------------------------------------------------------------------------------------------------
20
(1) Operating expenses include $20,987 related to the Merger during fiscal 2002.
(2) Other expenses (income) consist of net losses (gains) on disposal of
property and equipment for the respective years.
(3) The loss on extinguished debt in 2003 represents the legal costs associated
with amending the senior credit facility in connection with the Landis
Acquisition. As a result of the retirement all of Holding's senior secured notes
and Berry Plastics' senior subordinated notes and the repayment of all amounts
owed under our credit facilities in connection with the Merger, $6.6 million of
existing deferred financing fees and $18.7 million of prepayment fees and
related charges were charged to expense in 2002 as a loss on extinguished debt.
In 2000, the loss on extinguished debt relates to deferred financing fees
written off as a result of amending the retired senior credit facility.
(4) Includes non-cash interest expense of $1,862, $2,318, $2,476, $11,268, and
$18,047, in fiscal 2004, 2003, 2002, 2001, and 2000, respectively.
(5) Depreciation and amortization excludes non-cash amortization of deferred
financing fees and debt premium/discount amortization which are included in
interest expense.
(6) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent net income (loss) before extraordinary items. "Fixed
charges" consist of interest expenses, including amortization of debt issuance
costs and that portion of rental expenses which we consider to be a reasonable
approximation of the interest factor of operating lease payments. For fiscal
2000, 2001 and 2002, our fixed charges exceeded our earnings by $20,520, $772
and $3,146, respectively.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Unless the context requires otherwise, references in this Management's
discussion and analysis of financial condition and results of operations to "BPC
Holding" or "Holding" refer to BPC Holding Corporation, references to "we,"
"our" or "us" refer to BPC Holding Corporation together with its consolidated
subsidiaries, and references to "Berry Plastics" or the "Company" refer to Berry
Plastics Corporation, a wholly owned subsidiary of BPC Holding Corporation. For
analysis purposes, the results under Holding's prior ownership ("Predecessor")
have been combined with results subsequent to the merger on July 22, 2002
described below. You should read the following discussion in conjunction with
the consolidated financial statements of Holding and its subsidiaries and the
accompanying notes thereto, which information is included elsewhere herein. This
discussion contains forward-looking statements and involves numerous risks and
uncertainties, including, but not limited to, those described in "Risk factors."
Our actual results may differ materially from those contained in any
forward-looking statements.
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,
(1) each share of common stock of Holding issued and outstanding immediately
prior to the effective time of the Merger was converted into the right to
receive cash pursuant to the terms of the merger agreement, and (2) 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. Additionally, in connection with the Merger, we retired all of
Holding's senior secured notes and Berry Plastics' senior subordinated notes,
repaid all amounts owed under our credit facilities, redeemed all of the
outstanding preferred stock of Holding, entered into a new credit facility and
completed an offering of new senior subordinated notes of Berry Plastics.
Immediately following the Merger, private equity funds affiliated with Goldman,
Sachs & Co. owned approximately 63% of the outstanding common stock of Holding,
private equity funds affiliated with J.P. Morgan Chase & Co. owned approximately
29% and members of our management owned the remaining 8%.
OVERVIEW
We are one of the world's leading manufacturers and suppliers of a diverse mix
of rigid plastics packaging products focusing on the open-top container,
closure, aerosol overcap, drink cup and housewares markets. We sell a broad
product line to over 12,000 customers. We concentrate on manufacturing higher
quality, value-added products sold to image-conscious marketers of institutional
and consumer products. We believe that our large operating scale, low-cost
manufacturing capabilities, purchasing leverage, proprietary thermoforming
technology and extensive collection of over 1,000 active proprietary molds
provide us with a competitive advantage in the marketplace. We have been able to
leverage our broad product offering, value-added manufacturing capabilities and
long-standing customer relationships into leading positions across a number of
products. Our top 10 customers represented approximately 35% of our fiscal 2004
net sales with no customer accounting for more than 8% of our fiscal 2004 net
sales. The average length of our relationship with these customers was over 20
years. Our products are primarily sold to customers in industries that exhibit
relatively stable demand characteristics and are considered less sensitive to
overall economic conditions, such as pharmaceuticals, food, dairy and health and
beauty. Additionally, we operate 16 high-volume
22
manufacturing facilities and have extensive distribution capabilities. We
organize our business into four operating divisions: containers, closures,
consumer products, and international. At the end of fiscal 2004, we had
approximately 4,550 employees.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We disclose those accounting policies that we consider to be significant in
determining the amounts to be utilized for communicating our consolidated
financial position, results of operations and cash flows in the second note to
our consolidated financial statements included elsewhere herein. Our discussion
and analysis of our financial condition and results of operations are based on
our consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of financial statements in conformity with these principles requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Actual results are likely to differ
from these estimates, but management does not believe such differences will
materially affect our financial position or results of operations. We believe
that the following accounting policies are the most critical because they have
the greatest impact on the presentation of our financial condition and results
of operations.
Accounts receivable. We evaluate our allowance for doubtful accounts on a
quarterly basis and review any significant customers with delinquent balances to
determine future collectibility. We base our determinations on legal issues
(such as bankruptcy status), past history, current financial and credit agency
reports, and the experience of our credit representatives. We reserve accounts
that we deem to be uncollectible in the quarter in which we make the
determination. We maintain additional reserves based on our historical bad debt
experience. We believe, based on past history and our credit policies, that our
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 the results of
operations of the Company. Our allowance for doubtful accounts was $3.2 million
and $2.7 million as of January 1, 2005 and December 27, 2003, respectively.
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 the results of operations of the Company. Our reserve for
inventory obsolescence was $3.8 million and $4.1 million as of January 1, 2005
and December 27, 2003, 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 the results of operations of the Company. Our accrued
liability for medical claims
23
was $2.0 million and $3.0 million, including reserves for expected medical
claims incurred but not reported, as of January 1, 2005 and December 27, 2003,
respectively.
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' compensation claims
experience would not have a material impact on the results of operations. Our
accrued liability for workers' compensation claims was $3.5 million and $3.1
million as of January 1, 2005 and December 27, 2003, 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 herein.
Deferred taxes and effective tax rates. We estimate tax rates and associated
liabilities or assets for each legal entity in accordance with FAS 109. We use
tax-planning to minimize or defer tax liabilities to future periods. In
recording effective tax rates and related liabilities and assets, we rely upon
estimates, which are based upon our interpretation of United States and local
tax laws as they apply to our legal entities and our overall tax structure.
Audits by local tax jurisdictions, including the United States Government, could
yield different interpretations from our own and cause the Company 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. Our valuation allowance against deferred tax assets was $1.3 million and
$16.9 million as of January 1, 2005 and December 27, 2003, respectively. The
decrease of $15.6 million in 2004 can be primarily attributed to the use of
fully reserved net operating losses and increases in the temporary differences
related to property and equipment.
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 Holding and its consolidated subsidiaries. This is not to suggest
that other risk factors such as changes in economic conditions, changes in
material costs and others could not adversely impact our consolidated financial
position, results of operations and cash flows in future periods.
24
RECENTLY ISSUED ACCOUNTING STANDARDS
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. We currently disclose pro forma
compensation expense quarterly and annually by calculating the stock option
grants' fair value using the Black-Scholes model and disclosed the impact on net
income (loss) 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. We expect to adopt SFAS No. 123R in the first quarter of
2006, but has not yet evaluated what effect the adoption of this new standard
will have on our financial position or results of operations.
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. We have not yet evaluated what effect the
adoption of this new standard will have on our financial position or results of
operations.
ACQUISITIONS
We maintain a selective and disciplined acquisition strategy, which is focused
on improving our financial performance in the long-term, enhancing our market
positions and expanding our product lines or, in some cases, providing us with a
new or complementary product line. Most businesses we have acquired had profit
margins that are lower than that of our existing business, which results in a
temporary decrease in our margins. We have historically achieved significant
reductions in manufacturing and overhead costs of acquired companies by
introducing advanced manufacturing processes, exiting low-margin businesses or
product lines, reducing headcount, rationalizing facilities and machinery,
applying best practices and capitalizing on economies of scale. In connection
with our acquisitions, we have in the past and may in the future incur charges
related to these reductions and rationalizations.
YEAR ENDED JANUARY 1, 2005
COMPARED TO YEAR ENDED DECEMBER 27, 2003
Net Sales. Net sales increased $262.3 million, or 48%, to $814.2 million in 2004
from $551.9 million in 2003 with an approximate 4% increase in net selling price
due to the pass through of higher resin costs passed through to our customers.
Our base business volume, excluding selling price changes and acquired business,
increased by approximately $29.5 million or 6% in 2004. Container net sales
increased $229.8 million with the Landis Acquisition providing domestic
container net sales of approximately $221.3 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 increase in container net sales is primarily a
result of the Landis Acquisition, increased selling prices and base
25
business growth in several of the division's product lines. Closure net sales
increased $2.2 million primarily due to the higher selling prices and increased
volume in the United States closure product line partially offset by $3.3
million of 2004 net sales reclassified to the international division as
described below. Consumer products net sales increased $14.3 million in 2004
primarily due to increased sales from thermoformed drink cups and housewares
partially offset by reduced volume from injection drink cups. In 2004, we
created our international division as a separate operating and reporting
division to increase sales and improve service to international customers
utilizing existing resources. The international segment includes the Company's
foreign facilities and business from domestic facilities that is shipped or
billed to foreign locations. The 2003 results for the foreign facilities have
been reclassified to the international segment; however, business from domestic
facilities that were shipped or billed to foreign locations cannot be separately
identified for 2003. The international division provided net sales of $38.1
million in 2004 compared to $22.0 million in 2003 primarily as a result of the
effects of this reclassification and the Landis Acquisition.
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 the
Company's 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 businesses, $1.1 million related to
the shutdown and reorganization 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
26
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.
YEAR ENDED DECEMBER 27, 2003
COMPARED TO YEAR ENDED DECEMBER 28, 2002
Net Sales. Net sales increased $57.6 million, or 12%, to $551.9 million in 2003
from $494.3 million in 2002 with an approximate 5% increase in net selling price
due to higher resin costs passed through to our customers. Our base business
volume, excluding selling price changes, and acquired business, increased by
approximately $4.0 million or 1% in 2003. Container net sales increased $38.1
million with the Landis Acquisition providing net sales of approximately $20.1
million in 2003. The remaining increase in containers of $18.0 million can be
primarily attributed to higher selling prices primarily due to passing through
the costs of increased resin prices. Closure net sales increased $12.0 million
in 2003 primarily due to the CCL acquisition, higher selling prices, and
increased volume in the United States closure product line. Consumer products
net sales increased $6.1 million in 2003 primarily due to increased sales from
the thermoformed drink cup line and retail housewares partially offset by a
reduction in sales of a specialty drink cup line. In 2004, we created our
international division as a separate operating and reporting division to
increase sales and improve service to international customers utilizing existing
resources. The international segment includes the Company's foreign facilities
and business from domestic facilities that is shipped or billed to foreign
locations. The 2003 and 2002 results for the foreign facilities have been
reclassified to the international segment; however, business from domestic
facilities that were shipped or billed to foreign locations cannot be separately
identified for 2003 or 2002. The international division provided net sales of
$22.0 million in 2003 compared to $20.6 million in 2002. This increase of $1.4
million can be primarily attributed to foreign currency translation.
Gross Profit. Gross profit increased $8.1 million from $123.0 million (25% of
net sales) in 2002 to $131.1 million (24% of net sales) in 2003. This increase
of 7% includes the combined impact of the added sales volume, productivity
improvement initiatives and the timing effect of the 5% increase in net selling
prices partially offset by higher raw material costs. We have continued to
consolidate products and business of recent acquisitions to the most efficient
tooling, providing customers with improved products and customer service. As
part of the integration, in the fourth quarter of 2002 we closed our Fort Worth,
Texas facility, which was acquired in the Pescor acquisition, and in the fourth
quarter of 2003, we initiated the closing of our Monticello, Indiana facility.
The Monticello facility was acquired in the Landis Acquisition. The business
from these locations was distributed throughout our facilities. Also,
significant productivity improvements were made in 2003, including the addition
of state-of-the-art injection molding, thermoforming and post molding equipment
at several of our facilities.
27
Operating Expenses. Selling expenses increased by $1.7 million to $23.9 million
for 2003 from $22.2 million principally as a result of increased selling
expenses resulting from increased sales. General and administrative expenses
increased from $23.4 million to $25.7 million in 2003. This increase of $2.3
million can be primarily attributed to the Landis Acquisition and increased
accrued bonus expenses. Research and development costs increased $0.6 million to
$3.5 million in 2003 primarily as a result of an increase in projects under
development and the Landis Acquisition. Intangible asset amortization increased
from $2.4 million in 2002 to $3.3 million for 2003, primarily as a result of
intangibles resulting from the Merger and the Landis Acquisition. In connection
with the Merger, the Predecessor incurred Merger related expenses of
approximately $21.0 million, consisting primarily of investment banking fees,
bonuses to management, non-cash modification of stock option awards, legal
costs, and fees to the largest voting stockholder of the Predecessor. Other
expenses were $3.6 million for 2003 compared to $5.6 million for 2002. Other
expenses in 2003 include transition expenses of $1.5 million related to recently
acquired businesses, $1.1 million related to the shutdown and reorganization of
facilities, and $1.0 million related to an acquisition that was not completed.
Other expenses in 2002 include transition expenses of $1.3 million related to
recently acquired businesses, $4.1 million related to the shutdown and
reorganization of facilities, and $0.2 million related to an acquisition that
was not completed.
Interest Expense, Net. Net interest expense, including amortization of deferred
financing costs and debt premium, for 2003 was $45.7 million (8% of net sales)
compared to $74.6 million (15% of net sales) in 2002, a decrease of $28.9
million. This decrease is primarily attributed to $18.7 million of prepayment
fees and related charges and $6.6 million of deferred financing fees written off
in 2002 due to the extinguishment of debt in connection with the Merger and
decreased rates of interest on borrowings in 2003.
Income Taxes. In 2003, we recorded income tax expense of $12.5 million for
income taxes, or an effective tax rate of 49%, compared to $3.3 million for
fiscal 2002. The effective tax rate is greater than the statutory rate due to
the impact of state taxes and foreign location losses for which no benefit was
currently provided. The increase of $9.2 million over 2002 can be attributed to
the Merger as the use of fully reserved net operating loss carryforwards that
existed at the time of the Merger have been recorded as a reduction to goodwill.
Net Income (Loss). We recorded net income of $13.0 million in 2003 compared to a
net loss of $32.6 million in 2002 for the reasons stated above.
INCOME TAX MATTERS
As of January 1, 2005, Holding has unused operating loss carryforwards of $61.1
million for federal income tax purposes which begin to expire in 2012.
Alternative minimum tax credit carryforwards of approximately $3.8 million are
available to Holding indefinitely to reduce future years' federal income taxes.
As a result of the Merger, $45.0 million of the unused operating loss
carryforward is limited to approximately $12.9 million per year, and $16.0
million of the unused operating loss carryforward occurred subsequent to the
Merger and is not subject to an annual limitation.
LIQUIDITY AND CAPITAL RESOURCES
On July 22, 2002, we entered into a credit and guaranty agreement and a related
pledge security agreement with a syndicate of lenders led by Goldman Sachs
Credit Partners L.P., as administrative agent (the "Credit Facility"). On
November 10, 2003, in connection with the
28
Landis Acquisition, we amended and restated the Credit Facility (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"). The Second Amended and Restated Credit Facility provides (1)
a $365.5 million term loan and (2) a $100.0 million revolving credit facility.
The proceeds from the new term loan were used to repay the outstanding balance
of the term loans from the Amended and Restated Credit Facility. The Second
Amended and Restated 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 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 July 22, 2010, and the
maturity date of the revolving credit facility is July 22, 2008. The
indebtedness under the Second Amended and Restated Credit Facility is guaranteed
by Holding and all of its domestic subsidiaries. The obligations of the Company
and the subsidiaries under the Second Amended and Restated Credit Facility and
the guarantees thereof are secured by substantially all of the assets of such
entities. At January 1, 2005 and December 27, 2003, there were no borrowings
outstanding on the revolving credit facility.
Borrowings under the Second Amended and Restated Credit Facility bear interest,
at the Company's option, at either (i) a base rate (equal to the greater of the
prime rate or 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, 2.25% per annum (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 January 1, 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 (2.50% based on
results through January 1, 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. The interest rate applicable to overdue payments and to
outstanding amounts following an event of default under the Second Amended and
Restated Credit Facility is equal to the interest rate at the time of an event
of default plus 2.00%. We also must pay commitment fees ranging from 0.375% per
annum to 0.50% per annum on the average daily unused portion of the revolving
credit facility. Pursuant to a requirement in the Credit Facility and as a
result of an economic slowdown and corresponding interest rate reductions, we
entered into an interest rate collar arrangement in October 2002 to protect
$50.0 million of the outstanding variable rate term loan debt from future
interest rate volatility. Under the interest rate collar agreement, the
Eurodollar rate with respect to the $50.0 million of outstanding variable rate
term loan debt will not exceed 6.75% or drop below 1.97%. The agreement was
effective January 15, 2003 and terminates on July 15, 2006.
The Second Amended and Restated Credit Facility contains significant financial
and operating covenants, including prohibitions on our ability to incur
specified additional indebtedness or to pay dividends, and restrictions on our
ability to make capital expenditures and investments and dispose of assets or
consummate acquisitions. The Second Amended and Restated Credit Facility
contains (1) a minimum interest coverage ratio as of the last day of any quarter
of 2.15:1.00 per quarter for the quarters ending December 2004 and March 2005,
2.25:1.00 per quarter for the quarters ending June 2005 through March 2006,
2.35:1.00 per quarter for the
29
quarters ending June 2006 through December 2006 and 2.50:1.00 per quarter
thereafter, (2) a maximum amount of capital expenditures (subject to the
rollover of certain unexpended amounts from the prior year and increases due to
acquisitions) of $50 million for the year ending 2004, $60 million for the years
ending 2005, 2006 and 2007, and $65 million for each year thereafter, and (3) a
maximum total leverage ratio as of the last day of any quarter of 5.50:1.00 per
quarter for the quarters ending December 2004 through June 2005, 5.25:1.00 per
quarter for the quarters ending September 2005 and December 2005, 5.00:1.00 per
quarter for the quarters ending March 2006 and June 2006, 4.75:1.00 per quarter
for the quarters ending September 2006 through March 2007, 4.50:1.00 per quarter
for the quarters ending June 2007 through December 2007, 4.25:1.00 per quarter
for the quarters ending March 2008 through December 2008, and 4.00:1.00 per
quarter thereafter. The occurrence of a default, an event of default or a
material adverse effect on Berry Plastics would result in our inability to
obtain further borrowings under our revolving credit facility and could also
result in the acceleration of our obligations under any or all of our debt
agreements, each of which could materially and adversely affect our business. We
were in compliance with all of the financial and operating covenants at January
1, 2005.
In 2004, we made two voluntary principal prepayments totaling $45.0 million on
our senior term debt resulting in a revision of the loan amortization schedule.
Accordingly, the term loan amortizes quarterly as follows: $831,312 each quarter
beginning March 31, 2005 and ending June 30, 2009; and $78,974,687 each quarter
beginning September 30, 2009 and ending June 30, 2010. Borrowings under the
Second Amended and Restated Credit Facility are subject to mandatory prepayment
under specified circumstances, including if we meet specified cash flow
thresholds, collect insurance proceeds in excess of certain thresholds, issue
equity securities or debt or sell assets not in the ordinary course of business,
or upon a sale or change of control of the Company. There is no required
amortization of the revolving credit facility. Outstanding borrowings under the
revolving credit facility may be repaid at any time, and may be reborrowed at
any time prior to the maturity date which is on July 22, 2008. The revolving
credit facility allows up to $25.0 million of letters of credit to be issued
instead of borrowings and up to $10.0 million of swingline loans. At January 1,
2005 and December 27, 2003, we had $8.5 million and $7.4 million, respectively,
in letters of credit outstanding under our revolving credit facility.
On July 22, 2002, we 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 us from the sale of the 2002 Notes, after expenses, were $239.4
million. The proceeds from the 2002 Notes were used in the financing of the
Merger. The 2002 Notes mature on July 15, 2012, and interest is payable
semi-annually on January 15 and July 15 of each year beginning January 15, 2003.
Holding and all of our domestic subsidiaries fully, jointly, severally, and
unconditionally guarantee the 2002 Notes.
On November 20, 2003, we completed an offering of $85.0 million aggregate
principal amount of additional 2002 Notes (the "Add-on Notes" and together with
the 2002 Notes, the "Notes"). The net proceeds to us from the sale of the Add-on
Notes, after expenses, were $91.8 million as the Add-on Notes were sold at a
premium of 12% over the face amount. The proceeds from the Add-on Notes were
used in the financing of the Landis Acquisition. The Add-on Notes constitute a
single class with the 2002 Notes. Holding and all of our domestic subsidiaries
fully, jointly, severally, and unconditionally guarantee the Add-on Notes.
30
We are not required to make mandatory redemption or sinking fund payments with
respect to the Notes. On or subsequent to July 15, 2007, the Notes may be
redeemed at our option, in whole or in part, at redemption prices ranging from
105.375% in 2007 to 100% in 2010 and thereafter. Prior to July 15, 2005, up to
35% of the Notes may be redeemed at 110.75% of the principal amount at our
option from the proceeds of an equity offering. Upon a change in control, as
defined in the indenture under which the Notes were issued (the "Indenture"),
each holder of Notes will have the right to require us to repurchase all or any
part of such holder's Notes at a repurchase price in cash equal to 101% of the
aggregate principal amount thereof plus accrued interest. The Indenture
restricts our ability to incur additional debt and contains other provisions
which could limit our liquidity.
Our contractual cash obligations as of January 1, 2005 are summarized in the
following table.
------------------------------------------------------------------------------------------
PAYMENTS DUE BY PERIOD AT JANUARY 1, 2005
--------------------------------------------------
<1 1-3 4-5 >5
(DOLLARS IN THOUSANDS) TOTAL YEAR YEARS YEARS YEARS
------------------------------------------------------------------------------------------
Long-term debt, excluding capital
leases............................. $667,760 $ 3,825 $ 7,650 $162,937 $493,348
Capital leases........................ 26,104 8,397 8,654 9,053 -
Operating leases...................... 109,047 13,645 23,359 17,927 54,116
Purchase obligations(1)............... 56,521 56,521 - - -
--------------------------------------------------
Total contractual cash obligations.... $859,894 $82,850 $39,663 $189,917 $547,464
------------------------------------------------------------------------------------------
(1) Represents open purchase commitments for purchases of resin and capital
expenditures in the normal course of operations.
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 mechanical hedging
partially offset by improved operating performance. Net cash provided by
operating activities was $79.8 million in 2003 as compared to $26.6 million in
2002. This increase of $53.2 million can be primarily attributed to Merger
related expenses of $21.0 million in 2002, improved operating performance as our
net income (loss) plus non-cash expenses excluding the Merger related expenses
improved $8.1 million, and improved working capital management.
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, a foreign subsidiary of Berry, reached an agreement in March 2004 to
sell the manufacturing equipment, inventory, and accounts receivable for 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 2004 were $52.6 million, an increase of $22.7 million from $29.9
million in 2003. Capital expenditures in 2004 included investments of $11.1
million for facility additions and renovations, production systems and offices
necessary to support production operating levels throughout the company, $14.8
million for molds, $17.1 million for molding and printing equipment, and $9.6
million for accessory equipment and systems. The capital expenditure budget for
2005 is expected to be approximately $53.0 million. Net cash used for investing
activities increased from $44.9 million in 2002 to
31
$265.7 million in 2003 primarily as a result of the Landis Acquisition in 2003
partially offset by $12.4 million of capitalized Merger costs in 2002.
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 of the senior term loans in 2004. Net cash
provided by financing activities was $196.8 million in 2003 as compared to $32.4
million in 2002. The increase of $164.4 million can be primarily attributed to
the Landis Acquisition in 2003 partially offset by the Merger.
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 2005 will be satisfied through a
combination of funds generated from operating activities and cash on hand,
together with funds available under the Second Amended and Restated Credit
Facility. We base such belief on historical experience and the substantial funds
available under the Second Amended and Restated Credit Facility. 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 cost of resin which we are unable to pass through to our
customers or significant acquisitions could severely impact our liquidity. At
January 1, 2005, our cash balance was $0.3 million, and we had unused borrowing
capacity under the Second Amended and Restated Credit Facility's borrowing base
of $91.5 million. Although the $91.5 million was available at January 1, 2005,
the covenants under our Second Amended and Restated Credit Facility may limit
our ability to make such borrowings in the future.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
We are exposed to market risk from changes in interest rates primarily through
our Second Amended and Restated Credit Facility. The Second Amended and Restated
Credit Facility is comprised of (1) a $365.5 million term loan and (2) a $100.0
million revolving credit facility. At January 1, 2005, there were no borrowings
outstanding on the revolving credit facility. The net outstanding balance of the
term loan at January 1, 2005 was $330.8 million. The term loan bears interest at
the Eurodollar rate plus the applicable margin. Future borrowings under the
Second Amended and Restated Credit Facility bear interest, at our option, at
either (1) the base rate, which is a rate per annum equal to the greater of the
prime rate and the federal funds effective rate in effect on the date of
determination plus 0.5% plus the applicable margin or (2) an adjusted Eurodollar
Rate which is equal to the rate for Eurodollar deposits plus the applicable
margin. We utilize interest rate instruments to reduce the impact of either
increases or decreases in interest rates on floating rate debt. Pursuant to a
requirement in the Credit Facility and as a result of an economic slowdown and
corresponding interest rate reductions, we entered into an interest rate collar
arrangement in October 2002 to protect $50.0 million of the outstanding variable
rate term loan debt from future interest rate volatility. Under the interest
rate collar agreement, the Eurodollar rate with respect to the $50.0 million of
outstanding variable rate term loan debt will not exceed 6.75% or drop below
1.97%. At January 1, 2005, the Eurodollar rate applicable to the term loan
2.22%. If the Eurodollar rate increases 0.25% and 0.5%, we estimate an annual
increase in our interest expense of approximately $0.8 million and $1.7 million,
respectively.
32
PLASTIC RESIN COST RISK
We are exposed to market risk from changes in plastic resin prices that could
impact our results of operations and financial condition. We manage our exposure
to these market risks through our normal operations through purchasing
negotiation, mechanical hedging, switching between HDPE and PP for certain
products and, when deemed appropriate, by using derivative financial instruments
in accordance with established policies and procedures. The derivative financial
instruments generally used are forward contracts. The derivative financial
instruments utilized by the Company in its hedging activities are considered
risk management tools and are not used for trading purposes.
As part of our risk management strategy, in the fourth quarter of 2004, we
entered into resin forward hedging transactions constituting approximately 15%
of our estimated 2005 resin needs and 10% of our 2006 estimated resin needs.
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 will be recognized in earnings when realized as an
adjustment to cost of goods sold. The fair values of these contracts at January
1, 2005 was an unrealized gain of $5.2 million. Based on the Company's resin
price exposure at January 1, 2005, a hypothetical 10% change in resin prices
without any pass through to our customers for a one-year period would change
income before income taxes by approximately $28.3 million.
33
BUSINESS
GENERAL
We are one of the world's leading manufacturers and suppliers of a diverse mix
of rigid plastics packaging products focusing on the open-top container,
closure, aerosol overcap, drink cup and housewares markets. We sell a broad
product line to over 12,000 customers. We concentrate on manufacturing higher
quality, value-added products sold to image-conscious marketers of institutional
and consumer products. We believe that our large operating scale, low-cost
manufacturing capabilities, purchasing leverage, proprietary thermoforming
technology and extensive collection of over 1,000 active proprietary molds
provide us with a competitive advantage in the marketplace. We have been able to
leverage our broad product offering, value-added manufacturing capabilities and
long-standing customer relationships into leading positions across a number of
products. Our top 10 customers represented approximately 35% of our fiscal 2004
net sales with no customer accounting for more than 8% of our fiscal 2004 net
sales. The average length of our relationship with these customers was over 20
years. Our products are primarily sold to customers in industries that exhibit
relatively stable demand characteristics and are considered less sensitive to
overall economic conditions, such as pharmaceuticals, food, dairy and health and
beauty. Additionally, we operate 16 high-volume manufacturing facilities and
have extensive distribution capabilities.
We organize our business into four operating divisions: containers, closures,
consumer products, and international. The following table displays our net sales
by division for each of the past five fiscal years.
-------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS) 2000 2001 2002 2003 2004
-------------------------------------------------------------------------------------------
Containers..................................... $231.2 $234.5 $250.4 $288.5 $518.3
Closures....................................... 97.1 110.1 113.3 125.3 127.5
Consumer products.............................. 64.7 94.8 110.0 116.1 130.4
International.................................. 15.1 22.3 20.6 22.0 38.0
------------------------------------------
Total net sales................................ $408.1 $461.7 $494.3 $551.9 $814.2
-------------------------------------------------------------------------------------------
In 2004, we created the international segment as a separate operating and
reporting segment to increase sales and improve service to international
customers utilizing existing resources. The international segment includes our
foreign facilities and business from domestic facilities that is shipped or
billed to foreign locations. The 2003 and prior results for the foreign
facilities have been reclassified to the international segment; however,
business from domestic facilities that were shipped or billed to foreign
locations cannot be separately identified for 2003 and prior. Accordingly, the
amounts disclosed under the new reporting structure are not comparable between
2004 and previous years. Additional financial information about our business
segments is provided in Note 14 of the "Notes to Consolidated Financial
Statements."
PRODUCT OVERVIEW
We organize our product line into three categories: containers, closures and
consumer products.
34
CONTAINER
We classify our containers into six product lines: thinwall, pry-off, dairy,
polypropylene, industrial and specialty. The following table describes our
container product lines.
----------------------------------------------------------------------------------------------
PRODUCT LINE DESCRIPTION SIZES MAJOR END-MARKETS
----------------------------------------------------------------------------------------------
Thinwall Thinwalled, multi- 8 oz. to 2 gallons Food, promotional
purpose containers with products, toys and a
or without handles and wide variety of other
lids uses
Pry-off Containers having a 4 oz. to 2 gallons Building products,
tight lid-fit and adhesives, chemicals
requiring an opening and other industrial
device uses
Dairy Thinwall containers in 4 oz. to 5 lbs., Multi-pack Cultured dairy products
traditional dairy including yogurt,
market sizes and styles cottage cheese, sour
cream and dips, and
frozen desserts
Polypropylene Usually clear 6 oz. to 5 lbs. Food, deli, sauces and
containers in round, salads
oblong or rectangular
shapes
Industrial Thick-walled, larger 2.5 to 5 gallons Building products,
pails designed to chemicals, paints and
accommodate heavy loads other industrial uses
Specialty Customer specific Various Premium consumer items,
such as tobacco and
drink mixes
----------------------------------------------------------------------------------------------
The largest end-uses for our containers are food products, building products,
chemicals and dairy products. We have a diverse customer base for our container
lines, and no single container customer exceeded 8% of our total net sales in
fiscal 2004.
We believe that we offer the broadest product line among U.S.-based
injection-molded plastic container manufacturers as well as numerous
thermoformed container offerings. Our container capacities range from 4 ounces
to 5 gallons and are offered in various styles with accompanying lids, bails and
handles, some of which we produce, as well as a wide array of decorating
options. In addition to a complete product line, we have sophisticated printing
capabilities, in-house graphic arts and tooling departments, low-cost
manufacturing capability with 14 plants strategically located throughout the
United States and a dedication to high-quality products and customer service.
Our product engineers work with customers to design and commercialize new
containers. In addition, as part of our dedication to customer service, on
occasion, we provide filling machine equipment to some of our customers,
primarily in the dairy market, and we also provide the services necessary to
operate such equipment. We believe providing such equipment and services
increases customer retention by increasing the customer's production efficiency.
The cost of, and revenue from, such equipment and services is not material.
We service several large food and dairy customers and their branded products.
Additionally, we seek to develop niche container products and new applications
by taking advantage of our
35
state-of-the-art decorating and graphic arts capabilities and dedication to
service and quality. We believe that these capabilities have given us a
significant competitive advantage in certain high-margin niche container
applications for specialized products. Examples include popcorn containers for
new movie promotions and professional and college sporting and entertainment
events, where the ability to produce sophisticated and colorful graphics is
crucial to the product's success. In order to identify new applications for
existing products, we rely extensively on our national sales force. Once these
opportunities are identified, our sales force works with our product design
engineers to satisfy customers' needs.
In non-industrial containers, our strongest competitors include Airlite, Solo
(formerly Sweetheart) and Polytainers. We also produce commodity industrial
pails for a market that is dominated by large volume competitors such as Letica,
Plastican, NAMPAC and Ropak. We do not have a significant share in this large
market.
CLOSURES
Our closures division focuses on aerosol overcaps and closures.
AEROSOL OVERCAPS
We believe that we are the worldwide leading producer of injection-molded
aerosol overcaps. Our aerosol overcaps are used in a wide variety of consumer
goods including spray paints, household and personal care products, insecticides
and numerous other commercial and consumer products. Most U.S. manufacturers of
aerosol products, and companies that fill aerosol products on a contractual
basis, are our customers for some portion of their needs. Approximately 20% of
the U.S. injection-molded market consists of manufacturers who produce overcaps
in-house for their own needs.
We believe that, over the years, we have developed several significant
competitive advantages, including (1) a reputation for outstanding quality, (2)
short lead-time requirements to fill customer orders, (3) long-standing
relationships with major customers, (4) the ability to accurately reproduce
colors, (5) proprietary packing technology that minimizes freight cost and
warehouse space, (6) high-speed, low-cost molding and decorating capability and
(7) a broad product line of proprietary molds. We continue to develop new
products in the overcap market with special decoration and functional features.
In fiscal 2004, no single aerosol overcap customer accounted for over 1% of our
total net sales. Competitors include Dubuque Plastics, Cobra and Plasticum. In
addition, a number of companies, including several of our customers, currently
produce aerosol overcaps for their own use.
CLOSURES
We believe our combined product line offerings to the closures market establish
us as a leading provider of closures. Our product line offerings include
continuous thread, dispensing, tamper evident and child resistant closures. In
addition, we are a leading provider of (1) fitments and plugs for medical
applications, (2) cups and spouts for liquid laundry detergent, (3) dropper bulb
assemblies for medical and personal care applications and (4) jiggers for
mouthwash products.
36
Our closures are used in a wide variety of consumer goods markets, including
health and beauty aids, pharmaceutical, household chemicals, commercial
chemicals, and food and dairy. We are a major provider of closures to many of
the leading companies in these markets.
We believe the capabilities and expertise we have established as a closure
provider create significant competitive advantages, including the latest in
single and bi-injection technology, molding of thermoplastic and thermoset
resins, compression molding of thermoplastic resins, and lining and assembly
applications applying the latest in computerized vision inspection technology.
In addition, we have an in-house package development and design group focused on
developing new closures to meet our customers' proprietary needs. We have a
strong reputation for quality and have received numerous "Supplier Quality
Achievement Awards" from customers in different markets.
In fiscal 2004, no single closure customer accounted for over 1% of our total
net sales. Competitors include Owens-Illinois, Kerr/Suncoast, Phoenix Closures,
Portola, Rexam Closures, and Seaquist Closures.
CONSUMER PRODUCTS
Our consumer products division focuses on drink cups and housewares.
DRINK CUPS
We believe that we are the largest provider of injection-molded plastic drink
cups in the United States. As beverage producers, convenience stores and fast
food restaurants increase their marketing efforts for larger sized drinks, we
believe that the plastic drink cup market should expand because of plastic's
desirability over paper for larger drink cups. We produce injection-molded
plastic cups that range in size from 12 to 64 ounces. Primary markets are fast
food and family dining restaurants, convenience stores, stadiums and retail
stores. Many of our cups are decorated, often as promotional items, and we
believe we have a reputation in the industry for innovative, state-of-the-art
graphics capability.
We launched our thermoformed drink cup line in fiscal 2001. Since then, we have
become the largest supplier of 32 ounce or larger thermoformed polypropylene
drink cups. Our thermoformed product line offers sizes ranging from 12 to 44
ounces. Our thermoform process uses polypropylene instead of more expensive
polystyrene in producing deep draw drink cups. This offers a material
competitive advantage versus thermoformed polystyrene drink cups.
In fiscal 2004, no single drink cup customer accounted for more than 2% of our
total net sales. Drink cup competitors include Huhtamaki (formerly Packaging
Resources Incorporated), Solo (formerly Sweetheart), Carthage Cup, International
Paper, Radnor Holdings, Letica, and WNA (formerly Cups Illustrated).
HOUSEWARES
Our participation in the housewares market is focused on producing seasonal
(spring and summer) semi-disposable plastic housewares and plastic garden
products. Examples of our products include plates, bowls, pitchers, tumblers and
outdoor flowerpots. We sell virtually all of our products in this market through
major national retail marketers and national chain stores, such as Wal-Mart.
PackerWare is our recognized brand name in these markets and PackerWare branded
products are often co-branded by our customers. Our strategy in this market has
been to provide high value to consumers at a relatively modest price, consistent
37
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 seasonal housewares
department.
In fiscal 2004, no single housewares customer accounted for more than 4% of our
total net sales. Housewares competitors include Arrow Plastics, United Plastics
and imported products from China.
MARKETING AND SALES
We reach our large and diversified base of over 12,000 customers primarily
through our direct field sales force of over 70 dedicated professionals. Our
field sales, production and support staff meet with customers to understand
their needs and improve our product offerings and services. While these field
sales representatives are focused on individual product lines, they are also
encouraged to sell all our products to serve the needs of our customers. We
believe that a direct field sales force is able to better focus on target
markets and customers, with the added benefit of permitting us to control
pricing decisions centrally. We also utilize the services of manufacturing
representatives to assist our direct sales force. We believe that we produce a
high level of customer satisfaction. Highly skilled customer service
representatives are 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 to satisfy customers' needs through the production of high-
quality, value-added products and on-time deliveries.
Our sales force is supported by technical specialists and our in-house graphics
and design personnel. Our Graphic Arts department includes computer-assisted
graphic design capabilities and in-house production of photopolymer printing
plates. We also have a centralized Color Matching and Materials Blending
department that utilizes a computerized spectrophotometer to insure that colors
match those requested by customers.
MANUFACTURING
We primarily manufacture our products using either injection or thermoform
molding presses. In both cases, the process begins with raw plastic pellets
which are then converted into finished products. In the injection process, the
raw pellets are melted to a liquid state and injected into a multi-cavity steel
mold where the resin is allowed to solidify to take the final shape of the part.
In the thermoform process, the raw resin is softened to the point where sheets
of material are drawn into multi-cavity molds and formed over the molds to form
the desired shape. The final parts are then either cut and trimmed in the mold
or trimmed as a secondary process. In both processes, the cured parts are
transferred from the molding process via automated handling equipment to
corrugated containers for shipment to customers or for post-molding secondary
operations (offset printing, labeling, silkscreening, handle applications,
etc.). We believe that our molding, handling, and post-molding capabilities are
among the best in the industry.
Our overall manufacturing philosophy is to be a low-cost producer by using (1)
high-speed molding machines, (2) modern multi-cavity hot runner, cold runner and
insulated runner molds, (3) extensive material handling automation and (4)
sophisticated printing technology. We utilize state-of-the-art robotic packaging
processes for large volume products, which enable us
38
to reduce breakage while lowering warehousing and shipping costs. Each plant has
maintenance capability to support molding and post-molding operations. We have
historically made, and intend to continue to make, significant capital
investments in plant and equipment because of our objectives to improve
productivity, maintain competitive advantages and foster continued growth. Over
the past five fiscal years our capital expenditures in plant and equipment,
exclusive of acquisitions, were $175.6 million.
PRODUCT DEVELOPMENT AND DESIGN
We believe our technology base and research and development support are among
the best in the rigid 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.
Many of our customers work in partnership with our technical representatives to
develop new, more competitive products. We have enhanced our relationships with
these customers by providing the technical service needed to develop products
combined with our internal graphic arts support.
We spent $3.8 million, $3.5 million and $2.9 million on research and development
in 2004, 2003 and 2002, respectively.
We also utilize our in-house graphic design department to develop color and
styles for new products. Our design professionals work directly with our
customers to develop new styles and use computer-generated graphics to enable
our customers to visualize the finished product.
QUALITY ASSURANCE
Each plant extensively utilizes Total Quality Management philosophies, including
the use of statistical process control and extensive involvement of employees to
increase productivity. This teamwork approach to problem-solving increases
employee participation and provides necessary training at all levels. Teams use
the Six Sigma methodology to improve internal processes and service the
customer. All of our facilities except for two facilities (Richmond and Phoenix)
that were acquired in connection with the Landis Acquisition in 2003 have been
ISO certified, which requires demonstrated compliance by a company with a set of
shipping, trading and technology standards promulgated by the International
Organization for Standardization ("ISO"). We are actively pursuing ISO
certification in the remaining two facilities. Extensive testing of parts for
size, color, strength and material quality using statistical process control
techniques and sophisticated technology is also an ongoing part of our quality
assurance activities.
SYSTEMS
We utilize a fully integrated computer software system at each of our plants,
excluding our Milan facility that produces complete financial and operational
reports. This accounting and control system is expandable to add new features
and/or locations as we grow. In addition, we have in place a sophisticated
quality assurance system, a bar code based material management system and an
integrated manufacturing system.
39
SOURCES AND AVAILABILITY OF RAW MATERIALS
The most important raw material purchased by us is plastic resin. We purchased
approximately $283.0 million of resin in fiscal 2004 with approximately 26% of
our resin pounds being high density polyethylene ("HDPE"), 15% linear low
density polyethylene and 59% polypropylene ("PP"). We have contractual price
escalators and de-escalators tied to the price of resin with customers
representing approximately 60% of net sales that result in price
increases/decreases to many of our customers in a relatively short period of
time, typically quarterly. In addition, we have historically had success in
passing through price increases and decreases in the price of resin to customers
without indexed price agreements. For example, in fiscal 2004, our net sales
increased by $262.3 million over fiscal 2003, of which approximately $23.5
million was attributable to increased selling prices. This occurred in an
environment of rapidly escalating resin prices. Less than 10% of our net sales
are generated from fixed-price arrangements, and we have at times and may
continue to enter into negotiated purchase agreements with resin suppliers
related to these fixed price arrangements. Due to the recent volatility in the
resin markets, in the fourth quarter of 2004 we entered into resin forward
hedging transactions with respect to approximately 15% of our estimated 2005
resin needs and 10% of our 2006 estimated resin needs. We can further mitigate
the effect of resin price movements through our ability to accommodate raw
material switching for certain products between HDPE and PP as prices fluctuate
and reducing the quantity of resin in certain of our products. Based on
information from Plastics News, an industry publication, prices of HDPE and PP
on January 1, 2005 were $0.655 per pound and $0.64 per pound, respectively,
reflecting increases of $0.20 per pound, or 44%, and $0.23 per pound, or 56%,
over the respective prices from December 27, 2003.
Our plastic resin purchasing strategy is to deal with only high-quality,
dependable suppliers, such as Dow, Basell, Nova, Total (formerly Atofina),
Equistar, Sunoco, BP Amoco, and ExxonMobil. Although we do not have any supply
requirements contracts with our key suppliers, we believe that we have
maintained strong relationships with these key suppliers and expect that such
relationships will continue into the foreseeable future. Based on our
experience, we believe that adequate quantities of plastic resins will be
available at market prices, but we can give you no assurances as to such
availability or the prices thereof.
EMPLOYEES
At the end of fiscal 2004, we had approximately 4,550 employees. Poly-Seal
Corporation, a wholly owned subsidiary, and the United Steelworkers of America
are parties to a collective bargaining agreement which expires on April 24,
2005. At the end of fiscal 2004, approximately 330 employees of Poly-Seal
Corporation, all of which are located in our Baltimore facility, were covered by
this agreement. None of our other employees are covered by collective bargaining
agreements. We believe our relations with our employees are good.
PATENTS AND TRADEMARKS
We rely on a combination of patents, trade secrets, unpatented know-how,
trademarks, copyrights and other intellectual property rights, nondisclosure
agreements and other protective measures to protect our proprietary rights. We
do not believe that any individual item of our intellectual property portfolio
is material to our current business. We employ various methods, including
confidentiality and non-disclosure agreements with third parties, employees and
consultants, to protect our trade secrets and know-how. We have licensed, and
40
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:
----------------------------------------------------------
SQUARE OWNED/
LOCATION FOOTAGE USE LEASED
----------------------------------------------------------
Evansville, IN 580,000 Headquarters and Owned
Manufacturing
Henderson, NV 175,000 Manufacturing Owned
Iowa Falls, IA 100,000 Manufacturing Owned
Charlotte, NC 150,000 Manufacturing Owned
Lawrence, KS 424,000 Manufacturing Owned
Suffolk, VA 110,000 Manufacturing Owned
Monroeville, OH 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
----------------------------------------------------------
We believe that our property and equipment is well-maintained, in good operating
condition and adequate for our present needs.
ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION
Our past and present operations and our past and present ownership and
operations of real property are subject to extensive and changing federal,
state, local and foreign environmental laws and regulations pertaining to the
discharge of materials into the environment, the handling and disposition of
wastes or otherwise relating to the protection of the environment. We believe
that we are in substantial compliance with applicable environmental laws and
regulations. However, we cannot predict with any certainty that we will not in
the future incur liability under environmental statutes and regulations with
respect to non-compliance with environmental laws, contamination of sites
formerly or currently owned or operated by us (including contamination caused by
prior owners and operators of such sites) or the off-site disposal of hazardous
substances.
Like any manufacturer, we are subject to the possibility that we may receive
notices of potential liability in connection with materials that were sent to
third-party recycling, treatment, and/or disposal facilities under the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), and comparable state statutes, which impose liability for
investigation and remediation of contamination without regard to fault or the
legality of the conduct that contributed to the contamination. Liability under
CERCLA is
41
retroactive, and liability for the entire cost of a cleanup can be imposed on
any responsible party. No such notices are currently pending.
The FDA regulates the material content of direct-contact food containers and
packages, including certain thinwall containers we manufacture pursuant to the
Federal Food, Drug and Cosmetics Act. Certain of our products are also regulated
by the Consumer Product Safety Commission ("CPSC") pursuant to various federal
laws, including the Consumer Product Safety Act. Both the FDA and the CPSC can
require the manufacturer of defective products to repurchase or recall such
products and may also impose fines or penalties on the manufacturer. Similar
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 containers
that directly contact food products and believe they are in material compliance
with all such applicable FDA regulations, and we believe our products are in
material compliance with all applicable requirements, we remain subject to the
risk that our products could be found not to be in compliance with such
requirements.
The plastics industry, including us, is subject to existing and potential
federal, state, local and foreign legislation designed to reduce solid wastes by
requiring, among other things, plastics to be degradable in landfills, minimum
levels of recycled content, various recycling requirements, disposal fees and
limits on the use of plastic products. In particular, certain states have
enacted legislation requiring products packaged in rigid 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.
42
MANAGEMENT
The following table sets forth certain information with respect to the executive
officers, directors and certain key personnel of Holding:
----------------------------------------------------------------------------------------------------
NAME AGE TITLE
----------------------------------------------------------------------------------------------------
Joseph H. Gleberman(1) 47 Chairman and Director
Ira G. Boots(1) 51 President, Chief Executive Officer and Director
James M. Kratochvil 48 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
R. Brent Beeler 52 Executive Vice President
Gregory J. Landis 54 Director
William J. Herdrich 54 Executive Vice President
Christopher C. Behrens(1) 44 Director
Terry R. Peets 60 Director
Stephen S. Trevor(1)(2) 41 Director
Mathew J. Lori(2) 41 Director
----------------------------------------------------------------------------------------------------
(1) Member of the Equity Compensation Committee.
(2) Member of the Audit Committee.
The following table sets forth certain information with respect to the executive
officers, directors and certain key personnel of Berry Plastics:
----------------------------------------------------------------------------------------------------
NAME AGE TITLE
----------------------------------------------------------------------------------------------------
Joseph H. Gleberman(1)(3)(4) 47 Chairman and Director
Ira G. Boots(1)(4) 51 President, Chief Executive Officer and Director
James M. Kratochvil 48 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
R. Brent Beeler 52 President--Containers and Consumer Products
Gregory J. Landis 54 President--Container Division and Director
William J. Herdrich 54 Executive Vice President and General Manager--Closures
Douglas E. Bell 53 Vice President--International Business Development
Christopher C. Behrens(1)(3) 44 Director
Terry R. Peets 60 Director
Stephen S. Trevor(1)(2)(4) 41 Director
Mathew J. Lori(2)(4) 41 Director
----------------------------------------------------------------------------------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Finance Committee.
(4) Member of the Corporate Development Committee.
Joseph H. Gleberman has been chairman of the Board of Directors of Holding and
Berry Plastics since the closing of the Merger and has been a Managing Director
at Goldman, Sachs & Co. since 1996. He serves on the Board of Directors of
aaiPharma, IPC Acquisition Corp., and MCG Capital Corporation, as well as a
number of private companies. Mr. Gleberman received his
43
M.B.A. in 1982 from Stanford University Graduate School of Business and a
M.A./B.A. from Yale University in 1980.
Ira G. Boots has been President and Chief Executive Officer of Holding and Berry
Plastics since June 2001, and a Director of Holding and Berry Plastics since
April 1992. Prior to that, Mr. Boots served as Chief Operating Officer of Berry
Plastics since August 2000 and Vice President of Operations, Engineering and
Product Development of the Company since April 1992. Mr. Boots was employed by
Old Berry from 1984 to December 1990 as Vice President, Operations.
James M. Kratochvil has been Executive Vice President, Chief Financial Officer,
Secretary and Treasurer of Holding and Berry since December 1997. He formerly
served as Vice President, Chief Financial Officer and Secretary of the Company
since 1991, and as Treasurer of the Company since May 1996. He formerly served
as Vice President, Chief Financial Officer and Secretary of Holding since 1991.
Mr. Kratochvil was employed by Old Berry from 1985 to 1991 as Controller.
R. Brent Beeler was named President--Containers and Consumer Products of Berry
Plastics in October 2003 and has been an Executive Vice President of Holding
since July 2002. He had been Executive Vice President and General
Manager--Containers and Consumer Products of the Company 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
the Company since February 1996 and Vice President, Sales and Marketing of the
Company since December 1990. Mr. Beeler was employed by Old Berry from October
1988 to December 1990 as Vice President, Sales and Marketing.
Gregory J. Landis became a Director of Holding and Berry Plastics and
President--Container Division of Berry Plastics upon closing of the Landis
Acquisition. Mr. Landis had been President of Landis Plastics, Inc. since 1991.
William J. Herdrich has been an Executive Vice President of Holding since July
2002. He has been Executive Vice President and General Manager--Closures of the
Company since August 2000. From May 2000 to August 2000, Mr. Herdrich was a
consultant to the Company. During the period from April 1994 to May 2000, Mr.
Herdrich was President, Executive Vice President and General Manager of
Poly-Seal Corporation, a Delaware Corporation that we acquired in 2000. Mr.
Herdrich was employed by Seaquist Closures from 1990 to April 1994 as Executive
Vice President.
Douglas E. Bell became our Vice President--International Business Development in
January, 2005. He was previously a Sales Manager--Specialty Products upon
re-joining the Company in November 2004. Mr. Bell served in many capacities at
Berry from his starting date in June 1980 to his initial retirement in June
1998, and served as a consultant to Berry and other companies from June 1998
until his return in November 2004.
Christopher C. Behrens has been a Director of Holding and Berry Plastics since
the closing of the Merger and has been a Partner of J.P. Morgan Partners, LLC
and its predecessor, Chase Capital Partners, since 1999. Prior to joining Chase
Capital Partners, Mr. Behrens served as Vice President in Chase's Merchant
Banking Group. Mr. Behrens serves on the Board of Directors of Brand Services
Inc. and Interline Holdings, as well as a number of private companies. Mr.
Behrens received a B.A. from the University of California at Berkeley and an
M.A. from Columbia University.
44
Terry R. Peets has been a Director of Holding and Berry Plastics since July
2004. Mr. Peets is an independent board member and also serves as Chairman of
the Board and Director of World Kitchens, Inc., and as a Director of Doane Pet
Care Company, Pinnacle Foods, Inc., and several other private companies. In
addition to serving on many boards in recent years, Mr. Peets was Chairman and
Director of Bruno's Supermarkets, Inc. from 2000 to 2003. Mr. Peets received an
M.B.A., with honors, from the Graduate School of Business at Pepperdine
University.
Stephen S. Trevor has been a Director of Holding and Berry Plastics since August
2004 and has been a Managing Director at Goldman, Sachs & Co. since 1999. Mr.
Trevor is a member of the Supervisory and Advisory Boards of Kabel Deutchland
Holding GmbH & Co. KG. Mr. Trevor is also a Member of the Advisory Board of
Cognis Deutschland GmbH & Co. KG.
Mathew J. Lori has been a Director of Holding since the closing of the Merger.
Mr. Lori has been a Partner with J.P. Morgan Partners, LLC since January 2005.
Mr. Lori was previously a Principal with J.P. Morgan Partners, LLC and its
predecessor, Chase Capital Partners, since January 1998, and prior to that, Mr.
Lori had been an Associate. Mr. Lori has been on the board of Berry Plastics
since 1996, and is also a director of Doane Pet Care Company, Arbinet-
thexchange, Inc., and a number of private companies. Mr. Lori received an M.B.A.
from Kellogg Graduate School of Management at Northwestern University in 1993.
We are currently in the process of finalizing our Code of Ethics.
In connection with the Merger, Holding entered into a stockholders agreement
with GS Capital Partners 2000, L.P. ("GSCP 2000") and other private equity funds
affiliated with Goldman, Sachs & Co. that, in the aggregate, own a majority of
our common stock and J.P. Morgan Partners Global Investors, L.P. and other
private equity funds affiliated with J.P. Morgan Chase & Co. that, in the
aggregate, own approximately 28% of our common stock. In connection with the
Landis Acquisition, the agreement was amended such that under the current terms
of this agreement, the parties have agreed to elect up to seven individuals
designated by the Goldman Sachs funds, one of which must be a member of our
management, and two individuals designated by the J.P. Morgan funds to Holding's
and Berry Plastics' boards of directors. This agreement regarding the election
of directors will continue in force until the occurrence of a qualified initial
public offering of Holding's common stock. Of the current members of the boards
of directors of Holding and Berry Plastics, Messrs. Gleberman, Boots, Trevor,
Landis and Peets have been designated by the Goldman Sachs funds and Messrs.
Behrens and Lori have been designated by the J.P. Morgan funds. The Goldman
Sachs funds have the right to designate two additional individuals to be elected
to Holding's and Berry's board of directors.
BOARD OF DIRECTORS
Our Board of Directors currently consists of seven directors. Pursuant to the
stockholders' agreement entered into in connection with the Landis Acquisition
with affiliates of Goldman, Sachs & Co. and affiliates of J.P. Morgan Securities
Inc., described below, affiliates of Goldman, Sachs & Co. has the right to
designate two additional members of our Board of Directors.
BOARD COMMITTEES
The Board of Directors of Holding has an Audit Committee and an Equity
Compensation Committee. The Audit Committee, consists of Messrs. Trevor and
Lori. The Audit Committee recommends the annual appointment of auditors with
whom the audit committee reviews the scope of audit and non-audit assignments
and related fees, accounting principles we use in
45
financial reporting, internal auditing procedures and the adequacy of our
internal control procedures. The Equity Compensation Committee, consisting of
Messrs. Gleberman, Boots, Behrens and Trevor, establishes and approves equity
compensation grants for our employees and consultants and administers the 2002
Stock Option Plan and the Key Employee Equity Investment Plan.
The Board of Directors of the Company has a Compensation Committee, an Audit
Committee, a Finance Committee and a Corporate Development Committee. The
Compensation Committee, consisting of Messrs. Gleberman, Boots, Behrens and
Trevor, 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. The Finance Committee, consisting of Messrs.
Gleberman and Behrens, oversees our capital structure and reviews and approves
significant financing decisions. The Corporate Development Committee, consisting
of Messrs. Gleberman, Boots, Trevor and Lori, oversees our business strategy
and, in particular, reviews and recommends potential acquisition candidates.
STOCKHOLDERS' AGREEMENT
In connection with the Merger, BPC Holding entered into a stockholders'
agreement with GSCP 2000 and other private equity funds affiliated with Goldman,
Sachs & Co. that, in the aggregate, own a majority of our common stock and J.P.
Morgan Partners Global Investors, L.P. and other private equity funds affiliated
with J.P. Morgan Securities Inc. that, in the aggregate, own approximately 28%
of our common stock. Under the terms of this agreement, which was amended upon
the closing of the Landis Acquisition, among other things: (1) GSCP 2000 and
other private equity funds affiliated with Goldman, Sachs & Co., have the right
to designate seven members of our board of directors, one of which shall be a
member of our management, and J.P. Morgan Partners Global Investors, L.P. and
other private equity funds affiliated with J.P. Morgan Securities Inc. have the
right to designate two members of our board of directors, one of which will be
designated by J.P. Morgan Partners Global Investors, L.P.; (2) the Goldman Sachs
and J.P. Morgan funds have the right to subscribe for a proportional share of
future equity issuances by BPC Holding; (3) after July 29, 2009, the J.P. Morgan
funds have the right to demand that BPC Holding cause the initial public
offering of its common stock, if such an offering or other sale of BPC Holding
has not occurred by such time; and (4) BPC Holding has agreed not to take
specified actions, including, making certain amendments to either the
certificate of incorporation or the by-laws of BPC Holding, changing independent
accountants, or entering into certain affiliate transactions, without the
approval of a majority of its board of directors, including at least one
director designated by the J.P. Morgan funds. The stockholders' agreement also
contains provisions regarding transfer restrictions, rights of first offer,
tag-along rights and drag-along rights related to the shares of BPC Holding
common stock owned by the Goldman Sachs and J.P. Morgan funds.
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid by us to our
Chief Executive Officer and our four other most highly compensated executive
officers (collectively,
46
the "Named Executive Officers") for services rendered in all capacities to us
during fiscal 2004, 2003 and 2002.
SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------------------------------------
LONG TERM
COMPENSATION
------------
ANNUAL SECURITIES
COMPENSATION UNDERLYING
FISCAL --------------------- OPTIONS OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) (#) COMPENSATION(2)
---------------------------------------------------------------------------------------------------
Ira G. Boots...................... 2004 $442,226 $ 214,200 - $ 14,476
President and Chief Executive 2003 432,836 150,231 2,383 12,343
Officer 2002 424,536 1,452,018 61,814 12,505
James M. Kratochvil............... 2004 $284,909 $ 137,700 - $ 11,576
Executive Vice President, Chief 2003 278,867 96,577 1,356 10,151
Financial Officer, Treasurer 2002 273,400 945,026 35,040 9,889
and Secretary
R. Brent Beeler................... 2004 $345,995 $ 156,503 - $ 4,028
President-Containers and 2003 313,761 111,476 1,356 3,105
Consumer Products 2002 298,172 1,080,496 35,229 2,590
Gregory J. Landis(3).............. 2004 $349,866 $ - 11,410 $ 3,494
President-Container Division 2003 49,500 - - 2,688
2002 - - - -
William J. Herdrich............... 2004 $280,093 $ 136,553 - $ 5,521
Executive Vice President and 2003 274,180 117,772 1,356 5,109
General Manager-Closures 2002 269,222 983,506 25,581 4,899
---------------------------------------------------------------------------------------------------
(1) Amounts shown include transaction bonuses in 2002 of $1,238,298, $788,298,
$871,298 and $803,831 paid to Messrs. Boots, Kratochvil, Beeler and Herdrich,
respectively, in connection with the Merger.
(2) Amounts shown reflect contributions by the Company under the Company's
401(k) plan and the personal use of a company vehicle.
(3) Amounts shown reflect only the activity since the closing of the Landis
Acquisition.
OPTION GRANTS IN LAST FISCAL YEAR
----------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO OPTION TERM
GRANTED EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME (#) FISCAL YEAR PRICE($) DATE 5%($) 10%($)
----------------------------------------------------------------------------------------------------
Gregory J. Landis...... 7,607(1) 11.6 120 1/1/14 574,100 1,454,839
Gregory J. Landis...... 3,803(2) 5.8 120 1/1/14 287,012 727,324
----------------------------------------------------------------------------------------------------
(1) Represents options granted on January 1, 2004, which (i) have an exercise
price fixed at $120 per share, which was the fair market value of a share of
Holding Common Stock on the date of grant, and (ii) vest and become exerciseable
over a five year period, beginning the last day of 2004 based on continued
service with the Company.
(2) Represents options granted on January 1, 2004, which (i) have an exercise
price fixed at $120 per share, which was the fair market value of a share of
Holding Common Stock on the date of grant, and (ii) vest and become exercisable
based on the achievement by Holding of certain financial targets, or if such
targets are not achieved, based on continued service with the Company.
47
FISCAL YEAR-END OPTION HOLDINGS
The following table provides information on the number of exercisable and
unexercisable management stock options held by the Named Executive Officers at
January 1, 2005.
-------------------------------------------------------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE YEAR-END EXERCISABLE/ AT FISCAL YEAR-END
NAME EXERCISE REALIZED UNEXERCISABLE(#)(2) EXERCISABLE/UNEXERCISABLE(1)(2)
-------------------------------------------------------------------------------------------------------
Ira G. Boots......... - - 44,882/35,593 $2,325,194/$800,816
James M. Kratochvil.. - - 26,384/20,186 1,425,788/455,309
R. Brent Beeler...... - - 26,479/20,280 1,426,057/455,575
Gregory J. Landis.... - - 1,901/9,509 47,525/237,725
William J. Herdrich.. - - 17,726/15,455 716,422/441,914
-------------------------------------------------------------------------------------------------------
(1) None of Holding's capital stock is currently publicly traded. The values
reflect management's estimate of the fair market value of the Common Stock at
January 1, 2005.
(2) All options granted to management are exercisable for shares of Common
Stock, par value $.01 per share, of Holding.
DIRECTOR COMPENSATION
The Company has agreed to compensate Mr. Peets annual compensation of $30,000,
paid quarterly, for his services plus reimbursement of out-of-pocket expenses.
In addition, Holding issued stock appreciation rights in 2004 to Mr. Peets for
834 shares at the then fair market value that vest over four years as long as
Mr. Peets continues to serve as a board member. No other Directors receive cash
consideration for serving on the Board of Directors of Holding or the Company,
but directors are reimbursed for out-of-pocket expenses incurred in connection
with their duties as directors.
The following is a summary of BPC Holding's employee equity plans and certain
employment agreements Berry Plastics has entered into with Berry Plastics' Chief
Executive Officer and each of its other four most highly compensated executive
officers, based on compensation paid for services rendered during the 2003
fiscal year.
1996 STOCK OPTION PLAN
Holding currently maintains the BPC Holding Corporation 1996 Stock Option Plan
("1996 Option Plan"), as amended, pursuant to which nonqualified options to
purchase 135,873 shares are outstanding. All outstanding options under the 1996
Option Plan are scheduled to expire on or before July 22, 2012 and no additional
options will be granted under it. Option agreements issued pursuant to the 1996
Option Plan generally provide that options become vested and exercisable at a
rate of 10% per year based on continued service. Additional options also vest in
years during which certain financial targets are attained. Notwithstanding the
vesting provisions in the option agreements, all options that were scheduled to
vest prior to December 31, 2002 accelerated and became vested immediately before
the Merger.
2002 STOCK OPTION PLAN
Holding has adopted an employee stock option plan ("2002 Stock Option Plan"), as
amended, pursuant to which options to acquire up to 495,073 shares of Holding's
common stock may be granted to its employees, directors and consultants. At
January 1, 2005, 454,283 options were outstanding under this plan. Options
granted under the 2002 Stock Option Plan have an
48
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 optionholder'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.
EMPLOYEE STOCK PURCHASE PLAN
Holding has adopted an employee stock purchase program pursuant to which a
number of employees had the opportunity to invest in Holding on a leveraged
basis (certain senior employees also purchased shares of Holding common stock in
connection with the Merger--see "Certain relationships and related
transactions--Loans to executive officers"). Each eligible employee was
permitted to purchase shares of Holding common stock having an aggregate value
of up to the greater of (1) 150% of the value attributable to shares of Holding
held by such employee immediately prior to the Merger or (2) $60,000. 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. In the event that an employee defaults on a promissory note used to
purchase such shares, Holding's only recourse is to the shares of Holding
securing the note. In this manner, the remaining management acquired 41,628
shares in the aggregate.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of Messrs. Boots, Kratochvil,
Beeler, Landis and Herdrich (each, an "Employment Agreement" and, collectively,
the "Employment Agreements"). The agreements for Boots, Kratochvil and Beeler
expire on January 1, 2007. Mr. Herdrich's agreement expires on December 31,
2008, and Mr. Landis' agreement expires on January 1, 2009. The Employment
Agreements provided for fiscal 2004 base compensation of $442,226, $284,909,
$345,995, $349,866, and $280,093, respectively. Salaries are subject in each
case to annual adjustment at the discretion of the Compensation Committee of the
Board of Directors of the Company. The Employment Agreements entitle each
executive to participate in all other incentive compensation plans established
for executive officers of the Company. The Company may terminate each Employment
Agreement for "cause" or a "disability" (as those terms are defined in the
Employment Agreements). Specifically, if any of Messrs. Boots, Kratochvil,
Beeler, Landis and Herdrich is terminated by Berry Plastics without "cause" or
resigns for "good reason" (as such terms are defined in the Employment
Agreements), that individual is entitled to: (1) the greater of (a) base salary
until the later of one year after termination or (b) 1/2 of 1 year's base salary
for each year of employment up to 30 years by Berry Plastics or a predecessor in
interest (excluding Mr. Landis) and (2) the pro rata portion of his annual
bonus. Each Employment Agreement also includes customary noncompetition,
nondisclosure and nonsolicitation provisions.
49
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has a Compensation Committee comprised of Messrs. Gleberman, Boots,
Behrens, and Trevor. The annual salary and bonus paid to Messrs. Boots,
Kratochvil, Beeler, Landis and Herdrich for fiscal 2004 were determined by the
Compensation Committee in accordance with their respective employment
agreements. All other compensation decisions with respect to officers of the
Company are made by Mr. Boots pursuant to policies established in consultation
with the Compensation Committee.
Messrs. Gleberman and Trevor are Managing Directors of Goldman, Sachs & Co.
Goldman, Sachs & Co. provided advisory and other services to us in connection
with the Merger and the Landis Acquisition and acted as an initial purchaser in
the offering of the 2002 Notes and Add-on Notes. Goldman, Sachs Credit Partners,
L.P. participated in and acted as joint lead arranger, joint bookrunner and
administrative agent for our Credit Facility, our Amended and Restated Credit
Facility, and our Second Amended and Restated Credit Facility. In addition, the
Company entered into four resin forward contracts in the fourth quarter of 2004
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. Messrs. Behrens and Lori are Partners of J.P. Morgan
Partners, LLC, which is the private equity investment arm of J.P. Morgan Chase &
Co. Various affiliates of J.P. Morgan Chase & Co. provided advisory and other
services to us in connection with the Merger and the Landis Acquisition and
acted as a dealer-manager in connection with the related debt tender offers,
acted as an initial purchaser in the offering of the 2002 Notes and Add-on Notes
and participated in and acted as joint lead arranger, joint bookrunner and a
syndication agent for our Credit Facility, our Amended and Restated Credit
Facility, and our Second Amended and Restated Credit Facility. See "Certain
relationships and related transactions" for a description of these transactions
between us and various affiliates of Goldman Sachs and J.P. Morgan.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
We are incorporated under the laws of the State of Delaware. Section 145 of the
Delaware General Corporation Law, or DGCL, provides that a Delaware corporation
may indemnify directors and officers as well as other employees and individuals
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement in connection with specified actions, suits and proceedings,
whether civil, criminal, administrative or investigative (other than action by
or in the right of the corporation--a "derivative action"), if they acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe their conduct was unlawful.
A similar standard is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) incurred in
connection with the defense or settlement of such action, and the statute
requires court approval before there can be any indemnification where the person
seeking indemnification has been found liable to the corporation. The statute
provides that it is not exclusive of other indemnification that may be granted
by a corporation's certificate of incorporation, bylaws, disinterested director
vote, stockholder vote, agreement, or otherwise. The DGCL further authorizes a
Delaware corporation to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or enterprise,
50
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
The Company's Certificate of Incorporation and Bylaws provide for the
indemnification of the Company's directors to the fullest extent permitted under
Delaware law. The Company's Certificate of Incorporation limits the personal
liability of a director to the corporation or its stockholders to damages for
breach of the director's fiduciary duty. The Company has purchased insurance on
behalf of its directors and officers.
51
PRINCIPAL STOCKHOLDERS
All of the outstanding capital stock of the Company is owned by Holding. The
following table sets forth certain information regarding the beneficial
ownership of the capital stock of Holding as of March 18, 2005 with respect to
(1) each person known by Holding to own beneficially more than 5% of the
outstanding shares of any class of its voting capital stock, (2) each of
Holding's directors, (3) the Named Executive Officers and (4) all directors and
executive officers of Holding as a group. Except as otherwise indicated, each of
the stockholders has sole voting and investment power with respect to the shares
beneficially owned. Unless otherwise indicated, the address for each stockholder
is c/o Berry Plastics Corporation, 101 Oakley Street, Evansville, Indiana 47710.
--------------------------------------------------------------------------------------------
PERCENTAGE OF
COMMON COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK OUTSTANDING*
--------------------------------------------------------------------------------------------
GS Capital Partners 2000, L.P.(2)........................... 1,155,042 33.0%
GS Capital Partners 2000 Offshore, L.P.(2).................. 419,697 12.0
GS Capital Partners 2000 GmbH & Co. Beteiligungs KG(2)...... 48,278 1.4
GS Capital Partners 2000 Employee Fund, L.P.(2)............. 366,766 10.5
Stone Street 2000, L.P.(2).................................. 36,069 1.0
Bridge Street Special Opportunities Fund 2000, L.P.(2)...... 18,034 -
Goldman Sachs Direct Investment Fund 2000, L.P.(2).......... 60,114 1.7
J.P. Morgan Partners Global Investors, L.P.(3).............. 120,820 3.4
J.P. Morgan Partners Global Investors (Cayman), L.P.(3)..... 61,203 1.7
J.P. Morgan Partners Global Investors (Cayman) II,
L.P.(3)................................................... 6,825 -
J.P. Morgan Partners Global Investors A, L.P.(3)............ 16,848 -
J.P. Morgan Partners (BHCA), L.P.(3)........................ 704,262 20.1
J.P. Morgan Partners Global Investors (Selldown), L.P.(3)... 44,594 1.3
Joseph H. Gleberman(4)...................................... 2,104,000 60.1
Christopher C. Behrens(5)................................... 954,552 27.2
Steven S. Trevor(6)......................................... 2,104,000 60.1
Terry R. Peets(7)........................................... 209(7) -
Mathew J. Lori(8)........................................... 954,552 27.2
Ira G. Boots................................................ 85,600(9) 2.4
James M. Kratochvil......................................... 49,912(10) 1.4
R. Brent Beeler............................................. 50,428(11) 1.4
Gregory J. Landis........................................... 102,281(12) 2.9
William J. Herdrich......................................... 34,228(13) -
All executive officers and directors as a group (10
persons).................................................. 3,503,080(14) 96.5
--------------------------------------------------------------------------------------------
* The number of shares outstanding used in calculating the percentage for each
person, group or entity listed includes the number of shares underlying options
held by such person or group that were exercisable or convertible within 60 days
from March 18, 2005, but excludes shares of stock underlying options held by any
other person.
- Less than one percent.
(1) The authorized capital stock of Holding consists of 5,500,000 shares of
capital stock, including 5,000,000 shares of Common Stock, $.01 par value (the
"Holding Common Stock"), and 500,000 shares of Preferred Stock, $.01 par value
(the "Preferred Stock").
52
(2) Address is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York,
10004.
(3) Address is c/o J.P. Morgan Partners, LLC, 1221 Avenue of the Americas, New
York, New York 10020.
(4) Address is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York,
10004. Represents shares owned by equity funds affiliated with Goldman, Sachs &
Co. Mr. Gleberman is a Managing Director of Goldman, Sachs & Co. Mr. Gleberman
disclaims any beneficial ownership of the shares of Holding Common Stock held by
equity funds affiliated with Goldman, Sachs & Co.
(5) Address is c/o J.P. Morgan Partners, LLC, 1221 Avenue of the Americas, New
York, New York 10020. Represents shares owned by equity funds affiliated with
J.P. Morgan Chase & Co. Mr. Behrens is a partner of J.P. Morgan Partners, which
is the private equity investment arm of J.P. Morgan Chase & Co. Mr. Behrens
disclaims any beneficial ownership of the shares of Holding Common Stock held by
equity funds affiliated with J.P. Morgan Chase & Co.
(6) Address is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York,
10004. Represents shares owned by equity funds affiliated with Goldman, Sachs &
Co. Mr. Trevor is a Managing Director of Goldman, Sachs & Co. Mr. Trevor
disclaims any beneficial ownership of the shares of Holding Common Stock held by
equity funds affiliated with Goldman, Sachs & Co.
(7) Includes stock appreciation rights to purchase 209 shares of Holding Common
Stock granted to Mr. Peets, exercisable within 60 days of March 18, 2005.
(8) Address is c/o J.P. Morgan Partners, LLC, 1221 Avenue of the Americas, New
York, New York 10020. Represents shares owned by equity funds affiliated with
J.P. Morgan Chase & Co. Mr. Lori is a Partner of J.P. Morgan Partners, which is
the private equity investment arm of J.P. Morgan Chase & Co. Mr. Lori disclaims
any beneficial ownership of the shares of Holding Common Stock held by equity
funds affiliated with J.P. Morgan Chase & Co.
(9) Includes options to purchase 47,655 shares of Holding Common Stock granted
to Mr. Boots, exercisable within 60 days of March 18, 2005.
(10) Includes options to purchase 27,955 shares of Holding Common Stock granted
to Mr. Kratochvil, exercisable within 60 days of March 18, 2005.
(11) Includes options to purchase 28,060 shares of Holding Common Stock granted
to Mr. Beeler, exercisable within 60 days of March 18, 2005.
(12) Includes options to purchase 2,281 shares of Holding Common Stock granted
to Mr. Landis, exercisable within 60 days of March 18, 2005.
(13) Includes options to purchase 18,824 shares of Holding Common Stock granted
to Mr. Herdrich, exercisable within 60 days of March 18, 2005.
(14) Includes options to purchase 124,775 shares of Holding Common Stock granted
to Executive Officers, exercisable within 60 days of March 18, 2005.
53
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of January 1, 2005 regarding shares
of common stock of Holding that may be issued under our existing equity
compensation plans, including the BPC Holding Corporation 2002 Stock Option Plan
(the "2002 Stock Option Plan") and the BPC Holding Corporation Key Employee
Equity Investment Plan (the "Employee Stock Purchase Plan").
---------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE WEIGHTED AVERAGE FUTURE ISSUANCE UNDER
ISSUED UPON EXERCISE OF EXERCISE PRICE OF EQUITY COMPENSATION PLAN
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFERENCED IN COLUMN (A))
---------------------------------------------------------------------------------------------------------
(A) (B) (C)
Equity compensation plans
approved by security
holders(1).............. - - -
Equity compensation plans
not approved by security
holders(2).............. 454,283(3) 118 43,489
-----------------------------------------------------------------------------
Total................... 454,283 118 43,489
---------------------------------------------------------------------------------------------------------
(1) Does not include outstanding options to acquire 135,873 shares, at a
weighted-average exercise price of $49.84 per share, that were assumed in
connection with the Merger under the BPC Holding Corporation 1996 Stock Option
Plan, as amended (the "1996 Option Plan"). No future options may be granted
under the 1996 Option Plan.
(2) Consists of the 2002 Stock Option Plan and the Employee Stock Purchase Plan.
Our Board adopted the 2002 Stock Option Plan and the Employee Stock Purchase
Plan in August of 2002.
(3) Does not include shares of Holding Common Stock already purchased under the
Employee Stock Purchase Plan as such shares are already reflected in the
Company's outstanding shares.
54
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT WITH FIRST ATLANTIC
Prior to the Merger, Atlantic Equity Partners International II, L.P. was our
largest voting stockholder and we engaged First Atlantic Capital, Ltd. ("First
Atlantic") to provide certain financial and management consulting services to
us. Under our management agreement with First Atlantic, First Atlantic provided
us with financial advisory and management consulting services in exchange for an
annual fee of $750,000 and reimbursement for out of pocket costs and expenses.
In consideration of such services, we paid First Atlantic fees and expenses of
approximately $385,000 for fiscal 2002. In consideration of services performed
in connection with the Merger, the Company paid First Atlantic fees and expenses
of $1,786,000 in July 2002.
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,
(1) each share of common stock of Holding issued and outstanding immediately
prior to the effective time of the Merger was converted into the right to
receive cash pursuant to the terms of the merger agreement, and (2) 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. Additionally, in connection with the Merger, we retired all of
Holding's senior secured notes and Berry Plastics' senior subordinated notes,
repaid all amounts owed under our credit facilities, redeemed all of the
outstanding preferred stock of Holding, entered into a new credit facility and
completed an offering of new senior subordinated notes of Berry Plastics.
Immediately following the Merger, private equity funds affiliated with Goldman,
Sachs & Co. owned approximately 63% of the outstanding common stock of Holding,
private equity funds affiliated with J.P. Morgan Chase & Co. owned approximately
29% and members of our management owned the remaining 8%.
ADVISORY FEES
In connection with the Merger, we paid Goldman, Sachs and its affiliates a total
of $8.0 million for advisory and other services, J.P. Morgan Securities Inc., an
affiliate of J.P. Morgan Chase & Co., a total of $5.2 million for advisory and
other services and First Atlantic Capital, Ltd., a total of $1.8 million for
advisory and other services.
SENIOR SUBORDINATED DEBT PURCHASES
In connection with the Merger, Berry Plastics sold $250 million of 10 3/4%
senior subordinated notes to various private institutional buyers. Goldman,
Sachs and J.P. Morgan acted as joint book-running managers in the transaction
and received fees of approximately $4.4 million and $3.2 million, respectively,
for services performed.
TENDER OFFER FEES
Prior to the Merger, Holding and Berry Plastics engaged in tender offer and
consent solicitations to acquire their outstanding senior secured and senior
subordinated notes, respectively. J.P. Morgan Securities, Inc. acted as a
dealer-manager in connection with these tender offer and consent solicitations
for consideration of $0.1 million.
55
CREDIT FACILITY
In connection with the Merger, we entered into a senior secured credit facility
with a syndicate of lenders led by Goldman Sachs Credit Partners L.P., an
affiliate of Goldman Sachs, as administrative agent. Goldman Sachs Credit
Partners, L.P., an affiliate of Goldman Sachs, acted as the administrative
agent, joint lead arranger and joint bookrunner for the credit facility and
received fees of $3.6 million in July 2002 for services provided. JP Morgan
Chase Bank, an affiliate of J.P. Morgan, acted as the joint lead arranger and
joint bookrunner for the credit facility for consideration of approximately
$3.6. million. In October 2002, we entered into an interest rate swap agreement
with Goldman Sachs Capital Markets, L.P., which applies to $50.0 million of the
term loans and protects both parties against fluctuations in interest rates.
Under the interest rate swap agreement, the Eurodollar rate with respect to
$50.0 million of the outstanding principal amount of the term loan will not
exceed 6.75% or drop below 1.97%.
STOCKHOLDERS AGREEMENT WITH MAJOR STOCKHOLDERS
In connection with the Merger, Holding entered into a stockholders' agreement
with GSCP 2000 and other private equity funds affiliated with Goldman, Sachs &
Co. that, in the aggregate, own a majority of our common stock and J.P. Morgan
Partners (BHCA), L.P. and other private equity funds affiliated with J.P. Morgan
Chase & Co. that, in the aggregate, own approximately 28% of our common stock.
Under the terms of this agreement, among other things: (1) the parties have
agreed to elect individuals designated by the Goldman Sachs and J.P. Morgan
funds to Holding's and Berry Plastics' boards of directors; (2) the Goldman
Sachs and J.P. Morgan funds have the right to subscribe for a proportional share
of future equity issuances by Holding; (3) after July 29, 2009, the J.P. Morgan
funds have the right to demand that Holding cause the initial public offering of
its common stock, if such an offering or other sale of Holding has not occurred
by such time; and (4) Holding has agreed not to take specified actions,
including, making certain amendments to either the certificate of incorporation
or the by-laws of Holding, changing independent accountants, or entering into
certain affiliate transactions, without the approval of a majority of its board
of directors, including at least one director designated by the J.P. Morgan
funds. The stockholders agreement also contains provisions regarding transfer
restrictions, rights of first offer, tag-along rights and drag-along rights
related to the shares of Holding common stock owned by the Goldman Sachs and
J.P. Morgan funds.
STOCKHOLDERS AGREEMENT WITH MANAGEMENT
In connection with the Merger, Holding also entered into a stockholders
agreement with certain members of Holding's management that owned Holding common
stock. The stockholders agreement grants certain rights to, and imposes certain
obligations on, the management stockholders who are party to the agreement,
including: (1) restrictions on transfer of Holding's common stock; (2)
obligations to consent to a merger or consolidation of Holding or a sale of
Holding's assets or common stock; (3) obligations to sell their shares of
Holding common stock back to Holding in specified circumstances in connection
with the termination of their employment with Holding; (4) rights of first
offer, (5) tag-along rights, (6) drag-along rights, (7) preemptive rights and
(8) registration rights.
56
LOANS TO EXECUTIVE OFFICERS
In connection with the Merger, Messrs. Boots, Kratochvil, Beeler, and Herdrich
together with certain other senior employees acquired shares of Holding common
stock pursuant to an employee stock purchase program. These employees paid for
these shares with any combination of (1) shares of Holding common stock that
they held prior to the Merger; (2) their cash transaction bonus, if any; and (3)
a promissory note. In this manner, the senior employees acquired 182,699 shares
in the aggregate. Messrs. Boots, Kratochvil, Beeler, and Herdrich purchased
37,785, 21,957, 22,208, and 15,404 shares of Holding common stock, respectively,
pursuant to this program. In connection with these purchases, Messrs. Boots,
Kratochvil, Beeler, and Herdrich delivered ten-year promissory notes to Holding
in the principal amounts of $2,518,500, $1,302,900, $1,313,400, and $1,027,000,
respectively. The promissory notes are secured by the shares purchased and such
notes accrue interest which compounds semi-annually at the rate of 5.50% per
year, the applicable federal rate for the notes in effect on July 16, 2002.
Principal and all accrued interest is due and payable on the earlier to occur of
(i) the end of the ten-year term, (ii) the ninetieth day following such
executive's termination of employment due to death, "disability", "redundancy"
(as such terms are defined in the 2002 Stock Option Plan) or retirement, or
(iii) the thirtieth day following such executive's termination of employment for
any other reason. As of March 18, 2005, a total of $2,910,349, $1,505,616,
$1,517,750 and $1,186,789, including principal and accrued interest, was
outstanding under the promissory notes for each of Messrs. Boots, Kratochvil,
Beeler, and Herdrich, respectively.
THE LANDIS ACQUISITION
Berry Plastics paid Goldman, Sachs & Co. and its affiliates a total of $1.7
million and JPMorgan Partners, an affiliate of J.P. Morgan Chase & Co., a total
of $0.8 million for advisory and other services related to the Landis
Acquisition. In connection with the Landis Acquisition, Goldman, Sachs & Co. and
its affiliates made an equity contribution of $35.4 million and J.P. Morgan
Chase & Co. and its affiliates made an equity contribution of $16.1 million to
us.
In addition, Goldman Sachs Credit Partners, L.P., and affiliates of Goldman,
Sachs & Co., acted as the joint lead arranger, joint bookrunner and
administrative agent under our Amended and Restated Credit Facility and received
fees of $0.5 million in November 2003 for services provided. J.P. Morgan
Securities Inc., an affiliate of J.P. Morgan Chase & Co., acted as the joint
lead arranger and joint bookrunner and JPMorgan Chase Bank acted as syndication
agent under our Amended and Restated Credit Facility for consideration of
approximately $0.5 million.
In connection with the Landis Acquisition, Berry Plastics sold $85.0 million of
10 3/4% senior subordinated notes due 2012 to various private institutional
buyers. Goldman Sachs and J.P. Morgan acted as joint book-running managers in
the transaction and received fees of approximately $1.0 million and $1.0
million, respectively, for services performed.
OTHER TRANSACTIONS
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 Chase & Co., 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
57
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.
FUTURE RELATIONSHIPS WITH GOLDMAN SACHS AND J.P. MORGAN
In the future, Holding or Berry Plastics may engage in commercial banking,
investment banking or other financial advisory transactions with Goldman Sachs
and its affiliates or J.P. Morgan and its affiliates. In addition, Goldman,
Sachs & Co.and its affiliates or J.P. Morgan and its affiliates may purchase
goods and services from us from time to time in the future.
TAX SHARING AGREEMENT
For federal income tax purposes, Berry Plastics and its domestic subsidiaries
are included in the affiliated group of which Holding is the common parent and
as a result, the federal taxable income and loss of Berry Plastics and its
subsidiaries is included in the group consolidated tax return filed by Holding.
In April 1994, Holding, Berry Plastics and certain of its subsidiaries entered
into a tax sharing agreement, which was amended and restated in March 2001 (the
"Tax Sharing Agreement"). Under the Tax Sharing Agreement, for fiscal 1994 and
all taxable years thereafter for which the Tax Sharing Agreement remains in
effect, Berry Plastics and its subsidiaries as a consolidated group are required
to pay at the request of Holding an amount equal to the taxes (plus any accrued
interest) that they would otherwise have to pay if they were to file separate
federal, state or local income tax returns (including any amounts determined to
be due as a result of a redetermination arising from an audit or otherwise of a
tax liability which is attributable to them). If Berry Plastics and its
subsidiaries would have been entitled to a tax refund for taxes paid previously
on the basis computed as if they were to file separate returns, then under the
Tax Sharing Agreement, Holding is required to pay at the request of Berry
Plastics and its subsidiaries an amount equal to such tax refund. If, however,
Berry Plastics and its subsidiaries would have reported a tax loss if they were
to file separate returns, then Holding intends, but is not obligated under the
Tax Sharing Agreement, to pay to Berry Plastics and its subsidiaries an amount
equal to the tax benefit that is realized by Holding as a result of such
separate loss. Under the Tax Sharing Agreement any such payments to be made by
Holding to Berry Plastics or any of its subsidiaries on account of a tax loss
are within the sole discretion of Holding. Berry Plastics and its subsidiaries
made payments of $8.5 million each to Holding in December 2001 and June 2002
under this tax sharing agreement.
58
DESCRIPTION OF OTHER INDEBTEDNESS
THE SECOND AMENDED AND RESTATED CREDIT FACILITY
On July 22, 2002, we entered into a credit and guaranty agreement and a related
pledge security agreement with a syndicate of lenders led by Goldman Sachs
Credit Partners L.P., as administrative agent (the "Credit Facility"). On
November 10, 2003, in connection with the Landis Acquisition, we amended and
restated the Credit Facility (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 Agreement was
entered into to permit Fifth Bank, an Ohio banking corporation to assume the
role of Administrative Agent and for Goldman Sachs Credit Partners, L.P. to
resign as Administrative Agent. The Second Amended and Restated Credit Facility
provides (1) a $365.5 million term loan and (2) a $100.0 million revolving
credit facility. The proceeds from the new term loan were used to repay the
outstanding balance of the term loans from the Amended and Restated Credit
Facility. The Second Amended and Restated 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 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 July 22, 2010, and the maturity date of the revolving credit facility is July
22, 2008. The indebtedness under the Second Amended and Restated Credit Facility
is guaranteed by Holding and all of its domestic subsidiaries. The obligations
of the Company and the subsidiaries under the Second Amended and Restated Credit
Facility and the guarantees thereof are secured by substantially all of the
assets of such entities. At January 1, 2005 and December 27, 2003, there were no
borrowings outstanding on the revolving credit facility.
Borrowings under the Second Amended and Restated Credit Facility bear interest,
at the Company's option, at either (i) a base rate (equal to the greater of the
prime rate or 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, 2.25% per annum (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 January 1, 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 (2.50% based on
results through January 1, 2005). The "applicable margin" with respect to
swingline loans and revolving loans that are Base Rate Loans will always be
1.00% per annum less than the "applicable margin" for revolving loans that are
Eurodollar Rate Loans. The interest rate applicable to overdue payments and to
outstanding amounts following an event of default under the Second Amended and
Restated Credit Facility is equal to the interest rate at the time of an event
of default plus 2.00%. We also must pay commitment fees ranging from 0.375% per
annum to 0.50% per annum on the average daily unused portion of the revolving
credit facility. Pursuant to a requirement in the Credit Facility and as a
result of an economic slowdown and corresponding interest rate reductions, we
entered into an interest rate collar arrangement in October 2002 to protect
$50.0 million of the outstanding variable rate term loan debt from future
interest rate volatility. Under the interest rate collar
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agreement, the Eurodollar rate with respect to the $50.0 million of outstanding
variable rate term loan debt will not exceed 6.75% or drop below 1.97%. The
agreement was effective January 15, 2003 and terminates on July 15, 2006.
The Second Amended and Restated Credit Facility contains significant financial
and operating covenants, including prohibitions on our ability to incur
specified additional indebtedness or to pay dividends, and restrictions on our
ability to make capital expenditures and investments and dispose of assets or
consummate acquisitions. The Second Amended and Restated Credit Facility
contains (1) a minimum interest coverage ratio as of the last day of the quarter
ending March 2005 of 2.15:1.00 , 2.25:1.00 per quarter for the quarters ending
June 2005 through March 2006, 2.35:1.00 per quarter for the quarters ending June
2006 through December 2006 and 2.50:1.00 per quarter thereafter, (2) a maximum
amount of capital expenditures (subject to the rollover of certain unexpended
amounts from the prior year and increases due to acquisitions) of $60 million
for the years ending 2005, 2006 and 2007, and $65 million for each year
thereafter, and (3) a maximum total leverage ratio as of the last day of any
quarter of 5.50:1.00 per quarter for the quarters ending December 2004 through
June 2005, 5.25:1.00 per quarter for the quarters ending September 2005 and
December 2005, 5.00:1.00 per quarter for the quarters ending March 2006 and June
2006, 4.75:1.00 per quarter for the quarters ending September 2006 through March
2007, 4.50:1.00 per quarter for the quarters ending June 2007 through December
2007, 4.25:1.00 per quarter for the quarters ending March 2008 through December
2008, and 4.00:1.00 per quarter thereafter. The occurrence of a default, an
event of default or a material adverse effect on Berry Plastics would result in
our inability to obtain further borrowings under our revolving credit facility
and could also result in the acceleration of our obligations under any or all of
our debt agreements, each of which could materially and adversely affect our
business. We were in compliance with all of the financial and operating
covenants at January 1, 2005.
In 2004, we made two voluntary principal prepayments totaling $45.0 million on
our senior term debt resulting in a revision of the loan amortization schedule.
Accordingly, the term loan amortizes quarterly as follows: $831,312 each quarter
beginning March 31, 2005 and ending June 30, 2009; and $78,974,687 each quarter
beginning September 30, 2009 and ending June 30, 2010. Borrowings under the
Second Amended and Restated Credit Facility are subject to mandatory prepayment
under specified circumstances, including if we meet specified cash flow
thresholds, collect insurance proceeds in excess of certain thresholds, issue
equity securities or debt or sell certain assets with proceeds in excess of
certain thresholds. There is no required amortization of the revolving credit
facility. Outstanding borrowings under the revolving credit facility may be
repaid at any time, and may be reborrowed at any time prior to the maturity date
which is on July 22, 2008. The revolving credit facility allows up to $25.0
million of letters of credit to be issued instead of borrowings and up to $10.0
million of swingline loans. At January 1, 2005 and December 27, 2003, we had
$8.5 million and $7.4 million, respectively, in letters of credit outstanding
under our revolving credit facility.
SECURITY
Our obligations under the Second Amended and Restated Credit Facility are
secured by a first priority security interest (with certain exceptions) in
substantially all of our assets and the assets of the guarantors described below
and, in addition, by a pledge of 100% of our shares and 100% of the shares of
our domestic subsidiaries and up to 65% of the shares of our foreign
subsidiaries and all intercompany debt with the exception of debt owed to our
foreign subsidiaries.
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GUARANTORS
BPC Holding and each of our domestic subsidiaries guarantee our obligations
under the Second Amended and Restated Credit Facility.
REPRESENTATIONS AND WARRANTIES
The Second Amended and Restated Credit Facility contains representations and
warranties customary for this type of financing.
CAPITAL LEASES
We and our subsidiaries are also party to capital leases entered into in the
ordinary course of business. As of January 1, 2005, we had $20.9 million of
capital leases outstanding.
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DESCRIPTION OF NOTES
Definitions of certain terms used in this "Description of notes" may be found
under the heading "Certain definitions." Defined terms used in this description
but not defined below under the heading "Certain definitions" have the meanings
assigned to them in the Indenture. For purposes of this section, (i) the term
"Company" refers only to Berry Plastics Corporation and not to any of its
subsidiaries, (ii) the term "Holding" refers to BPC Holding Corporation, the
parent company of the Company, and not to any of its Subsidiaries and (iii) the
term "Notes" refers to the 10 3/4% Senior Subordinated Notes due 2012. Certain
of the Company's Subsidiaries and Holding have guaranteed the notes and
therefore will be subject to many of the provisions contained in this
"Description of notes". Each company which guarantees the Notes is referred to
in this section as a "Note Guarantor." Each such guarantee is termed a "Note
Guarantee."
The Company issued the notes under the Indenture, dated as of July 22, 2002, as
supplemented, (the "Indenture"), among the Company, the Note Guarantors and
United States Bank Trust National Association, as trustee (the "Trustee"),
incorporated by reference as an exhibit to the registration statement of which
this prospectus is a part. A copy of the Indenture is available upon request to
the Company. The Indenture contains provisions which define your rights under
the Notes. In addition, the Indenture governs the obligations of the Company and
of each Note Guarantor under the Notes. The terms of the notes include those
stated in the Indenture and, upon effectiveness of a registration statement with
respect to the Notes offered hereby, those made part of the Indenture by
reference to the TIA.
The following description is meant to be only a summary of certain provisions of
the Indenture. It does not restate the terms of the Indenture in their entirety.
We urge that you carefully read the Indenture as it, and not this description,
governs our obligations and your rights as Holders.
OVERVIEW OF THE NOTES AND THE NOTE GUARANTEES
THE NOTES
These Notes:
- are general unsecured obligations of the Company;
- rank equally in right of payment with any existing and future Senior
Subordinated Indebtedness of the Company;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of the Company;
- are senior in right of payment to all future Subordinated Obligations
of the Company;
- are effectively subordinated to all Secured Indebtedness of the Company
and its Subsidiaries to the extent of the value of the assets securing
such Indebtedness; and
- are effectively subordinated to all liabilities (including Trade
Payables) and Preferred Stock of each Subsidiary of the Company that is
not a Note Guarantor.
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THE NOTE GUARANTEES
These Notes are guaranteed by Holding, and all existing and future Domestic
Subsidiaries of the Company, except as provided below.
The Note Guarantee of each Note Guarantor:
- is general unsecured obligations of such Note Guarantor;
- ranks equally in right of payment with any existing and future Senior
Subordinated Indebtedness of such Note Guarantor;
- is subordinated in right of payment to all existing and future Senior
Indebtedness of such Note Guarantor;
- is senior in right of payment to all future Subordinated Obligations of
such Note Guarantor;
- is effectively subordinated to all Secured Indebtedness of such Note
Guarantor and its Subsidiaries to the extent of the value of the assets
securing such Indebtedness; and
- is effectively subordinated to the obligations of any Subsidiary of a
Note Guarantor if that Subsidiary is not a Note Guarantor.
The Notes will not be guaranteed by Berry Plastics Acquisition Corporation II,
NIM Holdings Limited, Berry Plastics U.K. Limited, Norwich Acquisition Limited,
Berry Plastics Asia Pte. Ltd., Capsol Berry Plastics S.p.a. or Ociesse S.r.l.
The Notes will not be guaranteed by any Foreign Subsidiaries in the future
unless any such Foreign Subsidiary Guarantees any Senior Indebtedness of the
Company or any of the Company's Subsidiaries (other than that of another Foreign
Subsidiary). The Note Guarantee of any Note Guarantor may be released in certain
circumstances as described under "Certain covenants--Future note guarantors and
release of note guarantees." As of January 1, 2005, these non-guarantor
Subsidiaries (i) had approximately $9.7 million of total liabilities (including
trade payables but excluding liabilities owed to us) and (ii) had approximately
4% of the Company's Consolidated assets. These non-guarantor subsidiaries
accounted for 3% of our net sales for fiscal year 2004.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on July 15, 2012. We will issue the Notes in fully
registered form, without coupons, and in denominations of $1,000 and any
integral multiple of $1,000.
Each Note will bear interest at the rate of 10 3/4% per annum beginning from the
most recent interest payment date on which interest has been paid or provided
for. We will pay interest semiannually to the Holders of record at the close of
business on the January 1 or July 1 immediately preceding the relevant interest
payment date on January 15 and July 15 of each year. Interest on the Notes will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
INDENTURE MAY BE USED FOR FUTURE ISSUANCES
We may issue from time to time additional Notes having identical terms and
conditions to the Notes (the "Additional Notes"). We will only be permitted to
issue such Additional Notes if at the time of such issuance we are in compliance
with the covenants contained in the Indenture, but the amount of such Additional
Notes will not otherwise be restricted by the Indenture. Any
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Additional Notes will be part of the same issue as the Notes and will vote on
all matters with such Notes.
PAYING AGENT AND REGISTRAR
We will pay the principal of, premium, if any, interest, if any, on the Notes at
any office of ours or any agency designated by us which is located in the
Borough of Manhattan, the City of New York. We have designated the corporate
trust office of the Trustee to act as the agent of the Company in such matters.
The location of the corporate trust office is 100 Wall Street, 16th Floor, New
York, New York 10005. We, however, reserve the right to pay interest to Holders
by check mailed directly to Holders at their registered addresses.
Holders may exchange or transfer their Notes at the same location given in the
preceding paragraph. No service charge will be made for any registration of
transfer or exchange of Notes. We, however, may require Holders to pay any
transfer tax or other similar governmental charge payable in connection with any
such transfer or exchange.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, we may not redeem the Notes
prior to July 15, 2007. After this date, we may redeem the Notes, in whole or in
part, on one or more occasions, on not less than 30 nor more than 60 days' prior
notice, at the following redemption prices (expressed as percentages of
principal amount), plus accrued and unpaid interest, if any, to, but not
including, the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest, if any, due on the relevant interest
payment date), if redeemed during the 12-month period commencing on July 15 of
the years set forth below:
------------------------------------------------------------------------
REDEMPTION
YEAR PRICE
------------------------------------------------------------------------
2007........................................................ 105.375%
2008........................................................ 103.583%
2009........................................................ 101.792%
2010 and thereafter......................................... 100.000%
------------------------------------------------------------------------
Prior to July 15, 2005, we may, on one or more occasions, also redeem up to a
maximum of 35% of the original aggregate principal amount of the Notes
(calculated giving effect to any issuance of Additional Notes) with the Net Cash
Proceeds of one or more Equity Offerings (1) by the Company or (2) by Holding to
the extent the Net Cash Proceeds thereof are contributed to the Company or used
to purchase Capital Stock (other than Disqualified Stock) of the Company from
the Company, at a redemption price equal to 110.75% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to, but not
including, the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date); provided, however, that after giving effect to any such redemption:
(1) at least 65% of the original aggregate principal amount of the Notes
(calculated giving effect to any issuance of Additional Notes) remains
outstanding; and
(2) any such redemption by the Company must be made within 60 days of such
Equity Offering and must be made in accordance with certain procedures set
forth in the Indenture.
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In determining whether to redeem the Notes, we may consider, among other things,
our cash flow, time remaining to maturity of the notes, our overall cost of
capital, other financing alternatives, the state of the capital markets and our
overall financial condition.
SELECTION
If we partially redeem Notes, the Trustee will select the Notes to be redeemed
on a pro rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and reasonable, although no Note of $1,000 in
original principal amount or less will be redeemed in part. If we redeem any
Note in part only, the notice of redemption relating to such Note shall state
the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. On and after
the redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption so long as we have deposited with the Paying Agent funds
sufficient to pay the principal of, plus accrued and unpaid interest thereon, if
any, the Notes to be redeemed.
RANKING
The Notes will be unsecured Senior Subordinated Indebtedness of the Company,
will be subordinated in right of payment to all existing and future Senior
Indebtedness of the Company, will rank equally in right of payment with any
existing and future Senior Subordinated Indebtedness of the Company and will be
senior in right of payment to all future Subordinated Obligations of the
Company. The Notes also will be effectively subordinated to all Secured
Indebtedness of the Company and its Subsidiaries to the extent of the value of
the assets securing such Indebtedness. However, payment from the money or the
proceeds of United States Government Obligations held in any defeasance trust
described below under the caption "Defeasance" will not be subordinated to any
Senior Indebtedness or subject to the restrictions described herein.
The Note Guarantees will be unsecured Senior Subordinated Indebtedness of the
applicable Note Guarantor, will be subordinated in right of payment to all
existing and future Senior Indebtedness of such Note Guarantor, will rank
equally in right of payment with any existing and future Senior Subordinated
Indebtedness of such Note Guarantor and will be senior in right of payment to
all future Subordinated Obligations of such Note Guarantor. The Note Guarantees
also will be effectively subordinated to all Secured Indebtedness of the
applicable Note Guarantor and its Subsidiaries to the extent of the value of the
assets securing such Secured Indebtedness and effectively subordinated to the
obligations of any Subsidiary of a Note Guarantor if that Subsidiary is not a
Note Guarantor.
The Company currently conducts most of its operations through its Subsidiaries.
To the extent such Subsidiaries are not Guarantors, creditors of such
Subsidiaries, including trade creditors, and preferred stockholders, if any, of
such Subsidiaries generally will have priority with respect to the assets and
earnings of such Subsidiaries over the claims of creditors of the Company,
including Holders. The Notes, therefore, will be effectively subordinated to the
claims of creditors, including trade creditors, and preferred stockholders, if
any, of Subsidiaries of the Company that are not Note Guarantors. For example,
except under certain circumstances, the Company's Foreign Subsidiaries will not
guarantee the Notes.
65
As of January 1, 2005:
- we had approximately $353.7 million of Senior Indebtedness to which the
Notes and the Note Guarantees would be subordinated (which amount
excludes $8.5 million of letters of credit and the remaining availability
of $91.5 million under our revolving credit facility;
- we did not have any Senior Subordinated Indebtedness (other than the
Notes);
- we did not have any Subordinated Obligations; and
- our Subsidiaries that are not Note Guarantors had $9.7 million of
liabilities, excluding liabilities owed to us.
As of April 1, 2005, we could incur approximately $93.1 million in additional
senior debt under our Second Amended and Restated Credit Facility, subject to
conditions to borrowing; however, the covenants under our amended and restated
senior secured credit facility may limit our ability to make such borrowings.
Although the Indenture limits the Incurrence of Indebtedness by the Company and
the Restricted Subsidiaries and the issuance of Preferred Stock by the
Restricted Subsidiaries, such limitation is subject to a number of significant
qualifications. The Company and its Subsidiaries may be able to Incur
substantial amounts of additional Indebtedness in certain circumstances. Such
Indebtedness may be Senior Indebtedness. In addition, the Indenture does not
limit the Incurrence of Indebtedness by Holding or have any other restrictions
on Holding.
"Senior Indebtedness" of the Company or any Note Guarantor means Bank
Indebtedness and the principal of, premium (if any) and accrued and unpaid
interest on (including interest accruing on or after the filing of any petition
in bankruptcy or for reorganization of the Company or any Note Guarantor,
regardless of whether or not a claim for post-filing interest is allowed in such
proceedings), and fees and other amounts owing in respect of, all other
Indebtedness of the Company or any Note Guarantor, as applicable, whether
outstanding on the Closing Date or thereafter Incurred, unless in the instrument
creating or evidencing the same or pursuant to which the same is outstanding it
is provided that such obligations are pari passu with or subordinated in right
of payment to the Notes or such Note Guarantor's Note Guarantee, as applicable;
provided, however, that Senior Indebtedness of the Company or any Note Guarantor
shall not include:
(1) any obligation of the Company or any Subsidiary of the Company or of
such Note Guarantor to the Company or any other Subsidiary of the Company;
(2) any liability for federal, state, local or other taxes owed or owing by
the Company or such Note Guarantor, as applicable;
(3) any accounts payable or other liability to trade creditors arising in
the ordinary course of business (including Guarantees thereof or instruments
evidencing such liabilities);
(4) any Indebtedness or obligation of the Company or such Note Guarantor, as
applicable (and any accrued and unpaid interest in respect thereof) that by
its terms is subordinate in right of payment to any other Indebtedness or
obligation of the Company or such Note Guarantor, as applicable, including
any Senior Subordinated Indebtedness and any Subordinated Obligations of the
Company or such Note Guarantor, as applicable;
66
(5) any obligations with respect to any Capital Stock; or
(6) any Indebtedness (or portion thereof) Incurred in violation of the
Indenture.
Only Indebtedness of the Company that is Senior Indebtedness will rank senior to
the Notes. The Notes will rank equally in all respects with all other Senior
Subordinated Indebtedness of the Company. The Company will not Incur, directly
or indirectly, any Indebtedness which is subordinate in right of payment to
Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness
or is expressly subordinated in right of payment to Senior Subordinated
Indebtedness. Unsecured Indebtedness is not deemed to be subordinate in right of
payment to Secured Indebtedness merely because it is unsecured and Indebtedness
which has different security or different priorities in the same security will
not be deemed subordinate in right of payment to Secured Indebtedness due to
such differences.
The Company may not pay principal of, premium (if any) or interest on the Notes,
or make any further deposit pursuant to the provisions described under
"Defeasance" below, and may not otherwise purchase, repurchase, redeem or
otherwise acquire or retire for value any Notes (collectively, "pay the Notes")
(except in Permitted Junior Securities or except from a previously created trust
described under "Defeasance") if:
(1) any Designated Senior Indebtedness of the Company is not paid when due,
whether upon acceleration or otherwise, or
(2) any other default on Designated Senior Indebtedness of the Company
occurs and the maturity of such Designated Senior Indebtedness is
accelerated in accordance with its terms
unless, in either case,
(x) the default has been cured or waived and any such acceleration has been
rescinded, or
(y) such Designated Senior Indebtedness has been paid in full;
provided, however, that the Company may pay the Notes without regard to the
foregoing if the Company and the Trustee receive written notice approving such
payment from the Representative of the Designated Senior Indebtedness with
respect to which either of the events set forth in clause (1) or (2) above has
occurred and is continuing.
In addition, during the continuance of any default (other than a default
described in clause (1) or (2) of the immediately preceding paragraph) with
respect to any Designated Senior Indebtedness of the Company pursuant to which
the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods, we may not pay the Notes (except in
Permitted Junior Securities or except from a previously created trust described
under "Defeasance") for a period (a "Payment Blockage Period") commencing upon
the receipt by the Trustee (with a copy to us) of written notice (a "Blockage
Notice") of such default from the Representative of such Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period and
ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated:
(1) by written notice to the Trustee and the Company from the Person or
Persons who gave such Blockage Notice,
(2) by repayment in full of such Designated Senior Indebtedness, or
(3) because the default giving rise to such Blockage Notice is no longer
continuing).
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Notwithstanding the provisions described in the immediately preceding paragraph
(but subject to the provisions contained in the second preceding and in the
immediately succeeding paragraph), unless the holders of such Designated Senior
Indebtedness or the Representative of such holders have accelerated the maturity
of such Designated Senior Indebtedness, the Company may resume payments on the
Notes after the end of such Payment Blockage Period, including any missed
payments.
Not more than one Blockage Notice may be given in any consecutive 360-day
period, irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period. However, if any Blockage Notice within such
360-day period is given by or on behalf of any holders of Designated Senior
Indebtedness other than the Bank Indebtedness, the Representative of the Bank
Indebtedness may give another Blockage Notice within such period. In no event,
however, may the total number of days during which any Payment Blockage Period
or Periods (including any periods in respect of any additional Blockage Notices
delivered by the Representative pursuant to the prior sentence) is in effect
exceed 179 days in the aggregate during any 360 consecutive day period. For
purposes of this paragraph, no default or event of default that existed or was
continuing on the date of the commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period shall be, or be made, the basis of the commencement of a subsequent
Payment Blockage Period by the Representative of such Designated Senior
Indebtedness, whether or not within a period of 360 consecutive days, unless
such default or event of default shall have been cured or waived for a period of
not less than 90 consecutive days.
Upon any payment or distribution of the assets of the Company to creditors upon
a total or partial liquidation or a total or partial dissolution of the Company
or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property (except that Holders of Notes
may receive and retain Permitted Junior Securities and payments made from the
trust described under "Defeasance"):
(1) the holders of Senior Indebtedness of the Company will be entitled to
receive payment in full of such Senior Indebtedness before the Holders are
entitled to receive any payment of principal of or interest on the Notes;
and
(2) until such Senior Indebtedness is paid in full any payment or
distribution to which Holders would be entitled but for the subordination
provisions of the Indenture will be made to holders of such Senior
Indebtedness as their interests may appear.
If a distribution is made to Holders that due to the subordination provisions of
the Indenture should not have been made to them, such Holders will be required
to hold it in trust for the holders of Senior Indebtedness of the Company and
pay it over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee (provided that the Trustee shall have received written
notice from the Company, on which notice the Trustee shall be entitled to
conclusively rely) shall promptly notify the holders of the Designated Senior
Indebtedness of the Company (or their Representative) of the acceleration. If
any Designated Senior Indebtedness of the Company is outstanding, the Company
may not pay the Notes until five Business Days after such holders or the
Representative of such Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the Notes only if the subordination
provisions of the Indenture otherwise permit payment at that time.
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By reason of the subordination provisions of the Indenture, in the event of
insolvency, creditors of the Company who are holders of Senior Indebtedness of
the Company may recover more, ratably, than the Holders, and creditors of the
Company who are not holders of Senior Indebtedness of the Company or of Senior
Subordinated Indebtedness of the Company (including the Notes) may recover less,
ratably, than holders of Senior Indebtedness of the Company and may recover
more, ratably, than the holders of Senior Subordinated Indebtedness of the
Company.
The Indenture contains substantially identical subordination provisions relating
to each Guarantor's obligations under its Note Guarantee.
NOTE GUARANTEES
BPC Holding Corporation, each of the Company's Domestic Subsidiaries, and
certain future subsidiaries of the Company (as described below), as primary
obligors and not merely as sureties, will jointly and severally irrevocably and
unconditionally guarantee on an unsecured senior subordinated basis the
performance and full and punctual payment when due, whether at Stated Maturity,
by acceleration or otherwise, of all obligations of the Company under the
Indenture (including obligations to the Trustee) and the Notes, whether for
payment of principal of, interest on, if any, in respect of the Notes, expenses,
indemnification or otherwise (all such obligations guaranteed by such Note
Guarantors being herein called the "Guaranteed Obligations"). Such Note
Guarantors will agree to pay, in addition to the amount stated above, any and
all costs and expenses (including reasonable counsel fees and expenses) Incurred
by the Trustee or the Holders in enforcing any rights under the Note Guarantees.
Each Note Guarantee will be limited in amount to an amount not to exceed the
maximum amount that can be Guaranteed by the applicable Note Guarantor without
rendering the Note Guarantee, as it relates to such Note Guarantor, voidable
under applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally. After the Closing
Date, the Company will cause (1) each Domestic Subsidiary, other than a Domestic
Subsidiary the only activity of which is to participate in a Receivables
Facility, and (2) each Foreign Subsidiary that enters into a Guarantee of any
Senior Indebtedness (other than a Foreign Subsidiary that Guarantees Senior
Indebtedness Incurred by another Foreign Subsidiary), to execute and deliver to
the Trustee a supplemental indenture pursuant to which such Subsidiary will
Guarantee payment of the Notes to the extent described in "Certain
covenants--Future note guarantors and release of note guarantees" below. A Note
Guarantor will be released from its obligations under the Indenture and the Note
Guarantee if (x) the Company designates such Note Guarantor as an Unrestricted
Subsidiary and such designation complies with the other applicable provisions of
the Indenture or (y) such Subsidiary is sold in accordance with the Indenture.
See "Certain covenants--Future note guarantors and release of note guarantees."
The obligations of a Note Guarantor under its Note Guarantee are senior
subordinated obligations. As such, the rights of Holders to receive payment by a
Note Guarantor pursuant to its Note Guarantee will be subordinated in right of
payment to the rights of holders of Senior Indebtedness of such Note Guarantor.
The terms of the subordination provisions described above with respect to the
Company's obligations under the Notes apply equally to a Note Guarantor and the
obligations of such Note Guarantor under its Note Guarantee.
Each Note Guarantee is a continuing guarantee and shall (a) remain in full force
and effect until payment in full of all the Guaranteed Obligations, (b) be
binding upon each Note
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Guarantor and its successors and (c) inure to the benefit of, and be enforceable
by, the Trustee, the Holders and their successors, transferees and assigns.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of Control"),
each Holder will have the right to require the Company to purchase all or any
part of such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of Holders of record on the relevant record
date to receive interest, if any, due on the relevant interest payment date);
provided, however, that notwithstanding the occurrence of a Change of Control,
the Company shall not be obligated to purchase the Notes pursuant to this
section in the event that it has mailed the notice to exercise its right to
redeem all the Notes under the terms of the section titled "Optional redemption"
at any time prior to the requirement to consummate the Change of Control and
redeem the Notes in accordance with such notice:
(1) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, of more than 50% of the total voting power of
the Voting Stock of the Company or Holding, whether as a result of issuance
of securities of Holding or the Company, any merger, consolidation,
liquidation or dissolution of Holding or the Company, any direct or indirect
transfer of securities by any Permitted Holder or otherwise;
(2) the sale, lease or transfer, in one transaction or a series of related
transactions, of all or substantially all the assets of the Company and its
Subsidiaries, taken as a whole, to a "person" (as defined above) other than
one or more Permitted Holders;
(3) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of the Company
or Holding, as the case may be (together with any new directors whose
election by such board of directors of the Company or Holding, as the case
may be, or whose nomination for election by the shareholders of the Company
or Holding, as the case may be, was approved by a vote of a majority of the
directors of the Company or Holding, as the case may be, then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved), and any
directors who are designees of a Principal or a Related Party of a Principal
or were nominated by a Principal or a Related Party of a Principal, cease
for any reason to constitute a majority of the board of directors of the
Company or Holding, as the case may be, then in office; or
(4) the merger or consolidation of the Company or Holding with or into
another Person or the merger of another Person with or into the Company or
Holding, other than, in each case, a transaction following which securities
that represented at least a majority of the voting power of the Voting Stock
of the Company immediately prior to such transaction (or other securities
into which such securities are converted as part of such merger or
consolidation transaction) constitute at least a majority of the voting
power of the Voting Stock of the surviving Person.
In the event that at the time of such Change of Control the terms of the Bank
Indebtedness restrict or prohibit the repurchase of Notes pursuant to this
covenant, then prior to the mailing
70
of the notice to Holders provided for in the immediately following paragraph but
in any event within 30 days following any Change of Control, the Company shall:
(1) repay in full all Bank Indebtedness or, if doing so will allow the
purchase of Notes, offer to repay in full all Bank Indebtedness and repay
the Bank Indebtedness of each lender who has accepted such offer, or
(2) obtain the requisite consent under the agreements governing the Bank
Indebtedness to permit the repurchase of the Notes as provided for in the
immediately following paragraph.
Within 30 days following any Change of Control, or, at the Company's option,
prior to such Change of Control but after it is publicly announced, the Company
shall mail a notice to each Holder with a copy to the Trustee (the "Change of
Control Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the right
to require the Company to purchase all or a portion of such Holder's Notes
at a purchase price in cash equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of purchase (subject
to the right of Holders of record on the relevant record date to receive
interest, if any, on the relevant interest payment date);
(2) the circumstances and relevant facts and financial information regarding
such Change of Control;
(3) the purchase date (which shall be no earlier than the greater of (x) 30
days and (y) the Change of Control date and no later than 60 days from the
date such notice is mailed);
(4) that the Change of Control Offer is conditioned on the Change of Control
occurring if the notice is mailed prior to a Change of Control; and
(5) the instructions determined by the Company, consistent with this
covenant, that a Holder must follow in order to have its Notes purchased.
The Company will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the purchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant by virtue thereof.
The Change of Control purchase feature is a result of negotiations between the
Company and the initial purchasers of the notes. Management has no present
intention to engage in a transaction involving a Change of Control, although it
is possible that the Company would decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company to
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Incur additional Indebtedness are contained in the covenant described under
"--Limitation on indebtedness." Such restrictions can only be waived with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding. Except for the limitations contained in such covenant, however, the
Indenture does not contain any covenants or provisions that may afford Holders
protection in the event of a highly leveraged transaction.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of the Company may contain prohibitions of certain events which
would constitute a Change of Control or require such Senior Indebtedness to be
repurchased or repaid upon a Change of Control. Moreover, the exercise by the
Holders of their right to require the Company to purchase the Notes could cause
a default under such Senior Indebtedness, even if the Change of Control itself
does not, due to the financial effect of such repurchase on the Company.
Finally, the Company's ability to pay cash to the Holders upon a purchase may be
limited by the Company's then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required purchases. The provisions under the Indenture relative to the Company's
obligation to make an offer to purchase the Notes as a result of a Change of
Control may be waived or modified with the written consent of the Holders of a
majority in principal amount of the Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS. (a) The Company will not, and will not permit any
Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Company or any Restricted Subsidiary that is a Note
Guarantor may Incur Indebtedness (including any Receivables Facility) if, on the
date of such Incurrence and after giving effect thereto the Consolidated
Coverage Ratio would be greater than 2:1.
(b) Notwithstanding the foregoing paragraph (a), the Company and its Restricted
Subsidiaries may Incur the following Indebtedness:
(1) Indebtedness in an aggregate principal amount Incurred pursuant to any
Credit Facility and Indebtedness in an aggregate amount outstanding under
any Receivables Facility which together do not exceed $555.0 million less
the aggregate amount of all mandatory repayments of the principal of any
term Indebtedness under the Credit Agreement that have been made by the
Company or any of its Restricted Subsidiaries since the date of the
Indenture with the Net Available Cash of an Asset Disposition pursuant to
clause (a)(3)(A) of "Certain covenants--Limitation on sales of assets and
subsidiary stock"; provided, however, that Indebtedness in excess of $505.0
million may be Incurred only if at the time of Incurrence (or at the time of
any other Incurrence of Indebtedness pursuant to this clause (1) in excess
of $505.0 million) the Company receives an amount equal to such excess in
cash from the issue or sale of Capital Stock (other than Disqualified Stock)
or from other capital contributions;
(2) Indebtedness of the Company owed to and held by any Restricted
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by
the Company or any Restricted Subsidiary; provided, however, that (A) any
subsequent issuance or transfer of any Capital Stock or any other event that
results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of any such Indebtedness (except to
the Company or a Restricted Subsidiary) shall be deemed, in each case, to
constitute the
72
Incurrence of such Indebtedness by the issuer thereof, (B) if the Company is
the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all obligations with
respect to the Notes and (C) if a Restricted Subsidiary that is a Note
Guarantor is the obligor on such Indebtedness and such Indebtedness is owed
to and held by a Restricted Subsidiary that is not a Note Guarantor, such
Indebtedness is expressly subordinated to the prior payment in full in cash
of all obligations of such Restricted Subsidiary with respect to its Note
Guarantee;
(3) Indebtedness (A) represented by the Notes (not including any Additional
Notes) and the Note Guarantees, (B) represented by the exchange Notes to be
issued in exchange for the Notes pursuant to the registration rights
agreement, (C) outstanding on the Closing Date (other than the Indebtedness
described in clauses (1) and (2) above), (D) consisting of Refinancing
Indebtedness Incurred in respect of any Indebtedness described in this
clause (3) or the foregoing paragraph (a) (including in any such case
Indebtedness that is Refinancing Indebtedness) and (E) consisting of
Guarantees of any Indebtedness permitted under the foregoing paragraph (a)
or this paragraph (b);
(4) Indebtedness (A) in respect of workers' compensation self-insurance
obligations, indemnities, performance bonds, bankers' acceptances, letters
of credit and surety, appeal or similar bonds provided by the Company and
the Restricted Subsidiaries in the ordinary course of their business and in
any such case any reimbursement obligations in connection therewith, (B)
under Interest Rate Agreements entered into for bona fide hedging purposes
of the Company in the ordinary course of business; provided, however, that
such Interest Rate Agreements do not increase the Indebtedness of the
Company outstanding at any time other than as a result of fluctuations in
interest rates or by reason of fees, indemnities and compensation payable
thereunder, (C) under any Currency Agreements; provided that such agreements
are designed to protect the Company or its Subsidiaries against fluctuations
in foreign currency exchange rates or interest rates or by reason of fees,
indemnities and compensation payable under Currency Agreements or (D) under
any Commodity Price Protection Agreements; provided that such agreements are
designed to protect the Company or its Subsidiaries against fluctuations in
commodity prices or by reason of fees, indemnities and compensation payable
under such Commodity Price Protection Agreements;
(5) Purchase Money Indebtedness and Capitalized Lease Obligations in an
aggregate principal amount not in excess of $30.0 million at any time
outstanding;
(6) Indebtedness of any Foreign Subsidiary in an aggregate principal amount
which does not exceed $15.0 million plus any Indebtedness of a Foreign
Subsidiary existing at the time it is acquired by the Company and not
Incurred in contemplation thereof, so long as after giving effect to such
acquisition, the Company could Incur $1.00 of additional Indebtedness under
paragraph (a) of this covenant;
(7) obligations arising from agreements by the Company or a Restricted
Subsidiary to provide for indemnification, adjustment of purchase price or
similar obligations, earn-outs or other similar obligations or from
guarantees or letters of credit, surety bonds or performance bonds securing
any obligation of the Company or a Restricted Subsidiary pursuant to such an
agreement, in each case, Incurred in connection with the acquisition or
disposition of any business, assets or Capital Stock of a Restricted
Subsidiary;
(8) shares of Preferred Stock of a Restricted Subsidiary issued to the
Company or another Restricted Subsidiary; provided that any subsequent
transfer of any Capital Stock or any
73
other event which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any other subsequent transfer of any such shares of
Preferred Stock (except to the Company or another Restricted Subsidiary)
shall be deemed, in each case, to be an issuance of Preferred Stock;
(9) Indebtedness of the Company and any Restricted Subsidiary to the extent
the net proceeds thereof are promptly deposited to defease the Notes as
described below under "Defeasance;"
(10) contingent liabilities arising out of endorsements of checks and other
negotiable instruments for deposit or collection or overdraft protection in
the ordinary course of business; and
(11) Indebtedness (other than Indebtedness permitted to be Incurred pursuant
to the foregoing paragraph (a) or any other clause of this paragraph (b)) in
an aggregate principal amount on the date of Incurrence that, when added to
all other Indebtedness Incurred pursuant to this clause (11) and then
outstanding, will not exceed $30.0 million.
(c) The Company may not Incur any Indebtedness if such Indebtedness is
subordinate in right of payment to any Senior Indebtedness unless such
Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in
right of payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is
not deemed to be subordinate in right of payment to Secured Indebtedness merely
because it is unsecured and Indebtedness which has different security or
different priorities in the same security will not be deemed subordinate in
right of payment to Secured Indebtedness due to such differences. The Company
may not Incur any Secured Indebtedness which is not Senior Indebtedness unless
contemporaneously therewith effective provision is made to secure the Notes
equally and ratably with (or on a senior basis to, in the case of Indebtedness
subordinated in right of payment to the Notes) such Secured Indebtedness for so
long as such Secured Indebtedness is secured by a Lien. A Note Guarantor may not
Incur any Indebtedness if such Indebtedness is by its terms expressly
subordinate in right of payment to any Senior Indebtedness of such Note
Guarantor unless such Indebtedness is Senior Subordinated Indebtedness of such
Note Guarantor or is expressly subordinated in right of payment to Senior
Subordinated Indebtedness of such Note Guarantor. Unsecured Indebtedness is not
deemed to be subordinate in right of payment to Secured Indebtedness merely
because it is unsecured and Indebtedness which has different security or
different priorities in the same security will not be deemed subordinate in
right of payment to Secured Indebtedness due to such differences. A Note
Guarantor may not Incur any Secured Indebtedness that is not Senior Indebtedness
of such Note Guarantor unless contemporaneously therewith effective provision is
made to secure the Note Guarantee of such Note Guarantor equally and ratably
with (or on a senior basis to, in the case of Indebtedness subordinated in right
of payment to such Note Guarantee) such Secured Indebtedness for as long as such
Secured Indebtedness is secured by a Lien.
(d) For purposes of determining compliance with this covenant:
(1) Indebtedness Incurred pursuant to the Credit Agreement prior to or on
the Closing Date shall be treated as Incurred pursuant to clause (1) of
paragraph (b) above;
(2) Indebtedness permitted by this covenant need not be permitted solely by
reference to one provision permitting such Indebtedness but may be permitted
in part by one such provision and in part by one or more other provisions of
this covenant permitting such Indebtedness;
74
(3) in the event that Indebtedness meets the criteria of more than one of
the types of Indebtedness described in this covenant, the Company, in its
sole discretion, shall classify such Indebtedness on the date of Incurrence
and shall later be permitted to reclassify all or a portion of such item of
Indebtedness, in any manner that complies with this covenant, and only be
required to include the amount of such Indebtedness in one of such clauses;
(4) for purpose of determining compliance with any dollar-denominated
restriction on the Incurrence of Indebtedness, denominated in a foreign
currency, the dollar-equivalent principal amount of such Indebtedness
Incurred pursuant thereto shall be calculated based on the relevant currency
exchange rate in effect on the date that such Indebtedness was Incurred, and
any such foreign denominated Indebtedness may be refinanced or replaced, or
subsequently refinanced or replaced, in an amount equal to the
dollar-equivalent principal amount of such Indebtedness on the date of such
refinancing or replacement whether or not such amount is greater or less
than the dollar equivalent principal amount of the Indebtedness on the date
of initial Incurrence;
(5) if Indebtedness is secured by a letter of credit that serves only to
secure such Indebtedness, then the total amount deemed Incurred shall be
equal to the greater of (x) the principal of such Indebtedness and (y) the
amount that may be drawn under such letter of credit; and
(6) the amount of Indebtedness issued at a price less than the amount of the
liability thereof shall be determined in accordance with GAAP.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company will not, and will not permit
any Restricted Subsidiary, directly or indirectly, to:
(1) declare or pay any dividend, make any distribution on or in respect of
its Capital Stock or make any similar payment on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving the Company or any Subsidiary of the Company) to the
direct or indirect holders of its Capital Stock, except (x) dividends or
distributions payable solely in its Capital Stock (other than Disqualified
Stock or Preferred Stock) or in options, warrants or rights to purchase such
Capital Stock and (y) dividends or distributions payable to the Company or a
Restricted Subsidiary (and, if such Restricted Subsidiary has shareholders
other than the Company or other Restricted Subsidiaries, to its other
shareholders on a pro rata basis),
(2) purchase, repurchase, redeem, retire or otherwise acquire for value any
Capital Stock of Holding, the Company or any Restricted Subsidiary held by
Persons other than the Company or a Restricted Subsidiary,
(3) purchase, repurchase, redeem, retire, defease or otherwise acquire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment any Subordinated Obligations, except a purchase, repurchase,
redemption, retirement, defeasance or acquisition within one year of the
final maturity thereof, or
(4) make any Investment (other than a Permitted Investment) in any Person
(any such dividend, distribution, payment, purchase, redemption, repurchase,
defeasance, retirement, or other acquisition or Investment set forth in
these clauses (1) through (4) being herein
75
referred to as a "Restricted Payment") if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment:
(A) a Default will be continuing (or would result therefrom);
(B) the Company could not Incur at least $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under "--Limitation on
indebtedness"; or
(C) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors, whose determination
will be conclusive and delivered to the Trustee and evidenced by a
resolution of the Board of Directors) declared or made subsequent to the
Closing Date would exceed the sum, without duplication, of:
(i) 50% of the sum of Consolidated Net Income and Consolidated Step-Up
Depreciation and Amortization accrued during the period (treated as
one accounting period) from the beginning of the fiscal quarter in
which the Closing Date occurs to the end of the most recent fiscal
quarter for which financial statements are available (or, in case such
Consolidated Net Income will be a deficit, minus 100% of such
deficit);
(ii) 100% of the aggregate Net Cash Proceeds and Fair Market Value of
property or assets (other than Indebtedness and Capital Stock, except
that Capital Stock of a Person that is or becomes a Restricted
Subsidiary shall be valued in accordance with the Company's interest
in the Fair Market Value of such Person's property and assets,
exclusive of goodwill or any similar intangible asset) received by the
Company from the issue or sale of its Capital Stock (other than
Disqualified Stock) or from other capital contributions subsequent to
the Closing Date (other than an issuance or sale (x) to a Subsidiary
of the Company, (y) to an employee stock ownership plan or other trust
established by the Company or any of its Subsidiaries with respect to
amounts funded or guaranteed by the Company or (z) in exchange for the
proceeds of loans or advances made pursuant to clause (17) under the
definition "Permitted Investment");
(iii) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Closing Date of any Indebtedness of the Company or
its Restricted Subsidiaries issued after the Closing Date which is
convertible or exchangeable for Capital Stock (other than Disqualified
Stock) of the Company (less the amount of any cash or the Fair Market
Value of other property distributed by the Company or any Restricted
Subsidiary upon such conversion or exchange);
(iv) the amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from (x) payments of dividends,
repayments of the principal of loans or advances or other transfers of
assets to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries or (y) the redesignation of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the
definition of "Investment");
(v) the net reduction in any Investment (other than a Permitted
Investment) that was made after the date of the Indenture resulting
from payments of dividends, repayments of the principal of loans or
advances or other transfers of assets to the
76
Company or any Restricted Subsidiary and the cash return of capital
with respect to any Investment (other than a Permitted Investment);
and
(vi) any amount which previously qualified as a Restricted Payment on
account of any Guarantee entered into by the Company or any Restricted
Subsidiary; provided that such Guarantee has not been called upon and
the obligation arising under such Guarantee no longer exists.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(1) any purchase, repurchase, redemption, retirement or other acquisition
for value of Capital Stock of the Company made by exchange for, or out of
the proceeds of the sale within 30 days of, Capital Stock of the Company
(other than Disqualified Stock and other than Capital Stock issued or sold
to a Subsidiary of the Company or an employee stock ownership plan or other
trust established by the Company or any of its Subsidiaries with respect to
amounts funded or guaranteed by the Company); provided, however, that:
(A) such purchase, repurchase, redemption, retirement or other
acquisition for value will be excluded in the calculation of the amount
of Restricted Payments, and
(B) the Net Cash Proceeds from such sale applied in the manner set forth
in this clause (1) will be excluded from the calculation of amounts under
clause (4)(C)(ii) of paragraph (a) above;
(2) any prepayment, repayment, purchase, repurchase, redemption, retirement,
defeasance or other acquisition for value of Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the sale within 30
days of, Subordinated Obligations or Capital Stock (other than Disqualified
Stock) of the Company that is permitted to be Incurred pursuant to the
covenant described under "--Limitation on indebtedness"; provided, however,
that:
(A) such prepayment, repayment, purchase, repurchase, redemption,
retirement, defeasance or other acquisition for value will be excluded in
the calculation of the amount of Restricted Payments; and
(B) the Net Cash Proceeds from such sale applied in the manner set forth
in this clause (2) will be excluded from the calculation of amounts under
clause (4)(C)(ii) of paragraph (a) above to the extent Capital Stock is
used in such prepayment, repayment, purchase, repurchase, redemption,
retirement, defeasance or other acquisition for value;
(3) any prepayment, repayment, purchase, repurchase, redemption, retirement,
defeasance or other acquisition for value of Subordinated Obligations from
Net Available Cash to the extent permitted by the covenant described under
"--Limitation on sales of assets and subsidiary stock"; provided, however,
that such prepayment, repayment, purchase, repurchase, redemption,
retirement, defeasance or other acquisition for value will be excluded in
the calculation of the amount of Restricted Payments;
(4) dividends paid within 60 days after the date of declaration thereof if
at such date of declaration such dividends would have complied with this
covenant; provided, however, that such dividends will be included in the
calculation of the amount of Restricted Payments;
77
(5) any payment of dividends, other distributions or other amounts by the
Company for the purposes set forth in clauses (A) through (C) below;
provided, however, that such dividend, distribution or other amount set
forth in clauses (A) and (B) will be excluded and in clause (C) will be
included in the calculation of the amount of Restricted Payments:
(A) other fees required to maintain its corporate existence and provide
for other operating costs of up to $1.0 million per fiscal year;
(B) to Holding in amounts equal to amounts required for Holding to pay
federal, state, local and foreign income taxes to the extent such income
taxes are attributable to the income of the Company and its Restricted
Subsidiaries (and, to the extent of amounts actually received from its
Unrestricted Subsidiaries, in amounts required to pay such taxes to the
extent attributable to the income of such Unrestricted Subsidiaries) or
otherwise in accordance with the Tax Sharing Agreement as in effect on
the date of the Indenture, as the same may be amended from time to time
to add additional Subsidiaries or in a manner not materially less
favorable to the Holders of the Notes;
(C) to Holding in amounts equal to amounts expended by Holding to
purchase, repurchase, redeem, retire or otherwise acquire for value
Capital Stock of Holding owned by employees, former employees, directors
or former directors, consultants or foreign consultants of the Company or
any of its Subsidiaries (or permitted transferees of such employees,
former employees, directors or former directors, consultants or foreign
consultants); provided, however, that the aggregate amount paid, loaned
or advanced to Holding pursuant to this clause (C) will not, in the
aggregate, exceed $2.5 million per fiscal year of the Company, plus any
amounts contributed by Holding to the Company as a result of sales of
shares of Capital Stock to employees, directors and consultants, plus the
net proceeds of any key person life insurance received by the Company
after the date of the Indenture;
(6) the repurchase of any Subordinated Obligation or Disqualified Stock of
the Company at a purchase price not greater than 101% of the principal
amount or liquidation preference of such Subordinated Obligation or
Disqualified Stock in the event of a Change of Control pursuant to a
provision similar to "Change of Control"; provided that prior to
consummating any such repurchase, the Company has made the Change of Control
Offer required by the Indenture and has repurchased all Notes validly
tendered for payment in connection with such Change of Control Offer;
provided, however, that such repurchase will be included in the calculation
of the amount of Restricted Payments;
(7) the repurchase of any Subordinated Obligation or Disqualified Stock of
the Company at a purchase price not greater than 100% of the principal
amount or liquidation preference of such Subordinated Obligation or
Disqualified Stock in the event of an Asset Sale pursuant to a provision
similar to the "--Limitation on sales of assets and subsidiary stock"
covenant; provided that prior to consummating any such repurchase, the
Company has made the Asset Sale Offer required by the Indenture and has
repurchased all Notes validly tendered for payment in connection with such
Asset Sale Offer; provided, however, that such repurchase will be included
in the calculation of the amount of Restricted Payments;
(8) repurchases of Capital Stock deemed to occur upon exercise of stock
options to the extent that shares of such Capital Stock represent a portion
of the exercise price of such options; provided, however, that such
repurchases will be excluded in the calculation of the amount of Restricted
Payments;
78
(9) the declaration and payment of dividends or distributions to holders of
any class or series of Disqualified Stock of the Company or Preferred Stock
of its Restricted Subsidiaries issued or Incurred in accordance with the
covenant "--Limitation on indebtedness"; provided, however, that such
declaration and payment of dividends or distributions to holders will be
excluded in the calculation of the amount of Restricted Payments;
(10) any of the transactions completed in connection with the Acquisition
and the financing thereof; provided, however, that such transactions will be
excluded in the calculation of the amount of Restricted Payments;
(11) any purchase, redemption, retirement or other acquisition for value of
Disqualified Stock of the Company made by exchange for, or out of the
proceeds of the sale within 30 days of, Disqualified Stock of the Company;
provided that any such new Disqualified Stock is issued in accordance with
paragraph (a) of the covenant "--Limitation on indebtedness" and has an
aggregate liquidation preference that does not exceed the aggregate
liquidation preference of the amount so refinanced; provided, however, such
purchase, repurchase, redemption, retirement or other acquisition for value
will be excluded in the calculation of the amount of Restricted Payments; or
(12) other Restricted Payments in an aggregate amount not to exceed $15.0
million since the date of the Indenture; provided, however, that such other
Restricted Payments will be included in the calculation of the amount of
Restricted Payments.
The amount of all Restricted Payments (other than cash) will be the Fair Market
Value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The Fair
Market Value of any assets or securities that are required to be valued by this
covenant will be determined by the Board of Directors whose resolution with
respect thereto will be conclusive and delivered to the Trustee and evidenced by
a resolution of the Board of Directors.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES. The
Company will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock or
pay any Indebtedness or other obligations owed to the Company;
(2) make any loans or advances to the Company; or
(3) transfer any of its property or assets to the Company,
except:
(A) any encumbrance or restriction pursuant to applicable law;
(B) any encumbrance or restriction in any agreement with respect to
Indebtedness (including the Credit Agreement) as in effect or entered into
on the Closing Date, and any amendments, modifications, restatements,
renewals, extensions, replacements and financings thereof on terms and
conditions with respect to such encumbrances and restrictions that are not
materially more restrictive, taken as a whole, than those encumbrances and
restrictions with respect to such Indebtedness as in effect on the date of
the Indenture;
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(C) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary prior to the date on which such Restricted Subsidiary
was acquired by the Company (other than Indebtedness Incurred as
consideration in or in contemplation of, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was otherwise acquired by the Company) and
outstanding on such date;
(D) any encumbrance or restriction pursuant to an agreement for the sale or
other disposition of a Restricted Subsidiary or assets that restrict
distributions by that Restricted Subsidiary or distributions of those assets
pending the sale or other disposition;
(E) any encumbrance or restriction existing by reason of provisions with
respect to the disposition or distribution of assets or property in joint
venture agreements, asset sale agreements, stock sale agreements and other
similar agreements;
(F) any encumbrance or restriction existing by reason of restrictions on
cash or other deposits or net worth imposed by customers under contracts
entered into in the ordinary course of business;
(G) any encumbrance or restriction existing by reason of restrictions on the
transfer of assets that are the subject of a Capitalized Lease Obligation
permitted under "--Limitation on indebtedness";
(H) in the case of clause (3), any encumbrance or restriction
(i) that restricts in a customary manner the subletting, assignment or
transfer of any property or asset that is subject to a lease, license or
similar contract,
(ii) contained in security agreements securing Indebtedness of a
Restricted Subsidiary to the extent such encumbrance or restriction
restricts the transfer of the property subject to such security
agreements or
(iii) pursuant to Purchase Money Indebtedness for property acquired in
the ordinary course of business that imposes restrictions on that
property;
(I) encumbrances or restrictions that are or were created by virtue of any
transfer of, agreement to transfer, or option or right with respect to any
property or assets of the Company or any Restricted Subsidiary not otherwise
prohibited by the Indenture;
(J) encumbrances and restrictions contained in Indebtedness of Foreign
Subsidiaries permitted pursuant to the covenant described under
"--Limitation on indebtedness" or industrial revenue or similar bonds
Incurred by the Company or any Restricted Subsidiary and permitted pursuant
to the covenant described under "-- Limitation on indebtedness";
(K) encumbrances or restrictions contained in indentures or other debt
instruments, facilities or arrangements that are not materially more
restrictive, taken as a whole, than those contained in the Indenture
governing the Notes or the Credit Agreement on the date of the Indenture;
(L) encumbrances and restrictions on the date of the Acquisition (and not
Incurred in contemplation thereof) with respect to any assets or other
property acquired by the Company or any Restricted Subsidiary (including
pursuant to the acquisition of the Capital Stock of a Person);
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(M) customary restrictions imposed on the transfer of, or in licenses
related to, copyrighted or patented materials or other intellectual property
and customary provisions in agreements that restrict the assignment of such
agreements or any rights thereunder or the use of any such rights;
(N) customary restrictions on real property interests set forth in easements
and similar arrangements of the Company or any Restricted Subsidiary;
(O) any encumbrance or restriction existing under or by reason of a
Receivables Facility or other contractual requirements of a Receivables
Facility permitted pursuant to the covenant described under "--Limitation on
indebtedness"; provided that such restrictions apply only to such
Receivables Facility; and
(P) any encumbrance or restriction pursuant to (x) an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred to in
clauses (A) through (P) of this covenant or contained in any amendment,
modification or replacement to an agreement referred to in clauses (A)
through (P) of this covenant, in each case as applicable; provided, however,
that the encumbrances and restrictions contained in any such Refinancing
agreement or amendment, modification or replacement are no less favorable to
the Holders taken as a whole than the encumbrances and restrictions
contained in such predecessor agreements or (y) any Credit Facility which is
no less favorable to the Holders taken as a whole than the encumbrances
contained in the Credit Agreement on the date of the Indenture.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) The Company will not,
and will not permit any Restricted Subsidiary to, make any Asset Disposition
unless:
(1) the Company or such Restricted Subsidiary receives consideration
(including by way of relief from, or by any other Person assuming sole
responsibility for, any liabilities, contingent or otherwise) at the time of
such Asset Disposition at least equal to the Fair Market Value of the shares
and assets subject to such Asset Disposition,
(2) at least 75% of the consideration thereof received by the Company or
such Restricted Subsidiary is in the form of cash or Cash Equivalents, and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as the
case may be)
(A) first, to the extent the Company elects (or is required by the terms
of any Indebtedness), to prepay, repay, purchase, repurchase, redeem,
retire, defease or otherwise acquire for value (i) Senior Indebtedness of
the Company or Senior Indebtedness (other than obligations in respect of
Preferred Stock) of a Restricted Subsidiary or (ii) any Indebtedness of a
non-guarantor Restricted Subsidiary only if the assets sold were of a
non-guarantor Restricted Subsidiary (in each case other than Indebtedness
owed to the Company or an Affiliate of the Company and other than
obligations in respect of Disqualified Stock), in each case, within 365
days after the later of the date of such Asset Disposition or the receipt
of such Net Available Cash;
(B) second, to the extent of the balance of Net Available Cash after
application in accordance with clause (A), to the extent the Company or
such Restricted Subsidiary elects, to reinvest in Additional Assets
(including by means of an Investment in Additional Assets by a Restricted
Subsidiary with Net Available Cash received by the Company or another
Restricted Subsidiary) within 365 days from the later of such Asset
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Disposition or the receipt of such Net Available Cash or pursuant to
arrangements in place within the 365-day period;
(C) third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an Offer (as
defined in paragraph (b) of this covenant below) to purchase Notes
pursuant to and subject to the conditions set forth in paragraph (b) of
this covenant; provided, however, that if the Company elects (or is
required by the terms of any other Senior Subordinated Indebtedness),
such Offer may be made ratably to purchase the Notes and other Senior
Subordinated Indebtedness of the Company, and
(D) fourth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), for any general
corporate purpose not restricted by the terms of the Indenture;
provided, however that in connection with any prepayment, repayment, purchase,
repurchase, redemption, retirement, defeasance or other acquisition for value of
Indebtedness pursuant to clause (A) above, the Company or such Restricted
Subsidiary will retire such Indebtedness and will cause the related loan
commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid, purchased, repurchased, redeemed, retired,
defeased or otherwise acquired for value.
Pending the final application of the Net Available Cash, the Company and its
Restricted Subsidiaries may temporarily reduce revolving credit borrowings or
otherwise invest the Net Available Cash in any manner that is not prohibited by
the Indenture.
Notwithstanding the foregoing provisions of this covenant, the Company and the
Restricted Subsidiaries will not be required to apply any Net Available Cash in
accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions that is not applied in accordance
with this covenant exceeds $5.0 million.
For the purposes of this covenant, the following are deemed to be cash:
- the assumption of Indebtedness of the Company (other than obligations
in respect of Disqualified Stock of the Company) or any Restricted
Subsidiary (other than obligations in respect of Disqualified Stock and
Preferred Stock of a Restricted Subsidiary that is a Note Guarantor) and
the release of the Company or such Restricted Subsidiary from all
liability on such Indebtedness in connection with such Asset Disposition;
- any Designated Noncash Consideration received by the Company or any of
its Restricted Subsidiaries in the Asset Disposition; and
- securities or other obligations received by the Company or any
Restricted Subsidiary from the transferee that are (subject to ordinary
settlement periods) converted, sold or exchanged within 30 days of
receipt by the Company or such Restricted Subsidiary into cash (to the
extent of the cash received in that conversion, sale or exchange). In the
case of an Asset Swap constituting part of an Asset Disposition, the
Company or any such Restricted Subsidiary shall only be required to
receive cash in an amount equal to at least 75% of the proceeds of the
Asset Disposition which are not received in connection with the Asset
Swap.
(b) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (a)(3)(C) of this covenant, the Company will be required (i)
to purchase Notes tendered pursuant to an offer by the Company for the Notes
(the "Offer") at a purchase price of 100%
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of their principal amount plus accrued and unpaid interest thereon, if any, to
the date of purchase (subject to the right of Holders of record on the relevant
date to receive interest due on the relevant interest payment date) in
accordance with the procedures (including prorating in the event of
oversubscription) set forth in the Indenture and (ii) to purchase other Senior
Subordinated Indebtedness of the Company on the terms and to the extent
contemplated thereby (provided that in no event shall the Company offer to
purchase such other Senior Subordinated Indebtedness of the Company at a
purchase price in excess of 100% of its principal amount, plus accrued and
unpaid interest thereon). If the aggregate purchase price of Notes (and other
Senior Subordinated Indebtedness) tendered pursuant to the Offer is less than
the Net Available Cash allotted to the purchase of the Notes (and other Senior
Subordinated Indebtedness), the Company will apply the remaining Net Available
Cash in accordance with clause (a)(3)(D) of this covenant. The Company will not
be required to make an Offer for Notes (and other Senior Subordinated
Indebtedness) pursuant to this covenant if the Net Available Cash available
therefor (after application of the proceeds as provided in clauses (a)(3)(A) and
(B)) is less than $5.0 million for any particular Asset Disposition (which
lesser amount will be carried forward for purposes of determining whether an
Offer is required with respect to the Net Available Cash from any subsequent
Asset Disposition).
(c) The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of any covenant of the Indenture, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the Indenture by virtue thereof.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into or
conduct any transaction or series of related transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") unless
such transaction is on terms:
(1) that are no less favorable, taken as a whole, to the Company or such
Restricted Subsidiary, as the case may be, than those that could be obtained
at the time of such transaction in arm's-length dealings with a Person who
is not such an Affiliate,
(2) that, in the event such Affiliate Transaction involves an aggregate
amount in excess of $5.0 million,
(A) are set forth in writing, and
(B) have been approved in good faith by a majority of the members of the
Board of Directors and,
(3) that, in the event such Affiliate Transaction involves an aggregate
amount in excess of $20.0 million,
(A) are set forth in writing, and
(B) have either (x) been approved in good faith by a majority of the
members of the Board of Directors or (y) have been determined by a
recognized appraisal or investment banking firm to be fair, from a
financial standpoint, to the Company and its Restricted Subsidiaries.
83
(b) The provisions of the foregoing paragraph (a) will not prohibit or restrict:
(1) any Restricted Payment or Investment permitted to be made pursuant to
the covenant described under "--Limitation on restricted payments,"
(2) any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board
of Directors,
(3) the grant of stock options or similar rights to employees, directors and
consultants of the Company pursuant to plans approved by the Board of
Directors,
(4) loans or advances to employees in the ordinary course of business (or
guarantees in respect thereof or otherwise made on their behalf (including
payment on any such guarantees)), but in any event not to exceed $3.0
million in the aggregate outstanding at any one time, plus any amounts
loaned pursuant to clause (17) under the definition of "Permitted
Investment,"
(5) the payment of reasonable fees paid to, and indemnity provided on behalf
of, officers, directors, employees or consultants of the Company and its
Subsidiaries,
(6) any transaction between the Company and a Restricted Subsidiary or
between Restricted Subsidiaries,
(7) any transaction effected in connection with a Receivables Facility
permitted under the covenant "--Limitation on indebtedness,"
(8) any redemption of Capital Stock held by current or former employees,
directors or consultants upon death, disability or termination of employment
at a price not in excess of the Fair Market Value thereof or pursuant to the
terms of any agreement entered into in accordance with the Indenture with
such Person,
(9) sales or issuances of Capital Stock (other than Disqualified Stock) to
Affiliates of the Company,
(10) transactions involving the Company or any of its Restricted
Subsidiaries, on the one hand, and J.P. Morgan Securities Inc. or Goldman,
Sachs & Co. or any of their respective affiliates, on the other hand, in
connection with the Acquisition and transactions related thereto, Bank
Indebtedness and any amendment, modification, supplement, extension,
refinancing, replacement, work-out, restructuring and other transactions
related thereto, or any management, financial advisory, financing,
underwriting or placement services or any other investment banking, banking
or similar services, which payments are approved by a majority of the Board
of Directors in good faith,
(11) transactions pursuant to the Stockholders' Agreement as in effect on
the date of the Indenture as the same may be amended from time to time in
any manner not materially less favorable taken as a whole to the Holders of
the Notes,
(12) transactions pursuant to any agreement disclosed in the Offering
Memorandum, including any agreement entered into in connection with the
Merger, as in effect on the date of the Indenture as the same may be amended
from time to time in any manner not materially less favorable taken as a
whole to the Holders of the Notes,
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(13) any employment, compensation or indemnification agreements entered into
by the Company or any of its Restricted Subsidiaries, in the ordinary course
of business with employees, directors, or consultants, or
(14) sales of inventory or other product to any Affiliate in the ordinary
course of business.
SEC REPORTS. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the SEC (unless the SEC will not accept such a filing) and
provide the Trustee and Holders and prospective Holders (upon request) within 15
days after it files them with the SEC, copies of its annual report and the
information, documents and other reports that are specified in Sections 13 and
15(d) of the Exchange Act. The Company also will comply with the other
provisions of Section 314(a) of the TIA.
FUTURE NOTE GUARANTORS AND RELEASE OF NOTE GUARANTEES. (a) The Company will
cause (1) each Domestic Subsidiary, other than a Domestic Subsidiary the only
activity of which is to participate in a Receivables Facility, and (2) each
Foreign Subsidiary that enters into a Guarantee of any Senior Indebtedness
(other than a Foreign Subsidiary that Guarantees Senior Indebtedness Incurred by
another Foreign Subsidiary), to become a Note Guarantor, and if applicable,
execute and deliver to the Trustee a supplemental indenture in the form set
forth in the Indenture pursuant to which such Subsidiary will Guarantee payment
of the Notes; provided that this covenant shall not apply to any Subsidiary that
has been properly designated as an Unrestricted Subsidiary in accordance with
the Indenture. Each Note Guarantee will be limited to an amount not to exceed
the maximum amount that can be Guaranteed by that Note Guarantor, without
rendering the Note Guarantee, as it relates to such Note Guarantor voidable
under applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally.
(b) The Note Guarantee of a Note Guarantor will be released:
(1) in connection with any sale or other disposition of all or substantially
all of the assets of that Note Guarantor (including by way of merger or
consolidation) to a Person that is not (either before or after giving effect
to such transaction) a Subsidiary of the Company, if the sale or other
disposition complies with the "Asset Sale" provisions of the Indenture;
(2) in connection with any sale of Capital Stock of a Note Guarantor to a
Person that is not (either before or after giving effect to such
transaction) a Subsidiary of the Company, if the sale complies with the
"Asset Sale" provisions of the Indenture;
(3) if the Company designates any Restricted Subsidiary that is a Note
Guarantor as an Unrestricted Subsidiary in accordance with the applicable
provisions of the Indenture; or
(4) if the Note Guarantor participates in a Receivables Facility and such
participation is such Note Guarantor's only on-going activity.
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey, transfer
or lease all or substantially all its assets, in one or more related
transactions, to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor Company")
will be a corporation, limited liability company, trust, partnership or
similar entity organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor
Company (if not the Company) will expressly assume, by a
85
supplemental indenture, executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, all the obligations of the Company
under the Notes and the Indenture; provided that if the Successor Company is
not a corporation, the Notes will also be assumed by a corporate co-obligor;
(2) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Company or such Restricted Subsidiary at the time
of such transaction), no Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness under
paragraph (a) of the covenant described under "-- Limitation on
indebtedness"; and
(4) the Company shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture, but the predecessor
Company in the case of a lease of all or substantially all its assets will not
be released from the obligation to pay the principal of and interest on the
Notes.
In addition, the Company will not permit any Note Guarantor to consolidate with
or merge with or into, or convey, transfer or lease all or substantially all of
its assets to any Person unless:
(1) the resulting, surviving or transferee Person (the "Successor
Guarantor") will be a corporation, limited liability company, trust,
partnership or similar entity organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia, and
such Person (if not such Note Guarantor) will expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, all the obligations of such Note
Guarantor under its Note Guarantee;
(2) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Guarantor or any
Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Guarantor or such Restricted Subsidiary at the
time of such transaction), no Default shall have occurred and be continuing;
and
(3) the Company will have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the Indenture.
Notwithstanding the foregoing:
(A) any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company or any
Restricted Subsidiary and
(B) the Company may merge with an Affiliate incorporated solely for the
purpose of reincorporating the Company in another jurisdiction to realize
tax or other benefits.
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DEFAULTS
Each of the following is an Event of Default:
(1) a default in any payment of interest on any Note when due and payable
whether or not prohibited by the provisions described under "Ranking" above,
continued for 30 days,
(2) a default in the payment of principal of any Note when due and payable
at its Stated Maturity, upon required redemption or repurchase, upon
declaration or otherwise, whether or not such payment is prohibited by the
provisions described under "Ranking" above,
(3) the failure by the Company or any Note Guarantor to comply with its
obligations under the covenant described under "Merger and consolidation"
above,
(4) the failure by the Company or any Restricted Subsidiary to comply for 60
days after notice with any of its obligations under the covenants described
under "Change of control" or "Certain covenants" above (in each case, other
than a failure to purchase Notes),
(5) the failure by the Company or any Restricted Subsidiary to comply for 60
days after notice with its other agreements contained in the Notes, the
Indenture or the Note Guarantees,
(6) the failure by the Company or any Significant Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders thereof because of a
default if the total amount of such Indebtedness unpaid or accelerated
exceeds $20.0 million or its foreign currency equivalent (the "cross
acceleration provision"),
(7) certain events of bankruptcy, insolvency or reorganization of the
Company or a Significant Subsidiary (the "bankruptcy provisions"),
(8) the rendering of any judgment or decree for the payment of money in
excess of $20.0 million or its foreign currency equivalent (net of any
amounts covered by insurance) against the Company or a Significant
Subsidiary if such judgment or decree remains outstanding for a period of 60
days following such judgment and is not discharged, waived or stayed (the
"judgment default provision") or
(9) any Note Guarantee of a Significant Subsidiary ceases to be in full
force and effect (except as contemplated by the terms thereof) or any
Significant Subsidiary Note Guarantor or Person acting by or on behalf of
such Significant Subsidiary Note Guarantor denies or disaffirms such
Significant Subsidiary Note Guarantor's obligations under the Indenture or
any Significant Subsidiary Note Guarantee and such Default continues for 10
days after receipt of the notice specified in the Indenture.
The foregoing will constitute Events of Default whatever the reason for any such
Event of Default and whether it is voluntary or involuntary or is effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (4), (5) or (6) will not constitute an Event of
Default until the Trustee notifies the Company or the Holders of at least 25% in
principal amount of the outstanding Notes notify the Company and the Trustee of
the default and the Company or the Note Guarantor, as applicable, does not cure
such default within the time specified in clauses (4), (5) or (6) hereof after
receipt of such notice.
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If an Event of Default (other than an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding Notes by notice to the Company and the Trustee may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest will be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs, the principal of
and interest on all the Notes will become immediately due and payable without
any declaration or other act on the part of the Trustee or any Holders. Under
certain circumstances, the Holders of a majority in principal amount of the
outstanding Notes may rescind any such acceleration with respect to the Notes
and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless:
(1) such Holder has previously given the Trustee notice that an Event of
Default is continuing,
(2) Holders of at least 25% in principal amount of the outstanding Notes
have requested the Trustee in writing to pursue the remedy,
(3) such Holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense,
(4) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and
(5) the Holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request within
such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal amount
of the outstanding Notes will be given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
Holder or that would involve the Trustee in personal liability. Prior to taking
any action under the Indenture, the Trustee will be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
If a Default occurs and is continuing and is known to the Trustee, the Trustee
must mail to each Holder notice of the Default within the earlier of 90 days
after it occurs or 30 days after it is known to a Trust Officer or written
notice of it is received by the Trustee. Except in the case of a Default in the
payment of principal of, premium (if any) or interest on any Note (including
payments pursuant to the redemption provisions of such Note), the Trustee may
withhold notice if and so long as a committee of its Trust Officers in good
faith determines that withholding notice is in the interests of the Holders. In
addition, the Company will be required to deliver to the Trustee, within 120
days after the end of each fiscal year, a
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certificate indicating whether the signers thereof know of any Default that
occurred during the previous year. The Company will also be required to deliver
to the Trustee, within 30 days after the occurrence thereof, written notice of
any event which would constitute certain Events of Default, their status and
what action the Company is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture, the Notes or the Note Guarantees
may be amended with the written consent of the Holders of a majority in
principal amount of the Notes then outstanding and any past default or
compliance with any provisions may be waived with the consent of the Holders of
a majority in principal amount of the Notes then outstanding. However, without
the consent of each Holder of an outstanding Note affected, no amendment may,
among other things:
(1) reduce the amount of Notes whose Holders must consent to an amendment,
(2) reduce the rate of or extend the time for payment of interest, if any,
on any Note,
(3) reduce the principal of or extend the Stated Maturity of any Note,
(4) reduce the premium payable upon the redemption of any Note or change the
time at which any Note may be redeemed as described under "Optional
redemption" above,
(5) make any Note payable in money other than that stated in the Note,
(6) make any change to the subordination provisions of the Indenture that
adversely affects the rights of any Holder,
(7) impair the right of any Holder to receive payment of principal of, and
interest, if any, on, such Holder's Notes on or after the due dates
therefore or to institute suit for the enforcement of any payment on or with
respect to such Holder's Notes,
(8) make any change in the amendment provisions which require each Holder's
consent or in the waiver provisions or
(9) release the Note Guarantees, other than in accordance with the
Indenture, or modify the Note Guarantees in any manner adverse to the
Holders.
Without the consent of any Holder, the Company, the Note Guarantors and the
Trustee may amend the Indenture, the Notes or the Note Guarantees to:
- cure any ambiguity, omission, defect or inconsistency,
- provide for the assumption by a successor of the obligations of the
Company under the Indenture,
- provide for uncertificated Notes in addition to or in place of
certificated Notes (provided, however, that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or
in a manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code),
to make any change in the subordination provisions of the Indenture that would
limit or terminate the benefits available to any holder of Senior Indebtedness
of the Company or a Note Guarantor (or any Representative thereof under such
subordination provisions,
add additional Guarantees with respect to the Notes,
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- secure the Notes,
- add to the covenants of the Company or provide any additional rights or
benefits to the Holders or to surrender any right or power conferred upon
the Company,
- make any change that does not adversely affect the rights of any
Holder,
- provide for the issuance of the Exchange Notes or Additional Notes,
- comply with any requirement of the SEC in connection with the
qualification of the Indenture under the TIA or
- to evidence and provide the acceptance of the appointment of a
successor Trustee under the Indenture.
However, no amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any holder of Senior Indebtedness
of the Company or a Note Guarantor then outstanding unless the holders of such
Senior Indebtedness (or any group or Representative thereof authorized to give a
consent) consent to such change.
The consent of the Holders will not be necessary to approve the particular form
of any proposed amendment. It will be sufficient if such consent approves the
substance of the proposed amendment.
After an amendment becomes effective, the Company is required to mail to Holders
a notice briefly describing such amendment. However, the failure to give such
notice to all Holders, or any defect therein, will not impair or affect the
validity of the amendment.
TRANSFER AND EXCHANGE
A Holder will be able to transfer or exchange Notes. Upon any transfer or
exchange, the registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes required by law or permitted by
the Indenture. The Company will not be required to transfer or exchange any Note
selected for redemption or to transfer or exchange any Note for a period of 15
days prior to a selection of Notes to be redeemed. The Notes will be issued in
registered form and the Holder will be treated as the owner of such Note for all
purposes.
DEFEASANCE
The Company may at any time terminate all its obligations under the Notes and
the Indenture ("legal defeasance"), except for certain obligations, including
those respecting the defeasance trust and obligations to register the transfer
or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes
and to maintain a registrar and paying agent in respect of the Notes.
In addition, the Company may at any time terminate:
(1) its obligations under the covenants described under "Certain covenants,"
(2) the operation of the covenant default provisions, cross acceleration
provision, the bankruptcy provisions with respect to Significant
Subsidiaries and the judgment default provision described under "Defaults"
above and the limitations contained in clauses (3) and (4) under the first
paragraph of "Merger and consolidation" above ("covenant defeasance").
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In the event that the Company exercises its legal defeasance option or its
covenant defeasance option, each Note Guarantor will be released from all of its
obligations with respect to its Note Guarantee.
The Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If the Company exercises its legal
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (3), (4), (6) or (7) (with respect only to
Significant Subsidiaries), (8) or (9) under "Defaults" above or because of the
failure of the Company to comply with clause (3) or (4) under the first
paragraph of "Merger and consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money in an amount
sufficient or United States Government Obligations, the principal of and
interest on which will be sufficient, or a combination thereof sufficient, to
pay the principal of, premium, if any, and interest on, if any, in respect of
the Notes to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivery to the Trustee of an Opinion of
Counsel to the effect that Holders will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amounts and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law).
CONCERNING THE TRUSTEE
United States Bank Trust National Association is the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in accordance
with, the laws of the State of New York without giving effect to applicable
principles of conflicts of law to the extent that the application of the law of
another jurisdiction would be required thereby.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company, as
such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or the Note Guarantees or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the SEC that such a waiver is against public policy.
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SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as to
all Notes issued thereunder, when:
(1) either
(a) all Notes that have been authenticated, except lost, stolen or
destroyed Notes that have been replaced or paid, have been delivered to
the Trustee for cancellation; or
(b) all Notes that have not been delivered to the Trustee for
cancellation have become due and payable by reason of the mailing of a
notice of redemption or otherwise or will become due and payable within
one year and the Company or any Note Guarantor has irrevocably deposited
or caused to be deposited with the Trustee as trust funds in trust solely
for the benefit of the Holders, cash in United States dollars,
non-callable United States Government Obligations, or a combination of
cash in United States dollars and non-callable United States Government
Obligations, in amounts as will be sufficient without consideration of
any reinvestment of interest, to pay and discharge the entire
Indebtedness on the Notes not delivered to the Trustee for cancellation
for principal, premium, if any, and accrued and unpaid interest, if any,
to the date of maturity or redemption;
(2) no Default or Event of Default has occurred and is continuing on the
date of the deposit;
(3) the Company or any Note Guarantor has paid or caused to be paid all sums
payable by it under the Indenture; and
(4) the Company has delivered irrevocable instructions to the Trustee under
the Indenture to apply the deposited money toward the payment of the Notes
at maturity or the redemption date, as the case may be.
In addition, in the case of paragraph (b) above, (i) the Company must deliver an
Officers' Certificate and an Opinion of Counsel to the Trustee stating that all
conditions precedent to satisfaction and discharge have been satisfied and (ii)
the Company's obligations that would survive legal defeasance will remain
outstanding.
CERTAIN DEFINITIONS
"Additional Assets" means:
(1) any property or assets (other than Indebtedness and Capital Stock)
acquired or constructed to be used by the Company or a Restricted
Subsidiary;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by the Company or another
Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and
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"controlled" have meanings correlative to the foregoing. For purposes of the
provisions described under "Certain covenants--Limitation on transactions with
affiliates" and "Certain covenants--Limitation on sales of assets and subsidiary
stock" only, "Affiliate" shall also mean any beneficial owner of shares
representing 10% or more of the total voting power of the Voting Stock (on a
fully diluted basis) of Holding or the Company or of rights or warrants to
purchase such Voting Stock (whether or not currently exercisable) and any Person
who would be an Affiliate of any such beneficial owner pursuant to the first
sentence hereof.
"Asset Disposition" means any sale, lease (other than an operating lease entered
into in the ordinary course of business), transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation, or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be held
by a Person other than the Company or a Restricted Subsidiary),
(2) all or substantially all the assets of any division or line of business
of the Company or any Restricted Subsidiary or
(3) any other assets of the Company or any Restricted Subsidiary outside of
the ordinary course of business of the Company or such Restricted Subsidiary
other than, in the case of (1), (2) and (3) above,
(A) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Restricted Subsidiary,
(B) for purposes of the provisions described under "Certain
covenants--Limitation on sales of assets and subsidiary stock" only, a
disposition subject to the covenant described under "--Limitation on
restricted payments,"
(C) a disposition of assets with a Fair Market Value of less than $3.0
million,
(D) transactions permitted under "Merger and consolidation,"
(E) an issuance of Capital Stock by a Restricted Subsidiary of the
Company to the Company or to another Restricted Subsidiary,
(F) a sale of accounts receivable and related assets pursuant to a
Receivables Facility,
(G) the licensing or sublicensing of intellectual property or other
general intangibles to the extent that such license does not prohibit the
licensor from using the intellectual property and licenses, leases or
subleases of other property in the ordinary course of business, and
(H) any disposition in the ordinary course of business of obsolete,
worn-out, surplus or other property not useful in the conduct of the
business.
"Asset Swap" means the exchange by the Company or a Restricted Subsidiary of a
portion of its property, business or assets, for property, businesses, assets or
Capital Stock of a Person (or any combination thereof, as well as cash or cash
equivalents), all or substantially all of the assets of which, are of a type
used in the business of the Company or of a Restricted Subsidiary.
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"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the
time of determination, the present value (discounted at the interest rate borne
by the Notes, compounded annually) of the total obligations of the lessee for
rental payments (excluding, however, any amounts required to be paid by such
lessee, whether or not designated as rent or additional rent, on account of
maintenance and repairs, insurance, taxes, assessments, water rates or similar
charges or any amounts required to be paid by such lessee thereunder contingent
upon the amount of sales or similar contingent amounts) during the remaining
term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or scheduled redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of such payment by
(2) the sum of all such payments.
"Bank Indebtedness" means (1) any and all amounts payable under or in respect of
the Credit Agreement and any Refinancing Indebtedness with respect thereto, as
amended from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement and indemnification obligations, guarantees and all
other amounts payable thereunder or in respect thereof and (2) any Hedging
Obligations of Holding, the Company or any of its Subsidiaries in favor of any
holder of Indebtedness under the Credit Agreement or any Refinancing
Indebtedness with respect thereto. It is understood and agreed that Refinancing
Indebtedness in respect of the Credit Agreement may be Incurred from time to
time after termination of the Credit Agreement.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of the Board of Directors of
the Company.
"Business Day" means each day which is not a Legal Holiday.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities including those convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be prepaid by the lessee without payment of a
penalty.
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"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof having
maturities of not more than six months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months from the date of acquisition and
overnight bank deposits, in each case, with any lender party to the Credit
Facility or with any domestic commercial bank having capital and surplus in
excess of $500.0 million;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above; and
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Rating Services, a
division of the McGraw-Hill Companies, Inc. ("S&P"), and in each case
maturing within six months after the date of acquisition.
"Closing Date" means the date of the Indenture.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Price Protection Agreement" means any forward contract, commodity
swap, commodity option or other similar agreement or arrangement relating to, or
the value of which is dependent upon or which is designed to protect such Person
against, fluctuations in commodity prices.
"Consolidated Coverage Ratio" as of any date of determination means the ratio
of:
(1) the aggregate amount of EBITDA for the period of the most recent four
consecutive fiscal quarters ending prior to the date of such determination
for which financial statements are available to
(2) Consolidated Interest Expense for such four fiscal quarters;
provided, however, that:
(A) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding
on such date of determination or if the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day
of such period (except that in making such computation, the amount of
Indebtedness under any revolving credit facility outstanding on the date
of such calculation will be computed based on (i) the average daily
balance of such Indebtedness during such four fiscal quarters or such
shorter period for which such facility was outstanding or (ii) if such
facility was created after the end of such four fiscal quarters, the
average daily balance of such Indebtedness during the period from the
date of creation of such facility to the date of such calculation) and
the discharge of any other Indebtedness repaid, repurchased,
95
defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such
period,
(B) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning of
such period or if any Indebtedness is to be repaid, repurchased, defeased
or otherwise discharged (in each case other than Indebtedness Incurred
under any revolving credit facility unless such Indebtedness has been
permanently repaid and has not been replaced) on the date of the
transaction giving rise to the need to calculate the Consolidated
Coverage Ratio, EBITDA and Consolidated Interest Expense for such period
shall be calculated on a pro forma basis as if such discharge had
occurred on the first day of such period and as if the Company or such
Restricted Subsidiary has not earned the interest income actually earned
during such period in respect of cash or Temporary Cash Investments used
to repay, repurchase, defease or otherwise discharge such Indebtedness,
(C) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets that are the subject of such Asset
Disposition for such period or increased by an amount equal to the EBITDA
(if negative) directly attributable thereto for such period and
Consolidated Interest Expense for such period shall be reduced by an
amount equal to the Consolidated Interest Expense directly attributable
to any Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company
and its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent the Company and its continuing Restricted Subsidiaries are
no longer liable for such Indebtedness after such sale),
(D) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person that becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction causing a calculation
to be made hereunder, which constitutes all or substantially all of an
operating unit of a business (including an operating plant or other
similar facility), EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto
(including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such period, and
(E) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or
any Restricted Subsidiary since the beginning of such period) shall have
made any Asset Disposition or any Investment or acquisition of assets
that would have required an adjustment pursuant to clause (C) or (D)
above if made by the Company or a Restricted Subsidiary during such
period, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition of assets occurred on the first
day of such period.
For purposes of this definition, whenever pro forma effect is to be given to any
calculation under this definition, the pro forma calculations shall be
determined in good faith by a
96
responsible financial or accounting Officer of the Company. Any such pro forma
calculations may include operating expense reductions (net of associated
expenses) for such period resulting from the acquisition or other Investment
which is being given pro forma effect that (a) would be permitted pursuant to
Rule 11-02 of Regulation S-X under the Securities Act or (b) have been realized
or for which substantially all the steps necessary for realization have been
taken or at the time of determination are reasonably expected to be taken within
six months following any such acquisition or other Investment, including, but
not limited to, the execution, termination, renegotiation or modification of any
contracts, the termination of any personnel or the closing of any facility, or
lower material costs, as applicable, provided that, in any case, such
adjustments shall be calculated on an annualized basis and such adjustments are
set forth in an Officers' Certificate signed by the Company's chief financial
officer and another Officer which states in detail (i) the amount of such
adjustment or adjustments, (ii) that such adjustment or adjustments are based on
the reasonable good faith beliefs of the officers executing such Officers'
Certificate at the time of such execution and (iii) that such adjustment or
adjustments and the plan or plans related thereto have been reviewed and
approved by the Board of Directors. Any such Officers' Certificate will be
provided to the Trustee if the Company Incurs any Indebtedness or takes any
other action under the Indenture in reliance thereon.
If any Indebtedness, whenever Incurred, bears a floating rate of interest and is
being given pro forma effect, the interest expense on such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term as at the date of determination in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Consolidated Restricted Subsidiaries, minus any
amortization of debt issuance costs, plus, to the extent Incurred by the Company
and its Consolidated Restricted Subsidiaries in such period but not included in
such interest expense, without duplication:
(1) interest expense attributable to Capitalized Lease Obligations and the
interest expense attributable to leases constituting part of a
Sale/Leaseback Transaction;
(2) amortization of debt discount;
(3) capitalized interest;
(4) noncash interest expense;
(5) commissions, discounts and other fees and charges attributable to
letters of credit and bankers' acceptance financing;
(6) interest accruing on any Indebtedness of any other Person to the extent
such Indebtedness is Guaranteed by the Company or any Restricted Subsidiary;
(7) net costs associated with Hedging Obligations (including amortization of
fees);
(8) dividends in respect of all Disqualified Stock of the Company and all
Preferred Stock of any of the Subsidiaries of the Company, to the extent
held by Persons other than the Company or a Wholly Owned Subsidiary (except
to the extent paid in Capital Stock (other than Disqualified Stock));
(9) interest Incurred in connection with investments in discontinued
operations; and
97
(10) commissions, discounts, yield and other financing fees and financing
charges Incurred in connection with any transaction (including, without
limitation, a Receivables Facility) pursuant to which the Company or any
Restricted Subsidiary of the Company may sell, convey or otherwise transfer
or grant a security interest in any accounts receivable or related assets of
the type specified in the definition of "Receivables Facility."
For purposes of the foregoing, total interest expense will be determined after
giving effect to any net proceeds paid or received by the Company and its
Subsidiaries with respect to Interest Rate Agreements.
"Consolidated Net Income" means, for any period, the net income of the Company
and its Consolidated Subsidiaries for such period; provided, however, that there
shall not be included in such Consolidated Net Income:
(1) any net income of any Person (other than the Company) if such Person is
not a Restricted Subsidiary, except that:
(A) subject to the limitations contained in clause (4) below, the
Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Person during such period to
the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution
made to a Restricted Subsidiary, to the limitations contained in clause
(3) below) and
(B) the Company's equity in a net loss of any such Person for such period
shall be included in determining such Consolidated Net Income to the
extent such loss has been funded in such period with cash from the
Company or a Restricted Subsidiary;
(2) any net income (or loss) of any Person acquired by the Company or a
Subsidiary of the Company in a pooling of interests transaction for any
period prior to the date of such acquisition;
(3) any net income (or loss) of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that:
(A) subject to the limitations contained in clause (4) below, the
Company's equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted
Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution made to another Restricted Subsidiary, to
the limitation contained in this clause) and
(B) the Company's equity in a net loss of any such Restricted Subsidiary
for such period shall be included in determining such Consolidated Net
Income;
(4) any net gain or loss realized upon the sale or other disposition of any
asset of the Company or its Consolidated Subsidiaries (including pursuant to
any Sale/Leaseback Transaction) that is not sold or otherwise disposed of in
the ordinary course of business and any net gain or loss realized upon the
sale or other disposition of any Capital Stock of any Person;
98
(5) any net extraordinary gain or loss;
(6) the cumulative effect of a change in accounting principles;
(7) any noncash compensation charges or other noncash expenses or charges
arising from the grant of or issuance or repricing of stock, stock options
or other equity-based awards or any amendment, modification, substitution or
change of any such stock, stock options or other equity-based awards; and
(8) any non-recurring fees, charges or other expenses (including bonus and
retention payments) made or incurred in connection with the Acquisition and
the transactions contemplated thereby.
Notwithstanding the foregoing, for the purpose of the covenant described under
"--Limitation on restricted payments" only, there shall be excluded from
Consolidated Net Income any dividends, repayments of loans or advances or other
transfers of assets from Unrestricted Subsidiaries to the Company or a
Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (a)(4)(C)(iv) thereof.
"Consolidated Step-Up Depreciation and Amortization" means, with respect to any
Person for any period, the total amount of depreciation and amortization related
to the write-up of assets for such period on a consolidated basis in accordance
with GAAP to the extent (i) such depreciation and amortization results from
purchase accounting adjustments in connection with the Acquisition and (ii) such
depreciation and amortization was deducted in computing Consolidated Net Income.
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; provided, however, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary will
be accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Credit Agreement" means the credit agreement dated as of July 22, 2002, as
amended, restated, supplemented, waived, replaced (whether or not upon
termination, and whether with the original lenders or otherwise), refinanced,
restructured or otherwise modified from time to time, among the Company,
Holding, the lenders from time to time party thereto, Goldman Sachs Credit
Partners L.P., as administrative agent, JPMorgan Chase Bank, as syndication
agent, Fleet National Bank, as collateral agent, issuing bank and swing line
lender, and the Royal Bank of Scotland plc and General Electric Capital
Corporation, as co-documentation agents.
"Credit Facility" means, one or more debt facilities (including, without
limitation, the Credit Agreement), commercial paper facilities or other debt
instruments, indentures or agreements, providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables), letters of credit or other debt obligations, in each
case, as amended, restated, modified, renewed, refunded, restructured,
supplemented, replaced or refinanced in whole or in part from time to time,
including, without limitation, any amendment increasing the amount of
Indebtedness Incurred or available to be borrowed thereunder, extending the
maturity of any Indebtedness Incurred thereunder or contemplated thereby or
deleting, adding or substituting one or more parties thereto (whether or not
such added or substituted parties are banks or other institutional lenders).
99
"Currency Agreement" means with respect to any Person any foreign exchange
contract, currency swap agreements, futures contract, options contract,
synthetic cap or other similar agreement or arrangement to which such Person is
a party or of which it is a beneficiary for the purpose of hedging foreign
currency risk.
"Default" means any event which is, or after notice or passage of time or both
would be, an Event of Default.
"Designated Noncash Consideration" means the Fair Market Value of non-cash
consideration received by the Company or any of its Restricted Subsidiaries in
connection with an Asset Disposition that is designated as such pursuant to an
Officers' Certificate. The aggregate Fair Market Value of the Designated Noncash
Consideration, taken together with the Fair Market Value at the time of receipt
of all other Designated Noncash Consideration then held by the Company, may not
exceed $5.0 million at the time of the receipt of the Designated Noncash
Consideration (with the Fair Market Value being measured at the time received
and without giving effect to subsequent changes in value).
"Designated Senior Indebtedness" of the Company means
(1) the Bank Indebtedness and
(2) any other Senior Indebtedness of the Company that, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to
lend up to at least $15.0 million and is specifically designated by the
Company in the instrument evidencing or governing such Senior Indebtedness
as "Designated Senior Indebtedness" for purposes of the Indenture.
"Designated Senior Indebtedness" of a Note Guarantor has a correlative
meaning.
"Disqualified Stock" means, with respect to any Person, any Capital Stock which
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable or exercisable) or upon the happening of any event:
(1) matures or is mandatorily redeemable at the option of the holder
thereof, in whole or in part, pursuant to a sinking fund obligation or
otherwise,
(2) is convertible or exchangeable at the option of the holder thereof, in
whole or in part, for Indebtedness or Disqualified Stock (excluding Capital
Stock convertible or exchangeable solely at the option of the Company or a
Restricted Subsidiary; provided, however, that any such conversion or
exchange shall be deemed an occurrence of Indebtedness or Disqualified
Stock, as applicable) or
(3) is redeemable at the option of the holder thereof, in whole or in part,
in the case of each of clauses (1), (2) and (3), on or prior to the 91st day
after the Stated Maturity of the Notes; provided, however, that only the
portion of Capital Stock that so matures or is mandatorily redeemable, is so
convertible or exchangeable or is redeemable at the option of the holder
thereof prior to such date will be deemed Disqualified Stock and any Capital
Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset
sale" or "change of control" occurring prior to the 91st day after the
Stated Maturity of the Notes shall not constitute Disqualified Stock if the
"asset sale" or "change of control" provisions applicable to such Capital
Stock are not more favorable to the holders of such Capital Stock than the
provisions of the covenants described under "Change of control" and
"--Limitation on sale of assets and subsidiary
100
stock"; provided, further that any class of Capital Stock of such Person
that, by its terms, authorized such Person to satisfy in full its
obligations with respect to payment of dividends or upon maturity,
redemption (pursuant to a sinking fund or otherwise) or repurchase thereof
or other payment obligations or otherwise by delivery of Capital Stock that
is not Disqualified Stock, and that is not convertible, puttable or
exchangeable for Disqualified Stock or Indebtedness, shall not be deemed
Disqualified Stock so long as such Person satisfied its obligations with
respect thereto solely by the delivery of Capital Stock that is not
Disqualified Stock.
"Domestic Subsidiary" means any Restricted Subsidiary of the Company other than
a Foreign Subsidiary.
"EBITDA" for any period means the Consolidated Net Income for such period, plus,
without duplication, the following to the extent deducted in calculating such
Consolidated Net Income:
(1) income tax expense of the Company and its Consolidated Restricted
Subsidiaries;
(2) Consolidated Interest Expense;
(3) depreciation expense of the Company and its Consolidated Restricted
Subsidiaries;
(4) amortization expense of the Company and its Consolidated Restricted
Subsidiaries (excluding amortization expense attributable to a prepaid cash
item that was paid in a prior period);
(5) plant shutdown costs and acquisition integration costs; and
(6) all other noncash charges of the Company and its Consolidated Restricted
Subsidiaries (excluding any such noncash charge to the extent it represents
an accrual of or reserve for cash expenditures in any future period) less
all non-cash items of income (other than accrual of revenue in the ordinary
course of business) of the Company and its Restricted Subsidiary in each
case for such period.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and noncash charges of, a
Restricted Subsidiary of the Company shall be added to Consolidated Net Income
to compute EBITDA only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders.
"Equity Offering" means a public or private sale for cash of Capital Stock
(other than Disqualified Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair Market Value will
be determined in good faith by the Board of Directors, whose determination will
be conclusive and evidenced by a resolution of the Board of Directors; provided,
however, that for purposes of clause (a)(4)(C)(ii) of the covenant described
under "--Limitation on restricted payments," if the Fair Market Value of the
property or assets
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in question is so determined to be in excess of $20.0 million, such
determination must be confirmed by a recognized appraisal or investment banking
firm.
"Foreign Subsidiary" means any Restricted Subsidiary of the Company (x) that is
not organized under the laws of the United States of America or any State
thereof or the District of Columbia or (y) was organized under the laws of the
United States of America or any state thereof or the District of Columbia that
has no material assets other than Capital Stock of one or more foreign entities
of the type described in clause (x) above and is not a guarantor of Indebtedness
under the Credit Agreement.
"GAAP" means generally accepted accounting principles in the United States of
America as in effect (i) with respect to periodic reporting requirements, from
time to time, and (ii) otherwise on the Closing Date, including those set forth
in:
(1) the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants,
(2) statements and pronouncements of the Financial Accounting Standards
Board,
(3) such other statements by such other entities as approved by a
significant segment of the accounting profession, and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
All ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or
(2) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness or other obligation of the payment thereof or to protect
such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement, Currency Agreement or Commodity Price
Protection Agreement.
"Holder" means the Person in whose name a Note is registered on the Registrar's
books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable for;
provided, however, that any Indebtedness or Capital Stock of a Person existing
at the time such Person
102
becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition
or otherwise) shall be deemed to be Incurred by such Person at the time it
becomes a Restricted Subsidiary. The term "Incurrence" when used as a noun shall
have a correlative meaning. The accretion of principal of a non-interest bearing
or other discount security and payment of interest on any Indebtedness in the
form of additional Indebtedness or the payment on Disqualified Capital Stock in
the form of additional shares of Capital Stock, shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of determination,
without duplication:
(1) the principal of and premium (if any) in respect of indebtedness of such
Person for borrowed money;
(2) the principal of and premium (if any) in respect of obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments;
(3) the principal component of all obligations of such Person in respect of
letters of credit or other similar instruments (including reimbursement
obligations with respect thereto except to the extent such reimbursement
obligation arises in the ordinary course of business and relates to a Trade
Payable);
(4) the principal component of all obligations of such Person to pay the
deferred and unpaid purchase price of property or services, which purchase
price is due more than one year after the date of placing such property in
service or taking delivery and title thereto or the completion of such
services other than earn-outs, indemnities and similar provisions;
(5) all Capitalized Lease Obligations and all Attributable Debt of such
Person;
(6) the principal component or liquidation preference of all obligations of
such Person with respect to the redemption, repayment or other repurchase of
any Disqualified Stock or, with respect to any Subsidiary of such Person,
any Preferred Stock (but excluding, in each case, any accrued dividends);
(7) the principal component of all Indebtedness of other Persons secured by
a Lien on any asset of the Person the Indebtedness of which is being
determined, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of Indebtedness of such Person shall be
the lesser of:
(A) the Fair Market Value of such asset at such date of determination and
(B) the amount of such Indebtedness of such other Persons;
(8) to the extent not otherwise included in this definition, net obligations
of such Person under Hedging Obligations of such Person (the amount of any
such obligations to be equal at any time to the termination value of such
agreement or arrangement giving rise to such obligations that would be
payable by such Person at such time);
(9) all amounts outstanding and other obligations of such Person in respect
of a Receivables Facility; and
(10) all obligations of the type referred to in clauses (1) through (9) of
other Persons and all dividends of other Persons for the payment of which,
in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee.
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The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
Notwithstanding anything in this definition to the contrary, characterization of
any Receivables Facility as Indebtedness is for purposes of the Indenture
covenants only, and such characterization shall not preclude the Company or any
Restricted Subsidiary from characterizing any Receivables Facility as a sale for
GAAP or any other purpose.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement to which such Person is party or of which it is a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances and extensions of credit to customers in the ordinary course of
business that are recorded as accounts receivable on the balance sheet of the
lender) or other extension of credit (including by way of Guarantee or similar
arrangement) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the account
or use of others), or any purchase or acquisition of Capital Stock, Indebtedness
or other similar instruments issued by such Person; provided that none of the
following will be deemed to be an Investment:
(1) Hedging Obligations entered into in compliance with clause (b)(4) of
"Certain covenants--Limitation on indebtedness"; and
(2) endorsements of negotiable instruments and documents in the ordinary
course of business.
For purposes of the definition of "Unrestricted Subsidiary" and the covenant
described under "--Limitation on restricted payments":
(1) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Restricted Subsidiary) of the Fair Market Value of
the net assets of any Restricted Subsidiary of the Company at the time that
such Subsidiary is designated an Unrestricted Subsidiary; provided,
however,that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal
to:
(A) the Company's "Investment" in such Subsidiary at the time of such
redesignation less
(B) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the Fair Market Value of the net assets of such Subsidiary
at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its Fair Market Value at the time of such transfer.
"Landis Acquisition" means that transaction defined in the "Landis Acquisition"
section of the Prospectus.
104
"Legal Holiday" means a Saturday, Sunday or other day on which banking
institutions are not required by law or regulation to be open in the State of
New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
(statutory or otherwise) or charge of any kind (including any conditional sale
or other title retention agreement or lease in the nature thereof and any
agreement to give any security interest) upon or with respect to any property of
any kind, real or personal, movable or immovable.
"Net Available Cash" from an Asset Disposition means payments of cash or Cash
Equivalents received (including any payments of cash or Cash Equivalents
received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise and proceeds from the sale or other
disposition of any securities received as consideration, but in each case only
as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other noncash form) therefrom, in each case net
of:
(1) all legal, accounting, investment banking, title and recording tax
expenses, commissions and other fees and expenses incurred, and all federal,
state, provincial, foreign and local taxes required to be paid or accrued as
a liability under GAAP, as a consequence of such Asset Disposition,
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon or other security agreement of any kind with respect to such assets, or
which must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law be repaid out of the proceeds from
such Asset Disposition,
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition and
(4) appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the property
or other assets disposed of in such Asset Disposition and retained by the
Company or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, listing fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Note Guarantee" means each Guarantee of the obligations with respect to the
Notes issued by a Person pursuant to the terms of the Indenture.
"Note Guarantor" means any Person that has issued a Note Guarantee.
"Offering Memorandum" means the offering memorandum relating to the issuance of
the Notes dated July 17, 2002.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company. "Officer" of a Note Guarantor has a correlative
meaning.
"Officers' Certificate" means a certificate signed by two Officers.
105
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company, a Note Guarantor or the Trustee.
"Permitted Holders" means Principals and Related Parties and any Person acting
in the capacity of an underwriter in connection with a public or private
offering of the Company's or Holding's Capital Stock.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person that will, upon the
making of such Investment, become a Restricted Subsidiary;
(2) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
(3) Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if created
or acquired in the ordinary course of business;
(5) payroll, travel, commission and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course of
business;
(6) loans or advances to employees, directors and consultants not exceeding
$2.0 million in the aggregate outstanding at any one time;
(7) loans, deposits, prepayments and other credits or advances to customers
or suppliers in the ordinary course of business;
(8) stock, obligations or securities received in settlement or good faith
compromise of debts created in the ordinary course of business and owing to
the Company or any Restricted Subsidiary or in satisfaction of judgments
including pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of a debtor;
(9) any Person to the extent such Investment represents the noncash portion
of the consideration received for an Asset Disposition that was made
pursuant to and in compliance with the covenant described under
"--Limitation on sales of assets and subsidiary stock";
(10) Investments in prepaid expenses, negotiable instruments held for
collection and lease utility and worker's compensation, performance and
other similar deposits provided to third parties in the ordinary course of
business;
(11) Currency Agreements, Interest Rate Agreements and Commodity Price
Protection Agreements and other Hedging Obligations permitted by the
Indenture that are entered into in the ordinary course of business and not
for speculative purposes;
(12) Investments acquired in exchange for the issuance of Capital Stock
(other than Disqualified Stock) of the Company or acquired with the Net Cash
Proceeds received by the Company after the date of the Indenture from the
issuance and sale of Capital Stock (other than Disqualified Stock); provided
that such Net Cash Proceeds are used to make such Investment within 90 days
of the receipt thereof and the amount of all such Net Cash
106
Proceeds will be excluded from clause (4)(C)(ii) of paragraph (a) of the
covenant described under the caption "--Limitation on restricted payments";
(13) Investments in existence on the date of the Indenture or made pursuant
to a legally binding written commitment in existence on the date of the
Indenture;
(14) Guarantees issued in accordance with "Certain covenants--Limitation on
indebtedness";
(15) Investments in a trust, limited liability company, special purpose
entity or other similar entity in connection with a Receivables Facility
permitted under the covenant "--Limitation on indebtedness"; provided that
such Investment is necessary or advisable to effect such Receivables
Facility;
(16) Investments in joint ventures or similar projects by the Company and
its Restricted Subsidiaries on the date of the investment in an aggregate
amount not to exceed $20.0 million;
(17) loans or advances to employees, directors or consultants the proceeds
of which are used to purchase Capital Stock (other than Disqualified Stock)
of the Company or Holding (and, with respect to purchases of the Capital
Stock of Holding, the proceeds of which are paid or contributed to the
Company); and
(18) Indebtedness of the Company or a Restricted Subsidiary under clause
(b)(2) of the covenant "--Limitation on indebtedness."
For purposes of this definition, the value of any Investment will be the Fair
Market Value on the date made without any subsequent changes for any increases
or decreases in the Fair Market Value of such Investment.
"Permitted Junior Securities" means:
(1) Equity Interests in the Company or any Guarantor; or
(2) debt securities that are subordinated to all Senior Indebtedness and any
debt securities issued in exchange for Senior Indebtedness to substantially
the same extent as, or to a greater extent than, the Notes and the Note
Guarantees are subordinated to Senior Indebtedness under the terms of the
Indenture.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock," as applied to the Capital Stock of any Person, means Capital
Stock of any class or classes (however designated) that is preferred as to the
payment of dividends, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such Person, over shares of Capital
Stock of any other class of such Person.
"principal" of a Note means the principal of the Note plus the premium, if any,
payable on the Note which is due or overdue or is to become due at the relevant
time.
"Principals" means each of GS Capital Partners 2000, L.P., GS Capital Partners
2000 Offshore, L.P., GS Capital Partners 2000 GmbH & Co. Beteiligungs KG, Bridge
Street Special Opportunities Fund 2000, L.P., GS Capital Partners 2000 Employee
Fund, L.P., Stone Street Fund 2000 L.P., J.P. Morgan Partners Global Investors,
L.P., J.P. Morgan Partners Global Investors (Cayman), L.P.,
107
J.P. Morgan Partners Global Investors A, L.P., J.P. Morgan Partners Global
Investors (Cayman) II, L.P. and J.P. Morgan Partners (BHCA), L.P.
"Purchase Money Indebtedness" means Indebtedness:
(1) consisting of the deferred purchase price of an asset (or Capital Stock
of a corporation substantially all the assets of which consist of such
asset), conditional sale obligations, obligations under any title retention
agreement and other purchase money obligations (including obligations to a
third party to finance the amount being paid to the seller), in each case
where the maturity of such Indebtedness does not exceed the anticipated
useful life of the asset being financed, and
(2) Incurred to finance the acquisition by the Company or a Restricted
Subsidiary of such asset (or such Capital Stock), including additions and
improvements;
provided, however, that such Indebtedness is Incurred within 180 days after the
acquisition by the Company or such Restricted Subsidiary of such asset (or such
Capital Stock).
"Receivables Facility" means one or more receivables financing facilities, as
amended from time to time, pursuant to which the Company and/or any of its
Restricted Subsidiaries, directly or indirectly through another Subsidiary,
sells or otherwise transfers rights in its accounts receivable pursuant to
arrangements customary in the industry.
"Refinance" means, in respect of any Indebtedness, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness
in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means
Indebtedness that is Incurred to refund, refinance, replace, renew, repay or
extend (including pursuant to any defeasance or discharge mechanism) (or the net
proceeds of which are used to do any of the foregoing) any Indebtedness of the
Company or any Restricted Subsidiary existing on the Closing Date or Incurred in
compliance with the Indenture (including Indebtedness of the Company that
Refinances Indebtedness of any Restricted Subsidiary and Indebtedness of any
Restricted Subsidiary that Refinances Indebtedness of another Restricted
Subsidiary, including Indebtedness that Refinances Refinancing Indebtedness);
provided, however, that:
(1) the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being Refinanced,
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced,
(3) such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or if issued with original issue discount, an aggregate issue price)
that is equal to or less than the aggregate principal amount (or if issued
with original issue discount, the aggregate accreted value) then outstanding
of the Indebtedness being Refinanced (plus all accrued interest on the
Indebtedness and the amount of all expenses and premiums Incurred in
connection therewith) and
(4) if the Indebtedness being Refinanced is subordinated in right of payment
to the Notes, such Refinancing Indebtedness is subordinated in right of
payment to the Notes at least to the same extent as the Indebtedness being
Refinanced;
108
provided further, however, that Refinancing Indebtedness shall not include:
(A) Indebtedness of a Restricted Subsidiary that is not a Note Guarantor
that Refinances Indebtedness of the Company or
(B) Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Related Party" means,
(1) any controlling stockholder or 80% (or more) owned Subsidiary of any
Principal; or
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or
more controlling interest of which consist of any one or more Principals
and/or such other Persons referred to in the immediately preceding clause
(1).
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now owned
or hereafter acquired by the Company or a Restricted Subsidiary whereby the
Company or a Restricted Subsidiary transfers such property to a Person and the
Company or such Restricted Subsidiary leases it from such Person, other than
leases between the Company and a Wholly Owned Subsidiary or between Wholly Owned
Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Secured Indebtedness" means any Indebtedness of the Company or any Subsidiary
secured by a Lien. "Secured Indebtedness" of a Note Guarantor has a correlative
meaning.
"Senior Subordinated Indebtedness" of the Company means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank equally with the Notes in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of the
Company which is not Senior Indebtedness. "Senior Subordinated Indebtedness" of
a Note Guarantor has a correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC in effect on the date of the Indenture.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Stockholders' Agreement" means the stockholders' agreement entered into in
connection with the Acquisition.
109
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Closing Date or thereafter Incurred) that is subordinate or
junior in right of payment to the Notes pursuant to a written agreement.
"Subordinated Obligation" of a Note Guarantor has a correlative meaning.
"Subsidiary" of any Person means any corporation, association, partnership or
other business entity of which more than 50% of the total voting power of shares
of Capital Stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by:
(1) such Person,
(2) such Person and one or more Subsidiaries of such Person or
(3) one or more Subsidiaries of such Person.
"Tax Sharing Agreement" means the Amended and Restated Tax Sharing Agreement,
made as of March 15, 2001, by and among Holding and its Subsidiaries.
"Temporary Cash Investments" means any of the following:
(1) United States dollars or eurodollars or any investment in direct
obligations of the United States of America or any agency thereof or
obligations Guaranteed or insured by the United States of America or any
agency or instrumentality thereof,
(2) investments in time deposit accounts, certificates of deposit and
eurodollar time deposits, banker acceptances and money market deposits (or
in the case of Foreign Subsidiaries, the foreign equivalent) maturing within
270 days of the date of acquisition thereof issued by a bank or trust
company that is organized under the laws of the United States of America,
any state thereof or any foreign country recognized by the United States of
America having capital, surplus and undivided profits aggregating in excess
of $250,000,000 (or the foreign currency equivalent thereof) and whose
long-term debt is rated "A" (or such similar equivalent rating) or higher by
at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act),
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) or (2) above
entered into with a bank meeting the qualifications described in clause (2)
above,
(4) investments in commercial paper, maturing not more than 270 days after
the date of acquisition, issued by a corporation (other than an Affiliate of
the Company) organized and in existence under the laws of the United States
of America or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of
"P-1" (or higher) according to Moody's or "A-1" (or higher) according to
S&P,
(5) investments in securities with maturities of 270 days or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision
or taxing authority thereof, and rated at least "A" by S&P or "A" by
Moody's,
(6) money market funds at least 95% of the assets of which constitute
Temporary Cash Investments of the kinds described in clauses (1) through (5)
of this definition and
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(7) solely in respect of the ordinary course cash management activities of
the Foreign Subsidiaries, equivalents of the investments described in clause
(1) above to the extent guaranteed by the United Kingdom, the European Union
or the country in which the Foreign Subsidiary operates and equivalents of
the investments described in clause (2) above issued, accepted or offered by
(a) the local office of any commercial bank meeting the requirements of
clause (4) above in the jurisdiction of organization of the applicable
Foreign Subsidiary or (b) the local office of any commercial bank organized
under the laws of the jurisdiction of organization of the applicable Foreign
Subsidiary which commercial bank (1) has combined capital and surplus and
undivided profits of not less than $250.0 million, (2) a long-term rating
for Dollar-denominated obligations of at least "A-1" from S&P or the
equivalent rating from Moody's or (3) is organized in the country in which
the Foreign Subsidiary operates.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. sec.sec. 77aaa-77bbbb) as
in effect on the Closing Date.
"Trade Payables" means, with respect to any Person, any accounts payable or any
indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Transactions" has the meaning set forth in the "Summary" section of the
Prospectus.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of the Company that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the
manner provided below and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Company (including
any newly acquired or newly formed Subsidiary of the Company or Person becoming
a Subsidiary through merger or consolidation or Investment therein) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or owns or holds any Lien on any property
of, the Company or any other Subsidiary of the Company that is not a Subsidiary
of the Subsidiary to be so designated; provided, however, that either:
(A) the Subsidiary to be so designated has total Consolidated assets of
$1,000 or less or
(B) if such Subsidiary has Consolidated assets greater than $1,000, then
such designation would be permitted under the covenant entitled
"--Limitation on restricted payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation:
(x) the Company could Incur $1.00 of additional Indebtedness under paragraph
(a) of the covenant described under "--Limitation on indebtedness" and
(y) no Default shall have occurred and be continuing.
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Any such designation of a Subsidiary as a Restricted Subsidiary or Unrestricted
Subsidiary by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"United States Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other interests
(including partnership interests) of such Person then outstanding and normally
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all the
Capital Stock of which (other than directors' qualifying shares) is owned by the
Company or another Wholly Owned Subsidiary.
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CERTAIN MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS
The following summary describes certain material United States federal income
tax consequences and, in the case of a non-United States holder (as defined
below), certain material United States federal estate tax consequences, of
purchasing, owning and disposing of the notes.
This summary deals only with notes held as capital assets (generally, investment
property) and does not deal with special tax situations such as:
- dealers in securities or currencies;
- traders in securities;
- United States holders (as defined below) whose functional currency is
not the United States dollar;
- persons holding notes as part of a conversion, constructive sale, wash
sale or other integrated transaction or a hedge, straddle or synthetic
security;
- persons subject to the alternative minimum tax;
- certain United States expatriates;
- financial institutions;
- insurance companies;
- controlled foreign corporations, foreign personal holding companies,
passive foreign investment companies and regulated investment companies
and shareholders of such corporations;
- entities that are tax-exempt for United States federal income tax
purposes and retirement plans, individual retirement accounts and
tax-deferred accounts; and
- pass-through entities, including partnerships and entities and
arrangements classified as partnerships for United States federal tax
purposes, and beneficial owners of pass-through entities.
If you are a partnership (or an entity or arrangement classified as a
partnership for United States federal tax purposes) holding notes or a partner
in such a partnership, the United States federal income tax treatment of a
partner in the partnership generally will depend on the status of the partner
and the activities of the partnership, and you should consult your own tax
advisor regarding the United States federal income and estate tax consequences
of purchasing, owning and disposing of the notes.
This summary does not discuss all of the aspects of United States federal income
and estate taxation that may be relevant to you in light of your particular
investment or other circumstances. In addition, this summary does not discuss
any United States state, local or foreign income tax consequences or any
non-income tax consequences. This summary is based on United States federal
income tax law, including the provisions of the Internal Revenue Code of 1986,
as amended (the "Internal Revenue Code"), Treasury regulations, administrative
rulings and judicial authority, all as in effect or in existence as of the date
of this prospectus. Subsequent developments in United States federal income or
estate tax law, including changes in law or differing interpretations, which may
be applied retroactively, could have a material effect on the United States
federal or estate tax consequences of purchasing, owning and
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disposing of notes as set forth in this summary. YOU SHOULD CONSULT YOUR OWN TAX
ADVISOR REGARDING THE PARTICULAR UNITED STATES FEDERAL, STATE AND LOCAL AND
FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF ACQUIRING, OWNING AND DISPOSING OF
NOTES THAT MAY BE APPLICABLE TO YOU.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR UNITED STATES HOLDERS
The following summary applies to you only if you are a United States holder (as
defined below).
DEFINITION OF A UNITED STATES HOLDER
A "United States holder" is a beneficial owner of a note or notes who or which
is for United States federal income tax purposes:
- an individual citizen or resident of the United States;
- a corporation (or other entity classified as a corporation for these
purposes) created or organized in or under the laws of the United States
or of any political subdivision of the United States, including any
State;
- an estate, the income of which is subject to United States federal
income taxation regardless of the source of that income; or
- a trust if (1) a United States court is able to exercise primary
supervision over the trust's administration and one or more "United
States persons" (within the meaning of the Internal Revenue Code) have
the authority to control all of the trust's substantial decisions or (2)
the trust has a valid election in effect under applicable Treasury
regulations to be treated as a "United States person."
PAYMENTS OF STATED INTEREST
Payments of stated interest on your notes will be taxed as ordinary interest
income. In addition:
- if you use the cash method of accounting for United States federal
income tax purposes, you will have to include the stated interest on your
notes in your gross income at the time you receive the interest; and
- if you use the accrual method of accounting for United States federal
income tax purposes, you will have to include the stated interest on your
notes in your gross income at the time the interest accrues.
MARKET DISCOUNT AND BOND PREMIUM
If you purchase a note at a price that is less than its principal amount, the
excess of the principal amount over your purchase price will be treated as
"market discount." However, the market discount will be considered to be zero if
it is less than 1/4 of 1% of the principal amount multiplied by the number of
complete years to maturity from the date you purchased the note.
Under the market discount rules of the Internal Revenue Code, you generally will
be required to treat any principal payment on, or any gain realized on the sale,
exchange, retirement or other disposition of, a note as ordinary income
(generally treated as interest income) to the extent of the market discount
which accrued but was not previously included in income. In addition, you may be
required to defer, until the maturity of the note or its earlier disposition
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in a taxable transaction, the deduction of all or a portion of your interest
expense on any indebtedness incurred or continued to purchase or carry the note.
In general, market discount will be considered to accrue ratably during the
period from the date of the purchase of the note to the maturity date of the
note, unless you make an irrevocable election (on an instrument-by-instrument
basis) to accrue market discount under a constant yield method. You may elect to
include market discount in income currently as it accrues (under either a
ratable or constant yield method), in which case the rules described above
regarding the treatment as ordinary income of gain upon the disposition of the
note and upon the receipt of certain payments and the deferral of interest
deductions will not apply. The election to include market discount in income
currently, once made, applies to all market discount obligations acquired on or
after the first day of the first taxable year to which the election applies, and
may not be revoked without the consent of the Internal Revenue Service.
If you purchase a note for an amount in excess of the amount payable at maturity
of the note, you will be considered to have purchased the note with "bond
premium" equal to the excess of your purchase price over the amount payable at
maturity (or on an earlier call date if it results in a smaller amortizable bond
premium). You may elect to amortize the premium using a constant yield method
over the remaining term of the note (or until an earlier call date, as
applicable). The amortized amount of the premium for a taxable year generally
will be treated first as a reduction of interest on the note included in such
taxable year to the extent thereof, then as a deduction allowed in that taxable
year to the extent of your prior interest inclusions on the note, and finally as
a carryforward allowable against your future interest inclusions on the note.
The election, once made, is irrevocable without the consent of the Internal
Revenue Service and applies to all taxable bonds held during the taxable year
for which the election is made or subsequently acquired.
CONSTANT YIELD ELECTION
As an alternative to the above-described rules for including interest payments
and market discount in income and amortizing bond premium, you may elect to
include in gross income all interest that accrues on a note, including stated
interest, market discount (including de minimis market discount) and adjustments
for bond premium, on the constant yield method. If such an election were made,
you would be deemed to have made an election to amortize bond premium, which as
discussed above applies to all debt instruments held or subsequently acquired by
you. Particularly for United States holders who are on the cash method of
accounting, a constant yield election may have the effect of causing you to
include interest in income earlier than would be the case if no such election
were made, and the election may not be revoked without the consent of the
Internal Revenue Service. You should consult your own tax advisor before making
this election.
SALE OR OTHER DISPOSITION OF THE NOTES
Upon the sale, exchange, retirement, redemption or other taxable disposition of
a note, you generally will recognize taxable gain or loss in an amount equal to
the difference, if any, between the amount realized on the disposition (less any
amount attributable to accrued interest, which will be taxable in the manner
described above under "--United States federal income tax considerations for
United States holders--Payments of stated interest") and your adjusted tax basis
in the note. Your adjusted tax basis in a note will generally equal the cost of
the note, increased by the amount of any market discount previously included in
your gross
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income, and reduced by the amount of any amortizable bond premium applied to
reduce, or allowed as a deduction against, interest with respect to your note.
Your gain or loss generally will be capital gain or loss (except with respect to
accrued market discount that has not previously been included in income, as
discussed above under "--United States federal income tax considerations for
United States holders--Market discount and bond premium"). Such capital gain
generally or loss will be long-term capital gain or loss if the note has been
held for more than one year at the time of the disposition.
Subject to limited exceptions, your capital losses cannot be used to offset your
ordinary income. If you are a non-corporate United States holder, your long-term
capital gain generally will be subject to a maximum tax rate of 15%, scheduled
to increase to 20% for dispositions occurring in taxable years that begin on or
after January 1, 2009.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, backup withholding currently at a rate of 28%, scheduled to increase
to 31% for taxable years beginning on or after January 1, 2011, may apply:
- to any payments made to you of principal of and interest on your note,
and
- to payment of the proceeds of a sale or other disposition of your note,
if you are a non-corporate United States holder and fail to provide a correct
taxpayer identification number or otherwise comply with applicable requirements
of the backup withholding rules. Information reporting may also apply to
payments made with respect to your note.
Backup withholding is not an additional tax and may be credited against your
United States federal income tax liability, provided that correct information is
provided to the Internal Revenue Service.
UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-UNITED STATES
HOLDERS
The following summary applies to you if you are a beneficial owner of a note who
or which is not a resident alien or a partnership (or an entity or arrangement
classified as a partnership for United States federal tax purposes) and is not
otherwise a United States holder (a "non-United States holder"). Resident aliens
are subject to United States federal income tax as if they were United States
citizens. An individual may, subject to exceptions, be deemed to be a resident
alien, as opposed to a non-resident alien, by among other ways being present in
the United States:
- for at least 31 days in the calendar year, and
- for an aggregate of at least 183 days during a three-year period ending
in the current calendar year, counting for such purposes all of the days
present in the current year, one-third of the days present in the
immediately preceding year, and one-sixth of the days present in the
second preceding year.
UNITED STATES FEDERAL WITHHOLDING TAX
If you are a non-United States holder, under current United States federal
income tax laws, and subject to the discussion below, United States federal
withholding tax will not apply to
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payments by us or our paying agent (in its capacity as such) of principal of
your notes, and will not apply to payments of interest on your notes, under the
"portfolio interest" exception of the Internal Revenue Code, provided that you
comply with the following requirements:
- you do not, directly or indirectly, actually or constructively, own 10%
or more of the total combined voting power of all classes of our stock
entitled to vote within the meaning of section 871(h)(3) of the Internal
Revenue Code and the Treasury regulations thereunder;
- you are not a controlled foreign corporation for United States federal
income tax purposes that is related, directly or indirectly, to us
through sufficient stock ownership (as provided in the Internal Revenue
Code);
- you are not a bank receiving interest described in section 881(c)(3)(A)
of the Internal Revenue Code;
- such interest is not effectively connected with your conduct of a
United States trade or business; and
- you provide a properly completed Internal Revenue Service Form W-8BEN,
signed under penalties of perjury, which can reliably be related to you,
certifying that you are not a United States person within the meaning of
the Internal Revenue Code and providing your name and address to:
(A) us or our paying agent; or
(B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of
its trade or business and holds your notes on your behalf and that
certifies to us or our paying agent under penalties of perjury that
it, or the bank or financial institution between it and you, has
received from you your Form W-8BEN and provides us or our paying agent
with a copy of this statement.
The applicable Treasury regulations provide alternative methods for satisfying
the certification requirement described in this section. In addition, under
these Treasury regulations, special rules apply to foreign trusts and foreign
partnerships and this certification requirement may also apply to beneficial
owners of foreign trusts and foreign partnerships. If you are a foreign
partnership or a foreign trust, you should consult your own tax advisor
regarding your status under these Treasury regulations and the certification
requirements applicable to you.
If you do not satisfy the requirements described above, payments of interest
made to you will be subject to the 30% United States federal withholding tax,
unless you provide us or our paying agent with a properly executed (1) Internal
Revenue Service Form W-8BEN (or other applicable form) claiming an exemption
from or reduction in this withholding tax under an applicable income tax treaty
or (2) Internal Revenue Service Form W-8ECI (or other applicable form) stating
that the interest paid on a note is not subject to withholding tax because it is
effectively connected with your conduct of a trade or business in the United
States.
UNITED STATES FEDERAL INCOME TAX
Except for the possible application of United States withholding tax (see
"--United States federal withholding tax" above) and backup withholding tax (see
"--Backup withholding and information reporting" below), you generally will not
have to pay United States federal income tax on payments of principal of and
interest on your notes, or on any gain or accrued interest
117
realized from the sale, redemption, retirement at maturity or other disposition
of your notes unless:
- in the case of interest payments or disposition proceeds representing
accrued interest, you cannot satisfy the requirements of the "portfolio
interest" exception described above or claim an exemption under an
applicable income tax treaty;
- in the case of gain, you are an individual who is present in the United
States for 183 days or more during the taxable year of the sale or other
disposition of your notes, and specific other conditions are met (in
which case, except as otherwise provided by an applicable income tax
treaty, the gain, which may be offset by United States source capital
losses, generally will be subject to a flat 30% United States federal
income tax, even though you are not considered a resident alien under the
Internal Revenue Code); or
- the interest or gain is effectively connected with your conduct of a
United States trade or business, and if required by an applicable income
tax treaty, is generally attributable to a United States "permanent
establishment" maintained by you.
If you are engaged in a trade or business in the United States and interest or
gain in respect of your notes is effectively connected with the conduct of your
trade or business (and, if required by an applicable income tax treaty, is
generally attributable to a United States "permanent establishment" maintained
by you), you generally will be subject to United States income tax on a net
basis on the interest or gain in the same manner as if you were a United States
holder (although interest is exempt from the withholding tax discussed in the
preceding paragraphs provided that you provide a properly executed applicable
Internal Revenue Service Form W-8ECI on or before any payment date to claim the
exemption).
In addition, if you are a foreign corporation, you may be subject to a branch
profits tax equal to 30% of your effectively connected earnings and profits for
the taxable year, as adjusted for certain items, unless a lower rate applies to
you under a United States income tax treaty with your country of residence. For
this purpose, you must include interest or gain on your notes in the earnings
and profits subject to the branch profits tax if these amounts are effectively
connected with the conduct of your United States trade or business.
UNITED STATES FEDERAL ESTATE TAX
If you are an individual and are not a United States citizen or a resident of
the United States (as specially defined for United States federal estate tax
purposes) at the time of your death, your notes will generally not be subject to
the United States federal estate tax, unless, at the time of your death:
- you directly or indirectly, actually or constructively, own 10% or more
of the total combined voting power of all classes of our stock entitled
to vote within the meaning of section 871(h)(3) of the Internal Revenue
Code and the Treasury regulations thereunder; or
- your interest on the notes is effectively connected with your conduct
of a United States trade or business.
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BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current Treasury regulations, backup withholding and information reporting
will not apply to payments made by us or our paying agent (in its capacity as
such) to you if you have provided the required certification that you are a
non-United States holder as described in "--United States federal withholding
tax" above, and provided that neither we nor our paying agent has actual
knowledge that you are a United States holder (as described in "--Definition of
a United States holder" above). However, we or our paying agent may be required
to report to the Internal Revenue Service and your payments of interest on the
notes and the amount of tax, if any, withheld with respect to those payments.
Copies of the information returns reporting such interest payments and any
withholding may also be made available to the tax authorities in the country in
which you reside under the provisions of a treaty or agreement.
The gross proceeds from the disposition of your notes may be subject to
information reporting and backup withholding tax at a rate that is currently
28%, scheduled to increase to 31% for taxable years beginning on or after
January 1, 2011. If you sell your notes outside the United States through a
non-United States office of a broker and the sales proceeds are paid to you
outside the United States, then the United States backup withholding and
information reporting requirements generally (except as provided in the
following sentence) will not apply to that payment. However, United States
information reporting, but not backup withholding, will apply to a payment of
sales proceeds, even if that payment is made outside the United States, if you
sell your notes through a non-United States office of a broker that:
- is a United States person (as defined in the Internal Revenue Code);
- derives 50% or more of its gross income in specific periods from the
conduct of a trade or business in the United States;
- is a "controlled foreign corporation" for United States federal income
tax purposes; or
- is a foreign partnership, if at any time during its tax year:
- one or more of its partners are United States persons who in the
aggregate hold more than 50% of the income or capital interests in the
partnership; or
- the foreign partnership is engaged in a United States trade or
business,
unless the broker has documentary evidence in its files that you are a
non-United States person and certain other conditions are met or you otherwise
establish an exemption. If you receive payments of the proceeds of a sale of
your notes to or through a United States office of a broker, the payments are
subject to both United States backup withholding and information reporting
unless you provide a Form W-8BEN certifying that you are a non-United States
person or you otherwise establish an exemption.
You should consult your own tax advisor regarding application of backup
withholding in your particular circumstances and the availability of and
procedure for obtaining an exemption from backup withholding under current
Treasury regulations. Any amounts withheld under the backup withholding rules
from a payment to you will be allowed as a refund or credit against your United
States federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.
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ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with the
purchase or holding of the notes, by employee benefit plans that are subject to
Title I of the U.S. Employee Retirement Income Security Act of 1974, as amended
("ERISA"), individual retirement accounts and other arrangements that are
subject to Section 4975 of the Internal Revenue Code or provisions under any
federal, state, local, non-U.S. or other laws or regulations that are similar to
such provisions of the Internal Revenue Code or ERISA, and entities whose
underlying assets are considered to include "plan assets" of such plans,
accounts and arrangements.
GENERAL FIDUCIARY MATTERS
ERISA and the Internal Revenue Code impose certain duties on persons who are
fiduciaries of a plan subject to Title I of ERISA or Section 4975 of the
Internal Revenue Code and prohibit certain transactions involving the assets of
a plan and its fiduciaries or other interested parties. Under ERISA and the
Internal Revenue Code, any person who exercises any discretionary authority or
control over the administration of such a plan or the management or disposition
of the assets of such a plan, or who renders investment advice to such a plan
for a fee or other compensation, may be considered to be a fiduciary of the
plan.
When considering investing a portion of the assets of any plan in the notes, a
fiduciary should determine whether the investment is in accordance with the
documents and instruments governing the plan and the applicable provisions of
ERISA, the Internal Revenue Code or any similar law relating to a fiduciary's
duties to the plan including, without limitation, the prudence, diversification,
delegation of control and prohibited transaction provisions of ERISA, the
Internal Revenue Code and any other applicable similar laws. The prudence of a
particular investment should be determined by the responsible fiduciary of a
plan by taking into account the plan's particular circumstances and all of the
facts and circumstances of an investment in a note including, but not limited
to, particular risks associated with the investment and the fact that in the
future there may be no market in which such fiduciary will be able to sell or
otherwise dispose of any notes it may purchase.
Any insurance company proposing to invest assets of its general account in the
notes should consider the extent to which such investment would be subject to
the requirements of ERISA in light of the U.S. Supreme Court's decision in John
Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank and under any
subsequent legislation or other guidance that has or may become available
relating to that decision, including Section 401(c) of ERISA and any regulations
thereunder published by the U.S. Department of Labor.
PROHIBITED TRANSACTION ISSUES
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit
plans subject to Title I of ERISA or Section 4975 of the Internal Revenue Code
from engaging in specified transactions involving plan assets with persons or
entities who are "parties in interest" within the meaning of ERISA, or
"disqualified persons," within the meaning of Section 4975 of the Internal
Revenue Code, unless an exemption is available. A party in interest or
disqualified person who engages in a non-exempt prohibited transaction may be
subject to excise taxes and other penalties and liabilities under ERISA and the
Internal Revenue Code and, in many circumstances, the transaction must be
unwound. In addition, the fiduciary of the plan that engages in such a
non-exempt prohibited transaction may be subject to penalties and liabilities
under ERISA and the Internal Revenue Code. The acquisition and/or holding of
notes by a plan
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with respect to which we, our affiliates or the initial purchaser is considered
a party in interest or disqualified person may constitute or result in a direct
or indirect prohibited transaction under ERISA and/or the Internal Revenue Code,
unless the investment is acquired and is held in accordance with an applicable
statutory, class or individual prohibited transaction exemption. In this regard,
the U.S. Department of Labor has issued prohibited transaction class exemptions,
or "PTCEs", that may apply to the acquisition and holding of the notes. These
class exemptions include PTCE 84-14 respecting transactions determined by
independent qualified professional asset managers, PTCE 90-1 respecting
insurance company pooled separate accounts, PTCE 91-38 respecting bank
collective investment funds, PTCE 95-60 respecting transactions involving life
insurance company general accounts and PTCE 96-23 respecting transactions
determined by in-house asset managers. However, there can be no assurance that
all of the conditions of any such exemptions will be satisfied, or, if
satisfied, that the scope of the relief will cover all acts that might be
construed as prohibited transactions.
Because of the foregoing, the notes should not be acquired or held by any person
investing "plan assets" of any plan, if such acquisition and holding will
constitute a non-exempt prohibited transaction under ERISA and the Internal
Revenue Code or similar violation of any applicable similar laws. Each initial
investor of a note and each subsequent transferee will, by its acquisition
and/or holding be deemed to have represented and warranted that (1) it is not a
plan, or other entity that is subject to prohibited transaction rules of ERISA,
the Internal Revenue Code or similar law or (2) its acquisition and/or holding
of such note will not result in a non-exempt prohibited transaction under
Section 406 of ERISA, Section 4975 of the Internal Revenue Code or any similar
provision of similar laws.
The foregoing discussion is general in nature and is not intended to be
all-inclusive. Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries, or other persons considering an
investment in the notes on behalf of, or with the assets of any plan, consult
with their counsel regarding the potential applicability of ERISA, Section 4975
of the Internal Revenue Code and any similar laws to such investment and whether
an exemption would be applicable to the acquisition and holding of the notes.
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PLAN OF DISTRIBUTION
This prospectus is to be used by Goldman, Sachs & Co. and J.P. Morgan Securities
Inc. in connection with offers and sales of the notes in market-making
transactions effected from time to time. Goldman, Sachs & Co. and J.P. Morgan
Securities Inc. may act as principal or agent in such transactions. Such sales
will be made at prevailing market prices at the time of sale. We will not
receive any of the proceeds from such sales.
Private equity funds managed by Goldman, Sachs & Co. own more than a majority of
our common stock and private equity funds managed by affiliates of J.P. Morgan
Securities Inc. own approximately 28% of our common stock. See "Principal
stockholders." Christopher Behrens and Mathew Lori, two of our directors, are
partners of J.P Morgan Partners, LLC, an affiliate of J.P. Morgan Securities
Inc. Joseph Gleberman and Douglas Londal are managing directors, and Patrick
Dalton is a vice president, of Goldman, Sachs & Co. and all three are directors.
Goldman, Sachs & Co. and J.P. Morgan Securities Inc. and their affiliates have
provided us with commercial banking, investment banking or other financial
advisory services in the past and may provide such services to us in the future.
J.P. Morgan Securities Inc., acted as our financial advisor in connection with
the Merger. Goldman, Sachs & Co. and J.P. Morgan Securities Inc. acted as
initial purchasers in connection with the sale of the notes and received
customary fees, incurred in connection therewith. In addition, in connection
with the Merger, we entered into a senior secured credit facility with a
syndicate of lenders led by Goldman Sachs Credit Partners L.P., an affiliate of
Goldman Sachs, as administrative agent. Goldman Sachs Credit Partners, L.P., an
affiliate of Goldman Sachs, acted as the administrative agent, joint lead
arranger and joint bookrunner for the credit facility and received fees of $3.6
million in July 2002 for services provided. JP Morgan Chase Bank, an affiliate
of J.P. Morgan, acted as the joint lead arranger and joint bookrunner for the
credit facility for consideration of approximately $3.6. million. See also
"Certain relationships and related party transactions."
We have been advised by Goldman, Sachs & Co. and J.P. Morgan Securities that,
subject to applicable laws and regulations, they currently intend to make a
market in the notes. However, Goldman, Sachs & Co. and J.P. Morgan Securities
Inc. are not obligated to do so, and any such market-making may be interrupted
or discontinued at any time without notice.
We, Goldman, Sachs & Co. and J.P. Morgan Securities Inc. have entered into a
registration rights agreement with respect to the use by Goldman, Sachs & Co.
and J.P. Morgan Securities Inc. of this prospectus. Pursuant to such agreement,
we agreed to indemnify Goldman, Sachs & Co. and J.P. Morgan Securities Inc.
against certain liabilities, including liabilities under the Securities Act and
to contribute to payments which Goldman, Sachs & Co. and J.P. Morgan Securities
Inc. might be required to make in respect thereof.
In connection with the Merger, Holding entered into a stockholders agreement
with GSCP 2000 and other private equity funds affiliated with Goldman, Sachs &
Co. that, in the aggregate, own a majority of our common stock and J.P. Morgan
Partners (BHCA), L.P. and other private equity funds affiliated with J.P. Morgan
Chase & Co. that, in the aggregate, own approximately 28% of our common stock.
Under the terms of this agreement, among other things: (1) the parties have
agreed to elect individuals designated by the Goldman Sachs and J.P. Morgan
funds to Holding's and Berry Plastics' boards of directors; (2) the Goldman
Sachs and J.P. Morgan funds have the right to subscribe for a proportional share
of future equity issuances by Holding; (3) after July 29, 2009, the J.P. Morgan
funds have the right to demand that Holding cause the initial public offering of
its common stock, if such an offering or other sale of Holding has not occurred
by such time; and (4) Holding has agreed not to take specified
122
actions, including, making certain amendments to either the certificate of
incorporation or the by-laws of Holding, changing independent accountants, or
entering into certain affiliate transactions, without the approval of a majority
of its board of directors, including at least one director designated by the
J.P. Morgan funds. The stockholders agreement also contains provisions regarding
transfer restrictions, rights of first offer, tag-along rights and drag-along
rights related to the shares of Holding common stock owned by the Goldman Sachs
and J.P. Morgan funds.
In connection with the Merger, Holding also entered into a stockholders
agreement with certain members of Holding's management that owned Holding common
stock. The stockholders agreement grants certain rights to, and imposes certain
obligations on, the management stockholders who are party to the agreement,
including: (1) restrictions on transfer of Holding's common stock; (2)
obligations to consent to a merger or consolidation of Holding or a sale of
Holding's assets or common stock; (3) obligations to sell their shares of
Holding common stock back to Holding in specified circumstances in connection
with the termination of their employment with Holding; (4) rights of first
offer, (5) tag-along rights, (6) drag-along rights, (7) preemptive rights and
(8) registration rights. See "Related party transactions--Stockholders agreement
with major stockholders."
LEGAL MATTERS
The validity of the notes will be passed upon for us by Fried, Frank, Harris,
Shriver & Jacobson LLP, New York, New York.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The consolidated balance sheets of BPC Holding Corporation as of January 1, 2005
and December 27, 2003, and the related consolidated statements of operations,
changes in stockholders' equity (deficit), and cash flows for the years ended
January 1, 2005 and December 27, 2003, and for the periods from July 22, 2002 to
December 28, 2002 (Company), and December 30, 2001 to July 21, 2002
(Predecessor) appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent registered public accounting firm, as
set forth in their report thereon appearing herein.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus does not contain all of the information in that registration
statement. For further information with respect to us and the notes, see the
registration statement, including the exhibits.
We are subject to the reporting requirements of the Securities Exchange Act of
1934 and in accordance with its requirements file annual, quarterly and current
reports, proxy statements and other information with the SEC. These reports,
proxy statements and other information may be obtained:
- from the SEC, Public Reference Room, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549; or
123
- from the Internet site maintained by the SEC at http://.www.sec.gov,
which contains reports, proxy and information statements and other
information regarding issuers, including us, that file electronically
with the SEC.
Some locations may charge prescribed rates or modest fees for copies. For more
information on the public reference room, call the SEC at 1-800-SEC-0330. Our
filings will also be available to the public from commercial document retrieval
services.
You may obtain these reports, proxy statements and other information at no cost
by writing or telephoning us at the following address and telephone number:
Berry Plastics Corporation
101 Oakley Street
Evansville, Indiana 47710
Attn: Mark Miles
(812) 424-2904
Statements made in this prospectus as to the contents of any contract,
agreement, or other documents referred to are not necessarily complete. For a
more complete understanding and description of each contract, agreement or other
document filed as an exhibit to the registration statement, we encourage you to
read the documents contained in the exhibits.
Whether or not required by the SEC, we will file a copy of all the information
mentioned above with the SEC for public availability within the time periods
specified in the SEC's rule and regulations (unless the SEC will not accept such
a filing) and make such information available to securities analysts and
prospectus investors upon request.
In addition, we have agreed that we will furnish to holders and securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act of 1933, as
amended (the "Securities Act"), until such time as we have either exchanged the
notes pursuant to the exchange offer or until such time as holders of the notes
have disposed of their notes pursuant to an effective registration statement
under the Securities Act.
124
BPC HOLDING CORPORATION
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of Independent Registered Public Accounting Firm..... F-2
Consolidated Balance Sheets at January 1, 2005 and December
27, 2003................................................. F-3
Consolidated Statements of Operations for the years ended
January 1, 2005 and December 27, 2003 and for the periods
from July 22, 2002 to December 28, 2002 and December 30,
2001 to July 21, 2002.................................... F-4
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the years ended January 1, 2005 and
December 27, 2003 and for the periods from July 22, 2002
to December 28, 2002 and December 30, 2001 to July 21,
2002..................................................... F-5
Consolidated Statements of Cash Flows for the years ended
January 1, 2005 and December 27, 2003 and for the periods
from July 22, 2002 to December 28, 2002 and December 30,
2001 to July 21, 2002.................................... F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
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 (Holding) as of January 1, 2005 and December 27, 2003, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for the years ended January 1, 2005, December 27, 2003
and for the periods from July 22, 2002 to December 28, 2002 (Company) and
December 30, 2001 to July 21, 2002 (Predecessor). These financial statements are
the responsibility of Holding's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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. Our audit 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BPC
Holding Corporation at January 1, 2005 and December 27, 2003, and the
consolidated results of its operations and its cash flows for the years ended
January 1, 2005, December 27, 2003 and for the periods from July 22, 2002 to
December 28, 2002 (Company) and December 30, 2001 to July 21, 2002
(Predecessor), in conformity with accounting principles generally accepted in
the United States.
/S/ ERNST & YOUNG LLP
Indianapolis, Indiana
February 11, 2005
F-2
BPC HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------------------------------------
JANUARY 1, DECEMBER 27,
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE INFORMATION) 2005 2003
----------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents................................ $ 264 $ 26,192
Accounts receivable (less allowance for doubtful accounts
of $3,207 at January 1, 2005 and $2,717 at December 27,
2003).................................................. 83,162 76,152
Inventories:
Finished goods........................................ 70,371 61,556
Raw materials and supplies............................ 38,663 19,988
--------------------------
109,034 81,544
Prepaid expenses and other current assets................ 27,339 19,192
--------------------------
Total current assets........................................ 219,799 203,080
Property and equipment:
Land..................................................... 10,016 7,935
Buildings and improvements............................... 64,758 58,135
Machinery, equipment and tooling......................... 297,972 249,291
Construction in progress................................. 19,812 24,433
--------------------------
392,558 339,794
Less accumulated depreciation............................ 110,586 56,817
--------------------------
281,972 282,977
Intangible assets:
Deferred financing fees, net............................. 19,883 22,283
Customer relationships, net.............................. 84,959 90,540
Goodwill................................................. 358,883 376,769
Trademarks............................................... 33,448 33,448
Other intangibles, net................................... 6,106 6,656
--------------------------
503,279 529,696
Other....................................................... 94 53
--------------------------
Total assets................................................ $ 1,005,144 $ 1,015,806
--------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 55,671 $ 43,175
Accrued expenses and other liabilities................... 16,693 21,335
Accrued interest......................................... 18,816 18,132
Employee compensation, payroll and other taxes........... 28,190 23,528
Current portion of long-term debt........................ 10,335 9,339
--------------------------
Total current liabilities................................... 129,705 115,509
Long-term debt, less current portion........................ 687,223 742,266
Deferred income taxes....................................... 1,030 720
Other long-term liabilities................................. 3,295 4,720
--------------------------
Total liabilities........................................... 821,253 863,215
Stockholders' equity:
Preferred stock; $.01 par value: 500,000 shares
authorized; 0 shares issued and outstanding at January
1, 2005 and December 27, 2003.......................... - -
Common stock; $.01 par value: 5,000,000 shares
authorized; 3,398,807 shares issued and 3,378,305
shares outstanding at January 1, 2005; and 3,397,637
shares issued and 3,377,923 shares outstanding at
December 27, 2003...................................... 34 34
Additional paid-in capital............................... 345,001 344,363
Adjustment of the carryover basis of continuing
stockholders........................................... (196,603) (196,603)
Notes receivable - common stock.......................... (14,856) (14,157)
Treasury stock: 20,502 shares and 19,714 shares of common
stock at January 1, 2005 and December 27, 2003,
respectively........................................... (2,049) (1,972)
Retained earnings........................................ 39,178 16,227
Accumulated other comprehensive income................... 13,186 4,699
--------------------------
Total stockholders' equity.................................. 183,891 152,591
--------------------------
Total liabilities and stockholders' equity.................. $ 1,005,144 $ 1,015,806
----------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-3
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------------------------------------------------------
COMPANY PREDECESSOR
---------------------------------------- -----------
YEAR ENDED YEAR ENDED PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 27, 7/22/02- 12/30/01-
(IN THOUSANDS OF DOLLARS) 2005 2003 12/28/02 7/21/02
-----------------------------------------------------------------------------------------------
Net sales.............................. $ 814,213 $ 551,876 $ 213,626 $ 280,677
Cost of goods sold..................... 639,329 420,750 163,815 207,458
------------------------------------------------------
Gross profit........................... 174,884 131,126 49,811 73,219
Operating expenses:
Selling............................. 26,361 23,883 10,129 12,080
General and administrative.......... 38,518 25,699 7,664 15,750
Research and development............ 3,825 3,459 1,450 1,438
Amortization of intangibles......... 6,513 3,326 1,159 1,249
Merger expenses (Predecessor)....... - - - 20,987
Other expenses...................... 5,791 3,569 2,757 2,804
------------------------------------------------------
Operating income....................... 93,876 71,190 26,652 18,911
Other expenses (income):
Loss (gain) on disposal of property
and equipment.................... - (7) 8 291
------------------------------------------------------
Income before interest and taxes....... 93,876 71,197 26,644 18,620
Interest:
Expense............................. (54,076) (46,251) (20,887) (28,747)
Loss on extinguished debt........... - (250) - (25,328)
Income.............................. 891 838 375 5
------------------------------------------------------
Income (loss) before income taxes...... 40,691 25,534 6,132 (35,450)
Income taxes........................... 17,740 12,486 2,953 345
------------------------------------------------------
Net income (loss)...................... 22,951 13,048 3,179 (35,795)
Preferred stock dividends.............. - - - (6,468)
Amortization of preferred stock
discount............................. - - - (574)
------------------------------------------------------
Net income (loss) attributable to
common stockholders................. $ 22,951 $ 13,048 $ 3,179 $ (42,837)
-----------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-4
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------------------------------------------------------------------------------
COMMON PREFERRED TREASURY ADDITIONAL
STOCK STOCK STOCK WARRANTS COMMON PAID-IN
(IN THOUSANDS OF DOLLARS) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR) STOCK CAPITAL
----------------------------------------------------------------------------------------------------------------------
Predecessor:
Balance at December 29, 2001
(Predecessor)................. $ 6 $ 47,789 $ (405) $ 9,386 $ - $ 25,315
-----------------------------------------------------------------------------------
Net loss......................... - - - - - -
Translation gain................. - - - - - -
Amortization of preferred stock
discount...................... - 574 - - - (574)
Accrued dividends on preferred
stock......................... - - - - - (6,468)
Stock-based compensation......... - - - - - 1,920
Redemption of predecessor stock.. (6) (48,363) 405 (9,386) - (20,193)
-----------------------------------------------------------------------------------
Balance at July 21, 2002
(Predecessor)................. $ - $ - $ - $ - $ - $ -
-----------------------------------------------------------------------------------
Company:
Fair value of rolled stock
options....................... $ - $ - $ - $ - $ - $ 5,056
Issuance of common stock......... - - - - 28 276,760
Notes receivable--common stock... - - - - - -
Interest on notes receivable..... - - - - - -
Adjustment of the carryover basis
of continuing stockholders.... - - - - - -
Translation gain................. - - - - - -
Other comprehensive losses....... - - - - - -
Net income....................... - - - - - -
-----------------------------------------------------------------------------------
Balance at December 28, 2002
(Company)..................... - - - - 28 281,816
-----------------------------------------------------------------------------------
Issuance of common stock......... - - - - 6 62,547
Purchase of treasury stock....... - - - - - -
Interest on notes receivable..... - - - - - -
Translation gain................. - - - - - -
Other comprehensive losses....... - - - - - -
Net income....................... - - - - - -
-----------------------------------------------------------------------------------
Balance at December 27, 2003
(Company)..................... - - - - 34 344,363
-----------------------------------------------------------------------------------
Issuance of common stock......... - - - - - 53
Collection on notes receivable... - - - - - -
Purchase of treasury stock....... - - - - - -
Sale of treasury stock........... - - - - - -
Interest on notes receivable..... - - - - - -
Stock-based compensation......... - - - - - 585
Translation gain................. - - - - - -
Other comprehensive gains........ - - - - - -
Net income....................... - - - - - -
-----------------------------------------------------------------------------------
Balance at January 1, 2005
(Company)..................... $ - $ - $ - $ - $ 34 $ 345,001
----------------------------------------------------------------------------------------------------------------------
--------------------------------- -----------------------------------------------------------------------------------------------
ADJUSTMENT OF
THE CARRYOVER NOTES ACCUMULATED
BASIS OF RECEIVABLE-- RETAINED OTHER COMPREHENSIVE
CONTINUING COMMON TREASURY EARNINGS COMPREHENSIVE INCOME
(IN THOUSANDS OF DOLLARS) STOCKHOLDERS STOCK STOCK (DEFICIT) INCOME (LOSS) TOTAL (LOSS)
--------------------------------- -----------------------------------------------------------------------------------------------
Predecessor:
Balance at December 29, 2001
(Predecessor)................. $ - $ - $ - $(220,263) $ (1,429) $(139,601) $ (2,681)
-----------------------------------------------------------------------------------------------
Net loss......................... - - - (35,795) - (35,795) (35,795)
Translation gain................. - - - - 1,429 1,429 1,429
Amortization of preferred stock
discount...................... - - - - - - -
Accrued dividends on preferred
stock......................... - - - - - (6,468) -
Stock-based compensation......... - - - - - 1,920 -
Redemption of predecessor stock.. - - - 256,058 - 178,515 -
-----------------------------------------------------------------------------------------------
Balance at July 21, 2002
(Predecessor)................. $ - $ - $ - $ - $ - $ - $ (34,366)
-----------------------------------------------------------------------------------------------
Company:
Fair value of rolled stock
options....................... $ - $ - $ - $ - $ - $ 5,056 $ -
Issuance of common stock......... - - - - - 276,788 -
Notes receivable--common stock... - (14,079) - - - (14,079) -
Interest on notes receivable..... - (320) - - - (320) -
Adjustment of the carryover basis
of continuing stockholders.... (196,603) - - - - (196,603) -
Translation gain................. - - - - 2,091 2,091 2,091
Other comprehensive losses....... - - - - (949) (949) (949)
Net income....................... - - - 3,179 - 3,179 3,179
-----------------------------------------------------------------------------------------------
Balance at December 28, 2002
(Company)..................... (196,603) (14,399) - 3,179 1,142 75,163 4,321
-----------------------------------------------------------------------------------------------
Issuance of common stock......... - - - - - 62,553 -
Purchase of treasury stock....... - 999 (1,972) - - (973) -
Interest on notes receivable..... - (757) - - - (757) -
Translation gain................. - - - - 3,645 3,645 3,645
Other comprehensive losses....... - - - - (88) (88) (88)
Net income....................... - - - 13,048 - 13,048 13,048
-----------------------------------------------------------------------------------------------
Balance at December 27, 2003
(Company)..................... (196,603) (14,157) (1,972) 16,227 4,699 152,591 16,605
-----------------------------------------------------------------------------------------------
Issuance of common stock......... - - - - - 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 -
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
(Company)..................... $ (196,603) $ (14,856) $(2,049) $ 39,178 $ 13,186 $ 183,891 $ 31,438
---------------------------------
See notes to consolidated financial statements.
F-5
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------------------------------------
COMPANY PREDECESSOR
--------------------------------------- -----------
YEAR ENDED YEAR ENDED PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 27, 7/22/02- 12/30/01-
(IN THOUSANDS OF DOLLARS) 2005 2003 12/28/02 7/21/02
---------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss)................................. $ 22,951 $ 13,048 $ 3,179 $ (35,795)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation................................... 54,303 40,752 16,031 23,526
Non-cash interest expense...................... 1,862 2,318 1,077 1,399
Amortization of intangibles.................... 6,513 3,326 1,159 1,249
Non-cash compensation.......................... 585 - - 1,920
Loss on extinguished debt (Predecessor)........ - - - 25,328
Loss (gain) on sale of property and
equipment................................... - (7) 8 291
Deferred income taxes.......................... 16,968 11,791 2,710 -
Changes in operating assets and liabilities:
Accounts receivable, net.................... (7,216) (598) 8,717 (15,986)
Inventories................................. (27,200) 5,600 (4,091) (4,255)
Prepaid expenses and other receivables...... (7,098) (2,582) (1,280) (603)
Other assets................................ 76 32 (354) 2,042
Accrued interest............................ 683 3,894 (3,686) 6,741
Payables and accrued expenses............... 12,806 2,199 (7,422) 4,735
-----------------------------------------------------
Net cash provided by operating activities......... 75,233 79,773 16,048 10,592
INVESTING ACTIVITIES
Additions to property and equipment............... (52,624) (29,949) (11,287) (17,396)
Proceeds from disposal of property and equipment.. 2,986 7 8 9
Proceeds from working capital settlement on
business acquisition........................... 7,397 - - -
Transaction costs................................. - - (12,398) -
Investment in Southern Packaging.................. (3,236) - - -
Acquisitions of businesses........................ - (235,710) - (3,834)
-----------------------------------------------------
Net cash used for investing activities............ (45,477) (265,652) (23,677) (21,221)
FINANCING ACTIVITIES
Proceeds from long-term borrowings................ 880 149,944 580,000 24,492
Payments on long-term borrowings.................. (55,996) (10,111) (507,314) (13,924)
Issuance of common stock.......................... 53 62,553 260,902 -
Purchase of treasury stock........................ (192) (973) - -
Proceeds from notes receivable.................... 73 - - -
Sale of treasury stock............................ 115 - - -
Redemption of predecessor stock................... - - (290,672) -
Debt financing costs.............................. (641) (4,592) (21,103) -
-----------------------------------------------------
Net cash provided by (used for) financing
activities..................................... (55,708) 196,821 21,813 10,568
Effect of exchange rate changes on cash........... 24 (363) 1,073 (815)
-----------------------------------------------------
Net increase (decrease) in cash and cash
equivalents.................................... (25,928) 10,579 15,257 (876)
Cash and cash equivalents at beginning of
period......................................... 26,192 15,613 356 1,232
-----------------------------------------------------
Cash and cash equivalents at end of period........ $ 264 $ 26,192 $ 15,613 $ 356
---------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-6
BPC HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED)
NOTE 1. ORGANIZATION
BPC Holding Corporation ("Holding"), through its subsidiary Berry Plastics
Corporation ("Berry" or the "Company") and its subsidiaries Berry Iowa
Corporation, Aerocon, Inc., PackerWare Corporation, Berry Plastics Design
Corporation, Venture Packaging, Inc. and its subsidiaries Venture Packaging
Midwest, Inc. and Berry Plastics Technical Services, Inc., NIM Holdings Limited
and its subsidiary Berry Plastics U.K. Limited, Knight Plastics, Inc., CPI
Holding Corporation and its subsidiary Cardinal Packaging, Inc., Poly-Seal
Corporation, Ociesse S.r.l and its subsidiary Capsol Berry Plastics S.p.a., and
Landis Plastics, Inc. manufactures and markets plastic packaging products
through its facilities located in Evansville, Indiana; Henderson, Nevada; Iowa
Falls, Iowa; Charlotte, North Carolina; Suffolk, Virginia; Lawrence, Kansas;
Monroeville, Ohio; Norwich, England; Woodstock, Illinois; Streetsboro, Ohio;
Baltimore, Maryland; Milan, Italy; Chicago, Illinois; Richmond, Indiana;
Syracuse, New York; and Phoenix, Arizona.
In 2002, the Company closed its Fort Worth, Texas facility, which was acquired
in connection with the acquisition of Pescor Plastics, Inc. in May 2001. In
2003, the Company closed its Monticello, Indiana facility, which was acquired in
connection with the acquisition of Landis Plastics, Inc. in November 2003. The
business from these closed locations has been distributed throughout Berry's
facilities.
Holding's fiscal year is a 52/53 week period ending generally on the Saturday
closest to December 31. All references herein to "2004," "2003," and "2002,"
relate to the fiscal years ended January 1, 2005, December 27, 2003, and
December 28, 2002, respectively. Due to the Merger (see Note 3), fiscal 2002
consists of two separate periods of December 30, 2001 to July 21, 2002
(Predecessor) and July 22, 2002 to December 28, 2002 (Company).
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND BUSINESS
The consolidated financial statements include the accounts of Holding and its
subsidiaries, all of which are wholly owned. Intercompany accounts and
transactions have been eliminated in consolidation. Holding, through its wholly
owned subsidiaries, operates in four primary segments: containers, closures,
consumer products, and international. 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 $283.0 million and $140.3 million in
2004 and 2003, respectively. Dow Chemical Corporation was the largest supplier
of the Company's total resin material requirements, representing approximately
32% and 35% of such resin requirements in 2004 and 2003, respectively. The
Company also uses other suppliers such as Basell, Nova, Total (formerly
Atofina), Equistar, Sunoco, BP Amoco, and ExxonMobil to meet its resin
requirements.
F-7
CASH AND CASH EQUIVALENTS
All highly liquid investments with maturity of three months or less at the date
of purchase are considered to be cash equivalents.
ACCOUNTS RECEIVABLE
The allowance for doubtful accounts is analyzed in detail on a quarterly basis
and all significant customers with delinquent balances are reviewed to determine
future collectibility. The determinations are based on legal issues (such as
bankruptcy status), past history, current financial and credit agency reports,
and the experience of the credit representatives. Reserves are established in
the quarter in which the Company makes the determination that the account is
deemed uncollectible. The Company maintains additional reserves based on its
historical bad debt experience. The following table summarizes the activity by
period for the allowance for doubtful accounts.
----------------------------------------------------------------------------------------------
COMPANY PREDECESSOR
--------------------------------------- -----------
YEAR ENDED YEAR ENDED PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 27, 7/22/02- 12/30/01-
2005 2003 12/28/02 7/21/02
----------------------------------------------------------------------------------------------
Balance at beginning of period......... $ 2,717 $ 1,990 $ 2,063 $ 2,070
Charged to costs and expenses.......... 323 150 (291) 164
Charged to other accounts(1)........... - 545 - -
Deductions(2).......................... 167 32 218 (171)
-----------------------------------------------------
Balance at end of period............... $ 3,207 $ 2,717 $ 1,990 $ 2,063
----------------------------------------------------------------------------------------------
(1) Primarily relates to purchase of accounts receivable and related allowance
through acquisitions.
(2) Uncollectible accounts written off, net of recoveries.
INVENTORIES
Inventories are valued at the lower of cost (first in, first out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed primarily by
the straight-line method over the estimated useful lives of the assets ranging
from 15 to 25 years for buildings and improvements and two to 10 years for
machinery, equipment, and tooling. Repairs and maintenance costs are charged to
expense as incurred.
INTANGIBLE ASSETS
Deferred financing fees are being amortized using the straight-line method over
the lives of the respective debt agreements.
Customer relationships are being amortized using the straight-line method over
the estimated life of the relationships ranging from three to 20 years.
The 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
F-8
costs are reviewed annually for impairment pursuant to SFAS No. 142, Goodwill
and Other Intangible Assets.
Trademarks, which are indefinite lived intangible assets, are reviewed for
impairment annually pursuant to SFAS No. 142.
Other intangibles, which include covenants not to compete and technology-based
intangibles, are being amortized using the straight-line method over the
respective lives of the agreements or estimated life of the technology ranging
from one to twenty years.
LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment in accordance with SFAS No. 144
whenever facts and circumstances indicate that the carrying amount may not be
recoverable. Specifically, this process involves comparing an asset's carrying
value to the estimated undiscounted future cash flows the asset is expected to
generate over its remaining life. If this process were to result in the
conclusion that the carrying value of a long-lived asset would not be
recoverable, a write-down of the asset to fair value would be recorded through a
charge to operations. Fair value is determined based upon discounted cash flows
or appraisals as appropriate. Long-lived assets that are held for sale are
reported at the lower of the assets' carrying amount or fair value less costs
related to the assets' disposition. No impairments were recorded in these
financial statements.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses an interest rate collar to manage a portion of its interest
rate exposures. In 2004, the Company also entered into resin forward contracts,
which become 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 operations. 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 operations consistent with the accounting treatment of the items
being hedged. The Company has recognized the interest rate collar 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 operations are
translated at the average monthly exchange rates for the period. Translation
gains and losses are recorded as a component of accumulated other comprehensive
income (loss) in stockholders' equity. Foreign currency transaction gains and
losses are included in net income (loss).
F-9
REVENUE RECOGNITION
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" ("SAB 101") and SEC Staff
Accounting Bulletin No. 104, "Revenue Recognition" ("SAB 104"). Revenue is
recognized when the title and risk of loss have passed to the customer, there is
persuasive evidence of an arrangement, delivery has occurred or services have
been rendered, the sales price is fixed or determinable, and collectibility is
reasonably assured.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure," established accounting
and disclosure requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. As provided for under SFAS 123, the
Company accounts for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion 25, "Accounting for Stock
Issued to Employees." Compensation cost for stock options, if any, is measured
as the excess of the fair value of the Company's stock at the date of grant over
the amount an employee must pay to acquire the stock. The fair value for options
granted by Holding have been estimated at the date of grant using a Black
Scholes option pricing model with the following weighted average assumptions:
----------------------------------------------------------------------------------------------
COMPANY PREDECESSOR
--------------------------------------- -----------
YEAR ENDED YEAR ENDED PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 27, 7/22/02- 12/30/01-
2005 2003 12/28/02 7/21/02
----------------------------------------------------------------------------------------------
Risk-free interest rate................ 3.1% 3.0% 4.0% 4.0%
Dividend yield......................... 0.0% 0.0% 0.0% 0.0%
Volatility factor...................... .25 .25 .25 .25
Expected option life................... 5.0 years 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 (loss) may not be representative of compensation expense
in future years, when the effect of amortization of multiple awards would be
reflected in the Consolidated Statement of Operations. The following is a
reconciliation of reported net income (loss) to net income (loss) as if the
Company used the fair value method of accounting for stock-based compensation.
F-10
----------------------------------------------------------------------------------------------
COMPANY PREDECESSOR
--------------------------------------- -----------
YEAR ENDED YEAR ENDED PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 27, 7/22/02- 12/30/01-
2005 2003 12/28/02 7/21/02
----------------------------------------------------------------------------------------------
Reported net income (loss)............. $ 22,951 $ 13,048 $ 3,179 $ (35,795)
Stock-based employee compensation
expense included in reported income
(loss), net of tax................... 585 - - 1,920
Total stock-based employee compensation
expense determined under fair value
based method, for all awards, net of
tax.................................. (2,294) (2,044) (856) (371)
-----------------------------------------------------
Pro forma net income (loss)............ $ 21,242 $ 11,004 $ 2,323 $ (34,246)
----------------------------------------------------------------------------------------------
INCOME TAXES
The Company accounts for income taxes under the asset and liability approach,
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequence of events that have been recognized in the
Company's financial statements or income tax returns. Income taxes are
recognized during the year in which the underlying transactions are reflected in
the Consolidated Statements of Operations. Deferred taxes are provided for
temporary differences between amounts of assets and liabilities as recorded for
financial reporting purposes and such amounts as measured by tax laws.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is comprised of net income (loss) and other
comprehensive income (loss). Other comprehensive income (loss) includes
unrealized gains or losses on derivative financial instruments, unrealized gains
or losses resulting from currency translations of foreign investments, and
adjustments to record the minimum pension liability.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of any contingent assets and liabilities at the financial statement
date and reported amounts of revenue and expenses during the reporting period.
On an on-going basis, the Company reviews its estimates and assumptions. The
Company's estimates were based on its historical experience and various other
assumptions that the Company believes to be reasonable under the circumstances.
Actual results are likely to differ from those estimates under different
assumptions or conditions, but management does not believe such differences will
materially affect the Company's financial position or results of operations.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements and related notes have
been reclassified to conform to the current year presentation.
F-11
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
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 (loss) 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 expects to adopt SFAS No.
123R in the first quarter of 2006, but has not yet evaluated what effect the
adoption of this new standard will have on the Company's financial position or
results of operations.
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 has not yet evaluated what
effect the adoption of this new standard will have on the Company's 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.
The total amount of funds required to consummate the Merger and to pay estimated
fees and expenses related to the Merger, including amounts related to the
repayment of indebtedness, the redemption of the outstanding preferred stock and
accrued dividends, the redemption of outstanding warrants, and the payment of
transaction costs incurred by Holding, were approximately $870.7 million (which
includes the amount of certain indebtedness which remained outstanding and the
value of certain shares of Holding common stock held by employees that were
contributed to the Buyer immediately prior to the Merger). Immediately following
the Merger, the Buyer and its affiliates owned approximately 63% of the common
stock of Holding. The remaining common stock of Holding is held by J.P. Morgan
Partners Global Investors, L.P. and other private equity funds affiliated with
J.P. Morgan Partners, LLC, the private equity investment arm of J.P. Morgan
Chase & Co., which own approximately 29% of Holding's common stock and by
members of Berry's management, which own the remaining 8%.
The Merger has been accounted for under the purchase method of accounting, and
accordingly, the purchase price was allocated to the identifiable assets and
liabilities based on
F-12
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. In connection with the Merger, the Predecessor incurred Merger
related expenses of approximately $21.0 million, consisting primarily of
investment banking fees, bonuses to management, non-cash modification of stock
option awards, legal costs, and fees to the largest voting stockholder of the
Predecessor. In addition, as a result of extinguishing debt in connection with
the Merger, $6.6 million of existing deferred financing fees and $18.7 million
of prepayment fees and related charges were charged to expense in 2002 as a loss
on extinguished debt.
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 using the purchase method of accounting.
On May 30, 2003, Berry acquired the injection molded overcap lid assets from APM
Inc. located in Benicia, California ("APM Acquisition") for aggregate
consideration of approximately $0.6 million. The purchase price was allocated to
fixed assets ($0.3 million), inventory ($0.1 million), goodwill ($0.1 million)
and other intangibles ($0.1 million). The purchase was financed through cash
provided by operations. The operations from the APM Acquisition are included in
Berry's operations since the acquisition date using the purchase method of
accounting.
On November 20, 2003, Berry acquired Landis Plastics, Inc. (the "Landis
Acquisition") for aggregate consideration of approximately $229.7 million,
including deferred financing fees. The operations from the Landis Acquisition
are included in Berry's operations since the acquisition date using the purchase
method of accounting. The purchase was financed through the issuance by Berry of
$85.0 million aggregate principal amount of 10 3/4% senior subordinated notes to
various institutional buyers, which resulted in gross proceeds of $95.2 million,
aggregate net borrowings of $54.1 million under Berry's amended and restated
senior secured credit facility from new term loans after giving effect to the
refinancing of the prior term loan, an aggregate common equity contribution of
$62.0 million, and cash on hand. Berry also agreed to acquire, for $32.0
million, four facilities that Landis leased from certain of its affiliates.
Prior to the closing of the Landis Acquisition, the rights and obligations to
purchase the four facilities owned by affiliates of Landis were assigned to an
affiliate of W.P. Carey & Co., L.L.C., which affiliate subsequently entered into
a lease with Landis for the four facilities. In accordance with EITF 95-3, the
Company established opening balance sheet reserves
F-13
related to plant shutdown, severance and unfavorable lease arrangement costs.
The opening balances and current year activity is presented in the following
table.
------------------------------------------------------------------------------------------------
ESTABLISHED YEAR ENDED JANUARY 1, 2005
AT OPENING --------------------------------------------------
BALANCE DECEMBER 27, REDUCTION JANUARY 1,
SHEET 2003 PAYMENTS IN ESTIMATE 2005
------------------------------------------------------------------------------------------------
EITF 95-3 reserves............ $ 3,206 $ 2,892 $ (1,152) $ (472) $ 1,268
------------------------------------------------------------------------------------------------
The following pro forma financial results are unaudited and assume that the
Landis Acquisition occurred at the beginning of the respective period. Pro forma
results have not been adjusted to reflect the acquisitions of CCL or APM as they
do not differ significantly from the pro forma results presented below. Pro
forma 2003 net sales were $749,591 and net income was $5,526. The financial
results for fiscal 2004 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 Landis Acquisition been consummated at
the above date, nor are they necessarily indicative of future operating results.
Further, the information reflects only pro forma adjustments for additional
interest expense and amortization, net of the applicable income tax effects.
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 $3.2
million as of January 1, 2005, which is consistent with the cost basis.
Berry Plastics U.K. Limited, a foreign subsidiary of Berry, reached an agreement
in March 2004 to sell the manufacturing equipment, inventory, and accounts
receivable for 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.
NOTE 5. INTANGIBLE ASSETS
Intangible assets consist of the following:
---------------------------------------------------------------------------------------
JANUARY 1, DECEMBER 27,
2005 2003
---------------------------------------------------------------------------------------
Deferred financing fees..................................... $ 26,681 $ 26,043
Customer relationships...................................... 93,641 93,561
Goodwill.................................................... 358,883 376,769
Trademarks.................................................. 33,448 33,448
Covenants not to compete and other.......................... 2,622 2,757
Technology-based............................................ 5,115 5,023
Accumulated amortization.................................... (17,111) (7,905)
-------------------------
$ 503,279 $ 529,696
---------------------------------------------------------------------------------------
F-14
Goodwill was reduced by $16.4 million in fiscal 2004 as a result of the
reduction of the valuation allowance on deferred tax assets as the use of fully
reserved net operating loss carryforwards that existed at the time of the Merger
have been recorded as a reduction to goodwill. The remaining decrease in
goodwill is the result of finalizing the opening balance sheet from the Landis
Acquisition and cash proceeds in excess of the net book value of the assets sold
in connection with the U.K. milk cap business partially offset by foreign
currency translation. 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 January 1, 2005
for the next five fiscal years is approximately $8.9 million, $8.8 million, $8.7
million, $8.6 million, and $8.4 million for fiscal 2005, 2006, 2007, 2008, and
2009, respectively.
NOTE 6. LONG-TERM DEBT
Long-term debt consists of the following:
-----------------------------------------------------------------------------------------
JANUARY 1, DECEMBER 27,
2005 2003
-----------------------------------------------------------------------------------------
Berry 10 3/4% Senior Subordinated Notes..................... $ 335,000 $ 335,000
Debt premium on 10 3/4% Notes, net.......................... 8,876 10,053
Term loans.................................................. 330,780 380,000
Revolving lines of credit................................... 480 342
Nevada Industrial Revenue Bonds............................. 1,500 2,000
Capital leases.............................................. 20,922 24,210
---------------------------
697,558 751,605
Less current portion of long-term debt...................... 10,335 9,339
---------------------------
$ 687,223 $ 742,266
-----------------------------------------------------------------------------------------
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 foreign subsidiaries: Berry Plastics Acquisition Corporation II, NIM
Holdings Limited, Berry Plastics U.K. Limited, Norwich Acquisition Limited,
Capsol Berry Plastics S.p.a., Ociesse S.r.l., or Berry Plastics Asia Pte. Ltd.
F-15
Berry is not required to make mandatory redemption or sinking fund payments with
respect to the 2002 Notes and Add-on Notes. On or subsequent to July 15, 2007,
the 2002 Notes and Add-on Notes may be redeemed at the option of Berry, in whole
or in part, at redemption prices ranging from 105.375% in 2007 to 100% in 2010
and thereafter. Prior to July 15, 2005, up to 35% of the 2002 Notes and Add-on
Notes may be redeemed at 110.75% of the principal amount at the option of Berry
in connection with an equity offering. Upon a change in control, as defined in
the indenture under which the 2002 Notes and Add-on Notes were issued (the
"Indenture"), each holder of notes will have the right to require Berry to
repurchase all or any part of such holder's notes at a repurchase price in cash
equal to 101% of the aggregate principal amount thereof plus accrued interest.
The 2002 Notes and Add-on Notes are treated as a single class under the
Indenture.
SECOND AMENDED AND RESTATED CREDIT FACILITY
In connection with the Merger in 2002, the Company entered into a credit and
guaranty agreement and a related pledge security agreement with a syndicate of
lenders led by Goldman Sachs Credit Partners L.P., as administrative agent (the
"Credit Facility"). On November 10, 2003, in connection with the Landis
Acquisition, the Credit Facility was amended and restated (the "Amended and
Restated Credit Facility"). On August 9, 2004, the Amended and Restated Credit
Facility was amended and restated (the "Second Amended and Restated Credit
Facility"). The Second Amended and Restated Credit Facility provides (1) a
$365.5 million term loan and (2) a $100.0 million revolving credit facility. The
proceeds from the new term loan were used to repay the outstanding balance of
the term loans from the Amended and Restated Credit Facility. The Second Amended
and Restated 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 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 July 22, 2010, and the maturity
date of the revolving credit facility is July 22, 2008. The indebtedness under
the Second Amended and Restated Credit Facility is guaranteed by Holding and all
of its domestic subsidiaries. The obligations of Berry Plastics under the Second
Amended and Restated Credit Facility and the guarantees thereof are secured by
substantially all of the assets of such entities. At January 1, 2005, there were
no borrowings outstanding on the revolving credit facility. The revolving credit
facility allows up to $25.0 million of letters of credit to be issued instead of
borrowings under the revolving credit facility and up to $10.0 million of
swingline loans. At January 1, 2005 and December 27, 2003, the Company had $8.5
million and $7.4 million, respectively, in letters of credit outstanding under
the revolving credit facility.
The Second Amended and Restated Credit Facility contains significant financial
and operating covenants, including prohibitions on the ability to incur certain
additional indebtedness or to pay dividends, and restrictions on the ability to
make capital expenditures. The Second Amended and Restated Credit Facility also
contains borrowing conditions and customary events of default, including
nonpayment of principal or interest, violation of covenants, inaccuracy of
representations and warranties, cross-defaults to other indebtedness, bankruptcy
and other insolvency events (other than in the case of certain foreign
subsidiaries). The Company was in compliance with all the financial and
operating covenants at January 1, 2005. The term loan amortizes quarterly as
follows: $813,312 each quarter through June 30, 2009 and $78,974,687 each
quarter beginning September 30, 2009 and ending June 30, 2010.
F-16
Borrowings under the Second Amended and Restated Credit Facility bear interest,
at the Company's option, at either (i) a base rate (equal to the greater of the
prime rate and the federal funds rate plus 0.5%) plus the applicable margin (the
"Base Rate Loans") or (ii) an adjusted eurodollar LIBOR (adjusted for reserves)
plus the applicable margin (the "Eurodollar Rate Loans"). With respect to the
term loan, the "applicable margin" is (i) with respect to Base Rate Loans, 1.25%
per annum and (ii) with respect to Eurodollar Rate Loans, 2.25% per annum (4.22%
at January 1, 2005 and 3.7% at December 27, 2003). 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 January 1, 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
(2.50% based on results through January 1, 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. At January
1, 2005 and December 27, 2003, shareholders' equity has been reduced by $4 and
$487, respectively, to adjust the agreement to fair market value. At January 1,
2005, the Company had unused borrowing capacity under the Second Amended and
Restated Credit Facility's revolving line of credit of $91.5 million.
NEVADA INDUSTRIAL REVENUE BONDS
The Nevada Industrial Revenue Bonds bear interest at a variable rate (2.0% at
January 1, 2005 and 1.3% at December 27, 2003), require annual principal
payments of $0.5 million on April 1, are collateralized by irrevocable letters
of credit issued under the Second Amended and Restated Credit Facility and
mature in April 2007. The remaining balance of the Nevada Industrial Revenue
Bonds of $1.5 million was repaid in January 2005 using the revolving line of
credit.
OTHER
Future maturities of long-term debt at January 1, 2005 are as follows:
----------------------------------------------------------------------
2005........................................................ $ 10,335
2006........................................................ 7,104
2007........................................................ 6,918
2008........................................................ 9,054
2009........................................................ 81,263
Thereafter.................................................. 574,008
----------------------------------------------------------------------
Interest paid was $53,393, $40,040, and $40,883, for 2004, 2003, and 2002,
respectively. Interest capitalized was $1,120, $860, and $844, for 2004, 2003,
and 2002, respectively.
NOTE 7. LEASE AND OTHER COMMITMENTS
Certain property and equipment are leased using capital and operating leases. In
2004 and 2003, Berry Plastics entered into various capital lease obligations
with no immediate cash flow
F-17
effect resulting in capitalized property and equipment of $2,101 and $1,717,
respectively. Total capitalized lease property consists of manufacturing
equipment with a cost of $35,148 and $34,465 and related accumulated
amortization of $14,353 and $9,791 at January 1, 2005 and December 27, 2003,
respectively. Capital lease amortization is included in depreciation expense.
Total rental expense from operating leases was approximately $14,879, $11,216,
and $9,761 for 2004, 2003, and 2002, respectively.
Future minimum lease payments for capital leases and noncancellable operating
leases with initial terms in excess of one year are as follows:
-----------------------------------------------------------------------------------------------
AT JANUARY 1, 2005
---------------------------------
CAPITAL LEASES OPERATING LEASES
-----------------------------------------------------------------------------------------------
2005........................................................ $ 8,397 $ 13,645
2006........................................................ 4,968 12,853
2007........................................................ 3,686 10,505
2008........................................................ 4,148 9,236
2009........................................................ 4,905 8,692
Thereafter.................................................. - 54,116
---------------------------------
26,104 $ 109,047
----------------
Less: amount representing interest.......................... (5,182)
--------------
Present value of net minimum lease payments................. $ 20,922
-----------------------------------------------------------------------------------------------
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.
The Company has various purchase commitments for raw materials, supplies and
property and equipment incidental to the ordinary conduct of business. All such
commitments are at prices at or below current market. At January 1, 2005, the
Company had committed approximately $46.5 million for resin on order that had
not yet been received and $10.0 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:
----------------------------------------------------------------------------------------------
COMPANY PREDECESSOR
--------------------------------------- -----------
YEAR ENDED YEAR ENDED PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 27, 7/22/02- 12/30/01-
2005 2003 12/28/02 7/21/02
----------------------------------------------------------------------------------------------
Domestic............................... $ 44,841 $ 29,556 $ 7,331 $ (33,415)
Foreign................................ (4,150) (4,022) (1,199) (2,035)
-----------------------------------------------------
$ 40,691 $ 25,534 $ 6,132 $ (35,450)
----------------------------------------------------------------------------------------------
F-18
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:
----------------------------------------------------------------------------------------
JANUARY 1, DECEMBER 27,
2005 2003
----------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts.......................... $ 804 $ 637
Inventory................................................ 1,409 1,390
Compensation and benefit accruals........................ 4,032 3,119
Insurance reserves....................................... 363 679
Net operating loss carryforwards......................... 24,436 29,546
Alternative minimum tax (AMT) credit carryforwards....... 3,821 3,457
Other.................................................... - 1,601
-------------------------
Total deferred tax assets............................. 34,865 40,429
Valuation allowance...................................... (1,302) (16,911)
-------------------------
Deferred tax assets, net of valuation allowance....... 33,563 23,518
Deferred tax liabilities:
Other.................................................... 382 -
Property and equipment................................... 34,211 24,239
-------------------------
Total deferred tax liabilities..................... 34,593 24,239
-------------------------
Net deferred tax liability.................................. $ (1,030) $ (721)
----------------------------------------------------------------------------------------
Income tax expense (benefit) consists of the following:
----------------------------------------------------------------------------------------------
COMPANY PREDECESSOR
--------------------------------------- -----------
YEAR ENDED YEAR ENDED PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 27, 7/22/02- 12/30/01-
2005 2003 12/28/02 7/21/02
----------------------------------------------------------------------------------------------
Current:
Federal............................. $ 363 $ 402 $ - $ -
Foreign.............................. 133 61 26 375
State............................... 472 232 217 (30)
-----------------------------------------------------
Total current.................... 968 695 243 345
Deferred:
Federal............................. 13,543 8,608 2,280 -
Foreign............................. (173) - - -
State............................... 3,402 3,183 430 -
-----------------------------------------------------
Total deferred................... 16,772 3,183 430 -
-----------------------------------------------------
Income tax expense..................... $ 17,740 $ 12,486 $ 2,953 $ 345
----------------------------------------------------------------------------------------------
F-19
Holding has unused operating loss carryforwards of approximately $61.0 million
for federal and state income tax purposes which begin to expire in 2012. AMT
credit carryforwards are available to Holding indefinitely to reduce future
years' federal income taxes. As a result of the Merger, $45.0 million of the
unused operating loss carryforward is limited to approximately $12.9 million per
year, and $16.0 million of the unused operating loss carryforward occurred
subsequent to the Merger and is not subject to an annual limitation.
Income taxes paid during 2004, 2003, and 2002 approximated $764, $484, and $531,
respectively.
A reconciliation of income tax expense (benefit), computed at the federal
statutory rate, to income tax expense (benefit), as provided for in the
financial statements, is as follows:
----------------------------------------------------------------------------------------------
COMPANY PREDECESSOR
--------------------------------------- -----------
YEAR ENDED YEAR ENDED PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 27, 7/22/02- 12/30/01-
2005 2003 12/28/02 7/21/02
----------------------------------------------------------------------------------------------
Income tax expense (benefit) computed
at statutory rate................... $ 14,244 $ 8,721 $ 2,081 $ (12,170)
State income tax expense (benefit), net
of federal taxes.................... 2,518 2,220 434 (1,035)
Expenses not deductible for income tax
purposes............................ 394 160 60 3,823
Change in valuation allowance.......... 1,288 1,285 - 9,160
Other.................................. (704) 100 378 567
-----------------------------------------------------
Income tax expense..................... $ 17,740 $ 12,486 $ 2,953 $ 345
----------------------------------------------------------------------------------------------
On October 22, 2004, the American Jobs Creation Act of 2004 (the "Act") was
signed into law. The Act creates a temporary incentive for multinational
companies to repatriate accumulated income earned outside the United States at
an effective tax rate of 5.25%. Due to the Company's current domestic and
international tax position, no material benefit is expected as a result of the
Act.
NOTE 9. EMPLOYEE RETIREMENT PLANS
Berry Plastics sponsors a defined contribution 401(k) retirement plan covering
substantially all employees. Contributions are based upon a fixed dollar amount
for employees who participate and percentages of employee contributions at
specified thresholds. Contribution expense for this plan was approximately
$2,020, $1,408, and $1,462 for 2004, 2003, and 2002, respectively. The Company
also maintains a defined benefit pension plan covering the Poly-Seal employees
under a collective bargaining agreement. At January 1, 2005 and December 27,
2003, stockholders' equity has been reduced by $462 and $550, respectively, as a
result of recording the minimum pension liability.
NOTE 10. STOCKHOLDERS' EQUITY
COMMON AND PREFERRED STOCK
On July 22, 2002, GS Berry Acquisition Corp. (the "Buyer"), a newly formed
entity controlled by various private equity funds affiliated with Goldman, Sachs
& Co., merged (the "Merger") with
F-20
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 January 1, 2005 and December 27, 2003,
the Company had $14,856 and $14,157, 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
135,873 shares are outstanding. All outstanding options under the 1996 Option
Plan are scheduled to expire on July 22, 2012 and no additional options will be
granted under it. Option agreements issued pursuant to the 1996 Option Plan
generally provide that options become vested and exercisable at a rate of 10%
per year based on continued service. Additional options also vest in years
during which certain financial targets are attained. Notwithstanding the vesting
provisions in the option agreements, all options that were scheduled to vest
prior to December 31, 2002 accelerated and became vested immediately prior to
the Merger.
Holding has adopted an employee stock option plan ("2002 Option Plan"), as
amended, pursuant to which options to acquire up to 495,073 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 optionholder'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
F-21
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:
-----------------------------------------------------------------------------------------------------------------
COMPANY COMPANY COMPANY PREDECESSOR
-------------------- -------------------- -------------------- --------------------
JANUARY 1, 2005 DECEMBER 27, 2003 DECEMBER 28, 2002 JULY 21, 2002
-------------------- -------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
-----------------------------------------------------------------------------------------------------------------
Options outstanding,
beginning of
period............. 530,662 $ 94 545,684 $ 86 48,218 $ 157 60,420 $132
Options converted..... - - - - 102,329 (107) - -
Options granted....... 65,465 120 38,713 100 395,137 100 15,345 277
Options exercised..... (1,640) 53 (9,757) 57 - - (18,134) 177
Options canceled...... (4,331) 93 (43,978) 101 - - (9,413) 389
-----------------------------------------------------------------------------------------
Options outstanding,
end of period...... 590,156 102 530,662 94 545,684 86 48,218 157
-----------------------------------------------------------------------------------------
Option price range at
end of period....... $32-$142 $32-$124 $32-$100 $100-$226
Options exercisable at
end of period...... 291,879 203,326 120,448 38,573
Options available for
grant at period
end................ 43,489 22,588 42,429 0
Weighted average fair
value of options
granted during
period............. $34 $28 $30 $30
-----------------------------------------------------------------------------------------------------------------
F-22
The following table summarizes information about the options outstanding at
January 1, 2005:
RANGE OF WEIGHTED AVERAGE NUMBER
EXERCISE NUMBER OUTSTANDING REMAINING WEIGHTED AVERAGE EXERCISABLE AT
PRICES AT JANUARY 1, 2005 CONTRACTUAL LIFE EXERCISE PRICE JANUARY 1, 2005
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
$32-$72 135,873 8 years $ 50 123,152
$100 227,040 8 years $100 76,005
$120 62,011 9 years $120 10,107
$142 165,232 8 years $142 82,615
----------------------------------------------------------------------------------------
590,156 291,879
----------------------------------------------------------------------------------------
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
Prior to the Merger, Atlantic Equity Partners International II, L.P.
("International") was our largest voting stockholder and International engaged
First Atlantic Capital, Ltd. ("First Atlantic") to provide certain financial and
management consulting services to the Company. In consideration of financial
advisory and management consulting services, the Company paid First Atlantic
fees and expenses of $385 for fiscal 2002. In consideration of services
performed in connection with the Merger, the Company paid First Atlantic fees
and expenses of $1,786 in July 2002.
In connection with the Merger, the Company paid $8.0 million to entities
affiliated with Goldman, Sachs & Co. and $5.2 million to J.P. Morgan Securities
Inc., an affiliate of J.P. Morgan Chase & Co., for advisory and other services.
Goldman Sachs and J.P. Morgan acted as joint book-running managers in the
issuance of the 2002 Notes and received fees of approximately $4.4 million and
$3.2 million, respectively, for services performed. Goldman Sachs Credit
Partners, L.P., an affiliate of Goldman Sachs, acted as the administrative
agent, joint lead arranger and joint bookrunner for the Credit Facility and
received fees of $3.6 million in July 2002 for services provided. JP Morgan
Chase Bank, an affiliate of J.P. Morgan, acted as the joint lead arranger and
joint bookrunner for the Credit Facility for consideration of approximately
$3.6. million. In October 2002, the Company entered into an interest rate collar
agreement with Goldman Sachs Capital Markets to protect $50.0 million of the
outstanding variable rate term loan debt from future interest rate volatility.
The collar floor is set at 1.97% LIBOR and capped at 6.75% LIBOR.
F-23
In connection with the Landis Acquisition, the Company paid $1.7 million to
entities affiliated with Goldman, Sachs & Co. and $0.8 million to J.P. Morgan
Securities Inc., an affiliate of J.P. Morgan Chase & Co., for advisory and other
services. Goldman Sachs and J.P. Morgan acted as joint book-running managers in
the issuance of the Add-on Notes and received fees of approximately $1.0 million
and $1.0 million, respectively, for services performed. Goldman Sachs Credit
Partners, L.P., an affiliate of Goldman Sachs, acted as the administrative
agent, joint lead arranger and joint bookrunner for the Amended and Restated
Credit Facility and received fees of $0.5 million in July 2002 for services
provided. JP Morgan Chase Bank, an affiliate of J.P. Morgan, acted as the joint
lead arranger and joint bookrunner for the Amended and Restated Credit Facility
for consideration of approximately $0.5 million.
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.
NOTE 12. FINANCIAL INSTRUMENTS
Holding's and the Company's financial instruments generally consist of cash and
cash equivalents, the investment in Southern Packaging, an interest rate hedge,
resin hedge contracts, and long-term debt. The carrying amounts of Holding's and
the Company's financial instruments approximate fair value at January 1, 2005
except for the 2002 Notes and Add-on Notes for which the fair value exceeded the
carrying value by $39.7 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. The collar is accounted for as a fair value
hedge and the gains and losses arising from the instrument are recorded
concurrently with gains and losses arising from the underlying transaction.
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. 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 will be recognized in earnings when realized as an adjustment to cost
of goods sold. The fair values of these contracts at January 1, 2005 was an
unrealized gain of $5.2 million. As the agreements were not effective until
fiscal 2005, there was no impact to the statements of operations included in
these financial statements.
F-24
NOTE 13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The accumulated balances related to each component of the other comprehensive
income (loss) consist of the following:
---------------------------------------------------------------------------------------
JANUARY 1, DECEMBER 27,
2005 2003
---------------------------------------------------------------------------------------
Currency translation........................................ $ 8,479 $ 5,736
Minimum pension liability adjustment........................ (462) (550)
Unrealized loss on interest rate collar..................... (4) (487)
Unrealized gain on resin hedge contracts.................... 5,173 -
-------------------------
$ 13,186 $ 4,699
---------------------------------------------------------------------------------------
NOTE 14. OPERATING SEGMENTS
The Company has four reportable segments: containers, closures, consumer
products, and international. In 2004, the Company created the international
segment as a separate operating and reporting segment to increase sales and
improve service to international customers utilizing existing resources. The
international segment includes the Company's foreign facilities and business
from domestic facilities that is shipped or billed to foreign locations. The
2003 and 2002 results for the foreign facilities have been reclassified to the
international segment; however, business from domestic facilities that were
shipped or billed to foreign locations cannot be separately identified for 2003
and 2002. Accordingly, the amounts disclosed under the new reporting structure
are not comparable between 2004, 2003, and 2002. As a result, the tables below
include the results under the new and previous structure.
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, (4) Merger expense, (5) non-cash
compensation, and (6) management fees and reimbursed expenses paid to First
Atlantic (collectively, "Adjusted EBITDA"). The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies.
F-25
NEW REPORTING STRUCTURE
----------------------------------------------------------------------------------------------
YEAR ENDED
----------------------------------------
COMPANY/
COMPANY COMPANY PREDECESSOR
---------- ------------ ------------
JANUARY 1, DECEMBER 27, DECEMBER 28,
2005 2003 2002
----------------------------------------------------------------------------------------------
Net sales:
Containers....................................... $ 518,303 $ 288,481 $ 250,423
Closures......................................... 127,481 125,292 113,309
Consumer Products................................ 130,361 116,098 109,988
International.................................... 38,068 22,005 20,583
----------------------------------------
Total net sales............................... 814,213 551,876 494,303
Adjusted EBITDA:
Containers....................................... 105,707 71,027 67,079
Closures......................................... 29,035 29,271 28,055
Consumer Products................................ 24,045 17,582 16,773
International.................................... 2,281 957 2,500
----------------------------------------
Total adjusted EBITDA......................... 161,068 118,837 114,407
Total assets:
Containers....................................... 597,006 605,879 359,635
Closures......................................... 169,072 191,785 191,508
Consumer Products................................ 180,531 172,079 170,979
International.................................... 58,535 46,063 38,454
----------------------------------------
Total assets.................................. 1,005,144 1,015,806 760,576
Goodwill, net:
Containers....................................... 204,575 212,394 170,892
Closures......................................... 65,009 74,997 77,889
Consumer Products................................ 72,646 78,619 78,302
International.................................... 16,653 10,759 9,177
----------------------------------------
Total goodwill, net........................... 358,883 376,769 336,260
Reconciliation of Adjusted EBITDA to income (loss)
before income taxes:
Adjusted EBITDA for reportable segments.......... $ 161,068 $ 118,837 $ 114,407
Net interest expense............................. (53,185) (45,413) (49,254)
Depreciation..................................... (54,303) (40,752) (39,557)
Amortization..................................... (6,513) (3,326) (2,408)
Gain (loss) on disposal of property and
equipment..................................... - 7 (299)
Merger expenses.................................. - - (20,987)
Loss on extinguished debt........................ - (250) (25,328)
F-26
----------------------------------------------------------------------------------------------
YEAR ENDED
----------------------------------------
COMPANY/
COMPANY COMPANY PREDECESSOR
---------- ------------ ------------
JANUARY 1, DECEMBER 27, DECEMBER 28,
2005 2003 2002
----------------------------------------------------------------------------------------------
Uncompleted acquisition expense.................. - (1,041) (216)
Acquisition integration expense.................. (3,969) (1,424) (1,353)
Plant shutdown expense........................... (1,822) (1,104) (3,992)
Non-cash compensation............................ (585) - -
Management fees.................................. - - (331)
----------------------------------------
Income (loss) before income taxes................ $ 40,691 $ 25,534 $ (29,318)
----------------------------------------------------------------------------------------------
PREVIOUS REPORTING STRUCTURE
----------------------------------------------------------------------------------------------
YEAR ENDED
----------------------------------------
COMPANY/
COMPANY COMPANY PREDECESSOR
---------- ------------ ------------
JANUARY 1, DECEMBER 27, DECEMBER 28,
2005 2003 2002
----------------------------------------------------------------------------------------------
Net sales:
Containers....................................... $ 527,703 $ 288,481 $ 250,423
Closures......................................... 154,956 147,297 133,892
Consumer Products................................ 131,554 116,098 109,988
----------------------------------------
Total net sales............................... 814,213 551,876 494,303
Adjusted EBITDA:
Containers....................................... 107,184 71,027 67,079
Closures......................................... 29,880 30,228 30,555
Consumer Products................................ 24,004 17,582 16,773
----------------------------------------
Total adjusted EBITDA......................... 161,068 118,837 114,407
Total assets:
Containers....................................... 607,480 605,879 359,635
Closures......................................... 215,552 237,848 229,962
Consumer Products................................ 182,112 172,079 170,979
----------------------------------------
Total assets.................................. 1,005,144 1,015,806 760,576
Goodwill, net:
Containers....................................... 207,293 212,394 170,892
Closures......................................... 78,375 85,756 87,066
Consumer Products................................ 73,215 78,619 78,302
----------------------------------------
Total goodwill, net........................... 358,883 376,769 336,260
F-27
----------------------------------------------------------------------------------------------
YEAR ENDED
----------------------------------------
COMPANY/
COMPANY COMPANY PREDECESSOR
---------- ------------ ------------
JANUARY 1, DECEMBER 27, DECEMBER 28,
2005 2003 2002
----------------------------------------------------------------------------------------------
Reconciliation of Adjusted EBITDA to income (loss)
before income taxes:
Adjusted EBITDA for reportable segments.......... $ 161,068 $ 118,837 $ 114,407
Net interest expense............................. (53,185) (45,413) (49,254)
Depreciation..................................... (54,303) (40,752) (39,557)
Amortization..................................... (6,513) (3,326) (2,408)
Gain (loss) on disposal of property and
equipment..................................... - 7 (299)
Merger expenses.................................. - - (20,987)
Loss on extinguished debt........................ - (250) (25,328)
Uncompleted acquisition expense.................. - (1,041) (216)
Acquisition integration expense.................. (3,969) (1,424) (1,353)
Plant shutdown expense........................... (1,822) (1,104) (3,992)
Non-cash compensation............................ (585) - -
Management fees.................................. - - (331)
----------------------------------------
Income (loss) before income taxes............. $ 40,691 $ 25,534 $ (29,318)
----------------------------------------------------------------------------------------------
F-28
NOTE 15. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (IN THOUSANDS)
Holding conducts its business through its wholly owned subsidiary, Berry.
Holding and all of Berry's domestic subsidiaries fully, jointly, severally, and
unconditionally guarantee on a senior subordinated basis the 2002 Notes and
Add-on Notes issued by Berry. Berry and all of Berry's subsidiaries are 100%
owned by Holding. Separate narrative information or financial statements of
guarantor subsidiaries have not been included as management believes they would
not be material to investors. Presented below is condensed consolidating
financial information for Holding, Berry, and its subsidiaries at January 1,
2005 and December 27, 2003 and for the fiscal years ended January 1, 2005,
December 27, 2003, and December 28, 2002. The equity method has been used with
respect to investments in subsidiaries.
-----------------------------------------------------------------------------------------------------------------------
JANUARY 1, 2005
------------------------------------------------------------------------------------------
BPC HOLDING BERRY PLASTICS COMBINED COMBINED
CORPORATION CORPORATION GUARANTOR NON-GUARANTOR CONSOLIDATING
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-----------------------------------------------------------------------------------------------------------------------
CONSOLIDATING BALANCE
SHEETS
Current assets............. $ - $ 68,449 $ 139,338 $ 12,012 $ - $ 219,799
Net property and
equipment............... - 76,555 188,841 16,576 - 281,972
Other noncurrent 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
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
DECEMBER 27, 2003
------------------------------------------------------------------------------------------
BPC HOLDING BERRY PLASTICS COMBINED COMBINED
CORPORATION CORPORATION GUARANTOR NON-GUARANTOR CONSOLIDATING
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-----------------------------------------------------------------------------------------------------------------------
CONSOLIDATING BALANCE
SHEETS
Current assets............. $ - $ 67,631 $ 121,605 $ 13,844 $ - $ 203,080
Net property and
equipment............... - 70,873 191,960 20,144 - 282,977
Other noncurrent assets.... 152,591 855,627 370,199 12,075 (860,743) 529,749
------------------------------------------------------------------------------------------
Total assets............... $ 152,591 $ 994,131 $ 683,764 $ 46,063 $ (860,743) $ 1,015,806
------------------------------------------------------------------------------------------
Current liabilities........ $ - $ 53,245 $ 53,408 $ 8,856 $ - $ 115,509
Noncurrent liabilities..... - 788,295 674,851 28,790 (744,230) 747,706
Equity (deficit)........... 152,591 152,591 (44,495) 8,417 (116,513) 152,591
------------------------------------------------------------------------------------------
Total liabilities and
equity (deficit)........ $ 152,591 $ 994,131 $ 683,764 $ 46,063 $ (860,743) $ 1,015,806
-----------------------------------------------------------------------------------------------------------------------
F-29
-----------------------------------------------------------------------------------------------------------------------
YEAR ENDED JANUARY 1, 2005 (COMPANY)
------------------------------------------------------------------------------------------
BPC HOLDING BERRY PLASTICS COMBINED COMBINED
CORPORATION CORPORATION GUARANTOR NON-GUARANTOR CONSOLIDATING
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-----------------------------------------------------------------------------------------------------------------------
CONSOLIDATING STATEMENTS OF
OPERATIONS
Net sales.................. $ - $ 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
------------------------------------------------------------------------------------------
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-30
-----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 27, 2003 (COMPANY)
------------------------------------------------------------------------------------------
BPC HOLDING BERRY PLASTICS COMBINED COMBINED
CORPORATION CORPORATION GUARANTOR NON-GUARANTOR CONSOLIDATING
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-----------------------------------------------------------------------------------------------------------------------
CONSOLIDATING STATEMENTS OF
OPERATIONS
Net sales.................. $ - $ 200,886 $ 328,984 $ 22,006 $ - $ 551,876
Cost of goods sold......... - 140,139 259,720 20,891 - 420,750
------------------------------------------------------------------------------------------
Gross profit............... - 60,747 69,264 1,115 - 131,126
Operating expenses......... (25,840) 34,536 47,545 3,695 - 59,936
------------------------------------------------------------------------------------------
Operating income (loss).... 25,840 26,211 21,719 (2,580) - 71,190
Other expenses (income).... - - (7) - - (7)
Interest expense (income),
net..................... (763) (592) 45,326 1,442 - 45,413
Loss on extinguished debt.. - 250 - - - 250
Income taxes (benefit)..... 27 12,388 10 61 - 12,486
Equity in net (income) loss
from subsidiary......... 13,528 27,693 4,083 - (45,304) -
------------------------------------------------------------------------------------------
Net income (loss).......... $ 13,048 $ (13,528) $ (27,693) $ (4,083) $ 45,304 $ 13,048
------------------------------------------------------------------------------------------
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-31
-----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 28, 2002 (COMPANY/PREDECESSOR)
------------------------------------------------------------------------------------------
BPC HOLDING BERRY PLASTICS COMBINED COMBINED
CORPORATION CORPORATION GUARANTOR NON-GUARANTOR CONSOLIDATING
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-----------------------------------------------------------------------------------------------------------------------
CONSOLIDATING STATEMENTS OF
OPERATIONS
Net sales.................. $ - $ 173,570 $ 300,149 $ 20,584 $ - $ 494,303
Cost of goods sold......... - 116,354 236,169 18,750 - 371,273
------------------------------------------------------------------------------------------
Gross profit............... - 57,216 63,980 1,834 - 123,030
Operating expenses......... 1,920 27,857 44,894 2,796 - 77,467
------------------------------------------------------------------------------------------
Operating income (loss).... (1,920) 29,359 19,086 (962) - 45,563
Other expenses............. - 145 249 (95) - 299
Interest expense, net...... 9,443 3,172 34,481 2,158 - 49,254
Loss on extinguished debt.. 9,282 6,339 9,498 209 - 25,328
Income taxes (benefit)..... (8,234) 11,016 115 401 - 3,298
Equity in net (income) loss
from subsidiary......... 20,205 28,892 3,635 - (52,732) -
------------------------------------------------------------------------------------------
Net income (loss).......... $ (32,616) $ (20,205) $ (28,892) $ (3,635) $ 52,732 $ (32,616)
------------------------------------------------------------------------------------------
CONSOLIDATING STATEMENTS OF
CASH FLOWS
Net income (loss).......... $ (32,616) $ (20,205) $ (28,892) $ (3,635) $ 52,732 $ (32,616)
Non-cash expenses.......... 11,451 23,799 36,178 3,270 - 74,698
Equity in net (income) loss
from subsidiary......... 20,205 28,892 3,635 - (52,732) -
Changes in working
capital................. (320) (6,290) (7,557) (1,275) - (15,442)
------------------------------------------------------------------------------------------
Net cash provided by (used
for) operating
activities.............. (1,280) 26,196 3,364 (1,640) - 26,640
Net cash used for investing
activities.............. - (18,023) (25,704) (1,171) - (44,898)
Net cash provided by (used
for) financing
activities.............. 841 6,863 22,194 2,483 - 32,381
Effect on exchange rate
changes on cash......... - - - 258 - 258
------------------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash
equivalents............. (439) 15,036 (146) (70) - 14,381
Cash and cash equivalents
at beginning of year.... 440 121 410 261 - 1,232
------------------------------------------------------------------------------------------
Cash and cash equivalents
at end of year.......... $ 1 $ 15,157 $ 264 $ 191 $ - $ 15,613
-----------------------------------------------------------------------------------------------------------------------
F-32
NOTE 16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table contains selected unaudited quarterly financial data for
fiscal years 2004 and 2003.
------------------------------------------------------------------------------------------------------------
2004 2003
----------------------------------------- -----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
------------------------------------------------------------------------------------------------------------
Net sales............ $191,726 $211,041 $204,803 $206,643 $125,398 $146,851 $139,306 $140,321
Cost of sales........ 148,615 164,565 160,824 165,325 94,321 112,055 106,845 107,529
-------------------------------------------------------------------------------------
Gross profit......... $ 43,111 $ 46,476 $ 43,979 $ 41,318 $ 31,077 $ 34,796 $ 32,461 $ 32,792
-------------------------------------------------------------------------------------
Net income........... $ 4,822 $ 7,391 $ 6,641 $ 4,097 $ 3,079 $ 4,542 $ 4,218 $ 1,209
------------------------------------------------------------------------------------------------------------
F-33
[Berry Logo]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table set forth the estimated expenses incurred or expected to be
incurred in connection with this registration statement and the transactions
contemplated hereby.
---------------------------------------------------------------------
ITEM AMOUNT
---------------------------------------------------------------------
SEC registration fee(1)..................................... $ (1)
Printing and engraving expenses............................. $ 5,000
Trustee fees................................................ $ 1,000
Legal fees and expenses..................................... $50,000
Accounting fees and expenses................................ $ 5,000
Miscellaneous expenses...................................... $ 1,000
---------------------------------------------------------------------
(1) Pursuant to Rule 457(q) of the Securities Act, no filing fee is required.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
We are incorporated under the laws of the State of Delaware. Section 145 of the
Delaware General Corporation Law ("DGCL") provides that a Delaware corporation
may indemnify directors and officers as well as other employees and individuals
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement in connection with specified actions, suits and proceedings,
whether civil, criminal, administrative or investigative (other than action by
or in the right of the Corporation--a "derivative action"), if they acted in
good faith an in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe their conduct was unlawful.
A similar standard is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) incurred in
connection with the defense or settlement of such action, and the statute
requires court approval before there can be any indemnification where the person
seeking indemnification has been found liable to the corporation. The statute
provides that it is not exclusive of other indemnification that may be granted
by a corporation's certificate of incorporation, bylaws, disinterested director
vote, stockholder vote, agreement, or otherwise.
The DGCL further authorizes a Delaware corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
The Company's Certificate of Incorporation and Bylaws provide for the
indemnification of the Company's directors to the fullest extent permitted under
Delaware law. The Company's Certificate of Incorporation limits the personal
liability of a director to the corporation or its stockholders to damages for
breach of the director's fiduciary duty. The Company has purchased insurance on
behalf of its directors and officers.
II-1
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the three years preceding the filing of this registration statement, the
Registrants have not sold their securities without registration under the
Securities Act of 1933, except as described below.
On July 22, 2002, in reliance on the exemptions from registration provided by
Section 4(2) and Rule 144A of the Securities Act, Berry Plastics Corporation
("Berry") issued $250,000,000 in aggregate principal amount of its 10 3/4%
Senior Subordinated Notes due 2012 (the "Notes") to Goldman, Sachs & Co., J.P.
Morgan Securities Inc., The Royal Bank of Scotland and Credit Suisse First
Boston Corporation in a private placement. On November 20, 2003, in reliance on
the exemptions from registration provided by Section 4(2) and Rule 144A of the
Securities Act, Berry issued $85,000,000 in aggregate principal amount of its
Notes to Goldman, Sachs & Co. and J.P. Morgan Securities Inc. in a private
placement.
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,
(1) each share of common stock of Holding issued and outstanding immediately
prior to the effective time of the Merger was converted into the right to
receive cash pursuant to the terms of the merger agreement, and (2) 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. Registration under the Securities Act was not required for issuances of
Holding common stock pursuant to this Merger. Since the shares were issued in a
transaction not involving a public offering, these issuances were exempt from
registration under the Securities Act pursuant to Section 4(2).
During 2002 prior to the Merger, Holding sold an aggregate of 18,134 shares of
its common stock to employees of Berry for an aggregate purchase price of
$2,122,000. During 2002 subsequent to the Merger, Holding sold an aggregate of
41,628 shares of its common stock to employees of Berry for an aggregate
purchase price of $4,163,000. During 2003, Holding sold an aggregate of 114,758
shares of its common stock to employees of Berry for an aggregate purchase price
of $11,053,000. In addition during 2003, Holding sold an aggregate of 515,000
shares of its common stock to GS Capital Partners 2000, L.P. and its affiliates
and J.P. Morgan Global Investors, L.P. and its affiliates for aggregate
consideration of $51,500,000. During 2004, Holding sold an aggregate of 1,133
shares of its common stock to employees of Berry for an aggregate purchase price
of $126,580. These issuances were exempt from registration under the Securities
Act pursuant to section 4(2) thereof because they did not involve a public
offering as the shares were offered and sold only to a small group of employees
or in private placement to qualified institutions.
No other sales of the Registrants' securities have taken place within the last
three years.
II-2
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
The following is a list of all the documents filed as part of the Registration
Statement
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
2.1 Agreement and Plan of Merger, dated as of May 25, 2002,
among GS Berry Acquisition Corp., GS Capital Partners 2000,
L.P., GS Capital Partners 2000 Offshore, L.P., GS Capital
Partners 2000 GmbH & Co. Beteiligungs KG, Bridge Street
Special Opportunities Fund 2000, L.P., GS Capital Partners
2000 Employee Fund, L.P., Stone Street Fund 2000, Holding,
the Company, the Stockholders listed on Schedule 1 attached
thereto, Atlantic Equity Partners International II, L.P.,
J.P. Morgan Partners (SBIC), LLC, BPC Equity, LLC and Ira G.
Boots (filed as Exhibit 2.1 to the Current Report on Form
8-K filed on July 31, 2002 (the "Form 8-K") and incorporated
herein by reference)
2.2 First Amendment dated as of July 17, 2002 among GS Berry
Acquisition Corp., GS Capital Partners 2000, L.P., GS
Capital Partners 2000 Offshore, L.P., GS Capital Partners
2000 GmbH & Co. Beteiligungs KG, Bridge Street Special
Opportunities Fund 2000, L.P., GS Capital Partners 2000
Employee Fund, L.P., Stone Street Fund 2000, Holding, the
Company, the Stockholders listed on Schedule 1 attached
thereto, Atlantic Equity Partners International II, L.P.,
J.P. Morgan Partners (SBIC), LLC, BPC Equity, LLC and Ira G.
Boots to the Agreement and Plan of Merger, dated as of May
25, 2002 (filed as Exhibit 2.2 to the Form 8-K and
incorporated herein by reference)
2.3 Second Amendment dated as of July 22, 2002 among GS Berry
Acquisition Corp., GS Capital Partners 2000, L.P., GS
Capital Partners 2000 Offshore, L.P., GS Capital Partners
2000 GmbH & Co. Beteiligungs KG, Bridge Street Special
Opportunities Fund 2000, L.P., GS Capital Partners 2000
Employee Fund, L.P., Stone Street Fund 2000, Holding, the
Company, the Stockholders listed on Schedule 1 attached
thereto, Atlantic Equity Partners International II, L.P.,
J.P. Morgan Partners (SBIC), LLC, BPC Equity, LLC and Ira G.
Boots to the Agreement and Plan of Merger, dated as of May
25, 2002 (filed as Exhibit 2.3 to the Form 8-K and
incorporated herein by reference)
2.4 The Agreement and Plan of Merger dated as of October 15,
2003, by and among the Company, Berry Plastics Acquisition
Corporation IV, Landis, all the shareholders of Landis, the
Real Estate Sellers (as defined therein) and Gregory J.
Landis, as the Shareholder Representative (as defined
therein) (filed as Exhibit 2.1 to the Current Report on Form
8-K filed on December 5, 2003 (the "Landis Form 8-K") and
incorporated herein by reference)
3.1 Certificate of Incorporation of the Company (filed as
Exhibit 3.3 to the Registration Statement on Form S-1 filed
on February 24, 1994 (the "Form S-1") and incorporated
herein by reference)
3.2 Bylaws of the Company (filed as Exhibit 3.4 to the Form S-1
and incorporated herein by reference)
3.3 Amended and Restated Certificate of Incorporation of BPC
Holding Corporation ("Holding") (filed as Exhibit 4.1 to the
Form S-8 filed on August 6, 2002 (the "Form S-8") and
incorporated herein by reference)
II-3
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
3.4 Amended and Restated Bylaws of Holding (filed as Exhibit 4.2
to the Form S-8 and incorporated herein by reference)
4.1 The Indenture, dated as of July 22, 2002, among Holding, the
Company, the other guarantors listed on the signature page
thereof, and U.S. Bank Trust National Association, as
trustee relating to the 10 3/4% Senior Subordinated Notes
due 2012 (filed as Exhibit 4.1 to the Form S-4 filed on
August 16, 2002 (the "2002 Form S-4") and incorporated
herein by reference)
4.2 The Registration Rights Agreement, dated November 20, 2003,
among the Company, Holding, the other guarantors listed on
the signature page thereof, and J.P. Morgan Securities Inc.,
Goldman Sachs & Co., as Initial Purchasers relating to the
10 3/4% Senior Subordinated Notes due 2012 (filed as Exhibit
4.2 to the 2004 Form S-4 filed on January 9, 2004 (the "2004
Form S-4") and incorporated herein by reference)
4.3 Supplemental Indenture, dated as of August 6, 2002, among
the Company, Holding, Berry Iowa Corporation, Packerware
Corporation, Knight Plastics, Inc., Berry Sterling
Corporation, Berry Plastic Design Corporation, Poly-Seal
Corporation, Berry Plastics Acquisitions Corporation III,
Venture Packaging, Inc., Venture Packaging Midwest, Inc.,
Berry Plastics Technical Services, Inc., CPI Holding
Corporation, Aerocon, Inc., Pescor, Inc., Berry Tri-Plas
Corporation and Cardinal Packaging, Inc., the new guarantors
listed on the signature page thereof, and U.S. Bank Trust
National Association, as trustee (filed as Exhibit 4.3 to
the 2002 Form S-4 and incorporated herein by reference)
4.4 Second Supplemental Indenture, dated as of November 20,
2003, among Landis Plastics, Inc., the Company, Holding,
Berry Iowa Corporation, Packerware Corporation, Knight
Plastics, Inc., Berry Sterling Corporation, Berry Plastic
Design Corporation, Poly-Seal Corporation, Berry Plastics
Acquisitions Corporation III, Venture Packaging, Inc.,
Venture Packaging Midwest, Inc., Berry Plastics Technical
Services, Inc., CPI Holding Corporation, Aerocon, Inc.,
Pescor, Inc., Berry Tri-Plas Corporation, Cardinal
Packaging, Inc., Berry Plastics Acquisition Corporation IV,
Berry Plastics Acquisition Corporation V, Berry Plastics
Acquisition Corporation VI, 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 XIV, LLC, Berry
Plastics Acquisition Corporation XV, LLC, and U.S. Bank
Trust National Association, as trustee (filed as Exhibit 4.4
to the 2004 Form S-4 and incorporated herein by reference)
5.1* Opinion of Fried, Frank, Harris, Shriver & Jacobson LLP as
to the legality of the securities
10.1 Stockholders Agreement dated as of July 22, 2002, among
Holding, GS Capital Partners 2000, L.P., GS Capital Partners
Offshore, L.P., GS Capital Partners 2000 GmbH & Co.
Beteiligungs KG, GS Capital Partners 2000 Employee Fund,
L.P., Stone Street Fund 2000, L.P., Bridge Street Special
Opportunities Fund 2000, L.P., Goldman Sachs Direct
Investment Fund 2000, L.P., J.P. Morgan Partners (BHCA),
L.P., J.P. Morgan Partners Global Investors, L.P., J.P.
Morgan Partners Global Investors (Cayman), L.P., J.P. Morgan
Partners Global Investors (Cayman) II, L.P. and J.P. Morgan
Partners Global Investors A, L.P. trustee (filed as Exhibit
10.1 to the 2002 Form S-4 and incorporated herein by
reference)
II-4
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.2 Stockholders Agreement dated as of July 22, 2002, among
Holding, and those stockholders listed on Schedule A
attached thereto (filed as Exhibit 4.6 to the Form S-8 and
incorporated herein by reference)
10.3 Second Amended and Restated Credit and Guaranty Agreement,
dated as of November 10, 2003, by and among the Company,
Holding, certain subsidiaries of the Company, the lenders
named therein (the "Lenders"), Goldman Sachs Credit Partners
L.P., as Administrative Agent (the "Administrative Agent"),
JPMorgan Chase Bank, as Syndication Agent (the "Syndication
Agent"), Fleet National Bank, as Collateral Agent, Issuing
Bank and Swing Line Lender (the "Collateral Agent") and The
Royal Bank of Scotland and General Electric Capital
Corporation, as Co-Documentation Agents (the
"Co-Documentation Agents") (filed as Exhibit 10.3 to the
Company's Form 10-K for the fiscal year ended January 1,
2005 (the "2004 10-K") and incorporated herein by reference)
10.4 First Amendment to the Second Amended and Restated Credit
and Guaranty Agreement dated as of January 1, 2005 (filed as
Exhibit 10.4 to the 2004 10-K and incorporated herein by
reference)
10.5 Counterpart Agreement dated as of November 20, 2003, by and
among the Company, Holding, certain subsidiaries of the
Company (including Landis), the Lenders, the Administrative
Agent, the Syndication Agent, the Collateral Agent and the
Co-Documentation Agents (filed as Exhibit 10.4 to the 2004
Form S-4 and incorporated herein by reference)
10.6 Pledge Supplement, dated as of November 20, 2003, among the
Company, the other Grantors named therein, and Fleet
National Bank, as the Collateral Agent (filed as Exhibit
10.5 to the 2004 Form S-4 and incorporated herein by
reference)
10.7 Employment Agreement dated December 24, 1990, as amended,
between the Company and R. Brent Beeler ("Beeler") (filed as
Exhibit 10.10 to the Form S-1 and incorporated herein by
reference)
10.8 Amendment to Beeler Employment Agreement dated November
30,1995 (filed as Exhibit 10.8 to the Annual report on Form
10-K filed on March 28, 1996 (the "1995 Form 10-K") and
incorporated herein by reference)
10.9 Amendment to Beeler Employment Agreement dated June 30, 1996
(filed as Exhibit 10.7 to the Registration Statement on Form
S-4 filed on July 17, 1996 (the "1996 Form S-4") and
incorporated herein by reference)
10.10 Amendment to Beeler Employment Agreement dated as of June
30, 2001 (filed as Exhibit 10.19 to the 2002 Form S-4 and
incorporated herein by reference)
10.11 Employment Agreement dated December 24, 1990 as amended,
between the Company and James M. Kratochvil ("Kratochvil")
(filed as Exhibit 10.12 to the Form S-1 and incorporated
herein by reference)
10.12 Amendment to Kratochvil Employment Agreement dated November
30, 1995 (filed as Exhibit 10.12 to the 1995 Form 10-K and
incorporated herein by reference)
10.13 Amendment to Kratochvil Employment Agreement dated June
30,1996 (filed as Exhibit 10.13 to the 1996 Form S-4 and
incorporated herein by reference)
10.14 Amendment to Kratochvil Employment Agreement dated June 30,
2001 (filed as Exhibit 10.21 to the 2002 Form S-4 and
incorporated herein by reference)
II-5
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.15 Employment Agreement dated as of January 1, 1993, between
the Company and Ira G. Boots ("Boots") (filed as Exhibit
10.13 to the Form S-1 and incorporated herein by reference)
10.16 Amendment to Boots Employment Agreement dated November
30,1995 (filed as Exhibit 10.14 to the 1995 Form 10-K and
incorporated herein by reference)
10.17 Amendment to Boots Employment Agreement dated June 30, 1996
(filed as Exhibit 10.16 to the 1996 Form S-4 and
incorporated herein by reference)
10.18 Amendment to Boots Employment Agreement dated June 30, 2001
(filed as Exhibit 10.20 to the 2002 Form S-4 and
incorporated herein by reference)
10.19 Financing Agreement dated as of April 1, 1991, between the
City of Henderson, Nevada Public Improvement Trust and the
Company (including exhibits) (filed as Exhibit 10.17 to the
Form S-1 and incorporated herein by reference)
10.20 Employment Agreement dated as of August 14, 2000, between
the Company and William J. Herdrich (filed as Exhibit 10.15
to the 2002 Form S-4 and incorporated herein by reference)
10.21 Amendment to Herdrich Employment Agreement dated December
31, 2003
10.22 Employment Agreement dated as of February 16, 2004, between
the Company and Greg Landis (filed as Exhibit 10.20 to the
Registration Statement on Form S-1 filed on February 24,
1994 (the "2004 Form S-1") and incorporated herein by
reference)
10.23 Amended and Restated Holding 2002 Stock Option Plan dated
March 3, 2004 (filed as Exhibit 10.21 to the 2004 Form S-1
and incorporated herein by reference)
10.24 Amendment to Amended and Restated Holding 2002 Stock Option
Plan (filed as Exhibit 10.24 to the 2004 10-K and
incorporated herein by reference)
10.25 Holding Key Employee Equity Investment Program dated August
5, 2002 (filed as Exhibit 4.6 to the Form S-8 and
incorporated herein by reference)
12.1 Ratio of earnings to fixed charges (filed as Exhibit 12.1 to
the 2004 10-K and incorporated herein by reference)
21.1 List of Subsidiaries (filed as Exhibit 21.1 to the 2004 10-K
and incorporated herein by reference)
23.1* Consent of Fried, Frank, Harris, Shriver & Jacobson LLP
(included in Exhibit 5.1)
23.2* Consent of Ernst & Young LLP
24.1 Powers of Attorney (included in the signature pages to this
Registration Statement)
25.1 Statement of Eligibility and Qualification of Trustee on
Form T-1 of U.S. Bank Trust National Association under the
Trust Indenture Act of 1939 (filed as Exhibit 25.1 to the
2004 Form S-4 and incorporated herein by reference)
---------------
* Filed herewith.
(B) FINANCIAL STATEMENT SCHEDULE:
None.
II-6
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement.
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) that, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(3) to remove from registration means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering;
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer of controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, Berry
Plastics Corporation has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Evansville, State of Indiana on April 4, 2005.
Berry Plastics Corporation
By: /s/ JAMES M. KRATOCHVIL
------------------------------------
James M. Kratochvil
Executive Vice President, Chief
Financial
Officer, Treasurer and Secretary
The undersigned directors and officers of Berry Plastics Corporation hereby
constitute and appoint James M. Kratochvil and Ira G. Boots and each of them
with full power to act without the other and with full power of substitution and
resubstitution, our true and lawful attorneys-in-fact with full power to execute
in our name and behalf in the capacities indicated below this Registration
Statement on Form S-1 and any and all amendments thereto, including
post-effective amendments to this Registration Statement and to sign any and all
additional registration statements relating to the same offering of securities
as this Registration Statement that are filed pursuant to Rule 462(b) of the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission and hereby ratify and confirm that all such attorneys-in-
fact, or any of them, or their substitutes shall lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 4, 2005:
SIGNATURE TITLE
--------- -----
/s/ IRA G. BOOTS President, Chief Executive Officer, and
----------------------------------------------------- Director (Principal Executive Officer)
IRA G. BOOTS
/s/ JAMES M. KRATOCHVIL Executive Vice President, Chief Financial
----------------------------------------------------- Officer, Treasurer and Secretary (Principal
JAMES M. KRATOCHVIL Financial Officer)
/s/ JOSEPH GLEBERMAN Chairman of the Board
-----------------------------------------------------
JOSEPH GLEBERMAN
/s/ CHRISTOPHER C. BEHRENS Director
-----------------------------------------------------
CHRISTOPHER C. BEHRENS
II-8
SIGNATURE TITLE
--------- -----
/s/ TERRY R. PEETS Director
-----------------------------------------------------
TERRY R. PEETS
/s/ STEPHEN S. TREVOR Director
-----------------------------------------------------
STEPHEN S. TREVOR
/s/ MATHEW J. LORI Director
-----------------------------------------------------
MATHEW J. LORI
/s/ GREGORY J. LANDIS Director
-----------------------------------------------------
GREGORY J. LANDIS
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, BPC
Holding Corporation has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Evansville, State of Indiana on April 4, 2005.
BPC Holding Corporation
By: /s/ JAMES M. KRATOCHVIL
------------------------------------
James M. Kratochvil
Executive Vice President, Chief
Financial
Officer, Treasurer and Secretary
The undersigned directors and officers of BPC Holding Corporation hereby
constitute and appoint James M. Kratochvil and Ira G. Boots and each of them
with full power to act without the other and with full power of substitution and
resubstitution, our true and lawful attorneys-in-fact with full power to execute
in our name and behalf in the capacities indicated below this Registration
Statement on Form S-1 and any and all amendments thereto, including
post-effective amendments to this Registration Statement and to sign any and all
additional registration statements relating to the same offering of securities
as this Registration Statement that are filed pursuant to Rule 462(b) of the
Securities Act of 1933, as amended, and file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission and hereby ratify and confirm that all such attorneys-in-fact, or any
of them, or their substitutes shall lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 4, 2005:
SIGNATURE TITLE
--------- -----
/s/ IRA G. BOOTS President, Chief Executive Officer and
----------------------------------------------------- Director (Principal Executive Officer)
IRA G. BOOTS
/s/ JAMES M. KRATOCHVIL Executive Vice President, Chief Financial
----------------------------------------------------- Officer, Treasurer and Secretary (Principal
JAMES M. KRATOCHVIL Financial Officer)
/s/ JOSEPH GLEBERMAN Chairman of the Board
-----------------------------------------------------
JOSEPH GLEBERMAN
/s/ CHRISTOPHER C. BEHRENS Director
-----------------------------------------------------
CHRISTOPHER C. BEHRENS
II-10
SIGNATURE TITLE
--------- -----
/s/ TERRY R. PEETS Director
-----------------------------------------------------
TERRY R. PEETS
/s/ STEPHEN S. TREVOR Director
-----------------------------------------------------
STEPHEN S. TREVOR
/s/ MATHEW J. LORI Director
-----------------------------------------------------
MATHEW J. LORI
/s/ GREGORY J. LANDIS Director
-----------------------------------------------------
GREGORY J. LANDIS
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, Berry
Iowa Corporation, Packerware Corporation, Berry Sterling Corporation, Berry
Plastics Design Corporation, Venture Packaging, Inc., Venture Packaging Midwest,
Inc., Berry Plastics Technical Services, Inc., Cardinal Packaging, Inc., and
Pescor, Inc., each has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Evansville, State of Indiana on April 4, 2005.
BERRY IOWA CORPORATION
PACKERWARE CORPORATION
BERRY STERLING CORPORATION
BERRY PLASTICS DESIGN CORPORATION
VENTURE PACKAGING, INC.
VENTURE PACKAGING MIDWEST, INC.
BERRY PLASTICS TECHNICAL SERVICES, INC.
CARDINAL PACKAGING, INC.
PESCOR, INC.
By: /s/ JAMES M. KRATOCHVIL
-------------------------------------
James M. Kratochvil
Executive Vice President
Chief Financial Officer,
Treasurer and Secretary
The undersigned directors and officers of Berry Iowa Corporation, Packerware
Corporation, Berry Sterling Corporation, Berry Plastics Design Corporation,
Venture Packaging, Inc., Venture Packaging Midwest, Inc., Berry Plastics
Technical Services, Inc., Cardinal Packaging, Inc., and Pescor, Inc. constitute
and appoint James M. Kratochvil and Ira G. Boots and each of them with full
power to act without the other and with full power of substitution and
resubstitution, our true and lawful attorneys-in-fact with full power to execute
in our name and behalf in the capacities indicated below this Registration
Statement on Form S-1 and any and all amendments thereto, including
post-effective amendments to this Registration Statement and to sign any and all
additional registration statements relating to the same offering of securities
as this Registration Statement that are filed pursuant to Rule 462(b) of the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission and hereby ratify and confirm that all such
attorneys-in-fact, or any of them, or their or their substitutes shall lawfully
do or cause to be done by virtue hereof.
II-12
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 4, 2005:
SIGNATURE TITLE
--------- -----
/s/ IRA G. BOOTS President, Chief Executive Officer and
----------------------------------------------------- Director (Principal Executive Officer)
IRA G. BOOTS
/s/ JAMES M. KRATOCHVIL Executive Vice President, Chief Financial
----------------------------------------------------- Officer, Treasurer, Secretary and Director
JAMES M. KRATOCHVIL (Principal Financial Officer)
/s/ R. BRENT BEELER Director
-----------------------------------------------------
R. BRENT BEELER
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, Aero
Con, Inc., and Berry Plastics Acquisition Corporation III, each has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Evansville, State of Indiana on April
4, 2005.
AERO CON, INC.
BERRY PLASTICS ACQUISITION CORPORATION
III
BY: /s/ JAMES M. KRATOCHVIL
-------------------------------------
James M. Kratochvil
Executive Vice President
Chief Financial Officer,
Treasurer and Secretary
The undersigned directors and officers of Aero Con, Inc. and Berry Plastics
Acquisition Corporation III constitute and appoint James M. Kratochvil and Ira
G. Boots and each of them with full power to act without the other and with full
power of substitution and resubstitution, our true and lawful attorneys-in-fact
with full power to execute in our name and behalf in the capacities indicated
below this Registration Statement on Form S-1 and any and all amendments
thereto, including post-effective amendments to this Registration Statement and
to sign any and all additional registration statements relating to the same
offering of securities as this Registration Statement that are filed pursuant to
Rule 462(b) of the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission and hereby ratify and confirm that all such
attorneys-in-fact, or any of them, or their or their substitutes shall lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 4, 2005:
SIGNATURE TITLE
--------- -----
/s/ IRA G. BOOTS President, Chief Executive Officer and
----------------------------------------------------- Director (Principal Executive Officer)
IRA G. BOOTS
/s/ JAMES M. KRATOCHVIL Executive Vice President, Chief Financial
----------------------------------------------------- Officer, Treasurer, Secretary and Director
JAMES M. KRATOCHVIL (Principal Financial Officer)
/s/ MARK MILES Director
-----------------------------------------------------
MARK MILES
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, Knight
Plastics Inc., Poly-Seal Corporation, and CPI Holding Corporation each has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Evansville, State of
Indiana on April 4, 2005.
KNIGHT PLASTICS, INC.
POLY-SEAL CORPORATION
CPI HOLDING CORPORATION
By: /s/ JAMES M. KRATOCHVIL
-------------------------------------
James M. Kratochvil
Executive Vice President
Chief Financial Officer,
Treasurer and Secretary
The undersigned directors and officers of Knight Plastics, Inc., Poly-Seal
Corporation, and CPI Holding Corporation constitute and appoint James M.
Kratochvil and Ira G. Boots and each of them with full power to act without the
other and with full power of substitution and resubstitution, our true and
lawful attorneys-in-fact with full power to execute in our name and behalf in
the capacities indicated below this Registration Statement on Form S-1 and any
and all amendments thereto, including post-effective amendments to this
Registration Statement and to sign any and all additional registration
statements relating to the same offering of securities as this Registration
Statement that are filed pursuant to Rule 462(b) of the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission and hereby
ratify and confirm that all such attorneys-in-fact, or any of them, or their or
their substitutes shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 4, 2005:
SIGNATURE TITLE
--------- -----
/s/ IRA G. BOOTS President, Chief Executive Officer and
----------------------------------------------------- Director (Principal Executive Officer)
IRA G. BOOTS
/s/ JAMES M. KRATOCHVIL Executive Vice President, Chief Financial
----------------------------------------------------- Officer, Treasurer, Secretary and Director
JAMES M. KRATOCHVIL (Principal Financial Officer)
/s/ WILLIAM HERDRICH Director
-----------------------------------------------------
WILLIAM HERDRICH
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, Landis
Plastics, Inc. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Evansville,
State of Indiana on April 4, 2005.
LANDIS PLASTICS, INC.
By: /s/ JAMES M. KRATOCHVIL
-------------------------------------
James M. Kratochvil
Executive Vice President
Chief Financial Officer,
Treasurer and Secretary
The undersigned directors and officers of Landis Plastics, Inc. constitute and
appoint James M. Kratochvil and Ira G. Boots and each of them with full power to
act without the other and with full power of substitution and resubstitution,
our true and lawful attorneys-in-fact with full power to execute in our name and
behalf in the capacities indicated below this Registration Statement on Form S-1
and any and all amendments thereto, including post-effective amendments to this
Registration Statement and to sign any and all additional registration
statements relating to the same offering of securities as this Registration
Statement that are filed pursuant to Rule 462(b) of the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission and hereby
ratify and confirm that all such attorneys-in-fact, or any of them, or their or
their substitutes shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 4, 2005.
SIGNATURE TITLE
--------- -----
/s/ IRA G. BOOTS Chief Executive Officer, Director and Chairman
----------------------------------------------------- of the Board (Principal Executive Officer)
IRA G. BOOTS
/s/ JAMES M. KRATOCHVIL Executive Vice President, Chief Financial
----------------------------------------------------- Officer, Treasurer, Secretary and Director
JAMES M. KRATOCHVIL (Principal Financial Officer)
/s/ R. BRENT BEELER Director
-----------------------------------------------------
R. BRENT BEELER
/s/ GREGORY J. LANDIS President and Director
-----------------------------------------------------
GREGORY J. LANDIS
/s/ BRETT BAUER Director
-----------------------------------------------------
BRETT BAUER
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, Berry
Plastics Acquisition Corporation V, Berry Plastics Acquisition Corporation VI,
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, and Berry Plastics Acquisition Corporation
XIII, each has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Evansville,
State of Indiana on April 4, 2005.
Berry Plastics Acquisition Corporation V
Berry Plastics Acquisition Corporation
VI
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
By: /s/ JAMES M. KRATOCHVIL
-------------------------------------
James M. Kratochvil
Executive Vice President
Chief Financial Officer,
Treasurer and Secretary
The undersigned directors and officers of Berry Plastics Acquisition Corporation
V, Berry Plastics Acquisition Corporation VI, 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,
and Berry Plastics Acquisition Corporation XIII constitute and appoint James M.
Kratochvil and Ira G. Boots and each of them with full power to act without the
other and with full power of substitution and resubstitution, our true and
lawful attorneys-in-fact with full power to execute in our name and behalf in
the capacities indicated below this Registration Statement on Form S-1 and any
and all amendments thereto, including post-effective amendments to this
Registration Statement and to sign any and all additional registration
statements relating to the same offering of securities as this Registration
Statement that are filed pursuant to Rule 462(b) of the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission and hereby
ratify and confirm that all such attorneys-in-fact, or any of them, or their or
their substitutes shall lawfully do or cause to be done by virtue hereof.
II-17
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 4, 2005:
SIGNATURE TITLE
--------- -----
/s/ IRA G. BOOTS President, Chief Executive Officer and
----------------------------------------------------- Director (Principal Executive Officer)
IRA G. BOOTS
/s/ JAMES M. KRATOCHVIL Executive Vice President, Chief Financial
----------------------------------------------------- Officer, Treasurer, Secretary and Director
JAMES M. KRATOCHVIL (Principal Financial Officer)
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, Berry
Plastics Acquisition Corporation XIV, LLC, and Berry Plastics Acquisition
Corporation XV, LLC, each has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Evansville, State of Indiana on April 4, 2005.
BERRY PLASTICS ACQUISITION
CORPORATION XIV, LLC
BERRY PLASTICS ACQUISITION
CORPORATION XV, LLC
By: /s/ JAMES M. KRATOCHVIL
-------------------------------------
James M. Kratochvil
Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary
The undersigned managers and officers of Berry Plastics Acquisition Corporation
XIV, LLC, and Berry Plastics Acquisition Corporation XV, LLC constitute and
appoint James M. Kratochvil and Ira G. Boots and each of them with full power to
act without the other and with full power of substitution and resubstitution,
our true and lawful attorneys-in-fact with full power to execute in our name and
behalf in the capacities indicated below this Registration Statement on Form S-1
and an all amendments thereto, including post-effective amendments to this
Registration Statement and to sign any and all additional registration
statements relating to the same offering of securities as this Registration
Statement that are filed pursuant to Rule 462(b) of the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission and hereby
ratify and confirm that all such attorneys-in-fact, or any of them, or their or
their substitutes shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 4, 2005:
SIGNATURE TITLE
--------- -----
/s/ IRA G. BOOTS President, Chief Executive Officer, and
----------------------------------------------------- Manager (Principal Executive Officer)
IRA G. BOOTS
/s/ JAMES M. KRATOCHVIL Executive Vice President, Chief Financial
----------------------------------------------------- Officer, Treasurer, Secretary and Manager
JAMES M. KRATOCHVIL (Principal Financial Officer)
II-19
EXHIBIT INDEX
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
2.1 Agreement and Plan of Merger, dated as of May 25, 2002,
among GS Berry Acquisition Corp., GS Capital Partners 2000,
L.P., GS Capital Partners 2000 Offshore, L.P., GS Capital
Partners 2000 GmbH & Co. BeteiligunGS KG, Bridge Street
Special Opportunities Fund 2000, L.P., GS Capital Partners
2000 Employee Fund, L.P., Stone Street Fund 2000, Holding,
the Company, the Stockholders listed on Schedule 1 attached
thereto, Atlantic Equity Partners International II, L.P.,
J.P. Morgan Partners (SBIC), LLC, BPC Equity, LLC and Ira G.
Boots (filed as Exhibit 2.1 to the Current Report on Form
8-K filed on July 31, 2002 (the "Form 8-K") and incorporated
herein by reference)
2.2 First Amendment dated as of July 17, 2002 among GS Berry
Acquisition Corp., GS Capital Partners 2000, L.P., GS
Capital Partners 2000 Offshore, L.P., GS Capital Partners
2000 GmbH & Co. BeteiligunGS KG, Bridge Street Special
Opportunities Fund 2000, L.P., GS Capital Partners 2000
Employee Fund, L.P., Stone Street Fund 2000, Holding, the
Company, the Stockholders listed on Schedule 1 attached
thereto, Atlantic Equity Partners International II, L.P.,
J.P. Morgan Partners (SBIC), LLC, BPC Equity, LLC and Ira G.
Boots to the Agreement and Plan of Merger, dated as of May
25, 2002 (filed as Exhibit 2.2 to the Form 8-K and
incorporated herein by reference)
2.3 Second Amendment dated as of July 22, 2002 among GS Berry
Acquisition Corp., GS Capital Partners 2000, L.P., GS
Capital Partners 2000 Offshore, L.P., GS Capital Partners
2000 GmbH & Co. BeteiligunGS KG, Bridge Street Special
Opportunities Fund 2000, L.P., GS Capital Partners 2000
Employee Fund, L.P., Stone Street Fund 2000, Holding, the
Company, the Stockholders listed on Schedule 1 attached
thereto, Atlantic Equity Partners International II, L.P.,
J.P. Morgan Partners (SBIC), LLC, BPC Equity, LLC and Ira G.
Boots to the Agreement and Plan of Merger, dated as of May
25, 2002 (filed as Exhibit 2.3 to the Form 8-K and
incorporated herein by reference)
2.4 The Agreement and Plan of Merger dated as of October 15,
2003, by and among the Company, Berry Plastics Acquisition
Corporation IV, Landis, all the shareholders of Landis, the
Real Estate Sellers (as defined therein) and Gregory J.
Landis, as the Shareholder Representative (as defined
therein) (filed as Exhibit 2.1 to the Current Report on Form
8-K filed on December 5, 2003 (the "Landis Form 8-K") and
incorporated herein by reference)
3.1 Certificate of Incorporation of the Company (filed as
Exhibit 3.3 to the Registration Statement on Form S-1 filed
on February 24, 1994 (the "Form S-1") and incorporated
herein by reference)
3.2 Bylaws of the Company (filed as Exhibit 3.4 to the Form S-1
and incorporated herein by reference)
3.3 Amended and Restated Certificate of Incorporation of BPC
Holding Corporation ("Holding") (filed as Exhibit 4.1 to the
Form S-8 filed on August 6, 2002 (the "Form S-8") and
incorporated herein by reference)
3.4 Amended and Restated Bylaws of Holding (filed as Exhibit 4.2
to the Form S-8 and incorporated herein by reference)
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
4.1 The Indenture, dated as of July 22, 2002, among Holding, the
Company, the other guarantors listed on the signature page
thereof, and U.S. Bank Trust National Association, as
trustee relating to the 10 3/4% Senior Subordinated Notes
due 2012 (filed as Exhibit 4.1 to the Form S-4 filed on
August 16, 2002 (the "2002 Form S-4") and incorporated
herein by reference)
4.2 The Registration Rights Agreement, dated November 20, 2003,
among the Company, Holding, the other guarantors listed on
the signature page thereof, and J.P. Morgan Securities Inc.,
Goldman Sachs & Co., as Initial Purchasers relating to the
10 3/4% Senior Subordinated Notes due 2012 (filed as Exhibit
4.2 to the 2004 Form S-4 filed on January 9, 2004 (the "2004
Form S-4") and incorporated herein by reference)
4.3 Supplemental Indenture, dated as of August 6, 2002, among
the Company, Holding, Berry Iowa Corporation, Packerware
Corporation, Knight Plastics, Inc., Berry Sterling
Corporation, Berry Plastic Design Corporation, Poly-Seal
Corporation, Berry Plastics Acquisitions Corporation III,
Venture Packaging, Inc., Venture Packaging Midwest, Inc.,
Berry Plastics Technical Services, Inc., CPI Holding
Corporation, Aerocon, Inc., Pescor, Inc., Berry Tri-Plas
Corporation and Cardinal Packaging, Inc., the new guarantors
listed on the signature page thereof, and U.S. Bank Trust
National Association, as trustee (filed as Exhibit 4.3 to
the 2002 Form S-4 and incorporated herein by reference)
4.4 Second Supplemental Indenture, dated as of November 20,
2003, among Landis Plastics, Inc., the Company, Holding,
Berry Iowa Corporation, Packerware Corporation, Knight
Plastics, Inc., Berry Sterling Corporation, Berry Plastic
Design Corporation, Poly-Seal Corporation, Berry Plastics
Acquisitions Corporation III, Venture Packaging, Inc.,
Venture Packaging Midwest, Inc., Berry Plastics Technical
Services, Inc., CPI Holding Corporation, Aerocon, Inc.,
Pescor, Inc., Berry Tri-Plas Corporation, Cardinal
Packaging, Inc., Berry Plastics Acquisition Corporation IV,
Berry Plastics Acquisition Corporation V, Berry Plastics
Acquisition Corporation VI, 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 XIV, LLC, Berry
Plastics Acquisition Corporation XV, LLC, and U.S. Bank
Trust National Association, as trustee (filed as Exhibit 4.4
to the 2004 Form S-4 and incorporated herein by reference)
5.1* Opinion of Fried, Frank, Harris, Shriver & Jacobson LLP as
to the legality of the securities
10.1 Stockholders Agreement dated as of July 22, 2002, among
Holding, GS Capital Partners 2000, L.P., GS Capital Partners
Offshore, L.P., GS Capital Partners 2000 GmbH & Co.
BeteiligunGS KG, GS Capital Partners 2000 Employee Fund,
L.P., Stone Street Fund 2000, L.P., Bridge Street Special
Opportunities Fund 2000, L.P., Goldman Sachs Direct
Investment Fund 2000, L.P., J.P. Morgan Partners (BHCA),
L.P., J.P. Morgan Partners Global Investors, L.P., J.P.
Morgan Partners Global Investors (Cayman), L.P., J.P. Morgan
Partners Global Investors (Cayman) II, L.P. and J.P. Morgan
Partners Global Investors A, L.P. trustee (filed as Exhibit
10.1 to the 2002 Form S-4 and incorporated herein by
reference)
10.2 Stockholders Agreement dated as of July 22, 2002, among
Holding, and those stockholders listed on Schedule A
attached thereto (filed as Exhibit 4.6 to the Form S-8 and
incorporated herein by reference)
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.3 Second Amended and Restated Credit and Guaranty Agreement,
dated as of November 10, 2003, by and among the Company,
Holding, certain subsidiaries of the Company, the lenders
named therein (the "Lenders"), Goldman Sachs Credit Partners
L.P., as Administrative Agent (the "Administrative Agent"),
JPMorgan Chase Bank, as Syndication Agent (the "Syndication
Agent"), Fleet National Bank, as Collateral Agent, Issuing
Bank and Swing Line Lender (the "Collateral Agent") and The
Royal Bank of Scotland and General Electric Capital
Corporation, as Co-Documentation Agents (the
"Co-Documentation Agents") (filed as Exhibit 10.3 to the
Company's Form 10-K for the fiscal year ended January 1,
2005 (the "2004 10-K") and incorporated herein by reference)
10.4 First Amendment to the Second Amended and Restated Credit
and Guaranty Agreement dated as of January 1, 2005 (filed as
Exhibit 10.4 to the 2004 10-K and incorporated herein by
reference)
10.5 Counterpart Agreement dated as of November 20, 2003, by and
among the Company, Holding, certain subsidiaries of the
Company (including Landis), the Lenders, the Administrative
Agent, the Syndication Agent, the Collateral Agent and the
Co-Documentation Agents (filed as Exhibit 10.4 to the 2004
Form S-4 and incorporated herein by reference)
10.6 Pledge Supplement, dated as of November 20, 2003, among the
Company, the other Grantors named therein, and Fleet
National Bank, as the Collateral Agent (filed as Exhibit
10.5 to the 2004 Form S-4 and incorporated herein by
reference)
10.7 Employment Agreement dated December 24, 1990, as amended,
between the Company and R. Brent Beeler ("Beeler") (filed as
Exhibit 10.10 to the Form S-1 and incorporated herein by
reference)
10.8 Amendment to Beeler Employment Agreement dated November
30,1995 (filed as Exhibit 10.8 to the Annual report on Form
10-K filed on March 28, 1996 (the "1995 Form 10-K") and
incorporated herein by reference)
10.9 Amendment to Beeler Employment Agreement dated June 30, 1996
(filed as Exhibit 10.7 to the Registration Statement on Form
S-4 filed on July 17, 1996 (the "1996 Form S-4") and
incorporated herein by reference)
10.10 Amendment to Beeler Employment Agreement dated as of June
30, 2001 (filed as Exhibit 10.19 to the 2002 Form S-4 and
incorporated herein by reference)
10.11 Employment Agreement dated December 24, 1990 as amended,
between the Company and James M. Kratochvil ("Kratochvil")
(filed as Exhibit 10.12 to the Form S-1 and incorporated
herein by reference)
10.12 Amendment to Kratochvil Employment Agreement dated November
30, 1995 (filed as Exhibit 10.12 to the 1995 Form 10-K and
incorporated herein by reference)
10.13 Amendment to Kratochvil Employment Agreement dated June
30,1996 (filed as Exhibit 10.13 to the 1996 Form S-4 and
incorporated herein by reference)
10.14 Amendment to Kratochvil Employment Agreement dated June 30,
2001 (filed as Exhibit 10.21 to the 2002 Form S-4 and
incorporated herein by reference)
10.15 Employment Agreement dated as of January 1, 1993, between
the Company and Ira G. Boots ("Boots") (filed as Exhibit
10.13 to the Form S-1 and incorporated herein by reference)
10.16 Amendment to Boots Employment Agreement dated November
30,1995 (filed as Exhibit 10.14 to the 1995 Form 10-K and
incorporated herein by reference)
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.17 Amendment to Boots Employment Agreement dated June 30, 1996
(filed as Exhibit 10.16 to the 1996 Form S-4 and
incorporated herein by reference)
10.18 Amendment to Boots Employment Agreement dated June 30, 2001
(filed as Exhibit 10.20 to the 2002 Form S-4 and
incorporated herein by reference)
10.19 Financing Agreement dated as of April 1, 1991, between the
City of Henderson, Nevada Public Improvement Trust and the
Company (including exhibits) (filed as Exhibit 10.17 to the
Form S-1 and incorporated herein by reference)
10.20 Employment Agreement dated as of August 14, 2000, between
the Company and William J. Herdrich (filed as Exhibit 10.15
to the 2002 Form S-4 and incorporated herein by reference)
10.21 Amendment to Herdrich Employment Agreement dated December
31, 2003
10.22 Employment Agreement dated as of February 16, 2004, between
the Company and Greg Landis (filed as Exhibit 10.20 to the
Registration Statement on Form S-1 filed on February 24,
1994 (the "2004 Form S-1") and incorporated herein by
reference)
10.23 Amended and Restated Holding 2002 Stock Option Plan dated
March 3, 2004 (filed as Exhibit 10.21 to the 2004 Form S-1
and incorporated herein by reference)
10.24 Amendment to Amended and Restated Holding 2002 Stock Option
Plan (filed as Exhibit 10.24 to the 2004 10-K and
incorporated herein by reference)
10.25 Holding Key Employee Equity Investment Program dated August
5, 2002 (filed as Exhibit 4.6 to the Form S-8 and
incorporated herein by reference)
12.1 Ratio of earnings to fixed charges (filed as Exhibit 12.1 to
the 2004 10-K and incorporated herein by reference)
21.1 List of Subsidiaries (filed as Exhibit 21.1 to the 2004 10-K
and incorporated herein by reference)
23.1* Consent of Fried, Frank, Harris, Shriver & Jacobson LLP
(included in Exhibit 5.1)
23.2* Consent of Ernst & Young LLP
24.1 Powers of Attorney (included in the signature pages to this
Registration Statement)
25.1 Statement of Eligibility and Qualification of Trustee on
Form T-1 of U.S. Bank Trust National Association under the
Trust Indenture Act of 1939 (filed as Exhibit 25.1 to the
2004 Form S-4 and incorporated herein by reference)
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* Filed herewith.